When hard-disk maker Seagate Technology (NYSE: STX) announced earnings at the end of October (for the first quarter of fiscal 2013), analysts didn't exactly like what the company had to say. News headlines over the next couple of days included phrases like "the death of the PC," "how the wheels came off," and "shares heading lower."
What the company actually said for fiscal Q1 was that hard disk drive unit shipments grew by 14% year over year, but overall demand in industry was lighter than expected. Sequentially, shipments to the client market (mostly PCs) was down 12%, and to the enterprise market (mostly businesses) was down 26%. Yes, that's significant. No, it doesn't mean the company or the industry is seeing the wheels come off.
Furthermore, average selling price is expected to tick down by 5% for fiscal Q2 (the current quarter) on flat demand, and then both will likely remain flat in fiscal Q3, early in 2013.
The reasons are the same as they have been for many companies recently: Economic uncertainty here in the U.S., and the festering wound that is the European economy. According to Seagate management, Europe is a big area for enterprise sales, and with the debt crisis ongoing, sales have been slow. (Aside: When does a four-year-long "crisis" get called something more in line with reality?) Further, the popularity of tablets is likely to slow down notebook refresh cycles, meaning lower demand there.
Despite this near-term gloomy news – which is what those headlines were focusing on – Seagate reiterated the basic thesis for investing in the company. To quote CEO Steve Luczo:
"Data consumption and creation and global Internet connectivity growth continue to be very robust. At the same time, computing is changing fundamentally and at a rapid pace driven by open source software, cloud infrastructure and architectures, and mobility. ... We believe Seagate is well positioned to ... address the opportunities associated with the needs of cloud computing and mobile connectivity."
Assuming he's right, and that Seagate can take advantage of more cloud and mobile computing, this quarter and the next few should be no more than a bump in the long-term investing road.