Seagate Technology (NASDAQ:STX) and Western Digital (NASDAQ:WDC) shares fell on Thursday as investment firm Benchmark downgraded both storage companies following Seagate's recent warning.
Analyst Mark Miller cut his rating on Seagate (STX) to hold from buy, while he lowered Western Digital (WDC) to hold from neutral.
Regarding Seagate (STX), Miller said Benchmark is "especially concerned" about the company's comments on inventory issues and caution from some of its cloud customers, both of which have implications for Western Digital (WDC). Miller added that these trends will likely "persist at least through the end of this year."
Both Seagate (STX) and Western Digital (WDC) fell 2% in premarket trading.
Miller lowered estimates for Western Digital (WDC), as he now expects earnings, excluding one-time items of 56 cents per share on $3.7B in revenue, compared to a previous outlook of 60 cents per share on roughly similar sales. For fiscal 2023, Miller now believes Western Digital (WDC) will have adjusted earnings of $3.05 per share on $15.7B in revenue, down from a prior outlook of $4.45 per share on $16.2B in revenue.
Miller also cut his estimates on Seagate (STX), as he now expects first-quarter adjusted earnings of 75 cents per share on $2.1B in revenue, down from a prior estimate of 75 cents per share on $2.58B. Full-year 2023 results were lowered to adjusted earnings of $5.36 per share and $9.85B in revenue, down from $8.20 per share on $11.7B in revenue.
In early August, Western Digital (WDC) issued weaker-than-expected results and guidance, prompting a sell-off in related semiconductor stocks.
Concerning Western Digital (WDC) and the possibility of it spinning off its hard drive business to unlock value, Miller said "the current environment may not be conducive to such a move," adding that there are issues that still need to be resolved, such as debt and whether the NANA business can fully sustain itself.
In July, Japan said Western Digital (WDC) and Kioxia Holdings, a spin-off of Toshiba (OTCPK:TOSBF), would receive $680M in subsidies to boost production of memory chips.
Analysts have been mixed on Seagate (STX). It had an average rating of HOLD from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates STX a HOLD.