Seagate Technology Holdings plc — FY2021 Form 10-K
Reporting period: Fiscal year ended July 2, 2021 (52 weeks). This is an annual filing; the supplied text does not provide a separate FY2021 fourth-quarter financial summary. FY2020 comprised 53 weeks.
Business context
Seagate is a global data-storage provider, principally selling hard disk drives (HDDs), alongside SSDs, storage systems and its Lyve edge-to-cloud platform. Mass-capacity storage, including nearline drives for cloud and data-center uses, is its growing market focus; legacy markets are declining. The company reported one operating segment.
Financial performance and liquidity
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $10.681 billion | $10.509 billion | +2% |
| Gross profit / margin | $2.917 billion / 27% | $2.842 billion / 27% | Profit +3%; margin flat |
| Operating income / margin | $1.492 billion / 14% | $1.300 billion / 12% | Income +15% |
| Net income | $1.314 billion | $1.004 billion | +31% |
| Diluted EPS | $5.36 | $3.79 | +41% |
| Operating cash flow | $1.626 billion | $1.714 billion | Down $88 million |
| Capital expenditures | $498 million | $585 million | Down $87 million |
| Cash and cash equivalents | $1.209 billion | $1.722 billion | Down $513 million |
| Debt principal | $5.216 billion | $4.249 billion | Up $967 million |
Cash declined mainly due to $2.047 billion of share repurchases, $649 million of dividends and capital spending, partly offset by operating cash generation and $986 million of net debt issuance proceeds. The $1.725 billion revolving facility had no borrowings outstanding at year-end. Seagate said cash, expected operating cash flow and available borrowing capacity should fund operations and requirements for at least 12 months; it was in compliance with debt covenants and expected to remain compliant over that period.
Material changes versus prior year
- Revenue growth reflected higher mass-capacity shipments, partly offset by price erosion and lower legacy shipments. Mass capacity rose to 60% of revenue from 53%; legacy fell to 32% from 39%.
- Total HDD shipments increased to 535 exabytes from 442; mass-capacity shipments rose to 417 exabytes from 317, while legacy shipments declined to 118 from 125.
- Average HDD price per terabyte fell to $18 from $22. Gross margin stayed at 27%, as improved product mix was offset by price erosion and higher pandemic-related logistics costs.
- Other expense improved to $144 million from $268 million, helped by investment gains and the absence of prior-year debt-repurchase losses; higher interest expense and foreign-exchange remeasurement expense partly offset the improvement.
- The company completed a corporate reorganization in May 2021, placing Seagate Technology Holdings plc as the publicly traded parent. It repurchased approximately 34 million shares during the year.
Outlook, risks and unusual items
- For FY2022, Seagate expected capital expenditures of 4%–6% of revenue. The filing expresses confidence in long-term storage demand, particularly nearline and mass-capacity demand, but provides no specific revenue or earnings guidance in the supplied text.
- Management expected COVID-19-related supply-chain and demand disruptions, along with higher logistics and operating costs, to continue into FY2022. The ultimate business and financial impact remained uncertain.
- Key risks include technology transitions and timely customer qualification, price erosion and competing flash storage, concentrated customers, demand forecasting and inventory exposure, semiconductor and other supplier constraints, manufacturing utilization, debt service and covenant compliance, foreign exchange, cyber incidents, trade restrictions, and legal and regulatory matters.
- Tax incentives in Malaysia, Singapore and Thailand increased FY2021 net income by approximately $226 million ($0.92 per diluted share); some incentives are scheduled to expire in whole or in part through 2025. Management’s tax-asset realizability estimates were identified as a critical audit matter.
- Several intellectual-property cases were disclosed. Seagate stated that loss estimates were not reasonably determinable for some matters; it considered estimated losses in the Lambeth case immaterial and expected environmental cleanup costs at identified sites to be immaterial.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Important facts for investors to verify
- Whether mass-capacity shipment growth and the shift away from legacy markets can offset falling price per terabyte and sustain margins.
- How semiconductor availability, logistics costs and pandemic-related conditions affect production, customer demand and working capital.
- Debt maturities, interest costs, covenant headroom and the company’s ability to maintain liquidity while funding dividends, repurchases and investment.
- The assumptions supporting deferred tax-asset realization and the duration or renewal of overseas tax incentives.
- Progress and commercial acceptance of HAMR, higher-capacity HDDs, SSDs, systems and Lyve offerings, plus developments in disclosed litigation.