Companies in the data storage sector are set to begin their earnings season with Seagate (STX) reporting fiscal first quarter earnings after the market close on Thursday, October 22 with a conference call scheduled for 5:00 pm ET. Western Digital (WDC), a Seagate rival, is set to report Q1 results after the market closes on Wednesday, October 28, with a conference call scheduled for 4:30 pm ET. What to watch for: 1. GUIDANCE: Along with its last report, Seagate guided for Q1 EPS of 70c-$1.00 on revenue of $2.1B-$2.5B. At the time, analysts were expecting the company to report Q1 EPS of $1.27 on revenue of $2.59B, but those figures have since slipped to 88c and $2.34B, respectively. Meanwhile, Western Digital in its last report guided for Q1 EPS of 45c-65c on revenue of $3.7B-$3.9B. At the time, analysts were expecting the company to report Q1 EPS of $1.33 on revenue of $4.35B, but those estimates have since dropped to 54c and $3.83B, respectively. 2. INTEL/SK: Following Intel’s (INTC) agreement earlier this week to sell its NAND flash business to SK hynix, several analysts noted that the transaction was “favorable” for the NAND sector, with KeyBanc analyst Weston Twigg seeing the move as a “modest positive” for other NAND producers, including Western Digital. Meanwhile, Wells Fargo analyst Aaron Rakers said before the deal was confirmed that he sees shares of Western Digital “justifiably” reacting positively to the news since consolidation in the NAND flash industry is needed. In addition, Lynx analysts KC Rajkumar and Jahanara Nissar said Western Digital owners have reason to “cheer” the story, as the impact of Western Digital and Micron (MU) with SK hynix as the acquirer is “manageable” due to muted capital expenditures at SK hynix. 3. MORGAN STANLEY NOTE: Last week, Morgan Stanley analyst Katy Huberty upgraded the IT hardware sector to Attractive from In-Line, citing the belief that improving IT demand is being overlooked by investors. IT hardware stocks typically outperform the broader Information Technology sector when IT budgets inflect from trough levels, as they see happening now, Huberty told investors. Recent management meetings, channel checks, and the firm’s latest CIO survey show signs of an enterprise infrastructure demand recovery, added the analyst, who prefers stocks with transactional revenue and clear catalysts, such as Apple (AAPL), Dell Technologies (DELL) and Seagate. 4. IDC PC MARKET: IDC said earlier this month the traditional PC market saw double-digit growth in Q3, as global shipments grew 14.6% year-over-year to 81.3M units in the quarter .”Consumer demand and institutional demand approached record levels in some cases,” said Jitesh Ubrani research manager for IDC’s Mobile Device Trackers. “Gaming, Chromebooks, and in some cases cellular-enabled notebooks were all bright spots during the quarter. Had the market not been hampered by component shortages, notebook shipments would have soared even higher during the third quarter as market appetite was yet unsatiated.” Unfortunately, shortages of multiple components, such as processors, panels, and other subcomponents, led to missed opportunity for many vendors, IDC noted. “The PC industry rode into the third quarter with a sizeable backlog of unfulfilled orders,” said Linn Huang, research vice president, Devices and Displays at IDC. “And it appears the quarter will end under the same auspices. Given that the shortages have been due more to a shortfall of business planning than a technical glitch, we do not anticipate a sudden surge in capacity. Consequently, this backlog will likely carry into 2021.”
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