Apr 19, 2005

Seagate Technology Reports Record Fiscal Third Quarter 2005 Results

Seagate Technology (NYSE: STX) today reported revenue of $1.97 billion, net income of $229 million, and diluted earnings per share of $0.45 for the quarter ended April 1, 2005. These results represent a 42% increase in revenue and a 44% increase in net income over the results from the year-ago quarter, and are an improvement from the guidance provided in the company’s March 7th business update. Income from operations for this quarter grew to $237 million compared to $53 million in the year-ago quarter.

“Disc drives are a central, enabling technology for the digital convergence that is driving the electronics industry, and the disc drive industry is experiencing strong revenue growth as a result,” said Bill Watkins, Seagate’s president and CEO. “Seagate’s strong sequential and year-over-year performance is a direct result of our unique ability to deliver the technology leadership, product leadership and cost leadership, helping to fuel the tremendous growth in consumer electronics applications and expanding the capabilities of traditional computing applications. Our broad product line is producing consistently strong results, countering even the seasonally weak periods in the disc drive industry, such as the March quarter. And moving forward, we are confident that Seagate will maintain strong revenue and earnings in the June quarter, which is then followed by what we expect to be a seasonally strong second half of calendar 2005.”

Consumer Electronics Products

Seagate maintained its leadership position in the consumer electronics market, the fastest growing segment in the disc drive industry. The company shipped a total of 4.2 million drives in the March quarter for handheld, gaming and DVR applications, an increase of 296% from the year-ago quarter and an increase of 24% quarter-over-quarter. Strong customer adoption of ST1, the industry’s highest capacity and most widely used 1-inch drive, continued during the quarter, resulting in shipments of 1.9 million units, a 30% increase quarter-over-quarter. During the quarter, Seagate began volume shipments of its 3-disc 400GB DB35 drive designed for capacity-intensive applications such as video on-demand, high-definition television recording and home media centers.

Mobile Computing Products

The March quarter marked Seagate’s third consecutive quarter of share growth in the mobile computing space as unit shipments climbed to 1.8 million units, an 85% increase from the year-ago quarter and a 44% increase from the December quarter. During the quarter, the company began volume shipments of its leading 5400RPM 100GB 2.5-inch disc drive for internal and external storage applications. The company has once again extended its technology leadership in this space with yesterday’s announcement of the industry’s first 5400RPM 120GB and 7200RPM 100GB notebook drives.

Enterprise Products

Seagate, for the second consecutive quarter, delivered a record number of enterprise drives as industry demand in this space reached record levels. Seagate shipped 3.4 million units, maintaining its leadership position in this space and growing shipments 38% year-over-year.

Desktop Products

In a seasonally down quarter, Seagate continued to lead the market with shipments of 15.5 million units. Seagate experienced strong demand for its products throughout the quarter in all channels and exited the quarter with less than 4 weeks of distribution channel inventory. Unit shipments of its Barracuda disc drives at capacities of 200GB and greater increased 43% sequentially, propelled by the introduction of its 3-disc, 400GB drive.

Pricing

The average selling price for all Seagate products, on a blended basis, increased almost three dollars over the December quarter. Price erosion on a “like for like” product basis during the March quarter was favorable to the historical norms, but slightly greater than the December quarter.

Business Outlook

Seagate is confident that, with the ongoing customer adoption of its extensive product portfolio, new revenue opportunities and solid operational execution, it is very well positioned to continue its strong financial performance during the June quarter, which is typically the slowest quarter of the year. As a result, the company expects June quarter revenue and earnings to be comparable to the March quarter results. Looking beyond the June quarter, the industry enters the seasonally stronger half of the year which under today’s environment would translate into growth in revenue and earnings from the levels of the March and June quarters. Seagate will provide a business update during the week of June 6, 2005.

Dividend

The company has declared a quarterly cash distribution of $0.08 per share to be paid on or before May 20, 2005 to all common shareholders of record as of May 6, 2005.

Conference Call

Seagate will hold a conference call to review the fiscal third quarter 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 April 19 at 5 p.m. Pacific Time through April 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: 5431827

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 January 28, 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
 
April 1,
2005
April 2,
2004
April 1,
2005
April 2,
2004
Revenue
$
1,969
$
1,388
$
5,374
$
4,888
               
Cost of revenue
1,492
1,087
4,241
3,658
Product development
164
169
474
505
Marketing and administrative
78
73
219
224
Restructuring costs, net
(2)
6
(1)
20
  Total operating expenses
1,732
 
1,335
 
4,933
 
4,407
 
   
       
Income from Operations
237
53
441
481
       
Interest income
10
4
23
13
Interest expense (13)   (11)   (35)   (35)  
Other, net
3
  __   12  
(1)
 
  Other income (expense), net __   (7)   __   (23)  
   
       
Income before income taxes
237
46
441
458
Provision for (benefit from) income taxes
8
(113)
14
(105)
 
Net income
$
229
$
159
$
427
$
563
 
Net income per share:  
  Basic
$
0.49
$
0.35
$
0.92
$
1.25
  Diluted
0.45
   
0.32
 
0.85
 
1.13
 
Number of shares used in per share calculations:  
  Basic
472
   
455
 
466
 
450
 
  Diluted
507
498
500
499
           



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

 
April 1,
2005
   
July 2,
2004 (a)
Assets        
Cash and cash equivalents
$
720
 
$
422
  Short-term investments
975
 
761
 
  Accounts receivable, net
988
 
690
 
  Affiliate accounts receivable   __
 
1
 
  Inventories
412
 
449
 
  Other current assets
127
 
138
 
   
 
  Total Current Assets
3,222
 
2,461
 
               
Property, equipment and leasehold improvements, net
1,346
 
1,301
 
  Other assets, net
189
 
180
 
   
 
  Total Assets
$
4,757
   
$
3,942
 
Liabilities and Shareholders' Equity        
  Accounts payable
$
1,005
   
$
740
 
  Accrued employee compensation
210
 
141
 
  Accrued expenses
331
 
315
 
  Accrued income taxes
48
 
48
 
  Current portion of long-term debt
4
 
4
 
   
 
  Total Current Liabilities
1,598
 
1,248
 
         
  Other liabilities
145
 
100
 
  Long-term debt, less current portion
738
 
739
 
   
 
  Total Liabilities
2,481
 
2,087
 
       
  Shareholders' Equity
2,276
 
1,855
 
 
 
  Total Liabilities and Shareholders' Equity
$
4,757
   
$
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)
 
Nine Months Ended

April 1,
2005
April 2,
2004
Operating Activities        
Net income
$
427
   
$
563
 
Adjustments to reconcile net income to net cash from operating activities:            
  Depreciation and amortization
345
 
321
 
  VERITAS tax indemnification __   (125)  
Other non-cash operating activities, net
15
 
4
 
Changes in operating assets and liabilities:    
    Current assets and liabilities  
96
     
(165)
 
  Non-current assets and liabilities  
45
     
(37)
 
   
 
  Net cash provided by operating activities
928
 
561
 
   
 
 
Investing Activities        
Acquisition of property, equipment and leasehold improvements  
(384)
     
(375)
 
Purchase of short-term investments
(3,381)
 
(3,119)
 
Maturities and sales of short-term investments  
3,164
     
2,935
 
Other investing activities, net
(24)
 
(37)
 
   
 
Net cash used in investing activities
(625)
 
(596)
 
   
 
               
Financing Activities        
Repayment of long-term debt
(1)
   
(4)
 
Issuance of common shares
80
 
89
 
Distributions to shareholders  
(84)
     
(63)
 
   
 
Net cash (used in) provided by financing activities
(5)
 
22
 
   
 
               
Increase (decrease) in cash and cash equivalents
298
 
(13)
 
Cash and cash equivalents at the beginning of the period
422
 
749
 
 
 
Cash and cash equivalents at the end of the period
$
720
 
$
736
 


Seagate Technology
Financial Highlights

         
Change from Prior
 
Percentage Change
 
Q3 FY05
Q2 FY05
Q3 FY04
 
Year
Quarter
 
Prior Yr
Prior Qtr
Units Shipped (000)
 
 
 
 
 
  
 
     Enterprise
3,442
3,337
2,499
943
105
38%
3%
     Desktop
15,544
16,319
13,511
2,032
(776)
15%
-5%
     Mobile
1,774
1,230
957
817
544
85%
44%
     Consumer Electronics
4,187
3,368
1,056
3,131
819
296%
24%
 
24,946
24,254
18,023
6,923
692
38%
3%
 
Total Revenue ($M)
$
1,969
$
1,847
$
1,388
$
 581
$
122
42%
7%
 
Average Selling Price
$
79
$
 76
$
77
$
2
$
 3
2%
4%
 
Gross Margin %
24.2%
20.6%
21.7%
 
Channel Mix
     OEM
70%
69%
68%
     Distribution
28%
29%
31%
     Retail
2%
2%
1%
 
Georgraphic Mix
     North America
30%
30%
32%
     Europe
28%
31%
29%
     Asia Pacific
42%
39%
39%
 
Inventory Metrics ($M)
     Raw Material/WIP
$
196
$
169
$
170
$
26
$
27
15%
16%
     Finished Goods
$
216
$
193
$
312
$
(96)
$
23
-31%
12%
     Total Inventory
$
412
$
362
$
482
$
 (70)
$
50
-15%
14%
 
Inventory Turns
14.5
16.2
9.0
5.5
(1.7)
 
Channel Inventory - Desktop
     Weeks on Hand
3.9
3.5
4.6
(0.7)
0.4
 
Cash Related Information ($M)
     Cash Flow from      Operations
$
433
$
381
$
233
$
200
$
 52
86%
14%
     Capital Investments
$
199
$
88
$
153
$
46
$
111
30%
126%
     Depreciation & Amort
$
    113
$
120
$
106
$
7
$
(7)
7%
-6%
     Days Sales 
     Outstanding
46
43
43
3
3
7%
7%
                                               
    *Some totals may not add due to rounding.