What happened

Shares of computer memory specialist Seagate Technology (STX -3.02%) got punished for an earnings miss on Wednesday, falling 6.6% through noon ET.

Analysts had forecast that Seagate would earn $0.76 per share on $2.1 billion in sales for its fiscal first quarter of 2023. But Seagate reported only $0.48 in profit per share, and sales short of the mark at just over $2 billion -- and that's the good news.  

1 big red arrow going down over a stock chart.

Image source: Getty Images.

So what

The bad news is that even Seagate's $0.48-per-share "profit" was a non-GAAP (adjusted) number. When calculated according to generally accepted accounting principles (GAAP), earnings per share came to a measly $0.14.

Seagate blamed "global economic uncertainties and broad-based customer inventory corrections" for the miss, and indicated that its business got even worse "in the latter stages of the September quarter" -- so things appear to be getting even worse, not better, as time goes on.

Granted, management called this an industrywide problem, not one limited to Seagate. And indeed, after beating earnings last month, rival Micron Technology warned that a big drop in earnings was coming in its own fiscal Q1. Investors will see in tomorrow's report from Western Digital if it confirms this trend or not. Seagate isn't sitting idle, either, insisting it has already taken "quick and decisive actions to respond to current market conditions and enhance long-term profitability." But even so, the speed at which things have deteriorated is kind of shocking.  

Sales for the quarter fell 35.5% at Seagate, with its gross profit margin shedding 700 basis points, falling to 23.7%, and GAAP profits per diluted share collapsed a staggering 94%.  

Now what

Seagate didn't even try to estimate what its GAAP earnings might be in the current quarter, saying, "material items that may impact these measures are out of our control and/or cannot be reasonably predicted." But even the non-GAAP news is bad enough. Management forecasts pro forma profits of only about $0.15 per share in fiscal Q2 -- well below Wall Street's forecast of $0.94 per share, and representing a probably 94% year-over-year decline, just like in Q1. Quarterly sales of $1.85 billion, plus or minus about $150 million, will likewise miss analyst targets for $2.2 billion.

If there's any good news to report, it's that with Seagate stock already down 34% over the past year, a lot of investors seem to have already assumed the news would be bad, limiting how bad today's sell-off ended up being. Given the scale of the bad news, a mere 6% decline in Seagate's share price today seems, if anything, an under-reaction. I'd expect investors to continue selling off this stock as the full extent of the damage sinks in.