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Seagate to Cut 1,600 Jobs as Part of Cost Saving Initiative
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Storage solutions provider Seagate Technology Public Limited Company (STX - Free Report) has chalked out a new cost-cutting plan that would include job cuts. The company’s shares jumped about 6.3% in yesterday’s trade, following the news. The move is a part of the company’s efforts to streamline its operations, maintain competitiveness as well as profit margin and lower costs.
Seagate, in a filing with the Securities and Exchange Commission (SEC) yesterday, announced its decision to cut its global workforce by 3% or about 1,600 positions. The layoffs, expected to be completed by the end of the September quarter, will result in total pre-tax charges of approximately $62 million. The retrenchment is anticipated to save about $100 million annually.
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.In September last year, the company had planned to lay off 1,050 employees.
What Prompted the Move?
PCs remain the greatest users of HDDs and Seagate still derives the bulk of its revenues from these devices. Therefore, the cannibalization of PCs by mobile devices is affecting the company’s results.
The storage solution provider’s third-quarter fiscal 2016 revenues dropped 22.1% year over year due to weaker-than-expected demand for its products.
According to Gartner’s latest report, PC shipments (including premium ultra-mobiles) in first-quarter 2016 fell 9.6% year over year to 64.8 million units, the lowest since 2007. The appreciating U.S. dollar, consumers’ lack of interest in new PCs owing to the availability of inexpensive mobile devices, and delay in fully deploying Windows 10 operating systems by enterprises, were the main reasons behind this dismal performance. The declining numbers indicate long-term weakness in PC HDDs as well, which remains an overhang on Seagate’s financials.
Restructuring Benefits
The declining PC industry has affected parts 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.
We believe Seagate’s announcement is a step in the right direction, as the shrinking of the PC business necessitates measures to align costs accordingly. Failing this, the negative impact on its profits and market value would have continued.
Furthermore, the anticipated annual savings of $100 million from the recent restructuring initiative can be diverted toward improving cloud infrastructure and applications, which are expected to drive the company’s top line, going forward.
The resultant savings can be redirected to more profitable markets to pave the way for more profitable growth in the long run.
Bottom Line
Seagate is looking to boost its earnings going ahead, which will also boost investors’ confidence. Reducing operating costs is one of the strategies that the company has undertaken to achieve the same. However, whether this Zacks Rank #3 (Hold) stock can succeed in its plans remains to be seen. Moreover, sluggish macroeconomic conditions, a flattish price environment, and competition from Western Digital Corp. (WDC - Free Report) remain the near-term headwinds.
Few better-ranked stock in the broader technology sector are Amazon.com, Inc. (AMZN - Free Report) and Insperity, Inc. (NSP - Free Report) , both sporting a Zacks Rank #1 (Strong Buy).
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Seagate to Cut 1,600 Jobs as Part of Cost Saving Initiative
Storage solutions provider Seagate Technology Public Limited Company (STX - Free Report) has chalked out a new cost-cutting plan that would include job cuts. The company’s shares jumped about 6.3% in yesterday’s trade, following the news. The move is a part of the company’s efforts to streamline its operations, maintain competitiveness as well as profit margin and lower costs.
Seagate, in a filing with the Securities and Exchange Commission (SEC) yesterday, announced its decision to cut its global workforce by 3% or about 1,600 positions. The layoffs, expected to be completed by the end of the September quarter, will result in total pre-tax charges of approximately $62 million. The retrenchment is anticipated to save about $100 million annually.
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.In September last year, the company had planned to lay off 1,050 employees.
What Prompted the Move?
PCs remain the greatest users of HDDs and Seagate still derives the bulk of its revenues from these devices. Therefore, the cannibalization of PCs by mobile devices is affecting the company’s results.
The storage solution provider’s third-quarter fiscal 2016 revenues dropped 22.1% year over year due to weaker-than-expected demand for its products.
According to Gartner’s latest report, PC shipments (including premium ultra-mobiles) in first-quarter 2016 fell 9.6% year over year to 64.8 million units, the lowest since 2007. The appreciating U.S. dollar, consumers’ lack of interest in new PCs owing to the availability of inexpensive mobile devices, and delay in fully deploying Windows 10 operating systems by enterprises, were the main reasons behind this dismal performance. The declining numbers indicate long-term weakness in PC HDDs as well, which remains an overhang on Seagate’s financials.
Restructuring Benefits
The declining PC industry has affected parts 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.
We believe Seagate’s announcement is a step in the right direction, as the shrinking of the PC business necessitates measures to align costs accordingly. Failing this, the negative impact on its profits and market value would have continued.
Furthermore, the anticipated annual savings of $100 million from the recent restructuring initiative can be diverted toward improving cloud infrastructure and applications, which are expected to drive the company’s top line, going forward.
The resultant savings can be redirected to more profitable markets to pave the way for more profitable growth in the long run.
Bottom Line
Seagate is looking to boost its earnings going ahead, which will also boost investors’ confidence. Reducing operating costs is one of the strategies that the company has undertaken to achieve the same. However, whether this Zacks Rank #3 (Hold) stock can succeed in its plans remains to be seen. Moreover, sluggish macroeconomic conditions, a flattish price environment, and competition from Western Digital Corp. (WDC - Free Report) remain the near-term headwinds.
Few better-ranked stock in the broader technology sector are Amazon.com, Inc. (AMZN - Free Report) and Insperity, Inc. (NSP - Free Report) , both sporting a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>