Seagate Technology (STX)

F4Q10 (Qtr End 07/02/10) Earnings Call

July 20, 2010 06:00 pm ET


Steve Luczo - Chairman, President & CEO

Pat O’Malley - EVP & CFO

Bob Whitmore - EVO & CTO

Dave Mosley - EVP, Sales, Marketing and Product Line Management


Rich Kugele - Needham & Company

Mark Miller - Nobel Financial

Keith Bachman - The Bank of Montreal

Sherri Scribner - Deutsche Bank

Aaron Rakers - Stifel Nicolaus

Jayson Noland - Robert W. Baird & Co., Inc.

Kathy Huberty - Morgan Stanley



Good afternoon ladies and gentlemen and welcome to Seagate Technology’s fiscal fourth quarter and year-end 2010 financial results conference call. My name is Amesia and I’ll be your coordinator for today.

At this time all participants are in a listen-only mode. Following the prepared remarks, there will be a question-and-answer session. (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 September 2010 quarter and thereafter and includes statements regarding expected revenue, gross margins, customer demand for disk drive and general market conditions.

These forward-looking statements are based on estimation 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.

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 as filed with the US Securities and Exchange Commission on August 19, 2009 and in the company’s quarterly report of Form 10-Q as filed with the US Securities and Exchange Commission on May 5, 2010.

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 will now like to turn the conference over to your host Mr. Steve Luczo, CEO. Please go ahead.

Steve Luczo

Thank you, Amesia. Good afternoon everyone and thank you for joining us today. On the call with me are Pat O’Malley, our Chief Financial Officer; Bob Whitmore, our Chief Technology Officer and Head of R&D and Manufacturing Operations and Dave Mosley, Executive Vice President of Sales, Marketing and Product Line Management.

Beginning with today’s call, we are implementing a new format for our quarterly results announcements. As you have hopefully already seen, we have posted supplemental information about the quarter on our Investor Relations website.

The majority of the information that Dave, Bob and Pat have previously conveyed verbally on our earnings conference calls is in that document which we posted about two hours ago in order to give investors and analysts time to review it.

Our goal with this format is to give all of you more time with the basic factual information about the quarter in a form you can download yourselves. And then focus the call on topics and issues that are most important to you. At the end of my prepared remarks, we will address a few questions of particular interest to our investors and then open the call up for questions.

I want to start with a few observations about the fiscal year that we just completed and then turn to fiscal Q4. For the year, we saw record shipments of 193.2 million units, record profitability of $1.61 billion, record operating margin of 15.3% and record diluted earnings per share of $3.14. We also generated nearly $2 billion of cash from operations enabling us to continue to strengthen the capital structure by improving our net debt position by $775 million and repurchasing $584 million worth of Seagate common stock.

We also had a series of important product announcements this year including our successful entry into the Enterprise SSD market with our Pulsar product, our ground breaking Momentus XT solid-state hybrid laptop drive and the high versatile GoFlex family of external storage products.

These products are expected to broaden our product leadership and provide opportunities for incremental revenue growth in fiscal year 2011 and beyond. We introduced these and many more products while successfully managing through a volatile supply and demand environment and continuing to improve the fundamentals of our business.

Global demand for storage remained strong throughout the year, reflecting the pace at which digital content and information is being created.

However, in the June quarter, demand throughout the industry began to slow and exhibited linearity more typical of the June quarter. The biggest issue that we faced in the quarter was that the broader macroeconomic conditions deteriorated during the quarter, particularly in Europe. The economic slowdown and debt crisis in Europe and to a lesser extent the global freight interruption due to the Iceland volcanic eruption caused inventory disruption and contributed to an industry TAM near the low end of the expected range. These effects were more pronounced in the consumer market versus the commercial market which in turn negatively impacted mix and pricing.

In addition, we believe the economic slowdown resulted in a supply demand imbalance in the quarter of approximately 5 million units. While most industry participants including Seagate reduced production from the prior quarter against the decreasing TAM, there was at least one competitor which significantly increased production during the quarter. As a result, pricing and channel inventory and certain capacities were negatively impacted in the quarter versus our expectations.

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