Seagate Technology PLC Earnings Call Nuggets: End Demand and the Peak Industry TAM

Seagate Technology PLC (NASDAQ:STX) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

End Demand

Robert Cihra – Evercore Partners: I was just wondering was the Enterprise was clearly better than expected in the quarter versus when you went into the quarter and I know we’re going through inventory correct that really hit in the September quarter. Did you think that the upside, particularly in near line was reflecting better end demand or was it really just a timing we’re coming out of inventory correction and we’re just sort of correcting a little better and quicker than we thought or do you think, I guess end demand was stronger than expected?

Stephen J. Luczo – Chairman, President and CEO: I think demand continues to increase in the near line space, I mean that’s where the vast majority of the companies that are providing cloud infrastructure purchase those types of devices, so as the cloud deployment continue that market continues to grow and I think in Seagate’s case, we did execute well in terms of in quarter upsize there as well.

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Robert Cihra – Evercore Partners: Then if I get a follow-up, I’m not sure if I do, but I’ll ask one. I’m curious with LTAs as they run through here into the beginning of calendar ’13, any expectation that they impact your pricing or market share or do you think they really don’t have as much impact as maybe people think or do you think they do?

Stephen J. Luczo – Chairman, President and CEO: I’ve no idea what people think but the LTAs again provided favorable pricing to the OEMs in a supply constrained environment, a substantially lower price in the spot market would have provided at the time and it was to align the longer term purchase requirements of those customers with our supply situation, a number of those agreements have been extended, others originally extended beyond this calendar year or last calendar year and this calendar year. So, I don’t see any big changes as a result of the constant evolution of the LTA agreements.

The Peak Industry TAM

Monika Garg – Pacific Crest Securities: The question is on the TAM, if I compare the peak industry TAM about four or five quarters back and with this quarter or the guided quarter for the March it seems industry and Seagate is operating less than 80% utilization. So, I would like any comments or thoughts about rightsizing the capacity?

Stephen J. Luczo – Chairman, President and CEO: Well, I think — our business isn’t as simple as just taking the TAM and the number of units. So, you have to take into consideration the nature of the devices. So, the split between client enterprise and then the capacity per drive so with average capacity per drive increasing the way it is that’s absorbing heads and disks which is a very good thing for a vertically integrated drive company and with average capacity per drive continuing to increase that also absorbs test capacity. So, our most expensive capital deployments are in heads and disks and tests and our most expensive R&D is head and disks. So, as we continue to drive more heads and disks it’s actually not a terrible situation in terms of being a flat TAM or a slightly eroding TAM. That being said clearly TAM growth would be a good thing in terms of final assembly but with the average capacity per drive right now, our factories are running at levels all this bids well to maintain these margins and we’re not considering any sort of reduction in scale just because our longer term outlook obviously is different than what this situation looks like today as you know, we believe that by the end of the decade there’s going to be a significant demand for – headed by chip to metal evidenced itself in unit growth, as well as average capacity per drive, so we don’t want to take the capital out right now.

Monika Garg – Pacific Crest Securities: Just the last question on the Virident acquisition, very interesting acquisition here could you may be talk about the Virident’s current customers and kind of any – the traction where you did see it in the market?

Stephen J. Luczo – Chairman, President and CEO: It was an investment. I’ll let Rocky to the details of it, I’ll just provide a brief little overview that it’s consistent with how we’ve approached the emerging solid state market which is developing nicely and we believe that we have to participate in a variety of segments that we feel very good about our position on the enterprise SaaS side with our partnership with Samsung. The PCIe space is clearly an attractive one and we feel that this partnership is going to allow us to address the needs for our OEM and distribution customers and then we’re doing things on the client space that have talked about in prior calls.

Albert ‘Rocky’ Pimentel – EVP, Chief Sales and Marketing Officer: I think Steve just covered it, it is really another step in completing the platform for solid state storage that Seagate wants to offer alongside of its traditional magnetic core storage, so I think we are pretty excited about this engagement with Virident. Not only do we have a strong go-to-market initiative, but also a strong development initiative as we go forward. And so as a result we will have a stack of SSD solid state solutions that span from the client all the way through to the flash server, high application data demands of the massively scaled data center.

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