Analyst Call Summary

conference date: October 31, 2012 @ 5:30 AM Pacific Time
for quarter ending: September 28, 2012 (fiscal first quarter, Q1 2013)

Forward-looking statements

Overview: Continues to generate cash and repurchase shares

Basic data (GAAP):

Revenue was $3.73 billion, down 25% sequentially from $4.48 billion, but up 32% from $2.81 billion in the year-earlier quarter.

Net income was $582 million, down 42% sequentially from $1.01 billion, but up by 316% from $140 million year-earlier.

EPS was $1.42, down 40 sequentially from $2.37, but up 343% from $0.32 year-earlier.

Guidance:

Approaching December quarter conservatively. Does not see growth in China until Spring, and cautious on EOM demand and enterprise demand. Tablets may cause notebook refresh cycle to lengthen. Believes long-term Windows 8 will improve demand.

Demand expected relatively flat sequentially, so will restrain build and manage inventory, with ASPs down 5%. $3.5 billion in revenues. Margins at low end of 27% to 32% long-term range. Capital expense for maintaining operations and technology transitions. Plan to return 70% of cash flow to investors through repurchases and dividends. Samsung indicated they will maintain their shares in Seagate.

Believes will negotiate relatively flat ASPs for the March quarter.

Conference Highlights:

Company responded quickly to changes in mix and demand, lowering inventory and maintaining inventory turn. Macroeconomy has been sluggish, particularly in BRIC and Europe. PC demand . Overall industry demand was 10% lower than had been expected. Shipments declined 12% q/q, but enterprise market was down 26% sequentially and were below expectations.

Non-GAAP numbers: gross margin 29.0%, net income $594, EPS $1.45.

The industry is capable of manufacturing more drives than are required by demand. Focusing on supply and demand balance, reducing capital investments.

Cash and equivalents balance ended at $2.5 billion. Cash from operations was $1.1 billion. Dividends paid were $127 million. $669 million used for share repurchases.

Share count reduced 17% over last 3 quarters.

Has 5 mm and 7 mm drives ready for customers to sample for thin and light computing.

Cost of revenue was $2.67 billion. Product development cost $268 million. Marketing and administrative expense $150 million. Amortization of intangibles $19 million. Leaving income from operations of $624 million. Other expense $24 million. Income tax provision $18 million.

Cash dividend of $0.32 will be payable November 29 to shareholders of record on November 14, 2012.

Q&A:

Enterprise weakness? Visibility is poor. There are architectural changes underway, and largest customers may not be buying from traditional OEMs. There may be some inventory because of purchases after the flooding shortage. The macro impact, however, is significant, particularly in Europe.

At device level there was a fair amount of buy in during June quarter, which coincided with the demand slowdown towards the end of the quarter. People have been trying to bleed down inventory in anticipation of Windows 8.

The distribution channel feels better. Our position is about a million units less than last quarter, but in the OEMs there is probably still work to be done. End user TAM is probably going to grow by low single digits.

March quarter ASPs? We negotiate prices now for March quarter. December pricing "got away from us just a touch." Our customers were hoping there would be more demand. Industry does not believe can sell more units by lowering prices in March quarter.

System vendors are under pressure to maintain margins. That is the biggest factor in mix. We assumed a conservative mix for March quarter.

For us it is about absorbing heads and disks at these levels we are okay. We can easily reduce drive output. With average capacity per drive increasing, so are test times. But there is some point where if total addressable demand dropped there, it would seriously impact margins. Right now we are capable of producing far more units than we are currently.

Margins in December quarter? We have been conservative on mix. At 5% ASP drop, like product prices erode more than 5%.

Could lose NOLs if we redeem to many shares in 2013, but we have not had to use NOLs and don't anticipate using them. [NOLs: net outstanding losses, which can reduce taxes.]

Hybrid drive progress? In calendar 2013 we are going to have hybrid drives with desktop and enterprise customers. 5 mm won't be hybrid at first. A couple of large enterprise customers are very interested in the product. Some ramp in first half of 2013.

390 million shares would be a good count to use for the average for the December quarter.

We are able to quickly demand to changes in demand. December equipment end sales may be up a few percent, but we won't see it as it will come out of inventory.

Brazil? The quarter was really back-end loaded, even more than usual for a September. Aside from overall weakness in demand and lack of enterprise demand, Brazil demand was related to in-country drive build requirements, and our pricing was too aggressive.

We can do a lot on operating expense, if the environment gets a lot worse. But right now margins are higher than the high end of our old range, so we are maintaining op ex for now.

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