Seagate And Western Digital Battled For Market Share In Q2

Shares of Seagate Technology PLC (NASDAQ: STX) soared higher by more than 20 percent Wednesday morning after the company reported its third-quarter results on Tuesday.

Jefferies' James Kisner commented in a research report that Seagate's report was "solid," but its gross margin was a "blow-out" at 31.8 percent, which exceeded the Street's expectations of 29.9 percent.

Seagate attributed its gross margin strength to the ongoing shift toward higher capacity products across the portfolio including surveillance, home NAS, high-capacity PC and near-line drives.

Kisner added that Seagate's fiscal third-quarter and full-year 2017 guidance was "very nice," as revenue of $2.7 billion for the upcoming quarter came in ahead of the Street's estimate of $2.6 billion, while gross margin is expected to come in the 30 percent range versus estimates of 29.1 percent.

For the full year, Seagate expects to earn $4.50 per share, which is an "achievable" objective and head of the Street's estimates of $3.75 per share and the analyst's own estimates of $4.40 per share.

Market Share Battle

Kisner also noted that in the business critical segment, Seagate likely lost around 9 points of unit share, most of which may have flown to Western Digital Corp (NASDAQ: WDC).

Similarly, Seagate likely lost four points of market share in the mission critical business to Toshiba Corp (USA) (OTC: TOSYY), but it is also possible there is upside for Western Digital as well.

Bottom line, Kisner maintains a Buy rating on Seagate with price target raised to $50 from a previous $44 based on his belief that the industry the company operates in will continue benefiting from data growth in the cloud and improving competitive dynamics.

Image Credit: By Jailbird (Self-photographed) [CC BY-SA 2.0 de], via Wikimedia Commons

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