10-QPeriod: Q3 FY2023

Seagate Technology Holdings plc Quarterly Report for Q3 Ended Mar 31, 2023

Filed April 26, 2023For Securities:STX

Summary

Seagate Technology Holdings plc (STX) reported a net loss of $433 million for the third quarter of fiscal year 2023, a significant shift from the $346 million net income in the same period last year. This loss was heavily influenced by a $300 million BIS settlement penalty recognized in the quarter, related to alleged violations of U.S. export administration regulations. Revenue also saw a substantial decline, falling to $1.86 billion from $2.80 billion year-over-year, attributed to decreased demand in mass capacity and legacy markets driven by macroeconomic conditions and customer inventory adjustments. Despite the net loss, the company's operating cash flow remained positive at $228 million for the quarter, indicating underlying operational cash generation. Seagate has initiated significant cost-saving measures, including expansion of its October 2022 restructuring plan and commitment to an April 2023 plan, aiming to reduce headcount by approximately 3,480 employees in total, with further charges expected. Management is focused on navigating macroeconomic headwinds and adjusting production plans to align with current market demand.

Financial Highlights

55 data points
Beta

Revenue

$1.86B

17.2% Gross Margin

Net Income

-$433.00M

-23.3% Net Margin

EPS (Diluted)

$-2.09

Total Assets

$7.97B

Cash & Equivalents

$766.00M

Free Cash Flow

$174.00M

Financial Statements
Beta
Revenue$1.86B
Cost of Revenue$1.54B
Gross Profit$319.00M
R&D Expenses$191.00M
SG&A Expenses$123.00M
Operating Expenses$2.17B
Operating Income-$315.00M
Interest Expense$81.00M
Net Income-$433.00M
EPS (Basic)$-2.09
EPS (Diluted)$-2.09
Shares Outstanding (Basic)207.00M
Shares Outstanding (Diluted)207.00M

Key Highlights

  • 1Net loss of $433 million for the quarter, compared to a net income of $346 million in the prior year's quarter.
  • 2Revenue decreased by 33.6% to $1.86 billion, primarily due to macroeconomic headwinds and customer inventory adjustments.
  • 3A significant $300 million BIS settlement penalty was recorded, contributing to the net loss.
  • 4Operating cash flow for the quarter was $228 million.
  • 5The company expanded its workforce reduction plan, targeting a total of approximately 3,480 employees.
  • 6Inventories decreased by $365 million, reflecting efforts to align with demand.
  • 7The company ended the quarter with $766 million in cash and cash equivalents, an increase of $151 million from the prior quarter.

Frequently Asked Questions

The net loss of $433 million was primarily driven by a $300 million BIS settlement penalty related to alleged violations of U.S. export administration regulations. This was compounded by a significant year-over-year decline in revenue due to weaker market demand and macroeconomic factors.

Seagate is implementing significant cost-saving measures, including expanding its restructuring plans which involve a total reduction of approximately 3,480 employees. They are also adjusting manufacturing production plans and managing inventory levels to align with current market demand and economic conditions.

The company maintained a healthy liquidity position, with $766 million in cash and cash equivalents as of March 31, 2023, an increase from the prior quarter. They also have $1.75 billion available under their revolving credit facility and generated $228 million in operating cash flow during the quarter.

The BIS settlement of $300 million resolves allegations regarding Seagate's sales of hard disk drives to Huawei between August 2020 and September 2021. The company agreed to pay this amount over five years and undergo compliance audits. While Seagate believed it complied with regulations, they settled to avoid protracted litigation and focus on business strategy.