Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Seagate: Perfect Buyout Bait

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

When disk drive maker Western Digital (NYSE: WDC  ) reported earnings earlier this week, the company said that a price war broke out at the end of the quarter, because consumer demand turned out softer than expected and there was excess inventory to sell off. Then I told you to expect the same story from Seagate Technology (Nasdaq: STX  ) today.

Well, Seagate's side of the story is in, and it's actually a little bit different. Instead of participating in the quarter-ending clearance sales, Seagate lowered its prices much earlier and then held firm through the end-rush, resulting in average price declines similar to Western Digital's but along a different route.

The end result for Seagate was $2.7 billion in sales, 1.3% above the year-ago quarter, while earnings dwindled by 11% to $0.31 per diluted share. You see the effects of firm pricing policies on the bottom line, which shrunk slower than Western Digital's, and also in revenues, where Western Digital had a 9% year-on boost. Seagate managed its inventories by scaling down its production plans instead of holding a fire sale.

Regarding the pending buyout talks, SEC regulations forbid Seagate from saying much. That prevented Seagate from issuing forward guidance, which has become a highly watched measure in the broader memory and semiconductor market as investors worry about a pullback.

Still, as far as a buyout goes, while a private equity firm is showing interest right now, given the current state of the IT industry, I wouldn't count out interest from Oracle (Nasdaq: ORCL  ) , Hewlett-Packard (NYSE: HPQ  ) , or even a darkhorse like Cisco Systems (Nasdaq: CSCO  ) . Baking Seagate into one of the tech-sector giants that are congealing into total end-to-end solutions these days could provide benefits, though in the end I think they'll continue making more focused investments in areas like external disk arrays.

Seagate has gone private and then returned to the public markets once before and it could happen again. Penny-pinching valuations and muscular business like Seagate's make it the buyout flipper's dream come true. Moreover, data storage is at the very center of the next tech revolution, so a cheap buy today should offer great returns in a couple of years for a patient buyout firm.

Fool contributor Anders Bylund doesn't hold a position in any of the companies discussed here. The Fool has written calls (a bull call spread) on Cisco Systems. The Fool owns shares of Oracle. Try any of our Foolish newsletter services free for 30 days.True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

Read/Post Comments (0) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1340489, ~/Articles/ArticleHandler.aspx, 10/23/2016 6:02:32 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:00 PM
CSCO $30.15 Down -0.01 -0.03%
Cisco Systems CAPS Rating: ****
HPQ $13.80 Down -0.30 -2.13%
HP CAPS Rating: ***
ORCL $37.93 Down -0.16 -0.42%
Oracle CAPS Rating: ****
STX $34.50 Down -0.48 -1.37%
Seagate Technology CAPS Rating: ****
WDC $53.07 Down -0.79 -1.47%
Western Digital CAPS Rating: ***