Opinion on  Seagate Technology (STX)     Sector: Technology  >  Industry: Computer Storage Devices
Seagate

Seagate Chart Analysis:
-Support at 24.90, closed slightly under on Friday at 24.26
-holding at 200 day MA
-MACD indicates oversold

• The rise of NAND flash-based drives moving quickly into the notebook market, PC storage applications such as Intel's Robson and the new Vista OS, and Apple's iPod and upcoming iPhone to severely impact demand and pricing of HDDs. This has caused an over-exxagerrated sell off in (STX) shares, making it an attractive buy for the following reasons:
  

1. Seagate's 4Q share gains went up from 34.3% in the 3rd quarter to 34.6, and demand continues to look strong into 07, maintaining Seagate's leadership in the HDD industry, WDC being second.
   
2. Seagate is well positioned in 2007, and strategic direction in anticipation for the gradual transition from HDD to NAND over next few years, as they will continue to adpot new applications such as the "terabyte home" concept which will be able to consolidate all consumer data and storage needs into a single drive. HDDs with capacities as high as 1Tbyte are being offered by Seagate, WDC, and Hitachi GST which are suitable for terabyte-home application.
   
3. According to "iSuppli" the "HDD industry continues to advance in terms of capacity, developing new applications and focusing on serving industry demand. Problems are being overcome, both on technical and business fronts. Last year was a good one for the HDD industry, and the outlook for 2007 is cautiously optimistic, with shipments expected to rise by about 17 percent."
   
4. Have now fully integrated Maxtor which will strengthen earnings prospects and better gross margins
   
5. earnings 2Q were up 30% year-over-year and 7% sequentially, unit shipments totaled 41.4 million up 5.7% sequentially and 44% up year-over-year, not including the aquisition of Maxtor. Maxor-related expenses lowered as the Non-GAAP operating income reached $245 million or 8.2% of sales.
   
6. legacyMaxtor revenues was $200 million, accounting for 6% of total units. In all, HDDs for the consumer electronics space accounted for 17% of total units shipped, and consumer electronits continue to be robust and should be up by the end of this year to 19-20%.
   
7. Seagate projects revenues of $2.9-$3.0 billion and non-GAAP EPS of $0.56-$0.60, which shows they are making significant improvements in their gross margins with the completion of Maxtor's integration.
   
8. Fundamentally strong- after 4 quarters of negative free cash flow, 2Q saw operating cash flow of $482 million putting them in positive free cash flow position which should continue into 07
   
9. Should be able to make up lost revenue from termination of agreement with distributor eSys in the near term; Seagate adjusted forcast for FY07, so if they are able to make up for revenue lost from eSys they are better positioned to beat targets.
   
10. transitioning to Perpendiclar Magnetic Recording (PMR) technology should optimize HDD costs- suppliers are noting that everything is going as planned
    
11. balanced supply-demand- strong enterprise and gaming demand should improve margins, the recent sell-off seems to be ignoring this.
    
12. HDDs are still significantly cheaper than flash based drives, and the transition to 100% flash, even from Apple will take time.
    
13. worries about Apple's video iPod possibly switching to NAND from HDD storage should not harm Seagate as Toshiba makes those drives, not Seagate