Seagate to Lay Off Over 8,000 to Lower Costs
by Anton Shilov on July 14, 2016 7:30 AM EST
It is not a secret that total available market of hard drives significantly shrank in the recent years due to the slowing sales of PCs and popularization of SSDs for most low-end capacity devices. In a bid to stay profitable, leading hard drive makers attempt to lower their costs by optimizing product roadmaps, reducing production capacities and reducing overhead. In the recent weeks. Seagate has announced plans to cut its headcount by over 8,000 people within the next 12 months.
Seagate announced its first restructuring plan in late June, under which it plans to lay off 1,600 people worldwide, or about 3% of the company’s workforce. The decision will affect all geographies and organizations equally for the most part, Seagate indicated. The company said that the implementation of this plan would cause pretax charges of $62 million (recorded in the fiscal fourth quarter of 2016), but will help the company to save approximately $100 million on an annual run rate basis in the fiscal year 2017.
The second restructuring plan announced this week seems to be considerably more drastic than the first one. Seagate intends to reduce its workforce in Americas, Asia and EMEA by approximately 6,500 people, or 14% of its global headcount by the end of its fiscal year 2017. As a result, Seagate will lay off about 8,100 of its employees within the next 12 months in total. The move will cost the company $164 million, but is expected to significantly lower the manufacturer’s expenditures going forward.
While the measures to cut down the headcount seem rather significant, it looks like Seagate has not revealed all of its restructuring initiatives just yet. During its latest conference call in April, Seagate announced plans to reduce its manufacturing capacities from around 55 million to 60 million drives per quarter to approximately 35 million to 40 million drives per quarter. The decline in personnel it seems is only a part of the plan to cut down expenses and manufacturing capacities.
So far the company did not elaborate on its intentions regarding the reduction of manufacturing capacities, but this will likely happen in the coming weeks as Seagate decides to proceed with the plan. At present, it is unknown whether the move might trigger additional overhead optimizations, but this is a possibility.
In the Q4 of its fiscal 2016 (which is calendar Q2 2016) Seagate sold approximately 37 million HDDs, down from around 45.2 million in the same period a year ago, and earned about $2.65 billion in revenue, the company said in its statement. Seagate’s gross margin during the quarter was 25%, but the hard drive maker expects its margins to increase to 27-32% by late December thanks to its lower costs and increased sales of enterprise-class HDDs. Given the current sales of hard drives, Seagate might indeed need to reduce its production capacities since the company could produce significantly more drives that it could sell.
Source: Seagate
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Ariknowsbest - Monday, July 18, 2016 - link
Seagate bought SandForce from Avago in 2014, so they currently have in house controller just as Samsung.The only viable option for Seagate is to aquire Micron or SK Hynix. Buying Kingston wouldn't add any value to Seagate, as they can just as well buy the nand from the market and package it.
DanNeely - Monday, July 18, 2016 - link
Going after Micron as a whole probably wouldn't make sense; too big (about 50% higher market cap than Seagate ~13bn vs 9bn) and has too many other business units that wouldn't be of any interest (eg dram). Since the flash production is via a joint subsidy they co-own with Intel it's possible the latter might have a poison pill in place to protect its share of the investment.SK Hynix is even bigger (~ 22bn USD). Being part of the 3rd largest conglomerate in South Korea the barriers to any sort of takeover are probably insurmountable. (South Korean holding structures tend to look like Rube Goldberg machines and are designed to let the founders have majority voting rights even though they own a much smaller fraction of the total shares on the market.)
Lolimaster - Thursday, July 14, 2016 - link
And HAMR is nowhere to be seen. Was supposed be the zomg of drives 2 years ago...Lolimaster - Thursday, July 14, 2016 - link
15-20-30TB drives, hello?Lolimaster - Thursday, July 14, 2016 - link
They had the hybrid drives. 5 years later and they're still stuck with a laughable 8GB of really bad performing nand.Samus - Friday, July 15, 2016 - link
Yep, that was a great concept to cache high io hits, independent of the file system. But for some reason they never really perfected it with more NAND and enabling write caching.Firebat5 - Saturday, July 16, 2016 - link
I have to say I decided against the hybrids because I didn't think their NAND caches were big enough.stargazera5 - Thursday, July 14, 2016 - link
SSDs are a major part of it, no doubt, but you should also look at what gave SSDs such a large opening to start killing off their business so soon. I'm talking about the price-fixing in the wake of the 2011 Thailand floods. The HDD manufacturers enjoyed a turn around from the price war they had been fighting and artificially kept the prices elevated when they should have dropped after the flood. IMHO today they still haven't returned to the rapid price drops they had before. People being pushed to pay more changed 3 behaviors:1. People moved to cloud storage to offload the risk of HDD prices, and cloud providers could consolidate the number of disks used in a way many individual users couldn't.
2. With the price premium for SSDs dropped, people who could afford it started moving to them for their main drives instead of HDDs
3. End users kept disks in use longer then they would have before and brought older disks that had been retired back into service to fill the gaps.
All this reduced the market for HDDs and the manufacturers are now paying the price. Add in the collapse of the PC market as equipment cycles were extended across the board, and you can see why they are in trouble.
hechacker1 - Saturday, July 16, 2016 - link
In addition to cloud storage, cloud providers (streaming and document storage, Office 365, etc) killed the need to store a lot data locally. Enterprises are moving a lot of infrastructure to the cloud.Lolimaster - Thursday, July 14, 2016 - link
For avrg joe and jenny who barely store a decente amount of big a*ss mkv's. YES. SSD killed them.240-480GB and they're happy.