Shares of Seagate Technology Public Limited Company STX lost nearly 1.8% in yesterday’s trade following the company’s announcement regarding a global workforce reduction. The move, according to the company, is part of its restructuring plan and “intended to realign its cost structure with the current macroeconomic business environment.”
Seagate, in yesterday’s filing with the Securities and Exchange Commission (SEC), stated its decision to cut its global workforce by 2% or about 1,050 positions. Per the fiscal 2015 Annual Report filed with the SEC, the company had about 52,350 employees worldwide, of which approximately 41,800 were in Asia.
The layoffs, expected to be completed by the end of 2015, will result in total pre-tax charges of approximately $53 million. The charges, mainly employee termination costs, will be incurred in the quarter ended September 2015 and likely be paid primarily in the next quarter. The retrenchment is anticipated to save about $113 million annually.
Why the Layoff?
Seagate derives a bulk of its revenues from the sale of hard-disk drives (HDD) mainly used by PC manufacturers. The company is the second largest manufacturer of HDDs in the U.S. with 40% market share following Western Digital Corporation’s WDC 44%.
However, with the persistent decline in PC sales, Seagate’s HDD shipments have also been falling, thereby hurting revenues. The storage solution provider’s fourth-quarter fiscal 2015 revenues dropped 11.3% year over year due to weaker-than-expected demand for its products.
We believe that the cannibalization of PCs by mobile devices have been affecting the hard-disk drive maker’s results. According to Gartner, PC shipments in second-quarter 2015 fell 9.5% year over year to 68.4 million units, marking the worst slump since third-quarter 2013. The declining numbers indicate long-term weakness in PC HDDs as well, which remains an overhang on Seagate’s financials.
Adding to the woes, a recent IDC report stated that PC shipments are expected to fall 6.2% in 2015, worst than its previous forecast of 4.9% decline.
What’s the Scope for Seagate?
The declining PC industry has affected part suppliers and allied industries as well that mostly depend on PC sales for revenue generation. So Seagate is focusing on the enterprise side which offers higher-margin business opportunity.
Storage for enterprises is a key growth area in the information technology sector. Anticipating a potential acceleration in cloud deployments backed by exponential growth in cloud data storage, Seagate has stepped up investment in high-capacity storage devices that would support the expansion of cloud infrastructure and applications.