Seagate's revenue to beat analyst outlook

Seagate Technology looks set to post US$2.1 billion in its fiscal third quarter, better than Wall Street projections. Company says it has also raised US$430 million to pay all or some of its debt.
Written by Larry Dignan, Contributor

Seagate Technology on Monday said revenue in its fiscal third quarter will be about US$2.1 billion, better than the US$1.88 billion projected by Wall Street.

Meanwhile, Seagate said it has raised US$430 million in a private bond offering that will pay all or some of its US$300 million in debt due Oct. 1.

The moves answer two key questions that have been swirling around Seagate: What's the demand picture? And how will Seagate address its potential liquidity issues?

First the demand picture. Seagate said in a statement that it will ship 39 million units in its March quarter out of an estimated 110-112 million unit market. Demand for Seagate’s 2.5-inch and 3.5-inch ATA products topped internal estimates. Seagate said that enterprise market fell 20 percent in the March quarter compared to the December quarter. Product mix favored lower capacity desktop and notebook drives.

The company said that gross margins will be between 7 percent to 7.5 percent, a tally that was better than projected, but well off the December quarter. Seagate CEO Steve Luczo said the company is "realigning our business processes and optimizing our product portfolio to maximize profitability".

For Seagate's fiscal fourth quarter ending June 30, the company projected revenue of US$1.9 billion to US$2.2 billion. Wall Street was expecting revenue of US$1.86 billion. Seagate said the total addressable market for enterprise drives will be flat with the March quarter. The company added that it plans to cut costs further, but did not offer details.

As for liquidity concerns, Seagate earlier this month altered the covenants on its credit facility to gain more wiggle room. That amendment coupled with its planned capital raise should give Seagate a cushion for the future quarters. Wall Street is expecting Seagate to lose money for at least the next three quarters. For some additional cash savings, Seagate suspended its dividend.

This article was first published as a blog post on ZDNet.com.

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