Seagate says Q4 revenue will miss expectations

Seagate's supply chain advantage stemming from the Thailand floods of 2011 appears to be waning. Fourth quarter sales will be lower than expected and Seagate's outlook turns cautious.

Seagate's market share gains at the expense of rivals affected by last year's flooding in Thailand are falling short of expectations. The company said its fourth quarter sales won't meet estimates.

In a statement, Seagate said it expects fiscal fourth quarter revenue of $4.5 billion with non-GAAP margins of 33.6 percent. Seagate had said it would deliver revenue of at least $5 billion with non-GAAP margins of 34.5 percent.

Wall Street was looking for fourth quarter revenue of $4.88 billion with operating margins of 34.67 percent.

More: Hard drive market might not fully recover until 2014 | Seagate buys LaCie: good for us? | Western Digital: We've mostly recovered from Thailand floods | Seagate earnings continue to soar through fiscal Q3 | Thailand floods boosted Seagate to hard drive market race: report | Thailand floods to lead to hard drive shortages for months

What happened? Seagate, which was expected to be the biggest beneficiary of supply chain disruptions related to 2011 flooding in Thailand, didn't get the pop it expected. Seagate has benefited from the woes of Western Digital, but its chief rival has rebounded.

Steve Luczo, CEO of Seagate, said in a statement:

First, we did not achieve our planned market share growth as we reduced shipments in response to the industry’s faster than expected recovery from their supply chain disruption. Second, we experienced an isolated supplier quality issue that affected one of our enterprise product lines. This product issue impacted enterprise product unit shipments by approximately 1.5 million units and drove our non-GAAP gross margin below our targeted plan. While this disruption to our business was disappointing, we acted quickly and conservatively by suspending shipments of the affected products. We have resolved the issue and have resumed fulfilling our supply commitments to customers.

In addition, Luczo said Seagate will be conservative about the first quarter due to the economy. Seagate said it will adjust its inventory levels, but sees average selling prices stable.

Seagate, which recently acquired LaCie, didn't surprise many analysts. For instance, Evercore analyst Rob Cihra recently cut hard drive estimates and his price targets for Seagate. In a research note, Cihra made the following points:

  • Hard drive selling prices aren't going to return to pre-flood levels but increases will level out.
  • Shipments have rebounded in the supply chain.
  • But PC demand is weak and that's going to hurt hard drive sales.

Shares of Seagate fell about 5 percent in afterhours trading.

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