Seagate: Fiscal 1Q09 Financial Results

(in US$ millions)	1Q08	1Q09
Revenues	3,285	3,033
*Growth*		-8%
Net income (loss)	355	60

Seagate Technology reported disk drive unit shipments of 48 million, revenue of $3.03 billion, net income of $60 million, and diluted net income per share of $0.12 for the quarter ended October 3, 2008. Net income and diluted net income per share for the quarter includes $20 million of purchased intangibles amortization and other charges associated with Seagate’s acquisitions, and charges related to restructuring activities of $51 million. The net impact of these items is a $71 million reduction to net income and a decrease of approximately $0.14 per share on a diluted basis. Of the $51 million related to restructuring activities, approximately $28 million was accelerated depreciation recorded in cost of revenue and $23 million was for severance and other closing costs recorded in restructuring.

"This quarter was marked by Seagate’s measurable progress toward regaining our longstanding product leadership position across all markets," said Bill Watkins, Seagate chief executive officer. "With a strong balance sheet, Seagate is operating from a position of strength. Looking forward, in the face of a challenging macro-economic environment, we will focus on cost controls and inventory management while continuing to invest in the key technologies that will solidify product leadership. As a result, we remain highly confident in our ability to convert the long-term growth in demand for storage into superior value for our shareholders."

Business Outlook
For the December quarter, Seagate expects to report revenue of $2.85 – $3.05 billion, and diluted net income per share of $0.12 – $0.16. Included in the December quarter outlook is the following:

Approximately $20 million for purchased intangibles amortization and other charges associated with recent acquisitions
Approximately $7 million for restructuring charges related to previously announced restructuring events
Approximately $7 million for accelerated depreciation expenses related to the planned closing of the Pittsburgh research facility (R&D)

The net impact of these items is an estimated reduction to net income of approximately $34 million, and an aggregate decrease in diluted earnings per share by approximately $0.07. The outlook does not include the impact of any future mergers, acquisitions, dispositions or other business combinations, stock repurchases or potential new restructuring activities the company may undertake during the quarter.

Current uncertainty in global economic conditions makes it particularly difficult to predict product demand and other related matters and makes it more likely that Seagate’s actual results could differ materially from current expectations.

Dividend
The company has declared a quarterly dividend of $0.12 per share to be paid on or before November 21, 2008 to all common shareholders of record as of November 7, 2008.

Comments

Kurt Richards, Seagate's Executive VP of Sales and Customer Service
"We believe the overall industrial TAM was approximately 152 million units, up 15% quarter over quarter and 13% year over year. Seagate's share was essentially flat to modestly higher as compared to the June quarter in desktop, notebook, mission critical enterprise and DVR markets.
"Pricing for the September quarter was in aggregate more competitive than we had planned and is reflective of the industry's ability to easily meet overall demand. Looking forward, we have limited visibility into the true demand of the December quarter due to the macro economic environment. Therefore, our outlook for the December quarter assumes muted seasonal unit growth of 3% above the September quarter which equates to approximately 156 million units. The pricing environment is expected to be essentially the same, very competitive with ample supply to meet demand.
"In the mission critical enterprise space, the TAM in the September was approximately 8.1 million units. We believe Seagate grew its leadership position in the space during the quarter shipping 5.2 million units. Demand remains solid for the high capacity enterprise class SATA products and we believe Seagate maintained its leadership in the portion of the enterprise market.
"For the December quarter we are expecting the overall enterprise market demand to be down sequentially.
"The TAM for the desktop computer for the September quarter was approximately 65 million units. Seagate shipped an industry leading 28.2 million units during the quarter. For the December quarter we are expecting the desktop compute TAM to be flat or slightly down sequentially.
"In the consumer electronic applications we believe the industry TAM for the September quarter was approximately 21 million units.4.8 million units of which the vast majority was the DBR market. We received strong interest in our new line of pipeline HD products designed specifically for video dependent applications and have completed most of our OEM qualifications. We expect the overall CE market will experience a seasonal increase in unit demand in the December quarter mainly associated with gaming and hand held applications.
"With regards to the mobile compute market the overall TAM grew approximately 58 million units in the September quarter and Seagate shipped 9.8 million units. Our customers are giving us encouraging signs about our products and we believe this will lead to modest share gains in the space over the coming quarters"

William Watkins, Seagate's CEO
"We're willing to bring solid state whenever it makes sense. We think the first practical place is in these pier zero architecture for enterprise and they will have a product out into next year. I think that capacity points before 40 gigabytes probably makes some sense in those applications but we think the cost per gigabyte play going forward will continue and the content the consumers and people want gets pushed off to where it's very viable to take a big percentage of it."

David Wickersham, Seagate's COO
Here are his answer to two questions:
The 2 1/2 inch 500 gigabyte free agent product, is that 100% your disc drive in it today?
"Today it is but the first shipments were mixed. We had agreed that we were going to go into this Christmas with 500. We saw the three disc versions and we bought 15,000 to 20,000 back in April from a competitor that we put into the retail box. Our own plan for 500 was more like an October/November and Dave and team just pulled in it, so we actually shipped in September into retail our own two disc versions."
So you're not buying any from Samsung anymore?
"No we had a one shot buy. We stopped that in September."