Seagate: Fiscal 3Q20 Financial Results

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In a global HDD market dipping in 1CQ20, Seagate surprisingly released remarkable financial results thanks to booming high-capacity drive business, even if it continues to be a poor player in faster growing competitive SSD market.

Generally, WD announced its financial figures few days before its main competitor, and so we have to wait to see if, with Toshiba, they will do as well as Seagate for HDDs. Probably not.

Seagate achieved revenue of $2.72 billion, up 1% Q/Q and up 18% Y/Y - in correlation with last quarter's prediction of $2.7 billion ±7% -, shipping 120.2EB of HDD capacity, an increase of 12% Q/Q, but total drive shipments at around 29 million are down 11% Q/Q.

Average capacity per drive reached 4.1TB, a 26% jump Q/Q and nearly 70% Y/Y. ASP increased as much as 13% quarterly at $86.

Mass capacity storage booming
In the March quarter, mass capacity storage increased to 57% of total revenue and represented 62% of total HDD revenue. These figures are up from 49% and 53%, respectively in the December quarter.

Mass capacity trends
Mass capacity storage includes nearline, video and image applications and NAS.

Nearline products
In 3FQ20, mass storage capacity increased 18% Q/Q and 68% Y/Y supported by record sales of nearline products.

Exabyte shipments into this market increased 28% Q/Q reaching a record level of 91EB.

On its side, total nearline shipments increased to 76EB with an average capacity of 10TB per drive, another record. Revenue from 16TB nearline drives more than doubled Q/Q. Seagate began shipping 18TB HDDs in limited quantities to select customers as part of system solutions. 20TB HAMR units are expected before the end of 2020.

Nearline demand trend

Revenue contribution from the legacy market decreased to 36% Y/Y in more recent quarter, down from 43% in the December quarter, as initial virus outbreak and extending Chinese New Year impacting demand for consumer electronics, explains the company. Exabyte shipments into this business declined 18% sequentially to 29EB.

HDD product mix trends
Mass capacity storage includes nearline, video and image applications and NAS. Legacy markets include mission critical, desktop, notebook, digital video recorders, gaming consoles and consumer applications. The markets were previously categorized as enterprise, edge non-compute, and edge compute.

Non HDD business
7% of 3FQ20 global revenue was derived from non-HDD business, down 10% sequentially. The majority of the decline in its tiny sector is attributed by Seagate to system business and Covid-19 related supply constraints, as manufacturing partners were impacted by factory shutdowns and labor shortages.

Revenue by products in $ million

Covid-19
It caused disruptions in Seagate's supply chain and those of its manufacturing partners and customers as they also adapt to rapid shifts in demand. Teams acted with speed and agility to tackle a range of operational challenges from securing parts to produce drives, obtaining materials to package them and addressing logistics challenges to shift finished goods in order to support customer demand in the March quarter.

Today, supply chain in certain parts of the world are almost fully recovered, including China, Taiwan and South Korea and the company sees indications for conditions to begin improving in other regions of the world. Based on its current assumptions, it does expect some supply related impact in the June quarter. At the surface, the quarter played out largely as expected with the seasonal slowdown in the consumer-facing legacy markets offset by growing demand for mass capacity storage.

This disruption exacerbated the anticipated seasonal slowdown in the March quarter. The manufacturer started to see some demand improvement in certain Asian markets and expect revenue to normalize when the pandemic impact abates on a global basis.

On legacy markets which encompass the consumer electronic space, desktop and notebook PCs and performance mission-critical applications, March is typically a slower demand quarter for these markets following the holiday rush and Chinese New Year. With the consumer markets among the first to get impacted by the onset of the coronavirus, the firm saw greater than expected revenue declines for its consumer and desktop PC drives. While it sees pockets of healthy demand in certain markets and is starting to see improvements across its supply chain, the full extent of the Covid-19 related impacts to the broader economy and associated impact to its market and business operations are yet unknown, said Seagate, adding that recovery will likely be dictated by the duration of the outbreak, timing of containment and duration of restrictive measures.

The strength in nearline demand more than offset below seasonal sales for video and image applications such as smart cities, safety and surveillance as Covid-19 impacted sales early in the quarter.

Next quarter, the firm is seeing an improvement in the supply condition, particularly among our OEM partners. However, it will take a couple of quarters to fully recover.

Next quarter, the vendor expected that demand for nearline products to continue supported by ongoing cloud and hyperscale investment. In China, the company started to see demand recovery in certain markets, including video and image application. However, there is still considerable uncertainty at the micro level limiting its visibility. Company expects revenue for the following quarter going down at $2.6 billion, ±7%.

Seagate's HDDs from 2FQ15 to 3FQ20

Earnings call transcript