Earnings preview: Storage demand to drive Seagate Q2 results

Seagate Technology plc (STX) is scheduled to report its second-quarter earnings results on Monday after the market closes. The results could depend on the demand for storage drives and the growth in exabyte shipments, which is likely to continue in multiple markets for the next decade. This is in the midst of constant global data growth trends.

Analysts expect Seagate to post earnings of $1.28 per share on revenue of $2.72 billion for the second quarter. In comparison, during the previous year quarter, the company reported a profit of $1.48 per share on revenue of $2.91 billion. Majority of the analysts recommended a “hold” rating while expecting the stock to reach $46 per share in the next 52 weeks.

The results will be benefited by robust adoption on account of strong demand of Seagate’s storage drives. The company could be benefited by a growth in exabyte shipments, which reflects persistent global data growth trends and demand for Seagate’s mass storage solutions. The company expected strong exabyte growth trends to continue in multiple markets for the next decade.

In the first quarter, Seagate posted a 149% jump in earnings as strong growth in hard-disk shipments drove revenues higher. Revenues increased 14% driven by a 41% climb in exabyte shipments. The company has experienced good demand from the traditional storage original equipment manufacturers that are deploying hybrid and private cloud solutions.

Related: Western Digital Q2 2019 Earnings Results

For the second quarter, the company had expected total revenues in the range of $2.7 billion to $2.75 billion and gross margins to be at the low end of its 29% to 33% long-term range. Operating expenses were predicted to be relatively flat, sequentially, and remained committed to controlling it within the long-term financial model of 13% to 15%.

During the second week of January, Seagate announced its new lineup of storage solutions that includes portable external drives with a maximum capacity of 5-terabyte, storage drives for enterprises and PC gamers, as well as storage drives for mobile. The sales of this new lineup could be included in the company’s third-quarter results.

The competition has been brewing among data storage companies as hard disk drives (HDDs) have started fading out and solid state drives (SSDs) are replacing them. The companies have already started bringing out their products related to the SSDs in the market and Seagate could face stiff competition from this. It is likely that Seagate will derive more of its revenues from SSDs instead of HDDs.

Investors remained concerned about the current market situation and avoided buying into Seagate. This was due to the trade tensions, high inventory levels in the industry and average selling prices pressure. Traders fear that the reasons could cause confusion and impulsive trading behavior. Analysts have called for a hold of the stock and suggested investors seek value elsewhere.

Shares of Seagate opened lower but changed course to the green territory on Thursday. The stock has fallen over 19% in the past year while it has risen over 13% in the past three months.

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