Data storage solutions company Seagate Technology (NYSE: STX)
stock has had a stellar 2021 peaking out at $106.22 in May but shares have fallen back to reality in the mid $80s. The makers of legacy hard drives (HDDs) and flash drives is seeing robust demand
for storage thanks to the unrelenting need to store data. The pandemic spurred consumer work-at-home
trend bolstering the hunger for data storage and it hasn’t seen a reversion in demand
even with the post-pandemic reopening
. The growth in cloud computing
is a powerful tailwind
but it's also joined by the growth in decentralized blockchain storage applications. Years of dwindling top-line HDDs and solid-state drives (SSDs) have reversed like a tsunami with crypto blockchain storage needs. Prudent investors seeking exposure in the mass capacity data storage segment in the cloud and decentralized crypto can watch for pullbacks in shares of Seagate Technology.
Q4 Fiscal 2021 Earnings Release
On July 21, 2021, Seagate released its fiscal fourth-quarter 2021 results for the quarter ending June 2021. The Company reported non-GAAP earnings-per-share (EPS) profit of $2.00 excluding non-recurring items versus consensus analyst estimates for a profit of $1.88, a $0.12 beat. Revenues grew 19.7% year-over-year (YoY) to $3.01 billion beating analyst estimates for $2.98 billion. Seagate CEO Dave Mosley commented, “Seagate delivered very strong June quarter results achieving the highest revenue in the last 6 years and the highest non-GAAP EPS in 9 years, which capped a fiscal 2021 in which we outperformed our expectations. Demand for data is rapidly accelerating in the cloud and at the edge, driving secular growth for mass capacity data storage. Seagate’s industry-leading product portfolio for mass data infrastructure places the company in an outstanding position to capitalize on robust demand trends, generate solid and increasing free cash flow and achieve our long-term financial objectives.”
Seagate raised its guidance for first Q 2022 revenues to come in between $2.95 billion to $3.25 billion compared to $2.96 consensus analyst estimates. The Company expected EPS between $2.05 to $2.35 versus $1.88 consensus analyst estimates.
Conference Call Takeaways
CEO Mosley set the tone, Seagate is entering this recovery period in a very strong position, helped by the fact that we executed incredibly well throughout the crisis. For fiscal year ’21, we generated nearly 2% year-over-year revenue growth, exceeding our expectations. We grew operating profits faster than sales and achieved an operating margin of 15.4% for the year, showing the leverage in the business, and we returned a substantial amount of capital to shareholders, including $2.7 billion in dividends and share repurchases, retiring more than 13% of our outstanding shares in fiscal 2021. In addition to recording strong financial results, our innovation engine has not slowed down. We extended our HDD technology leadership, as evidenced by Seagate being the first company to commercialize HAMR technology and the first to deliver dual actuator performance drives, which are now shipping in high volume to support multiple customers. We’ve leveraged our areal density gains to streamline our product road map, making us better able to meet changing customer demand requirements while maintaining an attractive cost profile. We also leveraged the strength of our common mass capacity platform to execute our 18 terabyte RAM plans to meet customer demand. We expect to begin shipping 20 terabyte PMR drives in the second half of this calendar year. Finally, we expanded our product and service offerings with the launch of Lyve edge-to-cloud platforms and remain on track with the build-out of our four live cloud metro edge locations by calendar year-end.”
Decentralized Crypto Storage Growth
CEO Mosley addressed crypto, Let’s turn now to the current market environment, starting with an area that has garnered significant interest in recent weeks. Storage center blockchains such as those used by Filecoin for decentralized storage applications, or Chia cryptocurrency which is considered an environmentally friendly alternative to other blockchains that utilize energy-intensive computational power to validate transactions, have significant interest. During the June quarter, we saw a meaningful increase in HDD demand due in part to the initial build-out of the Chia net space, which is comprised of both new and repurposed HDDs. By our estimation, new Chia demand represented at most a mid-single digit percentage of total industry exabyte shipments during the quarter, primarily into the distribution channel. This incremental demand served to tighten the HDD supply dynamics in an increasingly robust demand environment. While the future growth outlook in this space remains unclear, we are excited by the potential applications associated with innovations in decentralized file storage.”
STX Opportunistic Pullback Levels
Using the rifle charts on the weekly and daily time frames provides a precision view of the price action playing field for STX shares. The weekly rifle chart peaked near the $106.83 Fibonacci (fib) level before plunging into the $70s. The weekly 5-period moving average (MA) is falling at $88.07 as it starts to breakdown as confirmed by the weekly stochastic crossing down. The weekly Bollinger Bands (BBs) have been in compression which precedes a price range expansion as the BBs curve outwards. The weekly lower BBs are starting to expand at $78.42. The daily rifle chart is breaking down after the daily market structure high (MSH) sell triggered on the fall under $90.11. The daily market structure low (MSL) buy trigger attempted at $86.87 break, but flatly rejected as the stochastic mini pup failed forming a crossover down. Prudent investors can monitor for opportunistic pullback levels at the $82.82 fib, $79.99 fib, $77.00 fib, $75.62 fib, $73.02 fib, $70.05 fib, and the $66.09 fib. The upside trajectories range from the $93.73 fib up towards the $110.49 fib level.