Jul 19, 2005

Seagate Technology Reports Record Fiscal Fourth Quarter And Year-End 2005 Results

- Quarterly revenue increases 63% to record $2.18 billion, net income grows to a record $280 million, and shipments reach record 27.3 million units

- Annual revenue increases 21% to record $7.55 billion, net income rises 34% to record $707 million, and shipments reach record 98 million units

Scotts Valley, CA – Seagate Technology (NYSE: STX) today reported revenue of $2.18 billion, net income of $280 million, and diluted earnings per share of $0.55 for the quarter ended July 1, 2005. This compares to revenue of $1.34 billion, a net loss of $33 million and a loss per share of $0.07 in the year-ago quarter. Seagate shipped a record 27.3 million disc drives in the quarter, representing a 49% increase from the year-ago quarter.  

For the fiscal year ended July 1, 2005, Seagate reported revenue of $7.55 billion, net income of $707 million and diluted earnings per share of $1.41. This compares to revenue of $6.22 billion, net income of $529 million and diluted earnings per share of $1.06 for the fiscal year ended July 2, 2004. Seagate shipped a total of 98 million units during fiscal year 2005, an increase of 24% over fiscal year 2004.

“With record revenue, record net income, and record unit shipments, Seagate has just delivered the strongest quarterly performance that the disc drive industry has ever seen,” said Bill Watkins, Seagate Technology president and CEO.  “The considerable growth we are experiencing is evidence of a significant evolutionary change that is occurring in the disc drive industry as our products have become a central, enabling technology for global digital convergence.

“During the fiscal year we saw growth in every major market of our business. Most notably, in the consumer electronics space – a market that independent analysts anticipate will reach $11 billion by 2008 – we’re seeing the widespread adoption of disc drives in applications that include game boxes, DVRs, set-top boxes, digital music players, handheld voice recorders, handheld GPS systems, and imaging systems, with future growth applications to include digital still and video cameras, PDAs, automotive diagnostic, navigation and entertainment systems, cell phones, personal media players, and other converged handheld devices.

“With our broad and growing product portfolio the company is well-positioned to continue addressing the dynamic set of customers and applications across the compute and various CE markets, and deliver the strong financial performance that our shareholders have come to expect.”

Consumer Electronics Products

During the June quarter Seagate extended its leadership position in the consumer electronics (CE) market, the fastest growing market in the disc drive industry. The company shipped a record 6.2 million drives in the June quarter for DVR, handheld and gaming applications, an increase of 222% from the year-ago quarter and an increase of 49% quarter-over-quarter. For the fiscal year, Seagate shipped 16.7 million disc drives for CE applications, a 165% increase over the 6.3 million the company shipped in fiscal year 2004.

In June, Seagate announced new breakthrough products that will be available in the coming months for a variety of CE applications, including an 8GB 1-inch drive for handheld devices, a low-cost 2.5-inch drive for DVRs and game consoles, a rugged 2.5-inch drive for cars and a ½ terabyte 3.5-inch drive for DVRs.

Mobile Computing Products

In the June quarter Seagate’s shipments of drives for the mobile computing space climbed to 2.0 million units, a 342% increase from the year-ago quarter and a sequential increase of 15%. Seagate shipped a total of 5.7 million units in fiscal year 2005, up from 3.6 million units in fiscal year 2004. During the June quarter, Seagate announced two new products that will strengthen the company’s broadening 2.5-inch product portfolio – Momentus 5400.3, the industry’s first 2.5-inch, 160GB notebook drive utilizing the next-generation perpendicular recording technology, and Momentus FDE, a notebook drive with hardware-based encryption technology.

Enterprise Products

Seagate shipped a record 3.7 million units and maintained its leadership position as industry demand in this space reached record levels. The 3.7 million units represent an increase of 300,000 units sequentially and 1.2 million units or 48% from the year-ago quarter. For the fiscal year, Seagate shipments grew to a record 13.5 million units, compared to 10.4 million units in fiscal year 2004, an increase of 30%.

Desktop Products

Seagate continued to lead the market with 15.3 million units shipped, up 15% year-over-year. Shipments of the company’s high-capacity – 200GB and larger – desktop-class drives grew 37%, sequentially. Total shipments grew to 62.2 million units for fiscal year 2005, up from 59 million units in fiscal 2004. Seagate experienced strong demand for its products throughout the quarter in all channels and exited the quarter with approximately 4.5 weeks of distribution channel inventory.

In June, Seagate announced a number of additions to its industry-leading desktop and personal compute product line. These products include: the Barracuda 7200.9, a massive ½ terabyte, 7200 RPM, 3.5-inch drive for high-performance PC applications; LD25, a cost-effective, power-efficient 2.5-inch drive for small footprint media PCs; the Seagate External Hard Drive, a ½ terabyte, one-touch back-up external drive; and, the Portable External Drive, a 120GB, 2.5-inch external drive with Firewire connectivity.

Pricing

The average selling price for all Seagate products, on a blended basis, increased approximately $1.00 over the March quarter. Price erosion on a “like for like” product basis during the June quarter was slightly higher than the March quarter, but lower than historical norms and lower than the company’s expectations entering the quarter.

Business Outlook

Seagate is confident in its extensive and growing product portfolio and the new revenue opportunities that they will deliver. This, together with the company’s ongoing solid operational execution, favorably positions the company to continue its strong financial performance in the September quarter and throughout the remainder of the calendar year. As a result, the company expects to report substantial year-over-year growth in the September quarter with revenue and earnings to be comparable to the record levels of revenue and income from operations reported for the June quarter, excluding costs associated with expensing stock options. This outlook for the September quarter would represent an increase of approximately 40% in revenue and 393% in operating income from the year-ago quarter.

Dividend

The company has declared a quarterly cash distribution of $0.08 per share to be paid on or before August 19, 2005 to all common shareholders of record as of August 5, 2005.

Conference Call

Seagate will hold a conference call to review the fiscal fourth quarter and year-end results at 2:00 p.m. Pacific Time today. The conference call can be accessed online at www.seagate.com or by telephone as follows:

USA: (877) 223-6202
International: (706) 679-3742

Replay

A replay will be available beginning July 19 at 5 p.m. Pacific Time through July 26 at 8:59 p.m. Pacific Time. The replay can be accessed from www.seagate.com/newsinfo/invest or by telephone as follows:

USA: (800) 642-1687
International: (706) 645-9291
Access code: 7599756

For more information please visit: http://www.seagate.com/newsinfo/invest/financial_info

About Seagate

Seagate is the worldwide leader in the design, manufacturing and marketing of hard disc drives, providing products for a wide-range of Enterprise, Desktop, Mobile Computing, and Consumer Electronics applications. Seagate's business model leverages technology leadership and world-class manufacturing to deliver industry-leading innovation and quality to its global customers, and to be the low cost producer in all markets in which it participates. The company is committed to providing award-winning products, customer support and reliability to meet the world's growing demand for information storage. Seagate can be found around the globe and at www.seagate.com.

Safe Harbor

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, but are not limited to, statements related to future financial performance, price and product competition, customer demand for our products, and general market conditions. These forward-looking statements are based on information available to Seagate as of the date of this release and current expectations, forecasts and assumptions and involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated by these forward-looking statements. Such risks and uncertainties include a variety of factors, some of which are beyond the company's control. In particular, such risks and uncertainties include the variable demand and the aggressive pricing environment for disc drives; dependence on the company’s ability to successfully manufacture in increasing volumes on a cost-effective basis and with acceptable quality its current disc drive products; and the adverse impact of competitive product announcements and possible excess industry supply with respect to particular disc drive products. Information concerning additional factors that could cause results to differ materially from those projected in the forward-looking statements is contained in the company's Annual Report on Form 10-K/A  as filed with the U.S. Securities and Exchange Commission on September 3, 2004 and in the company’s Quarterly Report on Form 10-Q as filed with the U.S. Securities and Exchange Commission on April 29, 2005. These forward-looking statements should not be relied upon as representing the company's views as of any subsequent date and Seagate undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date they were made.

# # #

Seagate Technology
Condensed Consolidated Statements of Operations

(In millions, except per share data)
(Unaudited)

       
Three Months Ended
 
Nine Months Ended
 
July1,
2005
July 2,
2004
July 1,
2005
July 2,
2004(a)
Revenue
$
2,179
 
$
1,336
 
$
7,553
 
$
7,224
 
                       
Cost of revenue  
1,639
   
1,107
   
5,880
   
4,765
 
Product development  
171
   
162
   
645
   
666
 
Marketing and administrative  
87
   
65
   
306
   
290
 
Restructuring costs, net  
1
   
39
   
__
   
59
 
  Total operating expenses  
1,898
   
1,373
   
6,831
   
5,780
 
   
       
Income(loss) from Operations  
281
   
(37)
   
722
   
444
 
       
Interest income  
13
   
4
   
36
   
17
 
Interest expense   (13)     (10)     (48)     (45)  
Other, net  
10
    13     22    
12
 
  Other income (expense), net   10     7     10     (16)  
   
       
Income(loss) before income taxes  
291
   
(30)
   
732
   
428
 
Provision for (benefit from) income taxes  
11
   
3
   
25
   
(101)
 
 
Net income
$
280
 
$
(33)
 
$
707
 
$
529
 
 
Net income per share:        
  Basic
$
0.59
 
$
(0.07)
 
$
1.51
 
$
1.17
 
  Diluted  
0.55
   
(0.07)
   
1.41
   
1.06
 
Number of shares used in per share calculations:        
  Basic  
475
   
459
   
468
   
452
 
  Diluted  
510
   
459
   
502
   
498
 
           



 
Seagate Technology
Condensed Consolidated Balance Sheets
(In millions)
(Unaudited)

 
April 1,
2005
   
July 2,
2004 (a)
Assets              
Cash and cash equivalents
$
746
   
$
422
 
  Short-term investments  
1.090
     
761
 
  Accounts receivable, net  
1.094
     
690
 
  Affiliate accounts receivable   __
 
     
1
 
  Inventories  
431
     
449
 
  Other current assets  
141
     
138
 
   
 
  Total Current Assets  
3,502
     
2,461
 
               
Property, equipment and leasehold improvements, net  
1,529
     
1,301
 
  Other assets, net  
213
     
180
 
   
 
  Total Assets
$
5,244
   
$
3,942
 
Liabilities and Shareholders' Equity              
  Accounts payable
$
1,108
   
$
740
 
  Accrued employee compensation  
266
     
141
 
  Accrued expenses  
356
     
315
 
  Accrued income taxes  
46
     
48
 
  Current portion of long-term debt  
4
     
4
 
   
 
  Total Current Liabilities
 
1,780
     
1,248
 
               
  Other liabilities  
187
     
100
 
  Long-term debt, less current portion  
736
     
739
 
   
 
  Total Liabilities
 
2,703
     
2,087
 
             
  Shareholders' Equity  
2,541
     
1,855
 
 
 
  Total Liabilities and Shareholders' Equity
$
5,244
   
$
3,942
 
 
(a)
The information in this column was derived from the Company’s audited consolidated balance sheet as of July 2, 2004.

 

Seagate Technology
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
 
Fiscal Year Ended

July 1,
2005
July 2,
2004(a)
Operating Activities              
Net income
$
707
   
$
529
 
Adjustments to reconcile net income to net cash from operating activities:              
  Depreciation and amortization  
466
     
422
 
  VERITAS tax indemnification   __       (125)  
Other non-cash operating activities, net  
19
     
17
 
Changes in operating assets and liabilities:              
    Current assets and liabilities  
132
     
(184)
 
  Non-current assets and liabilities  
104
     
(24)
 
   
 
  Net cash provided by operating activities
 
1,428
     
635
 
   
 
 
Investing Activities              
Acquisition of property, equipment and leasehold improvements  
(691)
     
(605)
 
Purchase of short-term investments  
(4,796)
     
(4,143)
 
Maturities and sales of short-term investments  
4,465
     
3,822
 
Other investing activities, net  
(47)
     
(36)
 
   
 
Net cash used in investing activities  
(1,069)
     
(962)
 
   
 
               
Financing Activities              
Repayment of long-term debt  
(3)
     
(6)
 
Issuance of common shares  
90
     
96
 
Distributions to shareholders  
(122)
     
(90)
 
   
 
Net cash (used in) provided by financing activities  
(35)
     
__
 
   
 
               
Increase (decrease) in cash and cash equivalents
 
324
     
(327)
 
Cash and cash equivalents at the beginning of the period  
422
     
749
 
 
 
Cash and cash equivalents at the end of the period
$
746
   
$
422
 

 

Seagate Technology
Financial Highlights

         
Change from Prior
 
Percentage Change
 
Q4 FY05
Q3 FY05
Q4 FY04
 
Year
Quarter
 
Prior Yr
Prior Qtr
Units Shipped (000)                
 
 
   
 
       
 
  
 
         
     Enterprise  
3,731
   
3,442
   
2,566
     
1,165
   
289
     
38%
   
3%
 
     Desktop  
15,309
   
15,544
   
13,356
     
1,953
   
(235)
     
15%
   
-5%
 
     Mobile  
2,033
   
1,774
   
460
     
1,573
   
259
     
85%
   
44%
 
     Consumer Electronics  
6,222
   
4,187
   
1,931
     
4,291
   
2,035
     
296%
   
24%
 
   
27,295
   
24,947
   
18,313
     
8,982
   
2,348
     
38%
   
3%
 
                                               
Total Revenue ($M)
$
2,179
 
$
1,969
 
$
1,336
   
$
 843
 
$
210
     
42%
   
7%
 
                                               
Average Selling Price
$
80
 
$
 79
 
$
73
   
$
7
 
$
 1
     
2%
   
4%
 
                                               
Gross Margin %  
24.8%
   
24.2%
   
17.1%
                             
                                               
Channel Mix                                              
     OEM  
76%
   
70%
   
74%
                             
     Distribution  
23%
   
28%
   
25%
                             
     Retail  
1%
   
2%
   
1%
                             
                                               
Georgraphic Mix                                              
     North America  
31%
   
30%
   
34%
                             
     Europe  
24%
   
28%
   
26%
                             
     Asia Pacific  
45%
   
42%
   
40%
                             
                                               
Inventory Metrics ($M)                                              
     Raw Material/WIP
$
188
 
$
196
 
$
130
   
$
58
 
$
(8)
     
45%
   
-4%
 
     Finished Goods
$
243
 
$
216
 
$
319
   
$
(76)
 
$
27
     
-24%
   
13%
 
     Total Inventory
$
431
 
$
412
 
$
449
   
$
 (18)
 
$
19
     
-4%
   
5%
 
                                               
Inventory Turns  
15.2
   
14.5
   
9.9
     
5.3
   
0.7
               
                                               
Channel Inventory - Desktop                                              
     Weeks on Hand  
4.5
   
3.9
   
5.0
     
(0.5)
   
0.6
               
                                               
Cash Related Information ($M)                                              
     Cash Flow from      Operations
$
500
 
$
433
 
$
73
   
$
427
 
$
 67
     
585%
   
15%
 
     Capital Investments
$
307
 
$
199
 
$
230
   
$
77
 
$
108
     
33%
   
54%
 
     Depreciation & Amort
$
    121
 
$
113
 
$
100
   
$
21
 
$
8
     
21%
   
7%
 
     Days Sales 
     Outstanding
 
46
   
46
   
47
     
(1)
   
_
     
-2%
   
0%
 
                                               
 
    *Some totals may not add due to rounding.