Due to the much-decreased demand for HDDs it experienced in the first quarter of its fiscal 2023, Seagate on Thursday announced plans to reduce its hard drive output and its staff by 3,000 people. The company’s Q1 of FY2023 was its poorest quarter in 15 years, with earnings just exceeding $2 billion and an 18 times year-over-year decline in net income. Charges for sending hard drives to Huawei are also being brought against Seagate.
Although Seagate doesn’t reveal how many hard drives it sends out each quarter, exabyte shipments have been rising as HDD unit sales have been steadily declining for years. When Seagate’s HDD capacity fell to 118.2 EB in Q1 FY2023 from 154.6 EB in the previous quarter and 159.1 EB in the same quarter a year prior, everything changed.
In the first quarter of its FY2023, Seagate’s shipments decreased for some reason, and the company’s financial status significantly deteriorated. First, the COVID lockdowns in China led to a downturn in the economy, which decreased demand for Seagate’s goods. Second, clients of Seagate made inventory adjustments as a result of the economy’s slowing growth, which further decreased the company’s sales. Third, CSPs started shipping hard drives and other items on boats (instead of planes) as a result of the slowing economy and rising logistics expenses, which prolonged their procurement process. Finally, in the face of rising prices and geopolitical unrest, consumers reduced their spending.
Since Seagate typically manufactures its hard drive platters, heads, and other HDD components in addition to assembling drives on its product lines, a decrease in the number of drives and a decline in demand for its goods necessitates a change in production capacity and workforce. As a result, it was forced to adopt a reorganization plan to cut costs, which included firing 8% of its workforce, or roughly 3,000 workers. The project will cost between $60 million and $70 million, be finished by the end of Q2 FY2023, and begin saving Seagate roughly $110 million per year in Q3 FY2023.
In Q1 FY2023, Seagate’s revenue totalled $2.035 billion, down 23% from the previous quarter and 35% from the prior year. 87% of the company’s sales were made up of hard disc drives, which saw a 38% year-over-year decline, while 13% of the company’s sales were made up of solid-state drives and systems, which saw a 5% YoY increase in sales. Compared to Q1 FY2023, when the company’s performance was driven by record-breaking demand for hard drives from cloud service providers (CSPs) and Chia miners, Seagate’s net income came in at $29 million, down from $529 million.
Hard drive sales have decreased, but Seagate is also being accused of other things by the Bureau of Industry and Security of the U.S. Commerce Department (BIS)
This week, Seagate said that it had received a proposed charging letter (PCL) from the U.S. DoC BIS in late August, stating that it had sent hard drives to a corporation on the Entity List in 2020 and 2021 in violation of U.S. export laws. Huawei is thought to be the business.
Companies must obtain an export license from the BIS following the regulations set forth by the U.S. DoC in August 2020 before shipping goods that are subject to U.S. export control that was created or manufactured using U.S. intellectual property, software, technology, or equipment to Huawei or any of its affiliates. Seagate asserts that because its products were exempt from the U.S. Export Administration Regulations, it did not break any laws (EAR).
Technically, the restrictions imposed on Huawei primarily apply to semiconductors, but because Seagate hard drives use controllers and memory created using electronic design automation tools created by American companies and manufactured using American equipment, they are considered export-controlled items
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