Seagate misses estimates as growth slows in cloud business

By Lehar Maan

(Reuters) - Hard-disk drive maker Seagate Technology Plc's (NSQ:STX - News) second-quarter results missed analysts' estimates as growth slowed in its cloud storage business, sending its shares down 7 percent in extended trading.

Weakness in the cloud business was due to long-term rollouts by some of its original-equipment manufacturer customers, with shipments down "a couple of hundred thousand units", Chief Financial Officer Pat O'Malley told Reuters.

OEMs had accounted for about 68 percent of the company's total revenue as of June, according to a regulatory filing.

O'Malley, who counts Google (GOOG.O) among Seagate's customers, said cloud comprised 10-15 percent of its total revenue in the second quarter ended December 27.

The finance chief said he expects the cloud business to contribute about 20 percent to the company's total revenue by the end of the year.

Seagate and rival Western Digital Corp (WDC.O) are tapping into the growing demand for products that help store data in the cloud and reducing their dependence on personal computer hard drives as consumers shift to smartphones and tablets.

Global PC shipments fell 10 percent last year, the worst annual drop since research firm Gartner began tracking them.

Seagate also forecast current-quarter revenue of $3.4 billion. Analysts on average were expecting $3.46 billion.

"They lost on the enterprise, which is the higher-margin category," FBN Securities analyst Shebly Seyrafi said.

"The strength in client non-compute was not enough to offset the weakness in enterprise," he added.

The enterprise category comprises the cloud business, while the client non-compute business provides storage devices for consumer electronics such as gaming consoles and digital video recorders.

Western Digital last week reported a better-than-expected quarterly profit, helped by sales of higher-margin data storage products.

Seagate's net income fell to $428 million, or $1.24 per share in the second quarter ended December 27, from $492 million, or $1.30 per share, a year earlier.

Excluding items, the company earned $1.32 per share.

Revenue fell about 4 percent to $3.53 billion.

Analysts had expected a profit of $1.38 per share on sales of $3.56 billion, according to Thomson Reuters I/B/E/S.

Seagate shares were at $54.40 after the bell. They closed at $58.05 on the Nasdaq on Monday.

(Reporting By Lehar Maan in Bangalore; Editing by Maju Samuel)