Does Seagate Technology mark the end of its normalization?

Does Seagate Technology mark the end of its normalization?

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Data Storage Solutions Giant Seagate Technology Holdings Limited (NYSE: STX ) The stock has been recovering since bottoming out at $47.47 in October 2022. Its recently reported second-quarter fiscal 2023 earnings weren’t a stunning blowout, but they also didn’t shock investors with broadly lower guidance in the past two earnings reports.

Investors braced for yet another disappointment after lowering their forecasts twice in the five weeks leading up to the end of 2022.Last year, storage makers, including rivals, issued a barrage of warnings Western Digital Corporation (NYSE: WDC ) and DRAM manufacturers Micron Technology, Inc. (NASDAQ: MU ).

Even the hottest GPU manufacturers like NVIDIA Corporation (NASDAQ: NVDA) and Advanced Micro Devices (NYSE: AMD ) went through normalization and cut their guidance.

Seagate may have set the bar too low as they ranked above and allayed investor concerns with a solid performance. Shares have soared to the lip line in September. Did Seagate lower the bar too low to make it easier to skip this quarter? If so, is the stock’s rally overreacting to the upside this time around?

Is normalization complete?

Investors are wondering if the normalization from the pandemic demand shock is finally complete. The market has excessive ups and downs. It’s no secret that the pandemic has sparked unprecedented demand for storage and chips. The demand shock was further exacerbated by supply shocks during reopening.

Normalization is the process of regressing to the mean. Many tech firms forecast normalization to continue until mid-2023.

Could the hangover that started in 2022 finally be a thing of the past? Is this a sign that a recovery is imminent or has already arrived? Keep in mind that Seagate’s fiscal year was two quarters ahead of its actual calendar year results.

Therefore, this Q2 2023 earnings report is based on calendar year Q4 2022 results. Normalization will continue into the first half of the new year, they noted. On the other hand, the market tends to react based on the next quarter or two.

calm investor sentiment

January. On December 25, 2023, Seagate released its second quarter fiscal 2023 results for the quarter ending December 2022. The company reported non-GAAP diluted earnings per share (EPS) profit of $0.16, beating analysts’ consensus estimate of $0.09 by $0.07. GAAP diluted EPS loss of (-$0.16), reflecting Non-recurring charges related to restructuring.

Revenue fell (39.4%) YoY to $1.89 billion, beating analysts’ estimate of $1.83 billion. Sequential reduction (40%) in capex. The company reduced debt to $6 billion ($220 million). The quarter ended with 206 million common shares and $770 million in cash and cash equivalents.

online guidance

Seagate maintained its guidance for the third quarter of fiscal 2023, calling for EPS between $0.05 and $0.45, compared with analysts’ consensus estimate of $0.30. The company expected revenue of $1.85 billion to $2.15 billion, compared with analyst estimates of $1.88 billion.

CEO comment

Seagate Technology CEO Dave Mosley commented: “Seagate has effectively navigated the difficult macroeconomic environment. We delivered revenue and non-GAAP EPS in the December quarter slightly above the midpoint of our guidance and extended A decade-long trend of generating positive free cash flow.” He explained that they are industry-leading and well-positioned for an eventual market recovery. Seagate will launch its 30+ TB HAMR-based product in June, with a per-disk density of 3+ TB.

Are the headwinds waning?

Chief executive Mosley pointed to three major headwinds as the culprits for the slowdown. The COVID-related slowdown in China, bloated HDD inventories from cloud computing and enterprise customers, and a more cautious macroeconomic environment caused customers to tighten spending.

Two of the three could improve if China eases zero-COVID restrictions and US companies work through their HDD inventories. The economy is the wild card, but the Fed is now closer to pausing rate hikes than it was two quarters ago.

Does Seagate Technology mark the end of its normalization?

round bottom every week

The STX weekly candlestick chart has been forming a round bottom, which has been a running theme for tech stocks in 2023. Shares began falling from a lip line of $69.85 in September 2022 and bottomed out at $47.47 in October 2022. Weekly stochastics recovered through the 20-band, eventually triggering a weekly market structure low (MSL) above $55.77 in December 2022.

Stochastic finished oscillating within the 80-band, with shares surging to the weekly 50-period exponential moving average (EMA) at $59.33, testing the lip line at $69.85, and moving towards weekly 50-period EMA resistance at $71.81.

A break above the lip would trigger a retest of the weekly market structure high (MSH) sell trigger at $78.04. Pullback support is at $62.78, $59.89, the weekly MSL trigger at $55.77, and $53.51.

You’ll want to hear this before you even consider Seagate Technology.

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