Seagate Technology (NASDAQ:STX) Surprises With Q2 Sales, Stock Soars
Data storage manufacturer Seagate (NASDAQ:STX) reported Q2 CY2024 results exceeding Wall Street analysts' expectations , with revenue up 17.8% year on year to $1.89 billion. Guidance for next quarter's revenue was also better than expected at $2.1 billion at the midpoint, 1.6% above analysts' estimates. It made a non-GAAP profit of $1.05 per share, improving from its loss of $0.18 per share in the same quarter last year.
Is now the time to buy Seagate Technology? Find out in our full research report.
Seagate Technology (STX) Q2 CY2024 Highlights:
Revenue: $1.89 billion vs analyst estimates of $1.87 billion (small beat)
Adjusted Operating Income: $327 million vs analyst estimates of $270.4 million (20.9% beat)
EPS (non-GAAP): $1.05 vs analyst estimates of $0.75 (39.4% beat)
Revenue Guidance for Q3 CY2024 is $2.1 billion at the midpoint, above analyst estimates of $2.07 billion
Gross Margin (GAAP): 31.8%, up from 22.7% in the same quarter last year
Inventory Days Outstanding: 88, in line with the previous quarter
Free Cash Flow of $380 million, up 197% from the previous quarter
Market Capitalization: $22.3 billion
“Seagate delivered robust financial performance for the June quarter amid an improving cloud demand environment, capping off a fiscal year of strong execution against our financial goals. Q4 revenue grew 18% year-over-year, non-GAAP gross margin expanded to nearly 31%, and non-GAAP EPS exceeded the high end of our guidance range,” said Dave Mosley, Seagate’s chief executive officer.
The developer of the original 5.25inch hard disk drive, Seagate (NASDAQ:STX) is a leading producer of data storage solutions, including hard drives and Solid State Drives (SSDs) used in PCs and data centers.
Memory Semiconductors
The rapid growth in data generation and the need to support increases in processing power for everything from consumer devices to data center servers are driving the demand for memory chips. From the content delivery networks and edge computing to the cloud, data storage is a key component underpinning the global technology architecture. On top of that, secular growth drivers like machine learning and the boom in media-rich digital content are further accelerating the need for storage. Like all semiconductor segments, memory makers are highly cyclical, driven by supply and demand imbalances and exposure to consumer product cycles.
Sales Growth
Seagate Technology's revenue has been declining over the last three years, dropping by 11.9% on average per year. But as you can see below, this was a strong quarter for the company, with revenue growing from $1.60 billion in the same quarter last year to $1.89 billion. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
Seagate Technology had a decent quarter as its revenue grew 17.8% year on year, in line with analysts' estimates. Seagate Technology's growth flipped from negative to positive this quarter, news that will likely be well-received by shareholders.
Seagate Technology returned to positive revenue growth this quarter and its management team expects the trend to continue. The company is guiding to 44.4% year-on-year growth next quarter, and analysts seem to agree, forecasting 37.2% growth over the next 12 months.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, Seagate Technology's DIO came in at 88, which is 20 days above its five-year average, suggesting that the company's inventory levels are higher than what we've seen in the past.
Key Takeaways from Seagate Technology's Q2 Results
We were impressed by Seagate Technology's strong gross margin improvement this quarter. We were also excited its EPS outperformed Wall Street's estimates. Revenue guidance for next quarter was also above estimates, a major positive. Zooming out, we think this was a great quarter that shareholders will appreciate. The stock traded up 5.7% to $111.25 immediately after reporting.
Seagate Technology may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.