By Sam Boughedda
Seagate Technology (NASDAQ:STX) shares tumbled 12.7% Wednesday after the company reported fiscal first-quarter earnings that missed profit and revenue expectations.
The data storage company also announced a restructuring plan.
Seagate reported earnings of $0.48 per share, $0.28 worse than the analyst estimate of $0.76, while revenue for the quarter came in at $2.04 billion versus the consensus estimate of $2.1 billion.
Looking ahead, the company sees second-quarter EPS between ($0.05) and $0.35, versus the consensus of $0.94, with revenue for the period expected to be between $1.6 billion and $2 billion versus the consensus of $2.21 billion.
Seagate approved a restructuring plan to reduce its cost structure to better align its operational needs to current economic conditions. The plan, forecast to be completed by the end of the fiscal Q2 2023, is expected to result in total pre-tax charges between $60 million and $70 million and will include the company reducing its worldwide headcount by approximately 3,000 employees, or 8% of the global workforce.
Following the earnings report, Credit Suisse analysts, who have a Neutral rating and $65 price target on the stock, told investors in a note that the restructuring plan reflects what they believe is a more sustained downturn.
"The program is expected to be completed by the end of the December quarter with run-rate savings beginning in the March quarter. Consistent to what we previewed, Seagate attributed revenue weakness to: 1) COVID-19 lockdowns and economic slowdown in China; 2) broad-based inventory adjustments; and, 3) weakening global consumer spending. We expect these trends to last near-term, as the company provided a F2Q23 revenue range of $1.7 billion to $2.0 billion, 13% below our $2.2 billion estimate at the midpoint and non-GAAP EPS between negative $0.05 and positive $0.35, well below our estimate of $0.69. By comparison, the Street was at $2.12 billion and $0.80, respectively," wrote the analysts.
Elsewhere, Goldman Sachs analysts maintained a Neutral rating and $106 price target on Seagate. The analysts explained that the company's "robust outlook in nearline offset by supply concerns and weakness in legacy applications."
They added that despite the "challenging operational backdrop and constrained near-term outlook, there were several positive highlights from the call 1) continued growth in nearline HDDs propelled by robust cloud customer demand; 2) strong traction and an aggressive ramp in 20TB HDDs; 3) viable trajectory to improved gross margins throughout CY23 predicated on mix, pricing increases, and manufacturing efficiencies; and 4) a disciplined capital investment approach, which should provide a favorable pricing environment."