Shares of hard-disk maker Seagate (NASDAQ:STX) have fallen 48.2% year to date as of writing. Although the company has taken a number of steps to try to make its shares more attractive to potential buyers, particularly through aggressive capital returns, investors -- judging by the share price -- remain skeptical.
At the Nasdaq Investor Program Conference, Seagate CFO David Morton offered some insight into the business through both prepared remarks and answers given during a question-and-answer session. Here are three items from the presentation that, as an investor in Seagate shares, I found particularly helpful.
So, about Western Digital's acquisition of Sandisk ...
Seagate's main competitor in the market for hard-disk drives, Western Digital (NASDAQ:WDC), recently acquired flash solutions provider SanDisk, which has a joint partnership with Toshiba for NAND flash supply. One analyst asked Morton about his view about Seagate potentially "broadening [its] own portfolio positioning" within the market for flash drives in response.
Morton said he doesn't believe that NAND flash -- the main storage medium of a typical solid-state disk drive -- will be "hard to access in the next two to three years."
He also pointed out that there are a number of technology transitions going on in the world of solid-state drives (newer planar NAND technologies, 3D NAND, and so on). Instead of leveraging Seagate's balance sheet to "double down on one specific solution set," Morton likes the idea of being able to forge partnerships with flash vendors as needed.
For example, Seagate recently has a "strategic alliance" with memory maker Micron (NASDAQ:MU) for NAND flash supply. In 2011, Seagate and memory giant Samsung announced a "broad strategic alignment" that included, among other things, a NAND flash supply agreement.
"Over the next two or three years, I look at it as more of this continuing on the partnerships," Morton observed.
Seagate has been "thoughtful" about its M&A strategy
Morton also took the opportunity to highlight Seagate's acquisitions in the market for flash-based drives. In particular, he reminded the audience that the company purchased flash controller maker SandForce from Avago and storage network array maker Dot Hill Systems (which, Morton observed, offered an "all flash" storage array).
That said, Morton was clear that the company has been "very, very judicious" about making acquisitions and that its aim is to go for "low risk, massive[ly] accretive" buys.
Hey, so what about PC demand?
Although it is widely believed that the total addressable market for hard-disk drives in PCs is at risk due to the shift toward solid-state drives (particularly as such drives become cheaper per gigabyte), hard-disk drives still have a substantial cost-per-gigabyte advantage over flash solutions.
As a result, both Seagate and Western Digital still ship significant quantities of hard-disk drives into the PC market and are still affected by the health of that market.
Morton said he thinks that the PC market has "stabilized" and is "cautiously optimistic" going into the company's next fiscal year.
"I think we've been through all of the meaningful product transitions [in the PC market]," he said, referring to the recent PC industry transitions to Microsoft's Windows 10 operating system and Intel's Skylake processor family.
All told, since PC makers reduced their inventories during the last calendar year, Morton thinks that there "could be some room for opportunity."