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How Seagate Technology, Plc. Shares Rose 11.5% in October

Anders Bylund, The Motley Fool
Updated

What happened

Shares of hard drive manufacturer Seagate Technology (NASDAQ: STX) gained 11.5% in October 2017, according to data from S&P Global Market Intelligence. At the heart of this surge, you'll find a surprisingly solid first-quarter earnings report.

So what

Seagate's first-quarter sales fell 5.9% year over year to land at $2.63 billion. Adjusted earnings declined 3% to $0.96 per diluted share. While hardly the stuff of growth investors' dreams, both of these figures exceeded Wall Street's consensus estimates at the time by a comfortable margin. Share prices surged as much as 17% higher the next day.

A hard drive with the case taken off, displayed in dramatic Film Noir lighting.
A hard drive with the case taken off, displayed in dramatic Film Noir lighting.

Image source: Getty Images.

Now what

The company is riding its portfolio of traditional hard-drive products as hard as possible, because Seagate is a market leader there but a hopelessly trailing also-ran in the healthier SSD storage market. As long as Seagate can defend its chosen niche in low-cost, large-capacity storage devices, I guess that's fine. But it's not an excellent market position for the long term, and it's high time to get a credible SSD strategy going.

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To that end, Seagate is part of a consortium that's buying Toshiba's (NASDAQOTH: TOSBF) microchip operations, which includes a small stake in the solid-state storage market. But even then, Seagate is only grabbing a small piece of Toshiba's underwhelming market presence and that's not going to set the world on fire.

So we're left with Seagate shares trading sideways year to date, and that's after a strong bounce in October. Investors are skeptical of this company's long-term business prospects, and for good reason. I'm more than happy to stay on the sidelines for this ticker.

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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.