Seagate Swings to Loss as Cloud Hurts Demand

The company's shares dropped 19% on news that it posted a Q3 loss of $21 million, or seven cents a share, on revenue of $2.6 billion.
Matthew HellerMay 2, 2016

Seagate Technology shares plunged after it posted a quarterly loss on weak demand as customers move away from its data storage products to the cloud.

For the third quarter, the company reported a loss of $21 million, or seven cents a share, down from a year-earlier profit of $291 million, or 88 cents a share. On an adjusted basis, earnings fell to 22 cents a share from $1.57.

Seagate’s revenue dropped 22% to $2.6 billion. Analysts had projected 37 cents in adjusted per-share profit on $2.6 billion in sales, according to Thomson Reuters.

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“Our quarterly results fell short of our expectations as a result of several near-term demand factors,” Seagate CEO Steve Luzco said in a news release. “Despite these challenges, we believe we have the product portfolio, technology roadmap, and operational leverage to ensure we are well-positioned for long-term success.”

On news of the earnings, Seagate’s stock dropped 19% on Friday, closing at $21.77. It has declined more than 60% over the past 12 months.

As Barron’s reports, Seagate, like other U.S. tech giants, is facing the challenge of cloud computing, which has displaced sales of traditional equipment and software.

“In a time of pressure on global economies, the move to cloud computing will only accelerate, given that it offers companies a chance to rent computing rather than buy it, thereby trimming their up-front capital budgets,” Barron’s said.

In an earnings call, Luzco said Seagate experienced particular weakness in the client desktop and enterprise legacy markets.

Seagate rival Western Digital also missed Wall Street estimates last week. “Computer usage continues to shift from PCs to mobile devices, and enterprise workloads are moving increasingly to cloud-based architectures,” Western Digital CEO Steve Milligan told analysts.

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