STX Q4:2007 Results

This stock trades at 8* estimates. They beat. Revenue was guided lower but EPS were guided higher on better gross margin guidance.

The hard drive business is unquestionably under a lot of pressure but for the time being the cost advantage in mass storage trumps the portability and durability aspects of NAND flash in terms of the replacement cycle. There will be gradual erosion of this cost advantage over the next couple of years. The gaming cycle is still strong, the DVR cycle is strong. Video eats up a lot of hard drive space.

It’s hard to make a case that Seagate is going to shrink by 20% over the next year, which is what the multiple is telling you. This stock belongs at $25, not here.