Seagate Fires 6,500, Or 14% Of Workforce, Stock Soars

Moments ago computer-memory specialist Seagate, in a preliminary financial report, announced that its Q4 revenue would be $2.65 billion, beating expectations of $2.34 billion, and up from the $2.3 billion guidance given previously. The company also reported gross margin of 25% and non-GAAP gross margin of approximately 25.8% for the fiscal fourth quarter 2016, up from the previous 23% forecast.

Good news, and the stock is up 12% after hours as a result.

The only problem is that when companies preannounce good news up front, there is usually some not so good news hidden toward the back. And sure enough, for a company which is guiding higher, the narrative promptly fell apart when we read that for STX management the future is so bright that it just had to lay off 14% of it workforce, or some 6,500 people. This too was a "beat" to expectations: in late June, the company announced it planned to cut "only" 1,600 jobs as a cost-saving measure.

The Company announced today an additional restructuring plan for continued consolidation of its global footprint across Asia, EMEA and the Americas. The plan includes reducing the Company’s global headcount by approximately 6,500 employees, or 14% of its global headcount by the end of fiscal year 2017. The total pretax charges for the plan will be approximately $164 million in fiscal year 2017. The restructuring activities and global footprint consolidation underway should enable the Company to be operating within its targeted Non-GAAP product gross margin range of 27-32% by the December 2016 quarter.

Judging by the 12% jump in the stock on the news, perhaps if STX had not stopped there and had instead fired 50%, or maybe all employees, it may have even doubled in after hours trading.

And in other news, and perhaps explaining why the added layoffs, Gartner reported that worldwide PC shipments fell by 5.2% to 64.3 million in Q2. This was the seventh straight quarter of PC shipment declines. The scapegoat? The strengthening dollar, which supposedly has made PCs more expensive in certain markets. What is ignored is that for much of Q2 the dollar was actually weaker than one year ago, but who cares about details...