10-QPeriod: Q3 FY2013

Seagate Technology Holdings plc Quarterly Report for Q3 Ended Mar 29, 2013

Filed May 2, 2013For Securities:STX

Summary

Seagate Technology plc's (STX) 10-Q filing for the period ending March 29, 2013, reveals a significant decrease in revenue for the quarter compared to the prior year, primarily due to a normalization of average selling prices (ASPs) after the Thailand flood-related supply constraints in the previous year. While unit shipments also saw a slight decline, the company managed to maintain its gross margin percentage sequentially, though it was lower year-over-year. The company demonstrated strong operational cash flow generation. However, significant cash outflows were directed towards share repurchases and debt redemptions, indicating a focus on capital return to shareholders and deleveraging. The balance sheet shows a reduction in cash and equivalents and overall assets, reflecting these cash uses. The acquisition of LaCie S.A. is ongoing, with the company increasing its ownership stake. Despite the revenue dip, the company remains focused on product development and has seen increased R&D spending.

Financial Highlights

55 data points
Beta

Revenue

$3.53B

26.9% Gross Margin

Net Income

$416.00M

11.8% Net Margin

EPS (Diluted)

$1.13

Total Assets

$8.74B

Cash & Equivalents

$1.43B

Free Cash Flow

$452.00M

Financial Statements
Beta
Revenue$3.53B
Cost of Revenue$2.58B
Gross Profit$948.00M
R&D Expenses$294.00M
SG&A Expenses$168.00M
Operating Expenses$3.06B
Operating Income$465.00M
Interest Expense$53.00M
Net Income$416.00M
EPS (Basic)$1.16
EPS (Diluted)$1.13
Shares Outstanding (Basic)358.00M
Shares Outstanding (Diluted)369.00M

Key Highlights

  • 1Revenue for the quarter decreased to $3,526 million from $4,450 million in the prior year's quarter, largely due to normalizing ASPs post-Thailand flooding impact.
  • 2Gross margin percentage remained stable sequentially at 27% but declined year-over-year from 37% due to higher ASPs in the prior year.
  • 3Net income attributable to Seagate decreased to $416 million ($1.13 diluted EPS) from $1,146 million ($2.48 diluted EPS) year-over-year.
  • 4The company generated strong operating cash flow of $2,659 million for the nine months ended March 29, 2013.
  • 5Significant financing activities included share repurchases totaling $1,612 million and debt redemptions/repurchases of $421 million for the nine-month period.
  • 6Seagate continued to increase its ownership in LaCie S.A., acquiring an additional 29% in the nine-month period.
  • 7Product development expenses increased by 14% for the nine-month period, reflecting ongoing investments in storage technologies and integration of acquired businesses.

Frequently Asked Questions

The primary driver for the revenue decrease was the normalization of average selling prices (ASPs). In the prior year's comparable quarter (March 2012), ASPs were elevated due to industry-wide supply constraints resulting from severe flooding in Thailand. As supply normalized, ASPs decreased, impacting reported revenue despite stable or slightly declining unit shipments.

Seagate generated substantial operating cash flow. However, significant cash was used for financing activities, notably $1.6 billion in share repurchases and approximately $421 million for debt redemptions and repurchases during the first nine months of fiscal year 2013. These actions reflect a strategy of returning capital to shareholders and reducing debt.

Seagate acquired a controlling stake (64.5%) in LaCie S.A. on August 3, 2012. During the nine months ended March 29, 2013, the company continued its acquisition efforts by using $72 million from an escrow account to purchase an additional 29% of the outstanding shares, increasing its ownership to approximately 94%. The acquisition is expected to accelerate growth in the consumer storage market.

The filing details several legal proceedings, including intellectual property litigation and employment-related claims. While some cases are ongoing with uncertain outcomes (e.g., Convolve, Inc. v. Seagate Technology LLC), others have been resolved in Seagate's favor (e.g., Rembrandt Data Storage, LP v. Seagate Technology LLC). The company believes that the final disposition of most matters will not have a material adverse effect on its financial position or results of operations, though it is not always possible to estimate potential losses for all ongoing litigation.