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This Will Likely Drive Seagate’s Revenue in Fiscal 2018

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Shift to cloud storage

During Seagate Technology’s (STX) fiscal 4Q17 earnings call, CEO (chief executive officer) Steve Luczo stated: “The long term trajectory of growth in infrastructure spending for the large cloud service providers and hyperscale companies remains intact, as they continue to increase their service offerings and demonstrate significant business momentum.”

Mature enterprise technologies account for the majority of the overall IT (information technology) storage market. This trend is expected to change as the shift toward cloud service providers accelerates over the next few years.

In the memory space, the end-to-end storage supply chain has experienced a price rise of 2x–3x, which has resulted in softer demand from enterprise customers. Demand is expected to improve over the next few quarters.

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Nearline customers drove demand in fiscal 4Q17

Seagate stated that in fiscal 4Q17, its largest nearline US-based (SPY) CSP (cloud service providers) customers drove demand, coupled with the increase in its computing and branded markets. This rise in demand was offset by weakness in enterprise storage customers, which includes demand from traditional OEM (original equipment manufacturers), China’s CSP nearline demand, and Seagate’s Cloud Storage Systems business.

Meanwhile, intra-quarter channel inventory management led to weakness in the surveillance and NAS (network attached storage) markets. Soft demand resulted in a revenue shortfall of 5% in fiscal 4Q17 for Seagate, and ~50% of this shortfall was from its Cloud Storage Systems, while the rest came from HDD (hard-disk drive) enterprise weakness, coupled with channel inventory management.

Volatility in the DRAM (dynamic random access memory) and NAND (negative AND) markets and pricing pressures both led Seagate to maintain low inventories in fiscal 4Q17.

Notably, Seagate shipped 62 exabytes last quarter (ended June 2017). The average capacity per drive across Seagate’s HDD (hard disk drive) portfolio was 1.8 TB (terabytes) per drive, while its ASP (average selling price) came in at $64 per unit in fiscal 4Q17.

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