A job cut, new CEO, and a Q4 earnings miss sent Seagate Technology (NASDAQ: STX) stock near yearly lows. It also dragged Western Digital (NASDAQ: WDC) stock down, too. But STX has a fundamental problem: as SSDs replace HDDs (hard disk drives), Seagate’s revenue will fall steadily.
Seagate’s revenue fell nearly 10% from last year to $2.22 billion in the HDD division. Sales of flash devices fell 6.5% to $186 million. The company warned that its $4.50 per share EPS forecast will not be met for the year. Near-term, Q1 revenue will trend below the $2.7 billion consensus (at $2.5 billion - $2.6 billion). Unfortunately, Seagate is in a secular decline. Unlike Western Digital, which bought SanDisk to prosper in SSD sales, STX is not strategically ready for the product shift.
Seagate must secure a NAND supplier and build an SSD business. HDDs are out of favor. Cloud storage companies will still need HDDs but as AI, big data, and super computers demand fast disk I/O, SSD demand will outpace demand for HDDs.
Takeaway
Investors should not be surprised that analysts downgraded and adjusted the price target on STX stock lower. BMO set a $35 PT (price target) while UBS set a $28 PT. Those warnings are too little, too late. The bulls holding the stock already lost mone
