Seagate Technology PLC Earnings: Is the Storage Giant In Trouble?

On Tuesday, Seagate Technology (STX) will release its quarterly report, and investors have been impressed at how well the storage specialist has managed to adapt to changing conditions in its core market. Even as flash-memory from Micron Technology (MU -4.61%) and SanDisk (NASDAQ: SNDK) has taken advantage of huge demand for mobile devices in which traditional hard-disk drives aren't a viable option, Seagate has demonstrated its ability to innovate and find ongoing opportunities for growth.

Seagate Technology still has a commanding presence in the hard-disk drive market, on which desktop and laptop PCs have relied for decades. Yet many analysts believed that Seagate was in danger of becoming obsolete in light of plunging PC sales and the move to lightweight mobile devices with more advanced storage technology. Still, Seagate has identified promising trends elsewhere in the tech world while also bridging the gap between old and new storage technology. Let's take an early look at what's been happening with Seagate Technology over 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 earnings keep growing?
In recent months, analysts have cut back their views on Seagate earnings, reducing March-quarter estimates by almost a dime per share and cutting full-year fiscal 2014 and 2015 projections by 5% to 6%. The stock has given up ground, falling 13% since late January.

Seagate's December-quarter earnings report showed the challenge that the company has faced in trying to keep growing. Although storage sales volumes rose by 9% on a capacity basis, falling prices sent revenue down 3.8%, and adjusted earnings dropped more than 4%. Seagate's client-computer division saw the biggest declines, more than offsetting growth in the more promising enterprise market as well as the segment in which Seagate includes backup systems and external storage products. Yet guidance for the current quarter also disappointed investors, and the fact that Seagate's enterprise segment isn't growing fast enough to make up for falling PC-related sales has negative implications for the company's future.

However, Seagate Technology isn't letting those challenges hold it back. Seagate is working hard to find its place in the flash-memory industry, working on 3D NAND technology that should help it produce lower-power flash modules that can stand up to competing products from Micron and other memory producers. The move could help Seagate solidify its position in the enterprise market against incursions from Micron, SanDisk, and their peers, as well as letting Seagate come up with innovative new products to address new tech needs.

Source: Seagate Technology.

Moreover, Seagate Technology is trying to make the most of its legacy hard-disk drive prowess. With the rise of data analytics, Seagate's enterprise clients need massive amounts of data storage in order to take full advantage of the information they collect from their own customers, and ideally, that storage needs to be cost-effective but also efficient in giving them the results they want. By introducing hybrid drives that combine the speed of solid-state drives with the capacity and low cost of traditional hard-disk technology, Seagate has huge potential to meet the needs of enterprise customers in the future.

In the Seagate Technology earnings report, watch to see how the company plans to compete against its main hard-disk rival in its efforts to capture the greater share of the enterprise-storage market. If Seagate can't reverse its declining revenue and earnings soon, it could eventually give in to the same forces that skeptics believed years ago would be its downfall.

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