Seagate (STX, Financial) is seeing good growth in the end market. It delivered almost 60 exabytes of storage during the quarter, an increase of nearly 22% on sequential as well as year-over-year basis. This was the first time in Seagate's history that average gigabytes per drive for the quarter surpassed 1 terabyte.
Seeing strong traction
The Cloud Systems and Solutions business surpassed its internal revenue guidance once again for the quarter and there’s significant traction for both existing and new customers. Seagate declared some innovative products during the quarter. The EVault Enterprise Backup and Recovery Appliance currently holds approximately 100 terabytes of functional capacity and the ClusterStor 9000 solution which illustrates 50% greater performance than earlier ClusterStor platforms.
In September, Seagate invested strategically to further expand its portfolio for integrated flash technology by acquiring the PCI assets and SSD controller from Avago. Seagate is already witnessing robust customer demand for the innovative Nitro PCIE product platform and expects to continue gaining significant traction in this solid growth market.
Further, Seagate reported better than expected sales of its client hybrid drives during this quarter and is again forecasting for a sequential growth in the December quarter. Till-date Seagate has sold more than 12 million hybrids that reflect expanding interest in hybrid technology in the market.
Seagate is committed towards implementing a strategic and careful approach towards its capital allocation program. During this quarter, Seagate employed nearly $183 million to repurchase 3 million shares of stock, exceeding its base plan and reflecting its view of a competitive equity purchase price.
Seagate has tabled a base plan for increasing the fiscal year 2015 annual dividend by 10%. For a week earlier, Seagate declared a 26% increase in its annual dividend, signifying the company’s confidence in its future cash generation.
Shareholder friendly
Since the introduction of its dividend growth policy three years before, Seagate has far exceeded its planned annual increases illustrating its strong and continued commitment towards returning superior shareholder value. In the September quarter, Seagate also repurchased about $110 million of its higher coupon debt for reducing its overall debt service cost and maintaining its investment grade status.
The continued strength of Seagate’s core business and its unique ability to generate significant cash has allowed it to continue achieving growth adjacencies in cloud systems and solutions coupled with investing robustly in its flash technology platform.
Seagate has witnessed solid demand momentum for its storage portfolio created carefully and strategically throughout the entire year. Looking at the healthy September quarter transactions and fruitful conversations in progress with customers, the demand trends are estimated to remain healthy largely throughout all segments. The industry estimates for the market demand are expected to be about 145 million units in the December quarter. The product portfolio of Seagate is believed to be extremely well-positioned in this highly competitive demand environment.
The operating expenses for Seagate are believed to be nearly $555 million, including the recent investments made in its innovative cloud and flash platform technologies.
Conclusion
Hence, due to impressive growth in the end markets, Seagate looks on track to achieve strong growth in the long run. Hence, investors should consider this stock for the long run.
