Company Reports

Seagate is a leading designer and manufacturer of hard disk drives, or HDDs, used for data storage in consumer and enterprise applications. We think Seagate is successfully transitioning its portfolio to focus on mass-capacity drives for cloud providers and enterprises as consumer applications for legacy HDDs switch to faster flash-based solid-state drives. We expect continued demand for mass-capacity drives over the next five years as enterprises look to capture more data and use a multitier storage approach, implementing both mass-capacity HDDs and smaller enterprise-grade SSDs as complements in data centers. Seagate has consistently driven costs down for its mass-capacity HDDs by advancing to larger capacities, and we think it will continue to do so by leveraging new technologies like heat-assisted magnetic recording.

We raise our fair value estimate for no-moat Seagate to $67 per share from $55 as we lift our rebound expectations for the firm over the next two years. Seagate’s March-quarter results showed a continued recovery for the firm’s hard disk drive sales. Both its March-quarter results and June-quarter guidance met our model. We are now more optimistic about a steeper growth trajectory for Seagate over the next two years as it recovers from a sharp market downturn in calendar 2023. Specifically, we expect Seagate to benefit from more stable prices over the next year as demand for mass-capacity HDD returns. Even at our higher valuation, we continue to view shares as overvalued as we consider the longer-term cyclicality of Seagate’s HDD sales. We believe shares trade on the positive short-term outlook without considering future downturns.

We maintain our $55 fair value estimate for shares of no-moat Seagate Technology after fiscal second-quarter results aligned with our medium-term recovery thesis. Seagate met our sales expectations for the December quarter and outperformed on profitability. After the hard disk drive, or HDD, market nearly halved across calendar 2022 and 2023, we continue to anticipate a multiyear demand recovery. Seagate’s largest driver is demand in cloud data centers, which rose sequentially for the second quarter in a row off a bottom for sales in June. To us, back-to-back sequential growth exhibits the start of a market recovery. Nevertheless, we see shares as materially overvalued. In our view, Seagate’s stock is already pricing in a full multiyear recovery in HDD demand, but we think the share price has overshot the firm’s fundamental opportunity in the next five years.

We maintain our $55 fair value estimate for shares of no-moat Seagate Technology after the firm reported expectedly weak fiscal 2024 first-quarter results against a soft market backdrop. The hard disk drive market has been soft for seven quarters now, with large cloud customers delaying orders to work down existing inventories. For these largest cloud customers, we believe the market is past its bottom. We see a gradual sequential recovery through fiscal 2024 but still expect sales to decline for the year. We anticipate a greater rebound in fiscal 2025. In our view, consensus estimates for sales in fiscal 2024 and 2025 assume a sharper snapback to demand than we think is reasonable, and look high. We see the shares as overvalued.

Seagate is a leading designer and manufacturer of hard disk drives, or HDDs, used for data storage in consumer and enterprise applications. We think Seagate is successfully transitioning its portfolio to focus on mass-capacity drives for cloud providers and enterprises as consumer applications for legacy HDDs switch to faster flash-based solid-state drives. We expect continued demand for mass-capacity drives over the next five years as enterprises look to capture more data and use a multitier storage approach, implementing both mass-capacity HDDs and smaller enterprise-grade SSDs as complements in data centers. Seagate has consistently driven costs down for its mass-capacity HDDs by advancing to larger capacities, and we think it will continue to do so by leveraging new technologies like heat-assisted magnetic recording.

We maintain our $55 per share fair value estimate for no-moat Seagate Technology after poor fiscal 2023 fourth-quarter results showed us the firm is still very much in the throes of a hard disk drive market downturn. The HDD market is increasingly dependent on data center spending, and this was the fourth quarter of declining expenditure from these customers as they work through elevated inventories built up during postpandemic demand. Fiscal 2023 was rough, and we expect more sales declines in fiscal 2024. We remind investors that Seagate is a cyclical business, and we do expect a significant rebound after the trough of this current downturn. Still, we see shares as fairly valued and would point investors to moatier names at the moment.

Seagate is a leading designer and manufacturer of hard disk drives, or HDD, used for data storage in consumer and enterprise applications. We think Seagate is successfully transitioning its portfolio to focus on mass-capacity drives for cloud providers and enterprises as consumer applications for legacy HDDs switch to faster flash-based solid-state drives. We expect continued demand for mass-capacity drives over the next five years as enterprises look to capture more data and use a multitier storage approach, implementing both mass-capacity HDDs and smaller enterprise-grade SSDs as complements in data centers. Seagate has consistently driven costs down for its mass-capacity HDDs by advancing to larger capacities, and we think it will continue to do so by leveraging new technologies like heat-assisted magnetic recording.

We lower our fair value estimate for Seagate Technology to $55 per share, from $62, after it missed our fiscal third-quarter earnings expectations and provided poor forward-looking commentary. The ongoing downturn in the hard disk drive, or HDD, market is enduring longer than management anticipated. Though we viewed management’s longer-term recovery expectations as overly rosy previously, the quarter was disappointing. We have pushed out our expectations for an HDD recovery, lowered our short-term forecasts, and we have growing concerns over the firm’s balance sheet. After a promising print for the December quarter, the languid March quarter exhibits the volatility of the HDD market that leads to our no-moat rating for Seagate. A new round of layoffs and a trade violation settlement further soured the print. Shares traded down after results, and we see them as slightly overvalued.

Seagate is a leading designer and manufacturer of hard disk drives, or HDD, used for data storage in consumer and enterprise applications. We think Seagate is successfully transitioning its portfolio to focus on mass-capacity drives for cloud providers and enterprises as consumer applications for legacy HDDs switch to faster flash-based solid-state drives. We expect continued demand for mass-capacity drives over the next five years as enterprises look to capture more data and use a multitier storage approach, implementing both mass-capacity HDDs and smaller enterprise-grade SSDs as complements in data centers. Seagate has consistently driven costs down for its mass-capacity HDDs by advancing to larger capacities, and we think it will continue to do so by leveraging new technologies like heat-assisted magnetic recording.

We maintain our $62 fair value estimate for Seagate Technology after its fiscal second-quarter results met our expectations. Seagate continues to face a steep downcycle in fiscal 2023 comprising numerous headwinds, but management guidance implies the December quarter was the trough. We view guidance for sequential growth positively, as does the market, with shares up 7% after hours. Still, we expect the rest of 2023 to be harsh—modest sequential growth expectations imply steep year-over-year declines. We forecast a more meaningful rebound for Seagate’s mass capacity customers in fiscal 2024, and expect the legacy business to reduce to negligible levels over the next few years. We see shares as fairly valued, and would advise investors wait for a more attractive entry point.

We are lowering our fair value estimate for no-moat Seagate Technology to $62 per share from $70 after reducing our 2023 expectations. Poor demand for hard disk drives moved into Seagate’s cloud customers in the September quarter, which we view as worrisome for the firm. We now model declines across all verticals for Seagate in fiscal 2023. We continue to expect a rebound for cloud customers in fiscal 2024 but don’t expect Seagate to fully recover its lost demand. Long term, cloud demand should remain Seagate’s primary growth driver. Cyclical downturns like this one damp the effect of secular drivers toward data expansion and cloud buildouts, hamper profitability, and underpin our no-moat rating. We recommend seeking a greater margin of safety before considering an investment in Seagate.

Seagate is a leading designer and manufacturer of hard disk drives used for data storage in consumer and enterprise applications. We think Seagate is successfully transitioning its portfolio to focus on mass-capacity drives for cloud providers and enterprises as consumer applications for legacy HDDs switch to faster flash-based solid-state drives. We expect continued demand for mass-capacity drives over the next five years as enterprises look to capture more data and use a multitier storage approach, implementing both mass-capacity HDDs and smaller enterprise-grade SSDs as complements in data centers. Seagate has consistently driven costs down for its mass-capacity HDDs by advancing to larger capacities, and we think it will continue to do so by leveraging new technologies like heat-assisted magnetic recording.

We lower our fair value estimate for no-moat Seagate Technology to $70 per share, from $75 previously, in response to a negative announcement for fiscal first-quarter results. Seagate's previous forecast called for a weak September quarter resulting from weak demand and inventory unwinding in its legacy hard disk drive markets that caused us to lower our estimates and valuation. This latest announcement comes as management sees demand softness spreading into Seagate's vital cloud market into which it sells mass capacity drives. We now expect even weaker results throughout fiscal 2023 as soft demand affects sales and underutilization at Seagate's facilities hampers margins. Nevertheless, we continue to view a weak fiscal 2023 as a cyclical downturn, and remind investors that Seagate's vulnerability to cyclicality underpins our no-moat rating. Long-term, we continue to see positive demand drivers for mass capacity drives into the cloud, and expect a rebound for Seagate after fiscal 2023. We rate shares as fairly valued.

Seagate is a leading designer and manufacturer of hard disk drives used for data storage in consumer and enterprise applications. We think Seagate is successfully transitioning its portfolio to focus on mass-capacity drives for cloud providers and enterprises as consumer applications for legacy HDDs switch to faster flash-based solid-state drives. We expect continued demand for mass-capacity drives over the next five years as enterprises look to capture more data and use a multitier storage approach, implementing both mass-capacity HDDs and smaller enterprise-grade SSDs as complements in data centers. Seagate has consistently driven costs down for its mass-capacity HDDs by advancing to larger capacities, and we think it will continue to do so by leveraging new technologies like heat-assisted magnetic recording.

We lower our fair value estimate for no-moat Seagate Technology to $75 per share, from $80, after it reported disappointing fiscal fourth-quarter results and weak guidance for the fiscal first quarter. Seagate missed its guidance on the top and bottom lines by a meaningful margin and cited a weaker demand environment, particularly for its legacy products. Though the concoction of inflation, COVID-19-related shutdowns, and supply constraints had been affecting Seagate’s supply throughout the fiscal year, this was the first quarter in which it’s hampered demand. We maintain our faith in the long-term demand prospects for mass capacity drives, but think current weakness for legacy drives will slip into an accelerating decline over the next five years. Shares sold off as much as 12% after hours following the release, and we view Seagate as fairly valued.

Seagate is a leading designer and manufacturer of hard disk drives used for data storage in consumer and enterprise applications. We think Seagate is successfully transitioning its portfolio to focus on mass-capacity drives for cloud providers and enterprises as consumer applications for legacy HDDs switch to faster flash-based solid-state drives. We expect continued demand for mass-capacity drives over the next five years as enterprises look to capture more data and use a multitier storage approach, implementing both mass-capacity HDDs and smaller enterprise-grade SSDs as complements in data centers. Seagate has consistently driven costs down for its mass-capacity HDDs by advancing to larger capacities, and we think it will continue to do so by leveraging new technologies like heat-assisted magnetic recording.

No-moat Seagate Technology reported fiscal third-quarter results at the low end of company guidance, in line with its pre-announcement in March. We’re maintaining our fair value estimate of $80 per share as the company continues to have strong demand but simultaneously faces inflationary pressures and supply chain constraints. Seagate once again saw strong demand for its nearline drives. While product demand remains high, supply issues stemming from heightened freight, logistics, and input costs are hampering Seagate’s ability to ship. Nevertheless, we are encouraged by Seagate’s ability to navigate these issues and limit the impact on its margins via pricing, and we have confidence the firm can execute on its growing backlog. Shares are up around 4% following the release behind encouraging demand. We view shares as fairly valued.

We maintain our $80 per share fair value estimate for Seagate Technology after it reported fiscal second-quarter results and fiscal third-quarter guidance in line with our prior expectations. Seagate continues to benefit from ongoing data traffic--and thus storage--growth, particularly in cloud and edge applications, which now make up nearly three quarters of sales. We continue to view expanding cloud applications and subsequent data center buildouts as the primary growth drivers for Seagate in the long run. Shares popped 6% after-hours following the release, which we attribute to positive commentary regarding management’s longer-term outlook past the March quarter. However, we view shares as overvalued. Despite our confidence in long-term cloud demand, we view the hard disk drive market as commoditylike and prone to a cyclical downturn if it hits a point of oversupply. This cyclical nature contributes to our no-moat rating for Seagate, and we don’t think the market is adequately pricing in the risk of a downturn.

Seagate is a leading designer and manufacturer of hard disk drives used for data storage in consumer and enterprise applications. We think Seagate is successfully transitioning its portfolio to focus on mass-capacity drives for cloud providers and enterprises as consumer applications for legacy HDDs switch to faster flash-based solid-state drives. We expect continued demand for mass-capacity drives over the next five years as enterprises look to capture more data and use a multitier storage approach, implementing both mass-capacity HDDs and smaller enterprise-grade SSDs as complements in data centers. Seagate has consistently driven costs down for its mass-capacity HDDs by advancing to larger capacities, and we think it will continue to do so by leveraging new technologies like heat-assisted magnetic recording.

No-moat Seagate Technology reported fiscal first-quarter results in line with company guidance. We've raised our fair value estimate to $80 per share from $75 as we expect the firm to sustain strong profitability throughout the fiscal year. We continue to view the shares as fairly valued and would recommend a greater margin of safety before investing.