10-QPeriod: Q2 FY2003

Seagate Technology Holdings plc Quarterly Report for Q2 Ended Dec 27, 2002

Filed February 10, 2003For Securities:STX

Summary

Seagate Technology Holdings plc (STX) reported strong financial results for the quarter ended December 27, 2002. The company saw a significant increase in revenue, driven by a rise in rigid disc drive shipments, particularly in the personal storage segment, boosted by seasonal factors like demand for Microsoft's Xbox. Gross margins improved year-over-year and sequentially, attributed to a more stable pricing environment for personal storage products and a favorable product mix, including higher sales of 7,200 RPM drives and newer products with improved cost structures. The company also completed its initial public offering (IPO) on December 13, 2002, raising approximately $270 million in net proceeds. Prior to the IPO, Seagate paid a return of capital distribution of $262 million. The company continued its restructuring efforts, aiming to align workforce and manufacturing capacity with market demands, which is expected to reduce annual salary expenses. Management anticipates continued unit shipments for the next quarter, with a focus on volume production of new personal storage products.

Key Highlights

  • 1Revenue increased by 6% to $1.734 billion year-over-year, driven by a 25% increase in rigid disc drive shipments.
  • 2Gross margin improved to 28% of revenue, up from 27% in the prior year's quarter, benefiting from a stable pricing environment and a better product mix.
  • 3Net income for the quarter was $198 million, a significant increase from $124 million in the prior year's quarter, resulting in diluted EPS of $0.43.
  • 4The company successfully completed its initial public offering on December 13, 2002, raising $270 million in net proceeds.
  • 5Seagate initiated a fiscal year 2003 restructuring plan targeting approximately 3,750 employees, expected to reduce annual salary expenses by $17 million.
  • 6Cash and cash equivalents, including short-term investments, increased to $974 million, providing strong liquidity.

Frequently Asked Questions

The primary driver of Seagate's revenue growth was a significant increase in rigid disc drive shipments. Specifically, shipments rose from 14.6 million units in the second quarter of fiscal year 2002 to 18.3 million units in the quarter ended December 27, 2002. Demand for personal storage products was particularly strong due to seasonal factors, including demand for Microsoft's Xbox.

Seagate's gross margin improved to 28% of revenue for the quarter ended December 27, 2002, compared to 27% in the prior year's quarter. This improvement was mainly due to a more stable pricing environment for personal storage products and an improved product mix, which included a higher proportion of 7,200 RPM personal storage products and newer products with better cost structures. Additionally, improved absorption of fixed costs contributed to the margin expansion.

The most significant corporate action was the completion of Seagate's initial public offering (IPO) on December 13, 2002, which raised approximately $270 million in net proceeds. Additionally, immediately prior to the IPO closing, the company paid a return of capital distribution of $262 million to its shareholders. The company also continued its restructuring efforts, initiated a fiscal year 2003 restructuring plan aimed at aligning its workforce and manufacturing capacity, and sold its XIOtech Corporation subsidiary on November 4, 2002.

Management anticipates that unit shipments for the third quarter of fiscal year 2003 are expected to be seasonally down, projected to be in the range of 16 to 16.5 million units. The company also expects to achieve volume production of its 80GB U-Series IX and Barracuda ATA VI personal storage products in the upcoming fiscal quarter.