Seagate Technology (STX)

Business Overview

Seagate Technology is a commodity-cycle component maker whose latest-year margin is a poor guide to a normal year. FY2026 (year to 3 July 2026) revenue was $12.2B. Gross margin was 45.6% and operating margin 33.6%. R&D was 6.2% of revenue. Stock-based compensation was 1.7%. Free cash flow was $3.1B.

Gross margin was 18.3% in FY2023. The FY2016-FY2026 series runs 23.4%, 29.5%, 30.1%, 28.2%, 27.0%, 27.3%, 29.7%, 18.3%, 23.4%, 35.2%, 45.6%. The ten-year average is about 27-29% depending on the window (27.2% for FY2016-FY2025; 29.4% for FY2017-FY2026). Revenue fell 44% from FY2022 ($11.7B) to FY2024 ($6.6B). Cash conversion cycle was 36 days (DIO 86, DSO 46, DPO 96). Exabytes shipped rose from 233 in FY2016 to 789 in FY2026.

How the Numbers Read

FY2026 gross margin at 45.6% sits far above the ten-year average near 27-29%. FY2023 at 18.3% sat far below. Using either year as a perpetual run-rate misstates the business. Revenue falling 44% from FY2022 to FY2024 shows how deep the trough can be even before margin is applied.

Exabytes shipped rising from 233 to 789 while revenue and margin swing is the bit-growth versus price story inside storage hardware: more terabytes per drive, cyclical pricing. A 36-day cash conversion cycle is modest beside Arista's 256 or Amphenol's 94, but inventory still sits at 86 days. The mid-cycle margins guide uses this filed history as the worked case for averaging across a full cycle.

How the Model Values This Kind of Company

Storage and components are valued on units times average selling price through a product cycle with a wide peak-to-trough swing. Mid-cycle gross margin is the run-rate input; a high fixed-cost share of cost of goods makes margin rise and fall with the cycle.

Terminal value uses mid-cycle free cash flow, never the final explicit year, which may sit at a peak like FY2026 or a trough like FY2023. Working-capital days and stock pay are charged as usual.

What to Watch in the Financials

Gross margin versus the ten-year average. 45.6% in FY2026 against ~27-29%. Distance from the average is the cycle position.

Revenue versus the FY2022-FY2024 trough. A 44% fall showed how far units and price can drop together.

Exabytes shipped. 789 in FY2026 from 233 in FY2016. Bit growth can rise while dollar revenue and margin still cycle.

Cash conversion cycle. 36 days. Inventory at 86 days is the stock risk inside that cycle.

Key Risks

Peak-margin illusion. Treating 45.6% gross margin as normal overstates mid-cycle cash flow by a wide margin against the ~27-29% average.

Deep revenue troughs. The 44% fall from FY2022 to FY2024 shows demand can collapse faster than cost.

Fixed-cost operating leverage. Operating margin at 33.6% in FY2026 will compress sharply if revenue revisits trough levels while depreciation and overhead stay.

Inventory through the turn. 86 days of inventory into a downturn raises write-down risk even with a moderate CCC.