Seagate Not Likely To Rebound Before 1Q24 As China's COVID Lockdowns & Inventory Buildup Weigh, Analyst Says

• Credit Suisse analyst Shannon Cross maintained Seagate Technology Holdings PLC (NASDAQ: STX) with a Neutral and raised the price target from $60 to $65.

• Seagate will likely report 2Q23 results on Jan. 25, 2023.

• The analyst expects 2Q23 revenue to decline 44% Y/Y to $1.75 billion (below the consensus of $1.82 billion), primarily reflecting weaker demand in China (COVID-19 lockdowns) and inventory digestion at U.S. cloud and OEM customers.

• The analyst thinks demand trends have not worsened. However, Cross does not expect a rebound until at least 1Q24, as inventory levels remain elevated.

• The analyst expects gross margin to decline 794 bps Y/Y to 22.8% on significant underutilization charges, albeit partially offset by a more excellent mix of higher capacity drives.

• Cross expects the operating margin to decline by 1,503 bps Y/Y to 4.9% and expects benefit from the restructuring plan (announced during 1Q23 earnings) starting in 3Q23.

• Therefore, Cross expects non-GAAP EPS of $0.04, below the consensus of $0.09.

• Also Read: Seagate Technology Poised For Early Cycle Rebound, Says Morgan Stanley Analyst

• Cross expects total HDD unit shipments to decline 50% Y/Y, including Mass Capacity down 40% Y/Y and Legacy 60% Y/Y.

• The volume decrease is primarily attributable to customers reducing inventory levels after several quarters of aggressive buying and continued weakness in China.

• The analyst expects underutilization charges to significantly impact profitability as Seagate cuts production to manage its and customer inventory levels.

• For 2Q23, Cross estimates a 22.8% gross margin, improving to 23.6% by 4Q23 as inventory levels stabilize and higher capacity HAMR drives the move to commercialization.

• Price Action: STX shares traded lower by 1.15% at $62.50 on the last check Tuesday.

• Photo Via Company

Latest Ratings for STX

Date	Firm	Action	From	To
Jan 2022	Benchmark	Maintains		Buy
Jan 2022	Stifel	Maintains		Buy
Jan 2022	Deutsche Bank	Maintains		Hold

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