- Credit Suisse analyst Shannon Cross maintained Seagate Technology Holdings PLC STX with a Neutral and raised the price target from $60 to $65.
- Seagate will likely report 2Q23 results on Jan. 25, 2023.
- The analyst expects 2Q23 revenue to decline 44% Y/Y to $1.75 billion (below the consensus of $1.82 billion), primarily reflecting weaker demand in China (COVID-19 lockdowns) and inventory digestion at U.S. cloud and OEM customers.
- The analyst thinks demand trends have not worsened. However, Cross does not expect a rebound until at least 1Q24, as inventory levels remain elevated.
- The analyst expects gross margin to decline 794 bps Y/Y to 22.8% on significant underutilization charges, albeit partially offset by a more excellent mix of higher capacity drives.
- Cross expects the operating margin to decline by 1,503 bps Y/Y to 4.9% and expects benefit from the restructuring plan (announced during 1Q23 earnings) starting in 3Q23.
- Therefore, Cross expects non-GAAP EPS of $0.04, below the consensus of $0.09.
- Also Read: Seagate Technology Poised For Early Cycle Rebound, Says Morgan Stanley Analyst
- Cross expects total HDD unit shipments to decline 50% Y/Y, including Mass Capacity down 40% Y/Y and Legacy 60% Y/Y.
- The volume decrease is primarily attributable to customers reducing inventory levels after several quarters of aggressive buying and continued weakness in China.
- The analyst expects underutilization charges to significantly impact profitability as Seagate cuts production to manage its and customer inventory levels.
- For 2Q23, Cross estimates a 22.8% gross margin, improving to 23.6% by 4Q23 as inventory levels stabilize and higher capacity HAMR drives the move to commercialization.
- Price Action: STX shares traded lower by 1.15% at $62.50 on the last check Tuesday.
- Photo Via Company
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