Seagate Technology PLC Earnings: Which Drives Will Drive Growth?

On Thursday, Seagate Technology (STX) will release its quarterly report, and investors have watched as the stock has climbed back toward its all-time record highs. Like rival Western Digital (WDC 4.28%), Seagate hopes to see a boost in demand for traditional hard-disk drives in light of higher demand for PCs. But in the long run, Seagate still needs to concentrate on competing against SanDisk (NASDAQ: SNDK) and other big players in the flash-memory space in order to stay on the cutting edge of storage technology.

Seagate Technology has a long history of serving technology storage needs; Seagate and Western Digital have dominated the hard-disk drive market for years. Yet, with the rise of solid-state drives from SanDisk and other competitors, Seagate and Western Digital saw a big threat to their hard-disk drive prowess.

In response, Seagate has moved aggressively to enter the solid-state drive market itself, seeing the opportunity to meet the needs of storage-hungry enterprises collecting massive amounts of data for business analysis. Let's take an early look at what's been happening with Seagate Technology during the past quarter, and what we're likely to see in its report.

Source: Seagate Technology.

Stats on Seagate Technology

Source: Yahoo! Finance.

Can Seagate Technology earnings grow faster?
In recent months, investors have gotten less optimistic in their views on Seagate earnings, cutting June-quarter estimates by $0.17 per share, and making smaller downward adjustments of about 3% to their full-year fiscal 2015 projections. The stock has maintained its upward course, though, rising 10% since mid-April.

Seagate Technology's fiscal third-quarter report revealed mixed results for the storage company, but they were generally favorable for shareholders. Revenue fell 3.4%, as prices fell despite slightly higher unit volumes. But adjusted earnings per share rose more than 6%, and adjusted gross margins climbed slightly to help support bottom-line gains. Still, two of Seagate's key segments moved in different directions, with enterprise drives showing healthy sales gains, but sales of laptop drives falling.

Seagate's greatest strength is its leadership position in enterprise data storage, where it has almost half of the total market share. Yet, the transition from hard-disk drives to solid-state drives has required Seagate to take steps to shore up its dominance of the segment in order to prevent incursions from SanDisk while keeping watch over Western Digital's attempts to follow Seagate's lead. SanDisk was a key innovator in flash memory, and has established a strong presence in the solid-state market, while Western Digital has largely concentrated on making its legacy hard-disk drive products more efficient, as well as working on hybrid drives incorporating elements of hard disks and solid-state technology.

Source: Seagate Technology.

To build on its strength, Seagate Technology turned to the acquisition front, buying solid-state drive controller maker SandForce for $450 million. The move should allow Seagate to make up for some of the competitive disadvantages it has by not producing its own NAND flash memory, because superior controllers will make high-end Seagate products more efficient and attractive to users, especially enterprise customers seeking top-of-the-line systems.

One area where competitors have made progress against Seagate, though, is in the PCIe drive space. By taking advantage of higher delivery speeds than are available on other solid-state drives, PCIe technology could take away the top end of the enterprise market if Seagate doesn't respond in kind with new products of its own.

In the Seagate earnings report, watch to see what impact the rise in PC demand has on the company. Even if Seagate enjoys a temporary boost in hard-disk drive sales, it still needs to focus on the solid-state niche in order to keep serving its enterprise customers well into the future.

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