Cloud storage: Lower cost and increase uptime

Seagate's third financial 2009 quarter revenue was better than feared but still lower than the previous quarter, and the company anticipates more restructuring to lower costs, indicating more jobs may be lost.

The storage firm reported preliminary Q3 fy09 revenues of $2.1bn, compared to Q2 fy09's $2.27bn, better than the outlook of $1.6-2.0bn, and said its gross margin declined 700 basis points (seven hundredths of a per cent) to 7 - 7.5 per cent compared to the previous quarter. The indications are that there is going to be another quarterly loss, following the $496m lost in the previous quarter.

Seagate reckons that the total addressable market (TAM) for enterprise hard drives declined by 20 per cent compared to the previous quarter. Its share of that market remained constant and it believes it gained share in the 2.5-inch and 3.5-inch ATA disk drive market segments.

Product development and marketing/administrative costs are expected to be approximately $380m, including approximately $10m of accelerated depreciation, which is favorable compared to the original outlook of $395m.

Chairman and CEO Stephen Luczo said Seagate is addressing debt repayment problems (near- to mid-term liquidity requirements) through changes to a revolving credit agreement and selling $430m of senior secured second-priority notes due in 2014.

For the final fy09 period, Seagate expects the TAM to at the same level and expects its revenue to be in the range of $1.9bn to $2.0bn, sequentially down, but its gross margin should improve by 300 basis points. Product development and marketing/administrative costs are expected to be approximately $340m for this June quarter, with the targeted run rate being less than $300m/quarter which is expected to be achieved during fy 2010. That suggests another loss for the next quarter.

Seagate said: "As part of the company’s ongoing cost structure alignment, additional restructuring actions are currently being addressed. The company believes opportunities exist to reduce operating costs in product development, marketing/administrative and manufacturing areas to target a cost structure that generates positive cash flow and earnings within its fiscal year 2010. The estimated cost of any additional restructuring activities has yet to be determined."

That seems pretty clear; more jobs will go and soon.

Seagate is pulling itself out of the financial mire, but there is a way to go yet - hopefully red ink will be absent from the balance sheet in the second or third quarters of fiscal 2010. ®

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