Jan 18, 2005

Seagate Technology Reports Record Fiscal Second Quarter 2005 Results

Quarterly shipments reach record high of 24.3 million units, including nearly 1.5 million 1-inch hard drives for handheld digital audio players

Provides strong March quarter outlook

Scotts Valley, CA – Seagate Technology (NYSE: STX) today reported revenue of $1.85 billion, net income of $144 million, and diluted earnings per share of $0.29 for the quarter ended December 31, 2004. These results are a significant increase over September quarter revenue of $1.56 billion, net income of $54 million and diluted earnings per share of $0.11 and are an improvement from the guidance provided in the company’s December 7th business update. The December quarter results compare to revenue of $1.76 billion, net income of $205 million, and diluted earnings per share of $0.41 in the year-ago quarter.

“Our solid financial performance reflects the unique strength of Seagate’s business model, which is successfully delivering technology leadership, product breadth and cost leadership,” said Bill Watkins, Seagate’s president and chief executive officer. “Over the past six months we further strengthened our competitive position with the launch of 12 new products that give Seagate access to 97% of the total available market for disc drives. Customer adoption of the new products continues across all markets, and is reflected in the significant financial contribution of those products to the December quarter results. 

“Our technology ownership combined with our integrated design and manufacturing have allowed Seagate to effectively leverage its leadership in traditional computing markets into new, higher-growth markets with only incremental product development costs. With the scale, technology leverage and cost advantage of our business model, we believe we will continue to capture new revenue opportunities and deliver more value to our customers and shareholders.”

Consumer Electronics Products

Seagate is the world’s leading provider of consumer electronics drives, shipping a total of 3.4 million drives in the December quarter. In particular, significant customer acceptance of ST1, the world’s first 1-inch drive with capacities up to 5GB, resulted in shipments of 1.5 million units, a 270% increase quarter-over-quarter. ST1 Series shipped to more than 30 customers in the December quarter, making it the most widely adopted 1-inch drive on the market. Seagate also expanded its offerings in the DVR market with a highly differentiated, industry-leading 3-disc 400GB disc drive designed for video on-demand, high-definition television recording and home media centers.

Mobile Computing Products

Seagate began shipping Momentus 5400.2, its new drive for notebook PCs that delivers the industry’s leading technology with capacities up to 100GB. Momentus 5400.2 significantly expands Seagate’s offerings for notebook systems and opens new revenue opportunities. Seagate shipped 1.2 million units into the mobile computing space during the quarter, up more than 80% from the September quarter.

Enterprise Products

Fueled by demand for its new Cheetah 10K and 15K enterprise drives, Seagate shipped a record 3.3 million enterprise drives, extending the company’s leadership position in this space. Seagate’s product development and innovation has delivered the most comprehensive enterprise product portfolio in the industry, with every capacity point, interface and form factor available today.

Desktop Products

Seagate’s early entry into delivering native SATA-based drives benefited the company during the quarter as customers accelerated their move to SATA drives for desktop environments. In addition, Seagate entered the market for high-capacity desktop products with a 3-disc, 400GB version of its award-winning Barracuda family of disc drives. Seagate shipped 16.3 million units during the quarter, of which 4.4 million were SATA-based drives.

Business Outlook

Seagate has executed well through its current product transition, driving increased customer adoption of its products and benefiting from the expected strong seasonal demand during the December quarter. Moving forward Seagate believes that, with its wide-array of new products and the increased market access these products provide, the company can offset the impact of typical industry seasonality in the March quarter. As a result, the company expects the March quarter results to be comparable or better than the December quarter results with revenue to be in the range of $1.84 to $1.87 billion, and diluted earnings per share to be in the range of $0.29 to $0.33, excluding any restructuring charges. Seagate will provide a business update during the week of March 7, 2005 at which time additional information regarding the company’s financial expectations will be discussed.

Dividend

The company has declared a quarterly cash distribution of $0.06 per share to be paid on or before February 18, 2005 to all common shareholders of record as of February 4, 2005.

Conference Call

Seagate will hold a conference call to review the fiscal second quarter results at 2:30 p.m. Pacific Time today. The live webcast of the conference call can be accessed online at www.seagate.com. A replay of the call will be available beginning today at 5:00 p.m. Pacific Time through January 25 at 8:59 p.m. Pacific Time. The replay can be accessed from www.seagate.com or by telephone as follows:

USA: 800-642-1687
International: 706-645-9291
Access code: 2917015

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 introduce, qualify, manufacture in volume on a cost-effective basis and sell on a timely basis and with acceptable quality the new disc drive products announced by the company in June; 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 October 29, 2004. 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
 
Six Months Ended
 
December 31,
2004
January 2,
2004
December 31,
2004
January 2,
2004
Revenue
$
1,847
 
$
1,760
 
$
3,405
 
$
3,500
 
                       
Cost of revenue  
1,467
   
1,299
   
2,749
   
2,571
 
Product development  
158
   
166
   
310
   
335
 
Marketing and administrative  
75
   
73
   
140
   
151
 
Restructuring costs, net  
__
   
4
   
2
   
15
 
  Total operating expenses  
1,700
   
1,542
   
3,201
   
3,072
 
   
       
Income from Operations  
147
   
218
   
204
   
428
 
       
Interest income  
7
   
5
   
13
   
9
 
Interest expense   (11)     (12)     (22)     (24)  
Other, net  
5
    __     9    
(2)
 
  Other income (expense), net   1     (7)     __     (17)  
   
       
Income before income taxes  
148
   
211
   
204
   
411
 
Provision for (benefit from) income taxes  
4
   
6
   
6
   
8
 
 
Net income
$
144
 
$
205
 
$
198
 
$
403
 
 
Net income per share:        
  Basic
$
0.31
 
$
0.46
 
$
0.43
 
$
0.90
 
  Diluted  
0.29
   
0.41
   
0.40
   
0.81
 
Number of shares used in per share calculations:        
  Basic  
466
   
450
   
464
   
448
 
  Diluted  
500
   
500
   
497
   
500
 
           



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

 
December 31,
2004
   
July 2,
2004 (a)
Assets              
Cash and cash equivalents
$
646
   
$
422
 
  Short-term investments  
830
     
761
 
  Accounts receivable, net  
878
     
690
 
  Affiliate accounts receivable   1
 
     
1
 
  Inventories  
362
     
449
 
  Other current assets  
148
     
138
 
   
 
  Total Current Assets  
2,865
     
2,461
 
               
Property, equipment and leasehold improvements, net  
1,261
     
1,301
 
  Other assets, net  
184
     
180
 
   
 
  Total Assets
$
4,310
   
$
3,942
 
Liabilities and Shareholders' Equity              
  Accounts payable
$
878
   
$
740
 
  Accrued employee compensation  
169
     
141
 
  Accrued expenses  
304
     
315
 
  Accrued income taxes  
48
     
48
 
  Current portion of long-term debt  
4
     
4
 
   
 
  Total Current Liabilities
 
1,418
     
1,248
 
               
  Other liabilities  
114
     
100
 
  Long-term debt, less current portion  
738
     
739
 
   
 
  Total Liabilities
 
2,270
     
2,087
 
             
  Shareholders' Equity  
2,040
     
1,855
 
 
 
  Total Liabilities and Shareholders' Equity
$
4,310
   
$
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)
 
Six Months Ended

December 31,
2005
January 2,
2004
Operating Activities              
Net income
$
198
   
$
403
 
Adjustments to reconcile net income to net cash from operating activities:              
  Depreciation and amortization  
233
     
216
 
  VERITAS tax indemnification   __       __  
Other non-cash operating activities, net  
11
     
1
 
Changes in operating assets and liabilities:              
    Current assets and liabilities  
46
     
(266)
 
  Non-current assets and liabilities  
9
     
(26)
 
   
 
  Net cash provided by operating activities
 
497
     
328
 
   
 
 
Investing Activities              
Acquisition of property, equipment and leasehold improvements  
(185)
     
(222)
 
Purchase of short-term investments  
(2,030)
     
(2,106)
 
Maturities and sales of short-term investments  
1,960
     
1,974
 
Other investing activities, net  
(17)
     
(35)
 
   
 
Net cash used in investing activities  
(272)
     
(389)
 
   
 
               
Financing Activities              
Repayment of long-term debt  
(1)
     
(2)
 
Issuance of common shares  
41
     
53
 
Distributions to shareholders  
(41)
     
(36)
 
   
 
Net cash (used in) provided by financing activities  
(1)
     
15
 
   
 
               
Increase (decrease) in cash and cash equivalents
 
224
     
(46)
 
Cash and cash equivalents at the beginning of the period  
422
     
749
 
 
 
Cash and cash equivalents at the end of the period
$
646
   
$
703
 

 

Seagate Technology
Financial Highlights

         
Change from Prior
 
Percentage Change
 
Q2 FY05
Q1 FY05
Q2 FY04
 
Year
Quarter
 
Prior Yr
Prior Qtr
Units Shipped (000)                
 
 
   
 
       
 
  
 
         
     Enterprise  
3,337
   
3,016
   
2,735
     
602
   
321
     
22%
   
11%
 
     Desktop  
16,319
   
15,014
   
16,062
     
257
   
1,305
     
2%
   
9%
 
     Mobile  
1,230
   
677
   
1,896
     
(666)
   
553
     
-35%
   
82%
 
     Consumer Electronics  
3,368
   
2,928
   
1,021
     
2,347
   
440
     
230%
   
15%
 
   
24,254
   
21,634
   
21,714
     
2,540
   
2,619
     
12%
   
12%
 
                                               
Total Revenue ($M)
$
1,847
 
$
1,558
 
$
1,760
   
$
 87
 
$
289
     
5%
   
19%
 
                                               
Average Selling Price
$
76
 
$
 72
 
$
81
   
$
(5)
 
$
 4
     
-6%
   
6%
 
                                               
Gross Margin %  
20.6%
   
17.7%
   
26.2%
                             
                                               
Channel Mix                                              
     OEM  
69%
   
71%
   
57%
                             
     Distribution  
29%
   
28%
   
43%
                             
     Retail  
2%
   
1%
   
0%
                             
                                               
Georgraphic Mix                                              
     North America  
30%
   
33%
   
26%
                             
     Europe  
31%
   
29%
   
33%
                             
     Asia Pacific  
39%
   
38%
   
41%
                             
                                               
Inventory Metrics ($M)                                              
     Raw Material/WIP
$
169
 
$
164
 
$
133
   
$
37
 
$
6
     
28%
   
4%
 
     Finished Goods
$
193
 
$
215
 
$
250
   
$
(57)
 
$
(22)
     
-23%
   
-10%
 
     Total Inventory
$
362
 
$
379
 
$
383
   
$
 (20)
 
$
(16)
     
-5%
   
-4%
 
                                               
Inventory Turns  
16.2
   
13.5
   
13.6
     
2.6
   
2.7
               
                                               
Channel Inventory - Desktop                                              
     Weeks on Hand  
3.5
   
4.6
   
7.5
     
(4.0)
   
1.1
               
                                               
Cash Related Information ($M)                                              
     Cash Flow from      Operations
$
381
 
$
116
 
$
93
   
$
288
 
$
265
     
310%
   
228%
 
     Capital Investments
$
88
 
$
97
 
$
134
   
$
(46)
 
$
(9)
     
-34%
   
-9%
 
     Depreciation & Amort
$
    119
 
$
113
 
$
105
   
$
14
 
$
6
     
13%
   
5%
 
     Days Sales 
     Outstanding
 
43
   
48
   
47
     
(4)
   
(5)
     
-9%
   
-10%
 
                                               
 
    *Some totals may not add due to rounding.