What: Shares of hard drive maker Seagate fell 14.6% in June according toS&P Capital IQdata, driven by weakening demand for PCs. IDC expects PC shipments to slump by 6.2% in 2015.
So what: During Seagate's latest quarter, about 60% of the 50.1 million hard disk drive units shipped were for PCs. Total PC hard drive shipments fell by 14% year over year, with desktop units accounting for the entire decline.
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While the launch of Windows 10 and the new Skylake CPUs could help boost PC demand, guidance from companies like Micron point to continued soft demand for PCs. At least one analyst expects hard drive shipments to fall by 10.2% in 2015, even faster than PC shipments are expected to decline, although selling prices are expected to get a boost from enterprise demand.
This all bodes poorly for Seagate, and investors have punished the stock severely so far this year. Since the beginning of 2015, shares of Seagate are down about 28%, with half of that decline coming in the month of June. Any optimism about Windows 10 providing a boost to PC sales seems to have dissipated.
Now what: Any company that depends on PC sales is going to have a rough time this year, assuming the PC market behaves like IDC is predicting. However, PCs certainly aren't going away, and enterprise data center demand should at least partially counteract this weakness for Seagate. Windows 10 may eventually trigger an upgrade cycle in the enterprise, but it's unlikely to occur soon after launch, as enterprise customers generally take a while to evaluate new software.
Seagate's net income slumped 26% year over year in its latest quarter, and further declines are possible as PC sales continue to weaken. Investors are clearly not optimistic, awarding shares of Seagate a P/E ratio of just 10 based on last year's earnings. In the long run, strong demand from enterprise and cloud customers, and the eventual stabilization of the PC market, should help Seagate get back on track. In the short run, though, June's decline may not be the end of Seagate's troubles.
The article Why Shares of Seagate Technology Fell 14% in June originally appeared on Fool.com.
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