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Seagate Technology plc ((STX - Analyst Report) reported fourth-quarter 2013 earnings per share of $1.20, which exceeded the Zacks Consensus Estimate of $1.19.

Revenues

Seagate reported revenues of $3.40 billion in the fourth quarter of 2013, down 23.6% from $4.48 billion in the year-ago period. The company faces stiff competition from its peers who continue to tighten their grip on the market. Moreover, the Hard Disk Drive (HDD) industry continues to suffer lack of consistent visibility due to weak customer response globally.

This has curbed Seagate’s ability to generate meaningful growth. In order to counter these adverse effects and improve its performance, the company is adopting strategies like product launches and market segmentation.

Operating Results

Gross profit was $939.0 million, down from $1.48 billion in the prior-year quarter. Gross margin was 27.4% versus 33.1% in the prior-year quarter. The decline in gross margin was primarily due to lower pricing environment leading to lower revenue growth.

Operating margin in the quarter also moved down 13.1% year over year from 23.6% reported in the year-ago quarter.

On a GAAP basis, net income was $348.0 million or 94 cents per share, compared with $1.01 billion or $2.37 per share in the comparable quarter last year. Excluding the impact of one-time items, adjusted net income was $447.0 million or $1.20 per share.

Balance Sheet, Cash Flow

Cash and cash equivalents were approximately $2.19 billion at the end of the quarter versus $1.90 billion in the previous quarter. Accounts receivables increased to $1.67 billion from $1.56 billion in the prior quarter. Seagate’s long-term debt stood at $2.77 billion up from $2.47 billion.

Seagate generated $394.0 million from operating activities, down from $678 million in the previous quarter. In the reported quarter, the company returned $137.0 million to shareholders through dividends.

Our Take

Seagate reported mixed fourth-quarter results, with revenues decreasing substantially and earnings per share exceeding the Zacks consensus. The lack of visibility in the HDD industry and declining price environment are also concerns for the company.

Despite the ongoing cost control measures, the company has not been able to support its margins. Although the cash position of the company improved, but the debt position declined. Moreover, Seagate is coming up with new products to cater to new customers and penetrate new markets with customized products. Seagate also has a significant exposure to high-end corporate desktop and enterprise server markets, compared with its rival Western Digital Corp. (WDC - Analyst Report).

Currently, Seagate has a Zacks Rank #3 (Hold).

Investors can also consider companies likeCA Inc. (CA - Analyst Report) and Facebook Inc. (FB - Analyst Report). While CA holds a Zacks Rank #1 (Strong Buy), Facebook carries a Zacks Rank #2 (Buy).

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