Luczo added that the company isn’t maximizing profits—average selling price per unit was $13 higher, but costs were $2.50 higher. Seagate’s plan is to give suppliers a break on pricing in exchange for longer term contracts. The strategy is paying off in the short and long runs. Seagate blew away its December quarter earnings (non-GAAP earnings of $1.32 a share vs. estimates of $1.08 a share) and gave a strong outlook for the months ahead.

Barclays Capital analyst Ben Reitzes said in a research note that Seagate’s long-term supply contracts are going to pay off nicely. As a result, Seagate can predict its fiscal 2012 results. Reitzes said:

“Given the company’s improved visibility due to long-term supply agreements with all of its top customers (60% of capacity is under these LTAs for the year), the company provided guidance not only for March and June but for CY12. In the March quarter, Seagate expects revenue of $4.3 billion (+62% y/y; 36% q/q) on expected unit shipments of 60 million (including Samsung) on TAM of 130-135 million. Seagate is also planning for gross margins of at least 33% as the company expects pricing to remain relatively benign for the next several quarters. For June, Seagate is currently expecting revenue of $5 billion, which implies y/y growth of 75% (15% q/q) with gross margins remaining relatively flat sequentially. Most surprising was the company’s confidence in its ability to generate $20 billion in revenue in CY 2012 (implying y/y growth of over 70%).”