Seagate Technology PLC (STX)

Q4 2012 Earnings Call

July 30, 2012 5:00 pm ET

Executives

Kate Scolnick

Stephen J. Luczo - Chairman, Chief Executive Officer and President

William David Mosley - Executive Vice President of Operations

Patrick J. O’Malley - Chief Financial Officer and Executive Vice President of Finance

Analysts

Steven Bryant Fox - Cross Research LLC

Aaron C. Rakers - Stifel, Nicolaus & Co., Inc., Research Division

Ananda Baruah - Brean Murray, Carret & Co., LLC, Research Division

Robert Cihra - Evercore Partners Inc., Research Division

Keith F. Bachman - BMO Capital Markets U.S.

Sherri Scribner - Deutsche Bank AG, Research Division

Richard Kugele - Needham & Company, LLC, Research Division

Scott D. Craig - BofA Merrill Lynch, Research Division

Jayson Noland - Robert W. Baird & Co. Incorporated, Research Division

Joe Yoo - Citigroup Inc, Research Division

Presentation

Operator

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Good afternoon, and welcome to the Seagate Technology Fiscal Fourth Quarter and Year-End 2012 Financial Results Conference Call. My name is Melanie, and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. At this time, I would like to turn the call over to Kate Scolnick, Vice President, Investor Relations. Please proceed, Kate.

Kate Scolnick

Good afternoon, and welcome to today's call. I'm joined today in Cupertino by Seagate's CEO, Steve Luczo; and CFO, Pat O'Malley. Dave Mosley, our Executive Vice President of Operations, is joining the call from our Singapore offices. Other members of our executive team are traveling today and will be unable to join the call.

We have posted our press release and detailed supplemental information about our fiscal fourth quarter and year-end 2012 on our Investor Relations site at seagate.com. During today's call, Steve will review the highlights from the June quarter and provide the company's outlook for the fiscal first quarter 2013. After that, we'll open up the call to questions.

As a reminder, this conference call contains forward-looking statements, including, but not limited to, statements related to the company's historical and currently anticipated future operating and financial performance in the September quarter and thereafter and include statements regarding customer demand for disk drives and general market conditions. These forward-looking statements are based on information available to Seagate as of the date of this conference call and are subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from those anticipated by these forward-looking statements.

Such risks, uncertainties such as global economic conditions and other factors may be beyond the company's control and may pose a risk to the company's operating and financial performance. Information concerning additional factors that could cause results to differ materially from those projected in the forward-looking statements is contained in the company's annual report Form 10-K and Form 10-K/A, as filed with the U.S. Securities and Exchange Commission on August 17, 2011 and August 24, 2011, respectively, and in the company's quarterly report on Form 10-Q, as filed with the U.S. Securities and Exchange Commission on April 30, 2012.

These forward-looking statements should not be relied upon as representing the company's views of any subsequent date, and Seagate undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date they were made.

I would now like to turn the conference call over to Steve Luczo. Please go ahead, Steve.

Stephen J. Luczo

Thank you, Kate. Good afternoon, everyone, and thank you for joining us today. As Kate mentioned, we are in 2 locations today. Pat and I are in Cupertino, and Dave is in Singapore. We've just celebrated the 30th anniversary of Seagate's Singapore operations. It's been an honor to be such an important part of the business transformation of this leading industrial country, and we thank all the employees, community members and government officials who have played such an important role in Seagate's overall success.

Seagate's fourth quarter and year-end results reflect the overall strong operational performance by the company and our commitment to returning value to our shareholders. In the June quarter, we achieved record revenues of $4.5 billion and record shipments of 66 million units, which represented an approximately 42% market share.

We had very strong profitability with non-GAAP net income of $1 billion and diluted earnings per share of $2.41. Non-GAAP gross margin was 33.6%. Fiscal 2012 revenues were $14.9 billion, with non-GAAP net income of $3 billion and non-GAAP diluted earnings per share of $6.75 and non-GAAP gross margins of 31.7%. We also achieved record operating cash flow of $1.4 billion in the June quarter, and we returned over 90% of our operating cash flow for the quarter to shareholders in the form of dividends and share redemptions.

As further evidence of our commitment to returning value to our shareholders and as a reflection of our confidence in the company's future, we announced today that we have raised our quarterly dividend payout 28% to $0.32 per share. For the fiscal year, Seagate generated over $3.2 billion in operating cash flow, of which we returned over 85% to shareholders through dividends and share redemptions. We ended the quarter and the fiscal year with approximately $2.2 billion in cash, restricted cash and short-term investments.

We are on plan to reduce our share count to 350 million ordinary shares outstanding by calendar year-end 2012. Assuming market and macroeconomic conditions and the company's performance and valuation metrics are similar to what they are today, we plan to reduce our share count to 250 million ordinary shares by calendar year-end 2014. Given the assumptions stated above, we expect that we will continue to increase our dividend payments in a meaningful manner while continuing our redemption plan over the course of the next several years.

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