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What’s Prompting Seagate to Focus on Investing in Capex?

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Capital expenditure accounted for 5% of revenue in fiscal 2016

According to the US-based (SPY) hardware firm Seagate (STX), the firm’s performance in the last quarter was reflective of a stable but relatively “benign macroeconomic environment.” Fiscal 4Q16 saw an acceleration in the adoption of cloud-based storage driven by usage shifts of technologies by end users.

In addition to this, demand from cloud service providers was stronger-than-expected in the last fiscal year after several quarters of modest demand.

In fiscal 2016, Seagate’s total capital expenditure was $587 million, or 5% of revenue. This was below the company target range of 6% to 8%. Capital expenditure in fiscal 4Q16, which ended in June 2016, was $146 million and higher than previously forecasted.

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The CEO of Seagate, Stephen Luczo, stated, the capital expenditure will be used to “accelerate the ramp of new products in our portfolio that utilize new tooling and equipment. In addition, we are accelerating the expansion of our Korat facility to expedite the plan manufacturing footprint reductions across many sites.”

How did Seagate perform in fiscal 4Q16 and fiscal 2016?

In fiscal 4Q16, Seagate reported revenues of $2.7 billion with a non-GAAP (generally accepted accounting principles) gross margin of 25.8% and net income of $207 million. Earnings per share (or EPS) was $0.69.

Analysts estimate that the firm will post revenues of $2.6 billion for the quarter ended June 30, 2016. They expected a low estimate of $2.5 billion and a high estimate of $2.7 billion. Earnings per share (or EPS) was estimated at $0.60 with a high estimate of $0.65 and a low estimate of $0.49.

For fiscal 2016, Seagate reported revenues of $11.2 billion with a net income of $684 million and diluted EPS of $2.26.

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