Seagate Technology Holdings plc — Form 10-Q Summary
Reporting period: Fiscal first quarter ended September 30, 2022 (13 weeks). Seagate supplies data-storage products and infrastructure, principally HDDs. Unless noted, amounts are in U.S. dollars.
Financial performance and position
| Metric | Q1 FY2023 | Comparable period |
|---|---|---|
| Revenue | $2.035 billion | $3.115 billion in Q1 FY2022; $2.628 billion in Q4 FY2022 |
| Gross profit / gross margin | $482 million / 24% | $956 million / 31% in Q1 FY2022; $759 million / 29% in Q4 FY2022 |
| Operating income / margin | $107 million / 5% | $586 million / 19% in Q1 FY2022; $360 million / 14% in Q4 FY2022 |
| Net income / diluted EPS | $29 million / $0.14 | $526 million / $2.28 diluted EPS in Q1 FY2022 |
| Operating cash flow | $245 million | $496 million in Q1 FY2022 |
| Capital expenditures | $133 million | $117 million in Q1 FY2022 |
Revenue fell 35% year over year and 23% sequentially. HDD shipments were 118 exabytes, versus 159 exabytes a year earlier and 155 exabytes in the prior quarter; average HDD price was $15 per terabyte, compared with $18 and $16, respectively. Management attributed weaker results to lower demand, particularly in mass-capacity markets, factory under-utilization, price erosion and unfavorable product mix. Factory under-utilization costs were approximately $60 million.
Cash and cash equivalents were $761 million at quarter-end, up from $615 million at July 1, 2022. Current assets were $3.740 billion and current liabilities $3.138 billion. Long-term debt, including its current portion, was $6.249 billion net of issuance costs; $636 million was current. Seagate had $1.75 billion available under its revolving credit facility, with no borrowings outstanding, and reported compliance with debt covenants. Shareholders’ deficit was $351 million.
Operating cash flow included $110 million received when interest-rate swaps were terminated; the gain is being amortized to interest expense over the remaining loan terms. Cash generation also reflected $434 million of lower receivables, partly offset by lower payables and accrued employee compensation. Financing included a new $600 million term loan; the company repurchased shares for $408 million and paid $147 million in dividends.
Outlook, commentary and material matters
- Management said macroeconomic pressures, customer purchase delays, supply-chain constraints and COVID-related disruption in China were weighing on demand and expected these conditions to continue into Q2 FY2023. Reduced production plans may continue to result in factory under-utilization.
- For FY2023, capital expenditures were expected to be below the company’s long-term target range of 4%–6% of revenue. Management stated it believed available cash, operating cash generation and the undrawn revolver would fund operations and requirements for at least 12 months. No specific revenue or earnings guidance is provided in the filing text.
- On October 24, 2022, the board approved a workforce reduction of approximately 3,000 employees (8% of global headcount) and other cost measures. The plan was expected to be substantially completed by the end of fiscal Q2 2023 and incur $60 million–$70 million of primarily cash-based pre-tax charges.
- Seagate received a proposed charging letter from the U.S. Commerce Department’s BIS alleging export-control violations involving HDD sales to an Entity List customer and affiliates from August 2020 through September 2021. Seagate disputes the allegations; the matter was unresolved and the company could not estimate a loss or penalty. The filing says a material impact is possible.
- The board declared a $0.70-per-share dividend payable January 5, 2023. The company also disclosed litigation and environmental contingencies; it did not expect environmental cleanup costs at identified sites to be material.
Most important facts for investors to verify
- Whether demand, HDD shipments and pricing stabilize, and how quickly factory utilization and gross margins recover.
- The cash cost, timing and realized savings from the announced restructuring.
- Developments in the BIS proceeding, including potential penalties, restrictions or business effects; the filing provides no loss estimate.
- Ability to service and refinance $6.3 billion of debt, including $636 million due within one year and estimated interest payments of about $1.5 billion over the debt term.
- Whether operating cash flow can sustain capital needs, dividends and any share repurchases under continued demand and macroeconomic pressure.