10-QPeriod: Q2 FY2020

Seagate Technology Holdings plc Quarterly Report for Q2 Ended Oct 4, 2019

Filed November 1, 2019For Securities:STX

Summary

Seagate Technology Holdings plc (STX) reported a net income of $200 million for the fiscal quarter ended October 4, 2019, a significant decrease from $450 million in the same period of the previous year. This decline was primarily driven by a substantial drop in revenue, which fell to $2.58 billion from $2.99 billion year-over-year, impacted by less favorable market conditions and price erosion in the HDD market. Despite the revenue decline, the company maintained its gross margin percentage at 26% sequentially, though it was down from 31% in the prior year quarter, largely due to price erosion and factory under-utilization. Financially, Seagate actively managed its capital structure during the quarter. The company repurchased $620 million of its senior notes and borrowed $500 million under a new Term Loan. Significant share repurchases ($450 million) and dividends ($170 million) were also executed. The company ended the quarter with $1.78 billion in cash and cash equivalents, demonstrating a focus on returning capital to shareholders while also managing debt. The company also made a change in accounting estimate regarding the useful lives of its manufacturing equipment, which increased net income by $23 million for the quarter.

Financial Highlights

54 data points
Beta

Revenue

$2.58B

26.0% Gross Margin

Net Income

$200.00M

7.8% Net Margin

EPS (Diluted)

$0.74

Total Assets

$8.74B

Cash & Equivalents

$1.79B

Free Cash Flow

$309.00M

Financial Statements
Beta
Revenue$2.58B
Cost of Revenue$1.91B
Gross Profit$671.00M
R&D Expenses$255.00M
SG&A Expenses$122.00M
Operating Expenses$2.31B
Operating Income$273.00M
Interest Expense$55.00M
Net Income$200.00M
EPS (Basic)$0.75
EPS (Diluted)$0.74
Shares Outstanding (Basic)266.00M
Shares Outstanding (Diluted)270.00M

Key Highlights

  • 1Revenue for the quarter declined to $2.58 billion from $2.99 billion in the prior year's comparable quarter, impacted by market conditions and price erosion.
  • 2Net income decreased significantly to $200 million, compared to $450 million in the prior year quarter.
  • 3Gross margin percentage was 26%, flat sequentially but down from 31% year-over-year, attributed to price erosion and factory under-utilization.
  • 4The company actively managed its debt, repurchasing $620 million in senior notes and obtaining a $500 million Term Loan.
  • 5Shareholder returns remained a focus, with $450 million in share repurchases and $170 million in dividends paid during the quarter.
  • 6Cash and cash equivalents stood at $1.78 billion, with an additional $1.5 billion available under its revolving credit facility.
  • 7A change in the estimated useful life of manufacturing equipment positively impacted net income by $23 million for the quarter.

Frequently Asked Questions

The primary driver for the decrease in net income was a substantial reduction in revenue, which fell by approximately $413 million year-over-year. This revenue decline was attributed to less favorable market conditions and ongoing price erosion in the hard disk drive (HDD) market.

During the quarter, Seagate engaged in active debt management by repurchasing $620 million of its outstanding senior notes and securing a new $500 million Term Loan. The company also continues to maintain a substantial revolving credit facility of $1.5 billion, providing financial flexibility.

The filing indicates that revenue decreased due to challenging market conditions and price erosion. While the company actively returned capital through share buybacks and dividends, investors should monitor future revenue trends and management's strategies to navigate the competitive and price-sensitive HDD market.

Seagate revised its estimate for the useful lives of its manufacturing equipment, extending it from a range of three to five years to three to seven years. This change in accounting estimate increased the net income for the quarter by $23 million, or $0.09 per diluted share, and positively impacted the reported financial results.