Seagate Technology PLC's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Seagate Technology PLC (STX)

Q2 2012 Earnings Call

January 31, 2012 5:00 pm ET

Executives

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

William David Mosley - Executive Vice President of Operations

Albert A. Pimentel - Chief Sales & Marketing Officer and Executive Vice President of Worldwide Sales & Marketing

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

Unknown Executive -

Analysts

Steven B. Fox - Cross Research LLC

Mark S. Miller - Noble Financial Group, Inc., Research Division

Richard Kugele - Needham & Company, LLC, Research Division

Joe Yoo - Citigroup Inc, Research Division

Kevin M. Hunt - Auriga USA LLC, Research Division

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

Scott D. Craig - BofA Merrill Lynch, Research Division

Christian D. Schwab - Craig-Hallum Capital Group LLC, Research Division

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

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

Presentation

Operator

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Good afternoon, ladies and gentlemen, and welcome to Seagate Technology's Fiscal Second Quarter 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.

This conference call contains forward-looking statements, including but not limited to statements related to the company's future operating and financial performance in the December 2011 quarter and thereafter, and includes 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, but 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 and other factors may be beyond the company's control. In particular, global economic conditions and significant disruption to the industry supply chain from the severe flooding throughout parts of Thailand 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 on 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 October 27, 2011. These forward-looking statements should not be relied upon as representing the company's views as 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 over to our host, Mr. Steve Luczo, CEO. Please go ahead.

Stephen J. Luczo

Thank you, Melanie. Good afternoon, everyone, and thank you for joining us today. On the call with me from Seagate are Pat O'Malley, our Chief Financial Officer; Dave Mosley, Executive Vice President of Operations; Rocky Pimentel, Chief Sales and Marketing Officer; and Ken Massaroni, Executive Vice President and General Counsel.

We have posted detailed supplemental information about our fiscal second quarter on our Investor Relations site at seagate.com. In today's call, I will review the results for the December 2011 quarter, provide an update on our Thailand operations and our view of the impact of the flooding, share our progress on the Samsung hard drive business integration and provide our outlook for our fiscal third and fourth quarters, as well as calendar year 2012. After that, we'll open up the call to questions and answers.

For the December quarter, the industry shipped approximately 119 million units, which was within our expected range. Seagate reported revenue of $3.2 billion and non-GAAP diluted earnings per share of $1.32. We shipped 47 million units during the quarter, and our non-GAAP gross margin was 31.7%. We ended the quarter with $2.3 billion in cash.

The disaster in Thailand affected a vast number of individuals and thousands of businesses. Although the industry is continuing to increase output, it's important to note that while many observers tend to believe that mid to late October was the low point of industry production, we believe the low point was closer to mid-December.

Seagate's geographically diversified factory footprint and broad supply chain provided inherent advantages that mitigated the impact of the floods to Seagate's operations, although many of our external component suppliers are still working to recover their businesses and return to full capacity. We have been very impressed with the response and efforts of our suppliers, who have worked tirelessly to rebound from the effects of the flooding. There are still clear challenges that lie ahead in our component supply chain. And to help address the gaps in various product lines, Seagate has worked with its customers and suppliers on aggressive qualifications of new parts and factories, allowing us to match precious supply to end demand.

I'll now turn the call over to Dave Mosley, who will provide more detail on the situation in Thailand.

William David Mosley

Thanks, Steve. The human tragedy that surrounds the flooding in Thailand is deeply troubling, and our thoughts go out all of those affected, especially our employees and their families. To put the disaster in an economic perspective, it is by some measures the fourth-largest natural disaster in history. So far, estimates are at $45 billion of damage, and 13 million lives were disrupted.

The damages done by the flooding created by far the most stressful quarter in the history of the disk drive supply chain. The flood was most impactful in the industrial parks approximately 30 miles north of downtown Bangkok, where 7 of our top 10 suppliers suffered direct factory damage. As a result, all of our 20-plus product platforms experienced some form of supply interruption, and for a few products, the damage brought down the supply lines completely.

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