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Shares of Seagate Technology (NASDAQ: STX) rose 18.3% in January of 2017, according to data from S&P Global Market Intelligence. It was a rollicking roller-coaster ride.
Seagate started the month on a low note, shutting down a factory in China and cutting 2,000 jobs associated with that facility. From there, share prices sank slowly for a couple of weeks. Then, Seagate reported fantastic second-quarter results that left Wall Street's earnings targets far behind. Share prices soared as much as 24% higher the following day, more than erasing the discomfort of January's first three weeks.
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The earnings surprise in the second quarter rested on a richer product mix, as Seagate sold more high-margin hard drives to enterprise customers in need of bulk storage. Management expects this trend to continue and nearly doubled this fiscal year's earnings guidance.
Meanwhile, the company is still looking for a serious solid-state strategy -- in a dark room, with a half-dead flashlight. Memory-based drives have always crushed traditional hard drives in terms of raw performance, and are rapidly becoming competitive from a price-per-gigabyte perspective as well.
The lack of solid-state products is may not hurt Seagate right now, but is sure to crush the company when the price of flash memory modules edges below that of magnetic disks. And it's like the problem doesn't even exist. Seagate's earnings report never mentioned solid-state devices or flash memory storage. These concepts touched management's lips exactly once on the earnings call, and the only in passing without any hard sales data. Not even the 10-Q statement shone any light on Seagate's solid-state ideas, sales, or future.
If I were a Seagate shareholder, this cavalier treatment of a serious business problem would make me very nervous. No, thanks. I'm not buying this stock today.
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