Wedbush: Hard drive supply falls short of demand, Seagate (STX.US) and Western Digital (WDC.US) earnings reports may bring surprises

According to Zhituo Finance APP, Wedbush released a report on Wednesday stating that among hard disk drive (HDD) manufacturers, Seagate (STX.US) and Western Digital (WDC.US) are most likely to deliver quarterly results and outlooks that exceed market expectations. Wedbush reiterated its "outperform" rating on Seagate and Western Digital, with target prices of $1,000 and $650, respectively.

Wedbush analyst Matt Bryson said in the report, "Due to demand far exceeding capacity and no significant shocks in the supply chain, we believe that HDD manufacturers are almost certain to outperform their earnings targets once again, and they should be able to surpass these targets, especially since there is typically an opportunity during the quarter to adjust certain supply prices or increase shipments. All in all, based on preliminary forecasts, we expect both Western Digital and Seagate to report results above market consensus."

Seagate’s Gross Margin May Be Underestimated

Bryson stated that, thanks to margin improvement, Seagate is expected to once again surpass both its own guidance and market consensus. The company's guidance is for revenue of $4.1 billion ± $100 million and non-GAAP earnings per share of $7.30 ± $0.20; market consensus is revenue of $4.13 billion and earnings per share of $7.39.

Wedbush estimates Seagate’s gross margin at 58.3%, higher than the market consensus of 57.4%. Bryson pointed out that, given Seagate has repeatedly underestimated the extent of its gross margin expansion recently—by more than 100 basis points—the current profitability assumption from Wedbush may still be conservative.

Wedbush also mentioned that Seagate's Long-Term Agreement (LTA) durations are the shortest among peers. This means that when storage supply shortages occur, Seagate will be the first to adjust prices accordingly.

Western Digital: Conservative Guidance and Non-LTA Repricing Provide Upside

For Western Digital, Wedbush also expects the company to surpass both guidance and market consensus. The company has guided revenue of $4.1 billion ± $100 million, a gross margin of 55% to 56%, and non-GAAP earnings per share of $3.85 to $4.15; market expectations are for revenue of $4.13 billion and earnings per share of $4.07.

Bryson stated that part of Western Digital’s outperformance comes from historically conservative guidance. On the other hand, Western Digital had previously lagged behind peers in repricing non-long-term agreement transactions, but the company has adjusted its strategy in the third and fourth quarters of this calendar year to close this gap.

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