10-QPeriod: Q3 FY2019

Seagate Technology Holdings plc Quarterly Report for Q3 Ended Mar 29, 2019

Filed April 30, 2019For Securities:STX

Summary

Seagate Technology Holdings plc (STX) reported its fiscal third-quarter 2019 results, showing a decline in revenue and gross margin compared to both the previous quarter and the same quarter last year. Revenue for the March 2019 quarter was $2.3 billion, down from $2.7 billion in the December 2018 quarter and $2.8 billion in the March 2018 quarter. This decrease was primarily attributed to lower demand for products, seasonality, and price erosion, leading to a gross margin of 26%, down from 29% and 30% respectively in the prior periods. Despite these revenue pressures, the company demonstrated effective cost management, with decreases in product development and marketing/administrative expenses. Seagate also continued its capital return program, repurchasing shares for $327 million and paying $178 million in dividends during the quarter, while also securing a new $1.3 billion revolving credit facility.

Financial Highlights

54 data points
Beta

Revenue

$2.31B

26.0% Gross Margin

Net Income

$195.00M

8.4% Net Margin

EPS (Diluted)

$0.69

Total Assets

$8.60B

Cash & Equivalents

$1.39B

Free Cash Flow

$291.00M

Financial Statements
Beta
Revenue$2.31B
Cost of Revenue$1.71B
Gross Profit$601.00M
R&D Expenses$238.00M
SG&A Expenses$110.00M
Operating Expenses$2.08B
Operating Income$236.00M
Interest Expense$55.00M
Net Income$195.00M
EPS (Basic)$0.69
EPS (Diluted)$0.69
Shares Outstanding (Basic)281.00M
Shares Outstanding (Diluted)284.00M

Key Highlights

  • 1Revenue for the March 2019 quarter was $2.313 billion, a decrease of $402 million from the December 2018 quarter and $490 million from the March 2018 quarter.
  • 2Gross margin percentage declined to 26% in the March 2019 quarter from 29% in the prior quarter and 30% in the same quarter last year, driven by factory underutilization and price erosion.
  • 3Product development expenses decreased by $8 million sequentially and $16 million year-over-year, reflecting operational efficiencies and reduced variable compensation.
  • 4Marketing and administrative expenses also saw a reduction, decreasing by $10 million sequentially and $25 million year-over-year.
  • 5The company shipped 77 exabytes of HDD storage capacity in the March 2019 quarter, a decrease from 87 exabytes in the preceding two quarters.
  • 6Seagate repurchased approximately $327 million of its ordinary shares and paid $178 million in dividends during the quarter.
  • 7A new $1.3 billion senior unsecured revolving credit facility was established, replacing the previous $700 million facility, providing enhanced liquidity with $1.1 billion available for borrowing as of March 29, 2019.

Frequently Asked Questions

The revenue decline was primarily driven by a decrease in exabytes shipped due to lower demand for Seagate's products, seasonal factors, and price erosion in the market. Less favorable market conditions compared to the prior year also contributed to the year-over-year decrease.

Seagate is focused on cost management. Despite revenue pressures, product development and marketing/administrative expenses have been reduced. The company also noted that warranty costs related to new shipments were 1.1% of revenue, indicating ongoing attention to product quality and associated costs.

Seagate maintains a strong liquidity position with approximately $1.4 billion in cash and cash equivalents as of March 29, 2019. Additionally, the company has access to a new $1.3 billion revolving credit facility, with $1.1 billion available for borrowing. Management believes these sources are sufficient to meet cash needs for the next 12 months, despite a decrease in cash and cash equivalents from the prior year due to share repurchases, dividends, and debt repayments.

Seagate continues to return capital through share repurchases and dividend payments. In the March 2019 quarter, the company repurchased approximately $327 million of its ordinary shares and paid $178 million in dividends. An additional $2.3 billion share repurchase authorization was approved in October 2018, with $2.5 billion remaining available as of the reporting date.