Transcript: Exclusive Seagate Q1 Earnings Review Podcast with CEO Bill Watkins

This transcript is from a PodTech.net podcast at:
http://www.podtech.net/home/technology/1356/exclusive-seagate-q1-earnings-review-podcast-with-ceo-bill-watkins

Guest: Bill Watkins - Seagate
Host: John Furrier - PodTech

John Furrier - PodTech
We're here at PodTech.net at Seagate's corporate headquarters, we have the CEO, Bill Watkins, announcing Q1 performance. Bill, welcome for our second Earnings Call, Sit Down and Review.

Bill Watkins - Seagate
Hi, glad to be here John.

John Furrier - PodTech
So let's talk about the industry, Seagate within that perspective and kind of the outlook for next year. The industry has been pretty dynamic this year. Talk about your review this quarter.

Bill Watkins - Seagate
Well, as I think about looking back for this last quarter, and think about the industry, I think a lot of the drivers that we have been talking about, whether it's the growth in DVRs, consumer, the sort of the digitalization of content, whether that's a video content, or a audio content and moving that content electronically. All those drivers are still there, we saw phenomenal growth in unit shipments. We saw revenue growth in the September quarter, again it makes us very opportunistic going forward. That said, I think there was very aggressive pricing, both in desktop and notebook. I'd probably characterize...

John Furrier - PodTech
From you competitors, you mean.

Bill Watkins - Seagate
From our competitors, and I think we would characterize that the desktop started to kind of slow down towards the end of September. But notebook was very aggressive throughout the quarter, and continued going into the December quarter being somewhat aggressive. That said, I'm very pleased with the performance of Seagate in relation to that. I think the cost reduction programs that we've taken in the short terms showed up, that's why we were able to exceed our guidance. And looking forward we think, between the new market opportunities we have, it was 1.8" drives. The new products we have which lower our costs, and the ability to eliminate the Maxtor products, which have very bad cost structure right now, and replace them with Seagate. We feel very confident going forward that the -- again we think September will be the lowest performance we have of the year. We look for December to be higher earnings, and higher revenue, and we think we'll continue that throughout the year, both March and June will be up course.

John Furrier - PodTech
So demand is there ahead of the unit shipment, so I'd say it's a very dynamic marketplace, I'd say there's a lot of demand for storage. But the mix of Maxtor and Seagate. Maxtor, you took that under your wings, and there's lot of operational efficiencies you got there. Talk about that impact in terms of the forecast versus actual.

Bill Watkins - Seagate
Well, again as we look back at the September quarter, I think one of the pleasant surprises was how well we're able to reduce the Seagate cost. I think the unpleasant surprise, if you will, was the Maxtor cost and our inability to reduce those cost structures. And you would be kind of -- you think about the end of life, and the fact that this project is going away. It was very hard for us to reduce cost for these products. At the same time, the pricing was much more aggressive, in where Maxtor played, so internally, we missed our numbers, where we wanted the Maxtor products to be, but at the same time, we exceeded the Seagate. So, I think its key to us, which has been the key all along, is to complete the transition of Seagate products into the Maxtor customer base, that will be completed by November. And then going forward with that lower cost structure Seagate, we feel we're going to be highly competitive in this marketplace.

John Furrier - PodTech
Some great fundamentals there on operational side. Lets talk about the market share issues and pricing, very competitive market place from the competition, talk about that, and what that means?

Bill Watkins - Seagate
We have a couple of our competitors have gone out, and have been very aggressive in pricing, and doing it not with lower cost, but just basically losing more money, or using their balance sheets in order to cover their costs. We feel this is very short term. We currently have kept about 60% of the units from Maxtor, and 60% of revenue in, and the rest is worked out about the same. Going forward, we're going to be quite competitive in pricing. We're not going to lose any more market share. We feel we actually have the lowest cost structure out there, and then with going forward with the new products that we have coming on, both reduce our costs. The elimination of the old Maxtor product, which is going to be a big help to our cost structure. We feel that we can maintain the market shares that we have, and grow with the industry, and still be quite profitable in this environment.

John Furrier - PodTech
Sounds good, sounds like it's going to be competitive couple of quarters ahead, and with some good performance. Talk about the performance of Seagate, as to this quarter, and then going forward. Talk about this quarter's performance.

Bill Watkins - Seagate
We're very happy with the September numbers. I think across board, Seagate, and the Seagate personnel have done an outstanding job in dealing with the environment. Its one thing to say that, I can't control what my competitors do from pricing, but we do have a lot of control, much more than we think. And that control comes from us, continue to reduce our cost structure. Because one of the things that we think will be the natural outcome with this, when people start losing money, and we do feel a lot of our competitors are losing money, they stop reinvesting in technology. If force is consolidation down the roads, so again if we maintain our focus on cost reduction, we feel as we come out of this cycle, we're going to be much better position than we were. One of the things that we have noticed as we go through price cycles, that each time we go through one of these, the next cycle, we don't lose as much money at the downside, and we make much more money in the upside, and we think that will re-happen again.

John Furrier - PodTech
Hey, good process and strong operation, you'll going to outlast them. Sounds exciting. Talk about outlook for the fiscal year?

Bill Watkins - Seagate
We are forecasting $60 to $70 on a non-gap. And what that concludes is every -- is all our cost stock options, what it doesn't include in there is a restructuring cost. So from a non-gap it's about a dollar, $60 or $70 is what we're doing. I think from a full gap with all the restructuring, we're talking about, round of $25 to $30. We're very pleased with these numbers, and the key force to do them, obviously, is to continue to execute on the product transitions, the low cost, and the new products.

John Furrier - PodTech
How do you feel right now, last question, going forward the next few quarters? What's your vision?

Bill Watkins - Seagate
I'm feeling very positive. We're well through the Maxtor integration. We're feeling very comfortable that we've got our hands around what that is. We see that light at the end of the tunnel, if you will. November, we'll be outside, or finished completing those products. We see the opportunity in the market, we see a lot more, more content, whether its going on the Internet, whether its going in your hand held devices, whether its storing at home, whether you backup -- we see a lot of demand for storage, and so, again all the key end drivers are there, we feel our execution enable to revive those storage solutions is there, and we think that as we continue to do this, we're very happy.

John Furrier - PodTech
We're here at Seagate's Headquarters with Bill Watkins, the CEO of Seagate, talking about the quarterly performance for Q1. Great outlook, so thank you so much for the podcast.

Bill Watkins - Seagate
Right. Thanks John.