Seagate Slumps as Analyst Questions 'Aggressive' Outlook

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By Yasin Ebrahim – Seagate Technology (NASDAQ:) plunged Wednesday as its sunnier outlook was called into question amid worries over supply chain disruption in China in the wake of coronavirus outbreak.

Shares fell 6%.

The company reported second-quarter of $1.35 a share, above consensus estimates of $1.31 a share, but revenue of $2.7 billion fell just short of Wall Street’s call for $2.72 billion.

Seagate guided third-quarter earnings of $1.35 a share on revenue of $2.7 billion, above estimates for earnings of $1.27 a share on revenue of $2.59 billion.

The stronger results, however, were primarily driven by higher sales of surveillance drives, a category that has shown “somewhat lumpy” demand characteristics in the past, Wedbush analyst Matt Bryson said.

Bryson also questioned whether Seagate is setting itself up to fail by offering up aggressive growth expectations at a time when the coronavirus outbreak has disrupted operations in China.

“We remain concerned that near-term expectations are perhaps a bit too aggressive particularly in light of our belief that potential supply chain disruption tied to the coronavirus creates more risk than reward this quarter and next,” Bryson added.

Wedbush also flagged concerns about visibility after Seagate shifted its hard drive product segments to mass capacity and legacy.

“The shift also leads to some loss of granularity as well as limiting our ability to compare historical results with current performance.”

RBC agrees, highlighting concerns about uncertainty over performance in the back of half of the year.

“While the first half should see notable demand for near-line and data center centric products, back half revenues may be lighter than normal seasonality,” RBC said.

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