Seagate to Lay Off Over 8,000 to Lower Costsby 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.
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plopke - Thursday, July 14, 2016 - linkThat cost did not go up much compared to amount of extra fired people, was kinda on the horizon that this would happen, good luck to them.
Did WD start to cut already, I mean they have SANDisk, HGST,.... so many things still merging?
Lolimaster - Thursday, July 14, 2016 - linkCapitalism as its best.
"Small" competitos hit your agenda? Buy them.
"Mundo never merge! Mundo acquire!"
Chaser - Sunday, July 17, 2016 - linkDo share with us how other social systems would have increased hard drive demand.
ddriver - Thursday, July 14, 2016 - linkSo apparently, even cutting warranty down to the laughable 12 months their business model still sucks, thus the need to kick out people who have nothing to do with it, while the lousy management lingers on...
Murloc - Thursday, July 14, 2016 - linkSSDs killed HDDs, other companies took a big part of the memory business away from the incumbents, and you blame management?
DanNeely - Thursday, July 14, 2016 - linkFor being too slow to realize that SSDs were going to disrupt the HDD market and not moving into the new business fast enough, yes I do blame Seagate's management. Along with WD they're hemorrhaging HDDs sales and not bringing in nearly enough SSD to replace them. I think Toshiba is better off here; but that has as much to do with being a bit player in the HDD market as to being a major player in the flash one.
romrunning - Thursday, July 14, 2016 - linkCompletely agree here. They simply didn't invest enough in SSD. For that, you can definitely blame mgmt. Five years ago, they should have seen what was coming, and started their investing then. They could have been co-leaders in the retail/consumer SSD market along with Samsung.
Of those 8,000 jobs being cut, how many are the higher-up ones who lacked the foresight & also didn't want to change direction when the tide was clearly turning?
romrunning - Thursday, July 14, 2016 - linkI say five years ago, but I guess they should have started investing serious money as soon as they saw the mainstream Intel X25-M doing well in 2008. That alone should have told them where the future was going.
Oxford Guy - Friday, July 15, 2016 - linkSandforce, though, provided a moderate performance platform so the only thing left over was the really low end and the higher end. Even Intel ended up producing Sandforce drives. I'm not sure what Seagate would have been able to do, other than try to beat Samsung to the market. The 830 series were good drives. And the lackluster 840 TLC stuff was massively hyped and was a major market success.
I suppose Seagate could have bought Sandforce instead of having them be closely tied to OCZ (the result of which was highly unstable drives like the 64-bit NAND Vertex 2 240 sold with false specs on the packaging) — and a horrible "panic mode" designed to destroy the ability of a user to get their data so that Sandforce would sleep peacefully knowing no one would be able to pry into its subpar firmware that doesn't work with TRIM correctly.
romrunning - Friday, July 15, 2016 - linkWell, as a counterpoint, the current market leader - Samsung - uses their own controllers. They didn't resort to Sandforce. Even if Seagate didn't want to partner with SandForce, they could have partnered with Marvell to use their controllers while they were building their own internal expertise in controllers. Instead, they did neither and mainly tried to stay status quo with HDDs.
Meanwhile, SSD prices were going down and performance/capacity was going up. Seagate stays head-in-sand and still doesn't try to get a complete SSD product line. Samsung fills out their product line with TLC-based drives along with already well-performing MLC drives, and pretty much becomes the market leader. Even WD buys into their own future by acquiring Sandisk, thus ensuring they'll still have life after HDDs really tank. I think Seagate should be looking at acquiring Kingston or Micron to keep their future vibrant rather than just a slow decline.