Seagate Technology Holdings plc — FY2022 Form 10-K
Reporting period: Fiscal year ended July 1, 2022 (52 weeks), compared with the 52-week fiscal year ended July 2, 2021. This is an annual report, not a standalone 2022 fourth-quarter report; quarterly results are not clearly provided in the filing text summarized here.
Business context
Seagate is a data-storage technology and solutions provider whose principal products are hard disk drives (HDDs), alongside SSDs, storage systems and its Lyve edge-to-cloud platform. Mass-capacity storage, including cloud and nearline applications, represented a growing share of the business; consumer, client and mission-critical applications are described as legacy markets.
Financial and operating results
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $11.661 billion | $10.681 billion |
| Gross profit / margin | $3.469 billion / 30% | $2.917 billion / 27% |
| Operating income / margin | $1.955 billion / 17% | $1.492 billion / 14% |
| Net income | $1.649 billion | $1.314 billion |
| Diluted EPS | $7.36 | $5.36 |
| Operating cash flow | $1.657 billion | $1.626 billion |
| Capital expenditures | $381 million | $498 million |
Revenue rose 9%, primarily reflecting higher mass-capacity exabytes shipped, partly offset by lower legacy shipments. HDD capacity shipped was 631 exabytes, up from 535 exabytes; mass-capacity shipments rose to 541 exabytes from 417, while legacy shipments fell to 90 from 118. HDD price per terabyte declined to $17 from $18. Mass capacity generated 68% of revenue, versus 60% in FY2021; legacy generated 23%, versus 32%.
Cash and cash equivalents were $615 million at year-end, down $594 million. Total debt principal was approximately $5.7 billion, including $585 million due within one year; the balance sheet reports $5.646 billion of debt net of issuance costs. Current assets were $4.033 billion and current liabilities were $3.555 billion. Operating cash flow was largely offset by share repurchases, dividends, debt repayment and capital spending. Accounts receivable increased $374 million and inventories increased $361 million during the year.
Seagate repurchased approximately 21 million shares for about $1.8 billion and paid $610 million in dividends. It ended the year with $2.4 billion remaining under its share-repurchase authorization. The company had a $1.75 billion revolving credit facility with no borrowings outstanding and reported compliance with its debt covenants.
Changes, outlook and risks
- Gross margin improved by three percentage points, attributed mainly to higher mass-capacity shipments and a favorable mix toward higher-capacity HDDs. Higher component and logistics costs partly offset the improvement.
- Other expense increased to $276 million from $144 million. The comparison was affected in part by a prior-year strategic-investment gain; FY2022 also included higher interest expense and losses on de-designated cash-flow hedges.
- Management expected the shift from legacy to mass-capacity storage to continue in FY2023 and beyond, while describing the long-term outlook for legacy exabyte demand as declining. For FY2023, expected capital expenditures were 4%–6% of revenue. The filing does not provide a clear numerical revenue or EPS forecast.
- Management believed available cash, operating cash generation and the undrawn revolver would fund operations and cash requirements for at least 12 months, while noting that longer-term liquidity depends on future operating performance and economic conditions.
- Management cited pandemic-related supply-chain disruption, component shortages, inflation, and higher logistics, materials and operating costs. It expected these pressures to affect results in the near term and said it was adjusting production and pursuing cost efficiencies.
- Key risks include volatile customer orders and lengthy nearline qualification cycles; reliance on concentrated customers and some single-source suppliers; pricing pressure and substitution by SSDs in legacy markets; execution of new technologies, including HAMR; debt and liquidity requirements; foreign exchange, geopolitical and trade risks; cyber incidents; and implementation of a multi-year ERP system.
- Tax incentives in Singapore and Thailand increased FY2022 net income by approximately $290 million, or $1.29 per diluted share; these incentives expire in whole or in part at various dates through 2033. The company recorded a $13 million impairment loss on available-for-sale debt securities. A jury found no infringement in the Lambeth patent case; post-trial motions were pending. Seagate reached a commercial arrangement with TDK and dismissed claims against TDK with prejudice.
Important facts for investors to verify
- Review subsequent quarterly filings for how demand, pricing and the shift toward mass-capacity products developed after FY2022.
- Track cash conversion and working capital, particularly receivables and inventory, alongside supplier commitments of approximately $4.5 billion disclosed in MD&A.
- Assess debt maturities, interest costs, covenant headroom and the capacity to sustain dividends and repurchases; principal payments of $585 million were scheduled within one year.
- Monitor component availability, manufacturing costs and the scale-up and customer qualification of new HDD technologies, including HAMR.
- Evaluate the durability of earnings after considering the $290 million contribution from regional tax incentives and the year-over-year effect of strategic-investment gains.
The independent auditor issued an unqualified opinion on the financial statements and internal controls over financial reporting as of July 1, 2022.