Seagate Technology plc — Form 10-Q Summary
Reporting period: Fiscal third quarter ended April 2, 2021 (13 weeks); nine-month figures cover 39 weeks. The comparable prior-year nine-month period covered 40 weeks. The filing is by Seagate Technology plc; a proposed reorganization under which Seagate Technology Holdings plc would become the public parent had been approved by shareholders but was not yet complete.
Business context and financial performance
Seagate supplies data-storage products, principally hard disk drives (HDDs), with additional SSD, hybrid-drive and enterprise storage offerings. It reported one segment.
| Metric | Q3 FY2021 | Q3 FY2020 | Nine months FY2021 | Nine months FY2020 |
|---|---|---|---|---|
| Revenue | $2.731 billion | $2.718 billion | $7.668 billion | $7.992 billion |
| Gross profit / margin | $740 million / 27% | $746 million / 27% | $2.032 billion / 27% | $2.175 billion / 27% |
| Operating income / margin | $386 million / 14% | $376 million / 14% | $985 million / 13% | $1.033 billion / 13% |
| Net income | $329 million | $320 million | $832 million | $838 million |
| Diluted EPS | $1.39 | $1.22 | $3.34 | $3.15 |
In the quarter, Seagate shipped 140 exabytes of HDD capacity, including 111 exabytes in mass-capacity markets. HDD price per terabyte was $18, versus $21 a year earlier. Q3 revenue by market was 60% mass capacity, 32% legacy and 8% other.
Cash flow, debt and liquidity
- For the first nine months, operating cash flow was $1.148 billion, investing cash outflow was $360 million, and financing cash outflow was $1.298 billion. Capital expenditures were $374 million.
- Cash and cash equivalents were $1.212 billion at April 2, 2021, down $510 million from July 3, 2020. The decline primarily reflected $1.819 billion of share repurchases, $495 million of dividends and capital spending, partly offset by operating cash flow and debt issuance.
- Balance-sheet debt was $5.142 billion, including $245 million current and $4.897 billion long-term; total scheduled principal payments were $5.222 billion. The $1.725 billion revolving credit facility was undrawn. The company reported compliance with its credit covenants and expected to remain compliant for the next 12 months.
- Current assets were $3.692 billion and current liabilities $2.993 billion. Management said available resources were expected to meet cash needs for the next 12 months.
Changes, outlook, commentary and risks
- Quarterly revenue rose $13 million year over year, as higher mass-capacity shipments and favorable mix largely offset price erosion. Nine-month revenue fell $324 million, with price erosion, lower legacy shipments and pandemic-related demand effects among the cited factors. The unequal nine-month period lengths are relevant to comparison.
- Gross margin remained 27%. Nine-month net income was slightly lower year over year, while diluted EPS increased; weighted-average diluted shares declined to 249 million from 266 million.
- Management cited continuing COVID-19-related supply-chain and demand disruptions, higher logistics and operating costs, and softer demand in some markets, and expected these effects to continue during fiscal 2021. It also noted potential exposure to pricing pressure, competition, technology shifts, trade restrictions, supply disruptions, currency movements and cyber risks.
- For FY2021, capital expenditures were expected to align with a long-term target of 4%–6% of revenue. The filing provides no clear numeric revenue or earnings guidance. Management stated that liquidity was sufficient for the next 12 months, subject to evolving conditions.
- Share repurchases totaled $1.819 billion in the first nine months; $4.4 billion remained authorized at April 2. The quarterly dividend was $0.67 per share; a subsequent $0.67 dividend was declared for payment in July 2021.
- Other items include $41 million of nine-month gains from strategic investments (including upward valuation adjustments and an investment sale), partly offset by $7 million of investment impairments. The company recorded a $2 million net restructuring gain in Q3, primarily from a property sale.
- Contingencies include patent litigation for which the company said a possible loss range could not be reasonably estimated in certain matters; it considered another pending patent case’s estimated loss immaterial. Environmental exposures were not expected to be material based on current estimates.
Important facts for investors to verify
- Whether mass-capacity shipment growth can offset continued HDD price erosion and softer legacy-market demand.
- Future gross margins, cash generation and capital spending, given the absence of numeric revenue or earnings guidance.
- Debt repayment capacity and liquidity after substantial buybacks and dividends, including the upcoming 2022 note maturity.
- The extent and duration of COVID-19-related supply, logistics and customer-demand impacts.
- Potential outcomes of patent litigation, changes in strategic-investment valuations and the planned corporate reorganization.