Seagate Technology PLC (STX)

Q1 2012 Earnings Call

October 20, 2011 5:00 pm ET


William David Mosley - Executive Vice President of Operations

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

Steve Luczo - Chairman, Chief Executive Officer and President

Kenneth M. Massaroni - Senior Vice President, Secretary and General Counsel


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

Benjamin A. Reitzes - Barclays Capital, Research Division

Richard Kugele - Needham & Company, LLC, Research Division

Katy Huberty - Morgan Stanley, Research Division

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

Scott D. Craig - BofA Merrill Lynch, Research Division

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

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

Shebly Seyrafi - FBN Securities, Inc., Research Division



Good afternoon, ladies and gentlemen, and welcome to the Seagate Technology's Fiscal Quarter (sic) [First Quarter] 2012 Financial Results Conference Call. My name is Francine, and I will 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 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, 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 controls, in particular, global economic conditions and significant disruption to the industry's 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.

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 the effect of events or circumstances after the date they were made.

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

Steve Luczo

Thank you, Francine. 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; Bob Whitmore, our Chief Technology Officer; Dave Mosley, Executive Vice President of Operations; and Rocky Pimentel, Chief Sales and Marketing Officer.

I first want to convey my heartfelt condolences and the condolences of the entire Seagate family to those affected by the tragedy in Thailand. This disaster has taken hundreds of lives and displaced thousands. Human impact is profoundly troubling. Our first thoughts and actions were for the safety and security of our employees, their families and all personally affected. I will provide further context on the situation in Thailand and its effects on Seagate at the end of my prepared remarks.

We have posted detailed supplemental information about our fiscal first quarter on our Investor Relations site at In today's call, I will review the results for the September quarter, share progress on the Samsung transaction and provide our view of the fiscal second quarter, including an update of our Thailand operations. After that, we'll open up the call to Q&A.

On our last earnings call in July, we cautioned that our outlook for the first quarter was influenced by the following: the significant uncertainty surrounding global macroeconomic conditions; increasing cost of many upstream materials, especially rare earth elements; and higher costs associated with new or less mature products.

We expected the industry TAM to be 165 million to 170 million units, Seagate's revenue to be up sequentially to approximately $2.9 billion and non-GAAP diluted earnings per share of $0.29 to $0.33 per share. For the September quarter, the industry TAM was approximately 177 million units, which was above our expected range. Seagate reported revenue of $2.8 billion and non-GAAP diluted earnings per share of $0.34.

We shipped 50.7 million units during the quarter, and our gross margin was 19.5%. We ended the quarter with $3 billion in cash. Revenue was slightly below our outlook for the September quarter, and we managed cost effectively, while optimizing our product mix to slightly exceed our margin and non-GAAP earnings per share projection.

We lost approximately 3 points of market share on the September quarter for 3 primary reasons: one, we elected to not participate in aggressive pricing in the mission-critical market especially at a time when we were attempting to pass through cost associated with the rare earth increases; two, in the notebook market, we raised prices based on anticipated demand. However, these price increases unexpectedly dampened demand for our notebook products; and three, aggressive pricing in the Asia distribution channel caused us to lose some share, which was offset by gains in North America.

Macroeconomic issues particularly surrounding the Eurozone debt crisis continue to create a high degree of volatility for global demand and resulted in additional stress on consumer confidence and spending in general. Despite these issues, the HDD industry shipped a record 177 million units and continued its record 45% year-over-year petabyte growth, reflecting the sustained fundamental demand for hard drive storage.

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