Seagate (NASDAQ:STX) stock got off to an impressive start in 2017 thanks to a terrific fiscal second quarter that encouraged the company to raise its guidance. But things soon started going downhill as the storage specialist failed to deliver in the third quarter after setting high expectations.

Seagate shares are down roughly 20% since its quarterly report on April 26 (but up about 4% year to date) in as investors seem to have have lost confidence in the company's ability to deliver on its promises. The company turned  in $2.67 billion in third-quarter revenue after forecasting that it could achieve a figure of almost $2.7 billion.

The stock dropped 17% on the day third-quarter earnings were announced even though Seagate beat the bottom-line estimate by three cents. What's in store when Seagate reports fourth-quarter results July 25? Let's take a look.  

Seagate logo

Image Source: Seagate 

The expectations

Analysts expect Seagate's revenue to drop 3.2% year over year during the fourth quarter to $2.57 billion, though adjusted earnings are, on average, estimated to increase from $0.69 per share to $0.99 per share thanks to lower costs. Wall Street has dialed down its estimates according to the storage specialist's own  guidance, which calls for revenue between $2.5 billion and $2.6 billion but analysts' expectations are a shade higher than Seagate's guidance. Now, it won't be surprising if the company fails to hit the top-line target as the hard-disk drive (HDD) market was affected  by seasonality, forcing Seagate to maintain a lower inventory to keep costs low.

Gartner estimates that the worldwide PC market dropped  4.3% during the second quarter of 2017, which corresponds to Seagate's fiscal fourth quarter. By comparison, shipments had improved  0.6% during the first quarter, which clearly indicates that Seagate's unit shipments will decline. But at the same time, Seagate will also get a higher price as the average price per hard disk drive has increased this year, thanks mainly to the shortage of DRAM (dynamic random access memory) and NAND components. However, selling prices could tank as the likes of Samsung start investing  in memory capacity.

What next?

PC sales have been hurt by the higher prices of components such as DRAM, solid-state drives, and HDDs. A continuation of this trend could lead to lower PC shipments for the rest of the year, which will hurt Seagate's shipments.

However, the expected growth in memory capacity won't start  until 2019, which could lead to stronger pricing and help Seagate offset a decline in memory shipments. Additionally, Seagate could find growth in fast-growing areas of the storage market, especially in the enterprise space.

For instance, the network-attached storage (NAS) market is expected to grow  at 26% a year until 2020 thanks to an increase in data center storage. Seagate is busy tapping this market by offering NAS solutions that integrate a different number of hard drives into each NAS depending on the customer's requirement.

Therefore, Seagate can enhance its sales as it will be able to ship more HDDs into a market that's starting to take off. However, the company's top line will continue to remain challenged in the short run as PC shipments decline. Additionally, the rise of Toshiba in the HDD space has hurt  Seagate, with the former cornering an impressive 24% of the market at the end of 2016.

Not surprisingly, analysts expect Seagate's revenue to drop another  3% in the next quarter given the many challenges it is facing. Investors will be watching on July 25 to see what the company has to say.

Harsh Chauhan has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Gartner. The Motley Fool has a disclosure policy.