Wedbush: Hard drive supply is in short supply Seagate (STX.US) and Western Digital (WDC.US) financial reports are expected to be “surprised”

The Zhitong Finance App learned that Wedbush released a report on Wednesday saying that among hard disk drive (HDD) manufacturers, Seagate (STX.US) and Western Digital (WDC.US) are the most likely to hand over quarterly results and forecasts that are better than market expectations. Wedbush reiterated its “outperforming the market” ratings for Seagate and Western Digital, with target prices of $1,000 and $650, respectively.

Wedbush analyst Matt Bryson said in the report: “Since demand far exceeds production capacity and there has been no significant impact on the supply chain, we believe hard drive manufacturers will almost certainly exceed their performance targets once again, and they should have been able to surpass these targets, especially when there is usually an opportunity to adjust some supply prices or increase shipments during the quarter. All in all, based on preliminary predictions, we expect both Western Digital and Seagate's performance to exceed market consensus.”

Seagate's gross margin may be undervalued

Bryson said that thanks to increased profit margins, Seagate is expected to once again surpass its own guidelines and market consensus. The company's guiding revenue was US$4.1 billion ± US$100 million, non-GAAP earnings per share of US$7.30 ± 0.20; market consensus was revenue of US$4.13 billion and earnings per share of US$7.39.

Wedbush estimated Seagate's gross margin of 58.3%, higher than the market consensus of 57.4%. Bryson pointed out that since Seagate has underestimated gross margin expansion several times recently, and the margin has been undervalued by more than 100 basis points, Wedbush's current profit margin assumptions may be conservative.

Wedbush also mentioned that the Seagate Long Term Agreement (LTA) has the shortest duration among its peers. This means that when there is a shortage of storage supply, Seagate will be able to adjust prices accordingly as early as possible.

Western Digital: Conservative guidance and non-LTA repricing provide upside

For Western Digital, Wedbush expects the company to also surpass guidelines and market consensus. The company's guidance is revenue of US$4.1 billion ± US$100 million, gross profit margin of 55% to 56%, non-GAAP earnings of US$3.85 to US$4.15 per share; the market expects revenue of US$4.13 billion and earnings per share of US$4.07 billion.

Bryson said part of the reason Western Digital exceeded expectations was that the company's historical guidelines were conservative. On the other hand, Western Digital's repricing process in non-long-term agreement transactions was slower than that of its peers, and the company adjusted its strategy in the third and fourth quarters of the calendar year to close this gap.

Western Digital will release the results for the first quarter of the 2027 fiscal year on October 22 (Thursday). Seagate will announce the latest results on October 27th (next Tuesday).