Seagate Technology Plunges 10% Following Q3 Guidance

Shares of Seagate Technology PLC STX were trading lower by more than 10 percent early Thursday morning after the company reported preliminary financial information for its fiscal third quarter.

Seagate expects to record revenue of $2.6 billion, non-GAAP gross margin of 23 percent and expects to report HDD unit shipments of approximately 39 million.

Seagate previously guided its third quarter revenue to be $2.7 billion and non-GAAP gross margin of approximately 25.6 percent. Wall Street analysts were also expecting the company to report revenue of $2.7 billion in the quarter.

Seagate stated its downward revised outlook is due to "reduced demand for traditional mission critical HDD enterprise products, reduced demand for the company's systems and silicon products, reduced demand for desktop client products primarily in China, and the Company's decision to not aggressively participate in the low capacity notebook market."

The company believes an increasing level of enterprise applications are shifting towards cloud based environments.

"We are disappointed that we did not anticipate the weaker demand in the March quarter. There are many complex issues impacting the traditional go to market channels in our market, which are reducing our forecast visibility. Despite the disruption of the shifts in our traditional mission critical HDD business in the near term, we believe the long term benefit of cloud architectures for end users, and the related need for very high capacity drives, is a net positive for Seagate and the HDD industry," said Steve Luczo, Chairman and Chief Executive Officer. "

Luczo added, "The Company is in the process of prioritizing our strategic positioning, manufacturing footprint and operating expense investments to achieve the appropriate level of normalized earnings. We anticipate that these actions will be implemented over the next several quarters."