What happened

Shares of computer memory-maker Seagate Technology (STX -0.76%) tumbled 9.3% through 2:05 p.m. ET on Friday after missing analyst forecasts for both sales and earnings last night.

Heading into Seagate's fiscal fourth-quarter 2022 earnings report, Wall Street had predicted that it would earn $1.88 per share, pro forma, on $2.78 billion in quarterly sales. Unfortunately, the company earned only $1.59 per share on sales of just $2.63 billion.  

So what

It gets worse.

That "$1.59 per share" profit, it turns out, was a non-GAAP number. When calculated according to generally accepted accounting principles (GAAP), Seagate's profit for the quarter was only $1.27 per share, hurt by an operating profit margin that contracted by 310 basis points to just 13.7%. Result: While sales fell 13% year over year, Seagate's profits on those sales plummeted 39% year over year.  

Now, the good news is that while Q4's results were pretty miserable, Seagate still turned in a pretty good performance for the full year. With revenues of $11.7 billion, Seagate still managed to grow sales 9% for the year as a whole, and with an overall operating profit margin of 16.8% for the year, profits grew as well -- up 37% to $7.36 per share.

The bad news, though, is that business did a real U-turn in Q4, and the bullish environment for computer parts makers seems to be quickly falling apart.

Now what

CEO Dave Mosley says Seagate is seeing "stable mass capacity storage demand" overall, but that demand is getting hit by "impacts of Covid restrictive measures in Asia and weakening global economic conditions." Consumer markets appear to be bearing the brunt of the damage, while corporate demand for computer memory is holding up better. Unfortunately, though, Mosley acknowledged that "the confluence of macro-related challenges is continuing into the September quarter."

As a result, Seagate is cutting production -- and cutting guidance as well. For fiscal Q1 2023, the company now anticipates collecting revenues of $2.5 billion, plus or minus $150 million (so another 5% sequential decline from Q4). Non-GAAP profits will range from $1.20 to $1.60 per share -- so 12% worse than last quarter -- and GAAP profits will probably be about $0.20 below that, so about $1.20 per share.

That all sounds pretty bleak, but take heart: When all's said and done, Seagate stock is still selling for less than 11x earnings, and analysts are still guessing that long-term earnings growth for the company will average 20% or better over the next five years, according to S&P Global Market Intelligence forecasts. If you can wait out the turbulence, Seagate stock still looks like a long-term winner -- even if in the near term it may not feel like it.