Seagate lowers production and sales forecasts amid weakening economy

Seagate's share price plunged this morning on the back of a lower than expected financial forecast that signals more cautious tech spending amid buyers' fears of a sustained global economic slowdown.

The world's number one hard drive maker said revenues for Q1 of its fiscal 2023 that runs from early July to early October will be in the region of $2.35 billion, down more than 24 percent year-on-year and way off analysts' general consensus for $3 billion.

Shares in the storage giant declined almost 11 percent in the hours since although they have stabilized.

"As we enter fiscal 2023, we expect macro uncertainties and non-HDD component shortages to continue pressuring our end market over the near term," said chief financial officer Gianluca Romano.

On the same call, CEO Dave Mosley said "global inflationary pressures intensified late in the [recent fourth] quarter" and "while we believe the end market demand disruptions are temporary, we are mindful of prevailing macro uncertainties."

Mosley said in "response to current business conditions" it is "taking action" in a bid to "maintain some discipline and the favorable pricing environment".

"We are reducing our manufacturing and production plans, while continuing to focus on driving efficiencies in the factory and across supply chains. We are maintaining prudent cost controls across the business and executing our product road map which also helps to support our customers' TCO objectives."

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Seagate is the latest big name in tech to moderate growth forecasts in a nod to the gradually worsening economic outlook. This month Micron predicted a drop in revenue for its next quarter due to shrinking sales of PCs and smartphones, and SK hynix did the same a week ago.

Microsoft and others are reacting by slowing down or pausing hires across the business.

As for Seagate's Q4, which ended July 1, revenue slid a little over 13 percent to $2.628 billion and operating profit fell to $360 million from $507 million. The company shipped 155 exabytes of HDD capacity and the average capacity per drive was 7.8TB.

HDD revenue was down 12 percent to $2.737 billion and Systems, SSD & Others slumped 21 percent to $276 million.

US datacenter demand remained strong, said Mosley, but "persistent non-HDD component shortages have led to inventory imbalances, precluding new data center build-outs from being completed. These, along with other supply disruptions have led to a buildup in inventory levels across a broad spectrum of customers, a trend that continued through the end of the quarter."

"As macro uncertainties and inflationary pressures intensify, we expect customers will increasingly focus on reducing their inventory levels, while maintaining the ability to address end market demand," he added.

"Our Asia-based cloud customers are dealing with the impacts of COVID restrictive measures, which have had far-reaching effects across all of the end markets that we serve in the region."

The consumer-facing legacy business is now just a fifth of the total sales at Seagate's HDD unit, meaning the ongoing decline of device shipments isn't as big a problem to Seagate as it once would have been.

"Right now, the consumers in the world have decided that they're spending money on other things. I think everyone knows this – you can see these consumer spending patterns in many, many different markets, and we're not immune to any of that," said Mosley.

According to the Consumer Technology Association's US Consumer Technology One-Year Industry Forecast, sales and shipments will drop 0.2 percent in 2022 to $1 billion. ®