Why Is Seagate (STX) Down 5.3% Since Last Earnings Report?

Core Viewpoint - Seagate's recent earnings report shows significant improvements in both revenue and earnings, driven by strong demand for mass-capacity products, particularly in the cloud sector, despite a recent decline in share price [1][2][3]. Financial Performance - Seagate reported Q1 fiscal 2025 non-GAAP earnings of $1.58 per share, exceeding estimates by 6.8% and showing a substantial improvement from a non-GAAP loss of 22 cents per share in the same quarter last year [2]. - Non-GAAP revenues reached $2.168 billion, surpassing estimates by 2.4%, and reflecting a 49% year-over-year increase and a 15% sequential increase [3]. - Total HDD revenues accounted for 92.4% of total revenues, rising 55% year-over-year to $2.004 billion, with a sequential increase of 16% [10]. Product and Market Dynamics - Mass capacity revenues surged 70% year-over-year to $1.733 billion, driven by strong nearline cloud demand and increasing enterprise sales [4]. - Nearline cloud demand was primarily fueled by cloud service providers in the U.S., with positive trends observed globally [5]. - Seagate shipped 137.5 exabytes of HDD storage, marking a 54% year-over-year increase and a 20% sequential increase [6]. Margin and Cost Structure - Non-GAAP gross margin improved to 33.3% from 19.8% in the prior year, attributed to price adjustments and a favorable product mix [11]. - Non-GAAP operating income rose to $442 million from $40 million a year ago, with operating margin increasing to 20.4% from 2.8% [12]. Cash Flow and Balance Sheet - As of September 27, 2024, cash and cash equivalents were $1.239 billion, down from $1.358 billion as of June 28 [13]. - Cash flow from operations was $95 million, significantly lower than $434 million in the previous quarter, reflecting efforts to normalize working capital [14]. Future Outlook - Management anticipates Q2 fiscal 2025 revenues to be around $2.3 billion, with continued improvements expected in mass capacity due to strengthening demand from global cloud customers [16]. - Non-GAAP earnings are projected to be $1.85 per share, with operating expenses expected to rise slightly to $285 million [18]. - The company expects margin performance to benefit from a higher mix of mass capacity revenues and ongoing pricing actions [17].