Unscathed By Thailand Floods, Seagate Raises Q3 Revenue Guidance 60 Percent


Seagate on Wednesday gave a very upbeat preliminary report for its fiscal second quarter while providing new guidance for its third fiscal quarter, calling for revenue to be about 60 percent more than previously expected.

Investors liked what they heard from Seagate, and in after-hours trading drove the storage vendor's share prices up by about $1.20 per share, or about 7 percent over the company's official Wednesday close of $16.82.

In its preliminary results, which includes operations from its acquisition of Samsung's hard drive business which in December, Seagate said it shipped about 47 million hard drives. Not counting the 700,000 Samsung drives it shipped after the acquisition closed, Seagate still shipped over 46 million drives,

That was down slightly from the 48.6 million drives the company shipped during the second quarter of 2011. However, achieving that shipment number was significant in the wake of severe floods in Thailand which wiped out nearly a third of the world's hard drive manufacturing capacity.

While the floods had a relatively negative impact on Seagate due to shortages of some components, Seagate's hard drive manufacturing facilities were virtually untouched. That was not the case with its primary competitor. Western Digital has only recently restarted its production facilities in Thailand, which accounted for about 60 percent of its hard drive output

For its second fiscal quarter, Seagate expects to report revenue of between $31. billion and $3.2 billion, with gross margins reaching about 30.5 percent of revenue. That compares with revenue of $2.7 billion and a gross margin of 19.5 percent for the same period last year.

In a prepared statement, Steve Luczo, Seagate CEO and chairman, attributed the better-than-expected results to "outstanding" operational performance and overall strong execution.

“Due to our best-in-class operations, diversified supply-chain and differentiated manufacturing footprint, we continuously optimized our builds for customers during the quarter. This is best evidenced by our company’s ability to increase the average capacity per drive shipped quarter-over-quarter to a record 653 gigabytes, despite the significant supply chain disruption. These results also reflect the hard work and resiliency of the Seagate teams and our strategic suppliers who are working to help the industry recover from the massive disruption caused by the flooding in Thailand,” Luczo said in the statement.

Left unsaid in Luczo's statement was the luck factor that placed Western Digital's drive manufacturing facilities in the path of the Thailand flood waters while leaving Seagate's facilities nearly completely intact.

The huge hit to Western Digital's manufacturing, along with the relatively minor impact on Seagate, led to growing shortages of hard drives late last year, which in turn caused hard drive prices to rise. Seagate was the primary beneficiary of the price increases as it was able to bring more drives to market than its competitor.

That same dynamic is expected to carry over to the third fiscal quarter.

Seagate on Wednesday updated its third fiscal quarter outlook, reporting that it expects hard drive shipments to increase over its second fiscal quarter, revenue of $4.2 billion to $4.5 billion, and gross margin of 33 percent of revenue.

For its third fiscal quarter of 2011, Seagate reported shipping 49 million disk drives, revenue of $2.7 billion, and gross margin of 19.1 percent.