Seagate Technology plc ( STX - Analyst Report ) reported second-quarter 2013 earnings per share (EPS) of $1.38, which exceeded the Zacks Consensus Estimate of $1.27.

Revenue

Seagate reported revenues of $3.67 billion in the second quarter of 2013, up 14.7% from $3.20 billion in the year-ago period. The company’s hard disk drive demand is improving based on a marginal increase in demand from the server and pc makers.

Operating Results

Gross profit was $992.0 million, down from $1.01 billion in the prior-year quarter. Gross margin was 27.0% versus 31.6% in the prior-year quarter. The decline in gross margin was primarily due to an adverse effect on pricing as well as due to some cost issues.

Operating income in the quarter also moved down 8.3% year over year to $555.0 million. This was due to a surge in cost and expenses, which increased 20.2%, compared with the year-ago period.

On a GAAP basis, net income was $492.0 million or $1.30 per share, compared with $563.0 million or $1.28 per share in the comparable quarter last year. Excluding the impact of one-time items, adjusted net income was $523.0 million or $1.38 per share.

Balance Sheet, Cash Flow

Cash and cash equivalents were approximately $1.87 billion at the end of the quarter versus $2.37 billion in the previous quarter. Accounts receivables decreased to $1.65 billion from $1.68 billion in the prior quarter. Seagate’s long-term debt remained at $2.82 billion.

The company generated $844.0 million from operating activities, down from $1.13 billion in the previous quarter. The company has returned $1.1 billion to shareholders through share redemptions and dividends.

Our Take

Seagate reported decent second-quarter results, with revenue improving substantially and EPS exceeding our expectation. Some recovery in the HDD industry and improvement in demand aided Seagate to become the leading player in the market.

The company has been able to control costs and increase the sale of high-margin products. 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). We recommend investors to consider other data storage devices stocks that are faring well. Imation Corp. ( IMN - Snapshot Report ) and Xyratex Ltd. ( XRTX - Snapshot Report ) has Zacks Rank #2 (Buy).