Seagate's record quarter met a 30% drawdown the day Broadcom and Microsoft qualified its SMR drives
Shares tumbled 30% from their October peak even as Microsoft Azure Storage and Broadcom cleared HAMR+SMR drives.
Vincent Jiang · 2 min read
Seagate+3.25% — Seagate, up 3.25 percent today closed at $593.76 on Nov 1. 2, down 7.9% that day and 30% from its Oct 1. 2 close of $848.99 1. The same day, its HAMR+SMR drives became the first SMR drives on Broadcom's+3.91% — Broadcom, up 3.91 percent today host-bus-adapter approved vendor list, and Microsoft+1.84% — Microsoft, up 1.84 percent today Azure Storage qualified the combination 3. The market is selling the end of a shortage while the company is unlocking the ramp that shortage built.
The quarter reported Oct. 27 was the best in Seagate's history: revenue of $4.23 billion, up 61%; adjusted EPS of $7.68 against $7.42 expected; record free cash flow of $1.5 billion 1. Gross margin reached 57.8% on an adjusted basis, up from 40.1% a year earlier 2.
Seagate's gross margin tripled in three years, and it is the number Toshiba's capacity puts at risk
Data
| Value | |
|---|---|
| FY2023 | 19% |
| FY2025 | 35% |
| Q1 FY2027 | 57.8% |
The record was priced, not shipped
The complication sits under the headline: the volume engine barely moved. Nearline shipments hit 198 exabytes, up 24% year on year but only 1% sequentially, with product staged ahead of customer qualifications 2. Data-center customers brought 81% of revenue 2.
Management said most of the capacity it can make is sold under long-term agreements through calendar 2028 4. This quarter was priced, not shipped, which is exactly what Toshiba's plan to nearly double Philippine drive capacity by fiscal 2027, ending March 2028, threatens 1.
The bears have receipts of their own
Diluted shares rose to 232 million from 226 million a year earlier 4, and insiders sold $587 million of stock over the past 12 months with no buying 5. GuruFocus rates valuation 1 out of 10 5.
The January report decides it
The December quarter, guided to $4.8 billion of revenue and $9.20 of adjusted EPS, is the test 1. Gross margin holding at or above 57.8% with exabytes re-accelerating makes this drawdown the entry 1. Margin slipping first means 13.7 times forward earnings is the whole story 1.
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