Seagate Tech (STX) Slashes Its SepQ Guidance As Enterprise Buying Behavior Grows More Cautious
1:35 pm Thursday, September 01st, 2022
As buying behavior among global OEMs and some U.S. cloud customers has grown more cautious, Seagate Tech (STX) was forced to slash its prior Q1 (Sep) earnings and revenue forecasts. Slightly over one month ago, STX issued Q1 guidance that already fell well short of analyst expectations, guiding to adjusted EPS of $1.20-1.60 and revs of $2.35-2.65 bln.
The company is now looking at Q1 adjusted earnings to come in meaningfully below its prior guidance and expects revs of just $2.0-2.2 bln, a 32.6% drop yr/yr at the midpoint.
However, its soft outlook was mainly due to slowing consumer demand, not enterprise/OEM and cloud demand. In fact, STX said that U.S. cloud data center demand remained strong.
Although, to be fair, it is worth pointing out that STX was somewhat concerned that enterprise demand could wane as companies nervous about the near future reduce their spending.
As an aside, due to WDC’s already much weaker SepQ outlook than STX’s original SepQ guidance, we would be surprised to see WDC reduce its SepQ projections.
There is still some good news. STX commented that long-term demand drivers for mass capacity storage remain intact. Furthermore, WDC expressed bullishness on the long-term growth in cloud storage today, stating that, without question, the cloud is growing, creating ongoing demand for data storage.
Bottom line, STX is in for a difficult next couple of quarters. However, with its shares setting new YTD lows today, perhaps investors are pricing in a worst-case scenario. Nonetheless, we would avoid STX at the moment until macroeconomic conditions begin to turn.
