PodTech Founder and CEO John Furrier discussed Seagate‘s second-quarter earnings with CEO Bill Watkins. In this podcast, Watkins talks about the company’s year-to-year revenue growth, the completion of the Maxtor merger, its new product line and expected profitability over the next two quarters.

Transcript:

Host: John Furrier – PodTech

John Furrier – PodTech

We are here with Bill Watkins, the CEO of Seagate for the quarterly earnings. Congratulations, I guess some big numbers. Tell us a little bit some of the things that went on, came off CES, great launch there, new consumer brand. Last quarter numbers were different, we talked about that. Tell us, what happened this quarter?

Bill Watkins – Seagate

Well, again I think it really was an outstanding quarter and outstanding in all levels of the company. As we looked at the quarter, I think from our introduction of new products, yield improvement in cost savings, the ending or finishing up, if you will, of the Maxtor integration on that merger that got completed. I think that in certain parts of desktop market pricing was a little bit better than we thought, but net-net it was just across the board, company wide people executing little a bit better than planned. So, we end up beating the guy in this place – that’s for sure.

John Furrier – PodTech

So, you beat the guys. Let’s talk numbers. What were the numbers?

Bill Watkins – Seagate

Well, we came in $3 billion of revenue, which is the first time…

John Furrier – PodTech

Huge.

Bill Watkins – Seagate

For the first time, we’ve ever done $3 billion as a storage company and again you think about that stuff. That’s probably 30-40% on an annual basis up. So, again very, very great attraction of the products as you saw on CES, where the new products come out the consumer retailed it almost 200 million in the retail, 180 and 190 retails. So, again I think it was across the Board, it was just a great quarter. We obviously had in the gaming section a big quarter in gaming for the Christmas rush. So, again it was three billion of revenue.

John Furrier – PodTech

So, the Maxtor thing is complete.

Bill Watkins – Seagate

Yeah, we’ve really finished the whole integration of Maxtor. We currently have approximately 200,000 drivers left to sell, but all the manufacturing is done, all the restructuring, the layouts are pretty much finished and what will remain will trick out this quarter.

John Furrier – PodTech

So, we were at Seagate booth at CES we had the Bloghaus, with all the bloggers, which is great, a lot of fun, but those all the new products were out there. Talk about the new stuff that’s coming out.

Bill Watkins – Seagate

Well, again I think what’s excited about being Seagate and being as a part of any storage company today, is this onslaught of video applications content we moved around and what we saw at CES, was Seagate’s newest product rollout, is really to take advantage of all this content being moved electronically around. So, we opened up with the whole new backup that drives that. That not only backup, your data allows you to accessing your world, it allows you to synchronizing with all your devices, so immediately if you backup of song, video, it goes to your devices, whether it’s a video iPod et cetera, or whatever. It allows you access those backup data.

We also launched a whole group of products that are mobile products, which give you same functionality, but allow you to take it into your hand and go and so you can download onto one of your mobile external devices all your settings, your PC, your favorite IP sections, et cetera, take that with you and go. Wherever you’ve got a keyboard and screen, you’ve got an instant computer, with all your personal settings. So, again it’s all about giving you mobility, giving you security, giving you ways of backing up and accessing that data and then synchronizing that data through all these multiple devices that you use.

John Furrier – PodTech

The consumer finds it sexier too. I mean, they were really nice designed products. At the Bloghaus, everyone was talking about it the lights and it looks cool. Talk about like the new products that are coming. Any new cooler drives…

Bill Watkins – Seagate

Well, again we think — we’re going to see a whole list of products. We started with a launch — I think we’re going to talk about — we’ve new external drives that are going to be wireless that allow you access these handheld devices phones, our storage capabilities allow you to back and load more data in a handheld device. We’re going to have a whole new rollout of our Maxtor brand coming out, that is really based on reliability and backup, but again we’re going to launch some new products. We’ve gone to kind of new concept here, where we’re bringing in a frog designed it actually did the same, we’re bringing in people who we think have expertise in consumer designs and they’re helping us design.

At Seagate, we’re very focused on the technology and we much more looking at industrial applications, so again sort of creative ideas and things like that. We’ve reached out to those people that do a great job and Frog (Inaudible) has done some stuff for us, but again it’s really bringing in a whole new sort of coolness to hard drives. Again, like I said this before John, we’ve always been kind of like in Wizard of Oz, the man behind the curtain. No one knew about us and it didn’t matter, we weren’t cool.

Today, we’re not brought in then forefront, you see them out there, they’re utilized, they’re enabling you to move this content without storage device you cannot move this content electronically. So, it’s really changed, the face of company is changed, where we going as direction and is really made this (Inaudible) exciting place to be.

John Furrier – PodTech

They’re all just fundamental, almost like a microprocessor was in original PC, you had to have it and now people are embedding in their lives. Just quick back on the revenue, three billion that’s huge number. You said storage company has never done that before. You blew away earnings; talk about the outlook from a numbers perspective, also Maxtor is fully integrated perhaps just coming out at CES we’re seeing that. What’s the outlook for next quarter and the quarter after?

Bill Watkins – Seagate

Well can — we are doing something kind of usual, usually coming off in December quarter, our business is somewhat cyclical and ideally at Christmas — there is so much storage bought for Christmas whether it is in gaming, DVR, set-top boxes et cetera, PCs, notebooks. And so, historically you tend to have a 10% down quarter coming off of December in the March quarter. We had actually given a forecast for the March quarter very different than that, what we are saying is revenue will be flat at three billion. We’ll improve gross margins and earnings will be in the $0.55 or $0.60 range, which would be a tremendous again, over and proven again.

So, the reason for this is, that the Maxtor products are behind us and so this would be the first quarter where we actually 100% manufacturing, if you will, the Seagate product lines. We’ve got new 1.8 inch drives that now we’ve announced and now launching, we are in fact qualifying, we’ll start to see revenue and earnings this quarter from those programs.

We have a very new two-and-a-half inch 10,000 RPM, and 15,000 RPM, which in fact is the fastest drive in the world for the enterprise market that we are getting tremendous acceptance on so. Again, we are announcing really, actually we’re saying, “We’ve got a whole revenue of three billion in our March quarter,” which is probably 10-15% above what historically would be. And we are going to grow earnings to that $0.55 to $0.60 range. Again, in a down quarter, but again a lot of the things in work that the teams have been doing are really show down and show up.

John Furrier – PodTech

That’s great. Actually storage is growing like crazy in everyone’s life, you guys have great traction. Talk about the leadership from Seagate, in terms of in the marketplace, obviously have the technology leadership, talk about that and then talk about how you guys are going to be competing in the consumer area?

Bill Watkins – Seagate

Well, again as we think about, what’s critical to us at Seagate, it’s has really taken this technology leadership and transferring that into product leadership and in cost leadership. We think that — I think historically a lot of companies tried to be a technology leader, they tried to be a product leader or tried to be a cost leader. What we think is critical for our business, is really fitting all three things take your technology, but, it’s not enough, just to not to be a technology, you’ve got to turn into product leadership, and it’s just not enough to just be the product leader, you’ve got to have cost leadership there.

So, we think with our vertical integration strategies, our tremendous investments and how we platform those investments that allows us to really access technology, and bring it to market to cheaper than anybody else, just this tremendous advantage. And again that’s how — I think right now, over the t third of every drive in the world, the Seagate drive, and we obviously intend to improve on it.

John Furrier – PodTech

Tell, about the Seagate brand, changing — you mentioned some the changes, leadership is obviously there, how do you want people to know the Seagate brand in the market?

Bill Watkins – Seagate

Well, I think — obviously we think about it from a consumer application and again I think to some extent it’s a same principle to OEM or Dell. You want to trust us, I mean as we think about — it’s one thing to put your data on a hard drive or your spreadsheet and that implies a certain amount of confidence or liability et cetera, but when you put your pictures, your files, your music, your video, your home pictures, I mean these are priceless things, and I think what’s important for us, that not only we developed the products and the services for you, we have to deliver a product from a reliability that you trust us, you are trusting us or myself, well trusting is the most important things in life.

So, as we start looking at consumer branding, we are going after that sort of attitude that and making maybe real life how important is that back it up, put it on reliable person or reliable company that’s going to value that and take care of that data, to that data is not $5 or $10 or $9.99 that’s you and your life and your most important things.

John Furrier – PodTech

How about the macro market conditions out there for your growth and leadership out there, what are the key things that you think about?

Bill Watkins – Seagate

Well again, as we think about it, we think is about getting content electronic distributed. And again we — anytime we move a song, a video or anything electronically, it creates an ecosystem that you need to have a storage at the enterprise level, where that content is held, and it’s delivered to your home. You need a storage device at your home to receive it, and then you move it your hand where you’re going to need a storage device, and then normally you’re going to move it to your car. And then everywhere along that cycle you need to back it up.

So, just the idea, or the behavior of moving content electronically, create six are seven drives or storage systems force. Sometimes, it’s going to be a flash in the hand, but again most that is going to be a hard drive, and so we get the benefit. More content is moved, whether it’s through the Internet, through your PCs et cetera. It created tremendous ecosystem, where we get to play it all every areas of those markets.

John Furrier – PodTech

We are here with Bill Watkins, the CEO of Seagate. Sum up for me the quarter that you just did and then the next quarter coming forward in your words.

Bill Watkins – Seagate

Well, again I think it’s very easy, to kind of excited about a quarter or whatever, I think that what — if I was to look at this, this quarter, next quarter, what you see is the opportunity. And it’s not of whatever we satisfied with $0.58 in March, or satisfy the fact we hit three billion. It’s the opportunity set is out there. And if we execute as a company, we can be in a dominating position in this industry. We can’t be a very large storage company; point-billion, those type of numbers are not impossible for us. The opportunity sets out there, we need to continue our execution.

John Furrier – PodTech

Storage of the center of the universe and people’s lives, great opportunity, you’ve blown away the number three billion in a quarter, blown away estimates, lot of leaderships, congratulations and thanks for the Podcast.

Bill Watkins – Seagate

Yeah, still more to come. Thanks.

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