Company Overview - Seagate Technology (NASDAQ: STX) has been under observation for a significant period, with a previous strong buy recommendation made in January [1]. Analyst Background - The analyst has extensive experience in foreign policy research and investment analysis, focusing on deep-discount value plays for over 25 years [1]. Investment Philosophy - The investment approach emphasizes finding underappreciated companies that can return value to investors, influenced by contrarian investment philosophies [1].

Core Insights - Seagate is developing a 100-terabyte hard drive by 2030 to meet the increasing demand from data centers driven by the AI boom [1][2] - The new drive will have approximately three times the capacity of Seagate's current largest model, the 36-terabyte Exos M [2] - Seagate positions itself as a key player in the AI sector, highlighting the necessity of high-capacity storage solutions to support market growth [2] Company Developments - Seagate's chief commercial officer, BS Teh, emphasized the strong demand for high-capacity drives, indicating that the market requires such advancements [2] - The company has been adapting its strategy to align with the needs of the AI industry, which has primarily benefited hardware manufacturers like Nvidia [2] Industry Context - The AI boom is creating significant demand for data storage solutions, with Seagate aiming to be a critical enabler in this space [2] - The current landscape shows that no other technology can match the storage capacity that Seagate is targeting, underscoring the company's potential role in the evolving market [2]

Core Viewpoint - RISC-V architecture is an open international standard that facilitates collaboration and innovation in the semiconductor industry while enhancing the competitiveness of U.S. chip design companies [1][10]. Group 1: RISC-V Overview - RISC-V is an open standard ISA based on RISC principles, allowing chip design teams to access and implement it without licensing restrictions [6]. - The RISC-V International organization, managing RISC-V, has attracted 4,600 members from 70 countries, including major U.S. and Chinese companies [7]. Group 2: Market Position and Growth - RISC-V is gaining traction in various sectors, with over 2 billion chips currently based on its architecture, expected to grow to 20 billion by 2031 [8]. - The market revenue for RISC-V technology is projected to grow at a compound annual growth rate of 33.1% from 2022 to 2027 [12]. Group 3: Competitive Advantages - RISC-V offers a low-cost alternative to proprietary ISAs like x86 and ARM, allowing companies to customize their implementations without high licensing fees [9]. - The flexibility of RISC-V enables easier customization for performance advantages, making it attractive for both large enterprises and startups [13]. Group 4: Security and Intellectual Property - RISC-V does not require companies to disclose sensitive IP, ensuring a secure environment for collaboration and development [10]. - The open nature of RISC-V is believed to enhance security by allowing the community to identify vulnerabilities [10]. Group 5: Future Applications and Infrastructure - RISC-V is currently used in embedded technologies and has potential applications in AI, HPC, and consumer electronics [15]. - For RISC-V to become mainstream, a robust ecosystem of tools and support systems must be developed [16]. Group 6: Policy Implications and Strategic Opportunities - U.S. policymakers need to better understand RISC-V to maintain competitiveness and avoid ceding innovation to other countries [18]. - Active participation in RISC-V standard-setting is crucial for U.S. companies to influence its development and avoid fragmentation of the ecosystem [19]. Group 7: Recommendations for U.S. Leadership - The U.S. should invest in RISC-V training and education to cultivate a workforce skilled in this technology [24]. - Government support for RISC-V initiatives can accelerate its development and integration into the semiconductor ecosystem [26].

Financial Performance - In the March 2025 quarter, the company shipped 144 exabytes of HDD storage capacity and generated revenue of approximately $2.2 billion with a gross margin of 35.2%[125]. - Revenue for the March 2025 quarter decreased by $165 million compared to the December 2024 quarter, primarily due to a decrease in mass capacity exabytes shipped[129]. - Revenue for the three and nine months ended March 28, 2025 increased by $505 million and $2 billion from the three and nine months ended March 29, 2024, respectively[130]. - The gross margin for the March 2025 quarter increased by 9 percentage points compared to the March 2024 quarter, driven by favorable product mix and pricing actions[133]. - The gross margin for the nine months ended March 28, 2025 increased by 14 percentage points compared to the nine months ended March 29, 2024[134]. Operating Expenses - Operating expenses for the quarter ended March 28, 2025, were $329 million, a slight increase from $324 million in the previous quarter, and $282 million in the same quarter last year[136]. - Product development expenses increased by $16 million in the March 2025 quarter compared to March 2024, primarily due to a $17 million increase in compensation and other employee benefits[137]. - Marketing and administrative expenses increased by $23 million in the March 2025 quarter compared to March 2024, mainly due to a $22 million increase in compensation and other employee benefits[139]. - Sales incentive programs were approximately 14% of gross revenue for the March 2025 quarter[131]. Cash Flow and Debt Management - Operating cash flow for the March 2025 quarter was $259 million, and the company paid $152 million in dividends[125]. - The company reduced its outstanding debt by $536 million through repayment of the 2025 Notes and partial repurchase of certain senior notes[125]. - Cash and cash equivalents decreased by $544 million from June 28, 2024, to $814 million as of March 28, 2025, primarily due to $531 million repayment of debt and $447 million in dividends paid[148]. - Cash provided by operating activities for the nine months ended March 28, 2025, was $575 million, reflecting net income adjusted for non-cash items[149]. - As of March 28, 2025, the future principal payment obligation on long-term debt was $5.2 billion, with estimated future interest payments of approximately $1.8 billion[160]. Shareholder Returns - The company declared a quarterly cash dividend of $0.72 per share, payable on July 8, 2025, to shareholders of record as of June 25, 2025[162]. - As of March 28, 2025, $1.8 billion remained available for share repurchase under the existing authorization limit[163]. Capital Expenditures and Investments - The company expects capital expenditures for fiscal year 2025 to be higher than in fiscal year 2024, requiring substantial cash to fund increased working capital and scheduled debt payments[164]. - As of March 28, 2025, the company has a cash investment portfolio with floating rate assets totaling $171 million at an average interest rate of 4.24%[170]. - The company has fixed rate debt obligations amounting to $5,193 million, with an average interest rate of 5.74%[170]. - The company has fixed rate debt obligations maturing in 2028 totaling $1,500 million at an average interest rate of 3.50%[170]. Risk Management - The company manages interest rate risk primarily through fixed rate debt obligations and has immaterial available-for-sale investments[169]. - The company hedges foreign currency exposure with contracts that mature within 12 months, aiming to reduce earnings volatility from currency fluctuations[172]. - The company has entered into foreign currency forward exchange contracts with a total notional amount of $247 million, including contracts in Singapore Dollar ($154 million) and Thai Baht ($47 million)[175]. - The company performs ongoing credit evaluations to manage counterparty credit risk related to foreign currency forward exchange contracts[176]. - Changes in corporate issuer credit ratings have minimal near-term financial impact but may affect future capital raising and transaction costs[176]. - The company utilizes a Total Return Swap to manage equity market risks associated with its non-qualified deferred compensation plan[177]. - The company has exposure to market risks including interest rates, foreign currency exchange rates, and credit rating changes, which could impact financial results[168].

Group 1 - The stock market has entered the Q1 earnings season with significant pessimism regarding tariffs, but the actual results from reporting companies suggest a different narrative [1] - Companies reporting earnings have shown that the reality may not align with the initial pessimistic expectations surrounding tariffs [1] Group 2 - Gary Alexander has extensive experience in covering technology companies and has worked in Silicon Valley, providing insights into current industry themes [1] - He has been a contributor to Seeking Alpha since 2017 and has been featured in various web publications, indicating a strong presence in the investment community [1]

Core Viewpoint - Seagate Technology's stock has experienced an increase, with the company asserting that tariffs are not a significant issue for its operations [1] Group 1 - Seagate Technology reported a positive market response, indicating resilience against tariff impacts [1] - The company emphasized its ability to manage costs effectively despite external economic pressures [1] - Seagate's strategic positioning in the market allows it to navigate challenges without significant disruptions [1]

Core Insights - Seagate Technology Holdings plc (STX) reported third-quarter fiscal 2025 non-GAAP earnings of $1.90 per share, exceeding the Zacks Consensus Estimate by 7.95% and reflecting operational discipline and effective cost management [1] - Non-GAAP revenues reached $2.16 billion, beating estimates by 1.3% and showing a 31% year-over-year increase, although down 7% sequentially due to supply chain challenges [1][3] - The company continues to benefit from strong demand for mass capacity storage, particularly driven by nearline cloud demand, which surged 48% year over year [2][3] Financial Performance - Non-GAAP gross margin increased to 36.2% from 26.1% in the prior-year quarter, contributing to improved earnings and free cash flow [13] - Non-GAAP income from operations rose to $507 million from $183 million a year ago, with operating margin increasing to 23.5% from 11.1% [14] - Cash flow from operations was $259 million, with free cash flow amounting to $216 million, indicating a positive trend in cash generation [16] Product and Market Dynamics - Seagate shipped 143.6 exabytes of HDD storage, a 45% year-over-year increase, although down 5% sequentially [6] - Mass capacity storage shipments reached 132.9 exabytes, up 50% year over year, with average capacity per drive increasing to 16.2 TB [7] - The company is ramping up its HAMR technology to meet increasing cloud customer demand, with volume shipments expected to expand in the second half of calendar 2025 [4] Future Outlook - Management anticipates fourth-quarter fiscal 2025 revenues of $2.4 billion, reflecting an 11% sequential increase and a 27% year-over-year improvement [17] - Non-GAAP earnings are projected to be $2.4 per share, with operating expenses expected around $285 million [18] - The outlook indicates stability in demand and minimal impact from recent global tariff developments [17]

Financial Data and Key Metrics Changes - Seagate reported a 31% year-on-year increase in revenue and an 81% growth in non-GAAP gross profit dollars for Q3 2025 [5][13] - Non-GAAP EPS was $1.90, which is at the top end of the guidance range, despite a 7% sequential decline in revenue [13][20] - Non-GAAP gross margin expanded by 70 basis points sequentially to 36.2% and over 1,000 basis points year-on-year [16][20] Business Line Data and Key Metrics Changes - Nearline revenue represented approximately 90% of mass capacity volume, with shipments of 120 exabytes, down 5% sequentially but up 55% year-on-year [15] - Mass capacity revenue declined sequentially by $145 million to $1.7 billion, representing a 48% increase year-on-year [14] - Legacy product sales totaled $254 million, down 8% sequentially, reflecting expected seasonal trends [15] Market Data and Key Metrics Changes - Cloud nearline revenue and exabytes were up nearly 10% sequentially, almost doubling year-over-year amid a tight supply environment [8] - Demand for mass capacity storage aligns with the cloud CapEx investment cycle and ongoing data center infrastructure build-out to support AI transformations [8][10] - Nearline exabyte demand looks strong through calendar 2025, with visibility of demand extending into the first half of calendar 2026 [10] Company Strategy and Development Direction - The company is focusing on managing controllable factors while executing its aerial density-driven technology roadmap [7] - Seagate's HAMR-based Mosaic drives are positioned as the industry's only three terabyte per disk products, with shipments expected to ramp in the second half of calendar 2025 [7][12] - The company aims to transform its business model to prioritize profits and cash generation while capitalizing on the growth in data generation and value [23] Management's Comments on Operating Environment and Future Outlook - Management expects minimal impact from tariffs on fourth-quarter financial performance and is monitoring the situation closely [6][20] - The demand environment remains intact, particularly among global cloud customers, despite potential tariff measures affecting customer buying decisions [7][20] - The company anticipates free cash flow generation to improve sequentially through the rest of the calendar year [19][20] Other Important Information - The company returned $152 million to shareholders through dividends and ended the quarter with liquidity of $2.1 billion [19] - The debt balance was $5.1 billion at the end of March, with a net leverage ratio of 2.1 times [19] Q&A Session Summary Question: Understanding upside in revenue despite supply constraints - Management confirmed that the guidance for June would have remained the same a month ago, indicating predictability built through the build-to-order process [29][30] Question: Progress on HAMR qualifications and contributions - Management stated that HAMR is growing well, with one major CSP qualification almost complete and more in progress [35][36] Question: Visibility on customer demand and pricing - Management noted that build-to-order models provide visibility into demand, and they expect to negotiate higher prices as they transition to higher capacity products [42][43] Question: Impact of tariffs on financial model - Management indicated that passing through tariff-related costs would be a last resort, and they are focused on maintaining margins to reinvest in the business [50][52] Question: Expectations for revenue growth and gross margin in the back half of the year - Management expressed confidence in revenue growth and profitability, with no reason to change expectations based on current visibility [58][60]

Q2FY25 Financial Performance - Revenue reached $2.33 billion [6], a 7% increase QoQ and a significant 50% increase YoY [8, 15] - Non-GAAP gross margin was 35.5% [6], up approximately 220 bps sequentially, marking the seventh consecutive quarter of expansion [8] - Non-GAAP operating margin improved to 23.1% [6], a sequential increase of approximately 270 bps [8] - Non-GAAP diluted earnings per share (EPS) was $2.03 [6], at the high end of the guidance range [8] - Adjusted EBITDA increased sequentially by 19% to $591 million [8] - Free cash flow improved significantly to $150 million [8], a substantial increase from $27 million in the previous quarter [8] HDD Capacity and Technology - Total HDD capacity shipped reached 151.8 EB [7, 18] - Average capacity per drive increased to 11.6 TB [7, 18], a 9% increase QoQ [7] - Mass Capacity revenue grew for the sixth consecutive quarter, representing 93% of total HDD exabytes [13] - Nearline revenue nearly doubled year-on-year [13] Q3FY25 Guidance - Revenue is projected to be $2.10 billion ± $150 million [21] - Non-GAAP diluted earnings per share are expected to be $1.70 ± $0.20 [21]

Market Overview - The S&P 500 experienced its sixth consecutive day of gains, with no negative impact from economic data or earnings reports [1] - The Dow increased by 300 points (+0.75%), the S&P 500 rose by 32 points (+0.58%), and the Nasdaq grew by 95 points (+0.55%) [2] - Bond yields decreased, with the 10-year yield at 4.17% and the 2-year yield at 3.65% [2] Housing Market - The Case Shiller Home Price Index for February showed a headline increase of +3.9%, which is 20 basis points lower than the previous month [3] - The 10-City survey reported a +5.2% increase, down from +5.7%, while the 20-City index showed a +4.5% increase, down from +4.7% [3] - Notable cities for rising home prices included New York City (+7.7%), Chicago (+7.0%), and Cleveland (+6.6%) [3] Labor Market - The JOLTS report for March indicated job openings at 7.19 million, below the expected 7.5 million, with the previous month revised down to 7.5 million [5] - Job quits remained stable at 3.3 million, with a quits rate of +2.1% [6] - Layoffs in the retail sector decreased by 66,000, and federal government layoffs fell by 11,000 [6] Consumer Confidence - The Consumer Confidence Index (CCI) for April dropped to 86.0, below the expected 87.3 and down 7.9 points from the previous month [7] - The Expectations Index fell to 54.4, a decrease of -12.5 month over month, marking the lowest level since October 2011 [8] - 32.1% of consumers expect fewer jobs in the next six months, the highest rate since April 2009 [8] Company Earnings - Visa reported fiscal Q2 earnings of $2.76 per share, exceeding expectations of $2.68 and the previous year's $2.51, with revenues of $9.59 billion slightly above the anticipated $9.56 billion [10] - Starbucks missed both earnings and revenue expectations for fiscal Q2, reporting earnings of 41 cents per share and revenues of $8.76 billion, below the expected $8.79 billion [12] - Booking Holdings posted strong Q1 results with earnings of $24.81 per share and revenues of $4.76 billion, surpassing expectations [13] - Seagate Technologies exceeded estimates with fiscal Q3 earnings of $1.90 per share and revenues of $2.16 billion, raising guidance for the next quarter to $2.40 per share [14]