Rosenblatt Securities’s Kinngai Chan today issues cautious words about Seagate Technology (STX) as the company’s shares plummet by 17% following a dour Q2 outlook this morning.
As noted earlier, the company and analysts both see the effect of a shift to cloud computing, and the advent of flash-memory storage taking over from hard drives.
Chan hammers home the importance of the latter, arguing that the entire industry is heading for the proverbial knee in the curve where flash swamps drive sales, including in enterprise shipments:
We continue to have a negative view on the HDD sector in general and STX in particular as we believe cost cutting is not the best medium to a longer term strategy to address the seismic change that is happening in the industry. While STX understands the weakness in the PC client market and is adjusting its manufacturing footprint for this, management has not considered the possi- bility of a further steep function unit TAM contraction due to the cannibalization of the mainstream HDD segment by SSD. We believe the SSD industry is at the cusp of the steepest part of the S-curve growth and we believe that once a 256GB SSD encroaches into the mainstream HDD price point of $40-$45, we will see another steep function decline in the HDD TAM. We believe this fur- ther TAM reduction will result in further negative earnings revision into 2017 for STX.
Unlike competitor Western Digital (WDC), which also disappointed, yesterday, Seagate is not expanding as rapidly into flash, the way Western is with its planned acquisition of SanDisk (SNDK).
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