Hard drive builder Seagate Technology (NASDAQ:STX) reported results on Tuesday night, covering the second quarter of fiscal year 2017. It was a solid performance, and share prices jumped more than 12% in after hours trading.

Seagate's second-quarter results: The raw numbers


Q2 2017

Q2 2016

Year-Over-Year Change


$2.89 billion

$2.99 billion


Net income

$412 million

$246 million


GAAP EPS (diluted)




Data source: Seagate.

What happened with Seagate this quarter?

PC systems may be going out of style, but Seagate is making up for that negative trend by selling large volumes of enterprise storage products and consumer-grade drives nestled in media storage or personal data backup devices.

  • Thanks to a richer product mix and disciplined manufacturing operations, Seagate's gross margins landed at 30.8% -- the highest level seen since the middle of 2012.
  • Wall Street analysts would have settled for adjusted earnings in the neighborhood of $1.08 per share, paired with roughly $2.83 billion in top-line revenue. Seagate exceeded the Street's sales projections and crushed their average earnings estimate.
  • Average selling prices continued their eternal downward march. Seagate collected $42 per terabyte of storage capacity sold in the second quarter, down from $49 a year ago and $61 per terabyte the year before that.
  • On top of that revenue-sapping trend, Seagate shipped 39.9 million drives this quarter. That's 13% below the 46 million units that were shipped in the year-ago period and a 30% decline over two years.
  • At the same time, the average drive was 30% larger this year than in the year-ago quarter, and 60% roomier than the average drive in Q2 of 2015. Taken together, Seagate shipped a total of 68.2 exabytes of storage capacity this quarter:

Image source: Seagate.

Seagate's management provided the following guidance for calendar year 2017:

  • Operating expenses are trending downward while revenues should rise in 2017. On the bottom line, CEO Steve Luczo expects to deliver calendar-year earnings of at least $4.50 per share. That would be at least a 37% increase over the $3.28 of adjusted earnings per share that Seagate collected in calendar year 2016.
  • Luczo underscored that these projections are significantly more positive than the ones he offered last summer, setting the company up for even greater things in 2018 and beyond. As a reminder, management was painting a non-GAAP earnings bullseye around $2.50 per share for fiscal year 2017 just two quarters ago.

What management had to say

In a prepared statement, Steve Luczo congratulated his employees on a job well done and then set up a rosy view of the next few years.

"Looking ahead, we are optimistic about the long-term opportunities for Seagate's business as enterprises and consumers embrace and benefit from the shift of storage to cloud and mobile applications," Luczo said. "Seagate is well positioned to work with the leaders in this digital transformation with a broad market-leading storage solution portfolio."

Image source: Getty Images.

Looking ahead

Seagate is doing an excellent job of replacing its fading PC sales with high-quality revenue in the enterprise and consumer electronics markets. On the downside, management barely mentioned flash-based SSD products on the earnings call, and sales in that department remain forgettably small.

In other words, there's life in this old clunker yet but I am not completely convinced that Seagate has a sustainable uptrend going on here. As flash memory storage grows larger and cheaper, there will come a time when that solution becomes a viable alternative to Seagate's magnetic discs even for bulk storage situations. Manufacturing improvements and fiscal discipline can only go so far.

The clock is ticking, and I don't see Seagate hustling to get ready for the next era of data storage.

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