(Bloomberg) — Seagate Technology Holdings Plc, the biggest maker of computer hard drives, said it’s eliminating about 3,000 jobs and that big buyers of technology are cutting orders on concerns the economy is worsening. The shares fell more than 10% as trading got underway in New York. They have lost more than half their value this year.
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“Global economic uncertainties and broad-based customer inventory corrections worsened in the latter stages of the September quarter, and these dynamics are reflected in both near-term industry demand and Seagate’s financial performance,” Chief Executive Officer Dave Mosley said in a statement. “We have taken quick and decisive actions to respond to current market conditions and enhance long-term profitability, including adjusting our production output and annual capital expenditure plans.”
Separately, Seagate said it has been accused by the US Commerce Department of violating US export rules by selling hard drives to a sanctioned entity. Reuters reported that the entity was Huawei Technologies Co. The company denied it violated the rules.
The US company’s push back may prove a test of tightening restrictions against the provision of technology to China by the Biden administration, which has cited national security concerns in actions it’s taken against companies such as Huawei. Most of the actions to date have focused on semiconductor technology.
“Seagate’s position that it did not engage in prohibited conduct as alleged by the Bureau of Industry and Security, because, among other reasons, Seagate’s HDDs are not subject to the Export Administration Regulations,” the company said in a regulatory filing.
The company also released fiscal first-quarter financial results, which missed analysts’ expectations. Sales in the period ended Sept. 30 were $2.04 billion, missing analysts’ average estimate for $2.12 billion, the Fremont, California-based company said in the statement early Wednesday. That compares with an average analyst estimate of $2.2 billion. Adjusted earnings per share were 48 cents, far below estimates for 75 cents.
For the current quarter, Seagate said it sees revenue of about $1.85 billion and adjusted earnings per share of about 15 cents. It would mark the first quarter below $2 billion in revenue since 2005.
Like many of its peers in the computer component industry, Seagate has already warned investors that demand is drying up after several quarters of rapid growth. Companies and government departments are slowing their investment in computer networks, causing a buildup in unused parts. Covid lockdowns alongside economic weakness in China weighed on demand for mass capacity storage in recent months, while inflation dampened spending, the company said in a presentation.
“Customers have grown more cautious with their spending plans, which we believe will extend the recovery in the calendar year ’23,” Mosley said on a call with investors. The CEO cited interest rates, inflationary pressures, and geopolitical dynamics as contributing to an “intensely challenging macro environment.”
Seagate’s announcement is the latest from a tech company to focus on staffing expenses to cope with an economic slowdown and a squeeze on spending from high inflation. Intel Corp. is planning thousands of job cuts, while Meta Platforms Inc. plans to reorganize teams and reduce headcount for the first time ever. Amazon.com Inc. has frozen corporate hiring in its retail business, and Alphabet Inc.’s Google is making job cuts to Area 120, its in-house incubator for new projects.
Mosley said Seagate’s job cuts, which amount to about 7.5% of total employees, would lead to annualized savings of about $110 million once they were fully realized, in the fiscal third quarter of 2023.
Operating expenses were trimmed in the quarter by lower compensation and “strong controls over discretionary spending,” said Chief Financial Officer Gianluca Romano during the earnings call. Expenses are expected to decline a further $10 million in the current quarter due to the restructuring plan, Roman said.
(Updates with opening shares and earnings outlook in sixth paragraph)
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