Seagate (STX, Financial) witnessed a decline in its stock by 3% following the announcement of its Q3 (March) financial outcomes. Despite surpassing earnings per share (EPS) expectations, the reported revenue of $1.66 billion, marking an 11.0% year-over-year decrease, was in line with forecasts. The company's Q4 (June) outlook is optimistic, with EPS guidance exceeding analyst predictions. Additionally, Seagate announced the sale of its ASIC assets, including development, engineering, and intellectual property, to Broadcom (AVGO, Financial) for $600 million.
After experiencing three consecutive losses, Seagate has achieved profitability in two successive quarters. However, the company has faced eight straight quarters of year-over-year revenue declines, with the recent -11% being the smallest decrease in this period. Seagate highlighted positive trends in nearline cloud demand from customers in the US and China and reported sequential improvements in enterprise OEM markets. The company anticipates continued strong demand from cloud customers and expects the long-standing inventory correction in cloud customer inventories to be largely resolved, with end demand also on the rise.
Seagate observed stabilization in demand within enterprise OEM markets in the latter half of 2023 and incremental improvement in March. The company foresees an uptick in enterprise OEM revenues as server growth picks up. Additionally, Seagate expects higher demand in its VIA markets throughout the calendar year, despite a seasonal dip in March.
The company also discussed the potential impact of AI on its business, foreseeing an increase in AI-generated content, particularly imagery and videos, which significantly boosts storage needs. Seagate believes this trend will positively affect demand for HDDs, as they remain a cost-effective solution for storing large volumes of data.
This quarter's performance indicates a recovery in Seagate's markets, with stabilized demand in enterprise OEM sectors and an improvement in cloud customer inventory corrections. The positive outlook is also a good sign for Western Digital (WDC, Financial), which is set to report its earnings soon.
