Seagate Boosts Profit Outlook
Updated from 4:37 p.m. EST
Seagate Technology
(STX) - Get Report
boosted its earnings guidance for the March quarter by 3 cents a share, while also raising its dividend a couple of pennies to 8 cents.
The hard-drive maker expects to post revenue of $1.87 billion with a gross margin of at least 23%, both in line with Wall Street's expectations. Earnings will be 36 cents a share, the company said in its midquarter update after Monday's close.
A Thomson First Call survey of analysts had expected the company to post earnings before items of 33 cents a share. In January, Seagate said it was expecting to earn 29 cents to 33 cents a share on the same basis.
Demand for small hard drives used in consumer electronics devices, such as the iPod Minis, remains strong -- and although Seagate didn't enter that market until last year, it now trails only
Hitachi
, according to market researcher IDC.
Seagate said it expects average selling prices to increase modestly, as new products offset declines in pricing for older ones. Inventory, always a significant problem for hard-drive makers, will be about four weeks at the end of the quarter, about a week less than the industry average, said CEO Bill Watkins.
Although it's too early to issue guidance for the June quarter, the company said "it is well positioned and optimistic."
Shares of Seagate gained 16 cents to $18.99 in postclose trading Monday, after ending the regular session with a loss of 13 cents to $18.83.
Last week's robust update from
Maxtor
(MXO)
, including a
stronger outlook for revenue, strengthened the view on Wall Street that demand for enterprise-oriented products is picking up. Moreover, analysts are expecting Seagate to post a strong March quarter.
Goldman Sachs analyst Laura Conigliaro said that Seagate has managed the transition to high-margin enterprise products more smoothly than its rivals, and she expects the company to increase its market share in the enterprise segment this quarter. "Although we recently revised our gross margin assumptions upward to hit a 24% level in the September rather than the December quarter we think this level could potentially be achievable even earlier," she wrote in a note to clients. Goldman has an investment banking relationship with Seagate.
Robert Chira of Fulcrum Global Partners also raised his estimates ahead of the update and said he expects to see margins in the quarter reach 23.5%, an improvement of 290 basis points. Chira said he believes Seagate has enough momentum to overcome the traditionally slow first half for storage companies. Fulcrum does not have an investment banking relationship with Seagate.
Separately, Seagate announced that New SAC, a partnership that owns a majority of the company's stock, will sell about 25 million shares of Seagate through August. New SAC also expects to make quarterly distributions of 25 million shares of Seagate stock beginning this spring and continuing in each of the next three quarters thereafter, for a total distribution in this manner of 100 million shares over the next year. Those shares will be "locked up" for 12 months after the sale.