10-QPeriod: Q2 FY2023

Seagate Technology Holdings plc Quarterly Report for Q2 Ended Dec 30, 2022

Filed January 25, 2023For Securities:STX

Summary

Seagate Technology Holdings plc (STX) reported a net loss of $33 million ($0.16 per diluted share) for the fiscal second quarter ending December 30, 2022. This marks a significant shift from the $501 million net income reported in the same period last year. Revenue also saw a substantial decline, falling 39% year-over-year to $1.9 billion, largely attributed to macroeconomic headwinds and reduced demand in mass capacity markets. The company announced a significant restructuring plan, including a workforce reduction of approximately 3,000 employees (8% of its global workforce), aimed at aligning operational needs with current economic conditions. Despite the challenging top-line performance and net loss, Seagate executed a debt exchange, issuing $750 million in new notes for $964 million of existing notes, resulting in a $204 million gain on early extinguishment of debt. The company also maintained its quarterly cash dividend of $0.70 per share.

Financial Highlights

55 data points
Beta

Revenue

$1.89B

13.0% Gross Margin

Net Income

-$33.00M

-1.7% Net Margin

EPS (Diluted)

$-0.16

Total Assets

$7.87B

Cash & Equivalents

$770.00M

Free Cash Flow

$172.00M

Financial Statements
Beta
Revenue$1.89B
Cost of Revenue$1.64B
Gross Profit$246.00M
R&D Expenses$200.00M
SG&A Expenses$125.00M
Operating Expenses$2.05B
Operating Income-$160.00M
Interest Expense$77.00M
Net Income-$33.00M
EPS (Basic)$-0.16
EPS (Diluted)$-0.16
Shares Outstanding (Basic)206.00M
Shares Outstanding (Diluted)206.00M

Key Highlights

  • 1Reported a net loss of $33 million for the quarter, a sharp decline from a $501 million profit in the prior year's comparable quarter.
  • 2Revenue decreased by 39% year-over-year to $1.9 billion, impacted by macroeconomic headwinds and reduced demand.
  • 3Announced a significant restructuring plan including the elimination of approximately 3,000 jobs (8% of the global workforce).
  • 4Completed a debt exchange, issuing $750 million in new notes for $964 million of existing notes, resulting in a $204 million gain.
  • 5Gross margin significantly compressed to 13% from 30% year-over-year, impacted by order cancellation fees, factory underutilization, and price erosion.
  • 6Maintained the quarterly cash dividend at $0.70 per share, demonstrating continued commitment to shareholder returns.
  • 7Cash and cash equivalents increased by $155 million sequentially to $770 million, supported by debt issuance and operating cash flow, despite reduced revenue.

Frequently Asked Questions

The primary drivers were macroeconomic headwinds, including a broader economic slowdown, inflationary pressures, and resulting customer delays in purchase plans, particularly in the mass capacity market. This led to a substantial decrease in exabytes shipped and consequently, lower revenue and gross margins. The company also incurred order cancellation fees and factory underutilization charges due to reduced production levels.

The restructuring plan, which includes reducing the global workforce by approximately 3,000 employees, is intended to reduce the company's cost structure and better align operational needs with current economic conditions. Management expects this to help improve efficiency and support the long-term business strategy amidst challenging market conditions.

Seagate completed an exchange of existing senior notes for new notes, resulting in the extinguishment of $964 million in principal amount of older debt for $750 million of new debt. This transaction generated a pre-tax gain of $204 million, which was recognized in the income statement, and effectively reduced the company's outstanding debt principal.

Seagate expects the challenging macroeconomic environment and pandemic-related impacts to persist into at least the third quarter of fiscal year 2023. The company is focused on managing costs, driving operational efficiencies, and maintaining supply chain discipline in response to these conditions.