Financial Data and Key Metrics Changes - Revenue for the second quarter of fiscal 2026 was $3 billion, up 25% year-over-year, driven by strong demand for Nearline drives [12] - Earnings per share (EPS) was $2.13, an increase of 78% year-over-year [15] - Gross margin improved to 46.1%, up 770 basis points year-over-year and 220 basis points sequentially [13][14] - Operating income was slightly above $1 billion, translating into an operating margin of 33.8% [14] Business Line Data and Key Metrics Changes - Cloud segment represented 89% of total revenue at $2.7 billion, up 28% year-over-year [13] - Client segment accounted for 6% of total revenue at $176 million, up 26% year-over-year [13] - Consumer segment represented 5% of revenue at $168 million, down 3% year-over-year [13] Market Data and Key Metrics Changes - The company shipped over 3.5 million units of its latest generation ePMR products, offering capacities up to 32 TB [12][8] - The company delivered 215 exabytes (EB) to customers, up 22% year-over-year [12] Company Strategy and Development Direction - The company is focusing on AI and cloud storage solutions, emphasizing higher density storage to meet growing demand [7][9] - Strategic investments include a partnership with Qolab to advance next-generation nanofabrication processes [10] - The company is hosting an Innovation Day to share updated roadmaps for HAMR and ePMR products [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued demand for storage solutions driven by AI and cloud growth [5][6] - The company anticipates revenue for Q3 fiscal 2026 to be $3.2 billion, reflecting approximately 40% year-over-year growth [17] - Management expects gross margin to be between 47%-48% in the next quarter [17] Other Important Information - The company returned $1.4 billion to shareholders through share repurchases and dividends since the launch of its capital return program [16] - The board approved a quarterly cash dividend of $12.50 per share, payable on March 18, 2026 [16] Q&A Session Summary Question: Gross margin durability and cost curve - Management indicated that the gross margin is expected to maintain a high incremental margin flow-through, with cost per terabyte decreasing by about 10% year-over-year [19][20][22] Question: Purchase orders and pricing strategy - Management confirmed that they have firm purchase orders with top customers through 2026 and established long-term agreements (LTAs) for 2027 and 2028, reflecting the value delivered to customers [26][27] Question: Customer engagement and contracts - The company has developed a customer-centric approach, deepening relationships with hyperscale customers, resulting in longer-term contracts [34][35] Question: UltraSMR mix and gross margins - The UltraSMR mix has crossed 50% and is expected to increase, positively impacting gross margins due to its software-based nature [41][43] Question: Yields and reliability - Yields on ePMR products are in the low 90s%, with good feedback on reliability, contributing to cost reductions as yields improve [46] Question: HAMR roadmap and customer interest - The company has pulled in the HAMR qualification timeline and is starting qualifications with multiple hyperscale customers [64][74] Question: Investments related to HAMR - Ongoing investments in HAMR are expected to be neutral to accretive to gross margins once ramped up [55][77] Question: Revenue per exabyte and mix changes - Revenue per exabyte is driven by strong demand from the cloud segment, with stable pricing trends [80][82] Question: Cost reductions and future expectations - Current cost reductions are about 10% year-over-year, with potential for increases as higher capacity drives are adopted [86]

Financial Data and Key Metrics Changes - Revenue for Q2 2026 was $3 billion, up 25% year-over-year, driven by strong demand for Nearline drives [10] - Earnings per share (EPS) was $2.13, an increase of 78% year-over-year [12] - Gross margin improved to 46.1%, up 770 basis points year-over-year and 220 basis points sequentially [11] - Operating income was slightly above $1 billion, translating into an operating margin of 33.8% [11] - Operating cash flow for the quarter was $745 million, with capital expenditures of $92 million, resulting in free cash flow of $653 million [12] Business Line Data and Key Metrics Changes - Cloud segment represented 89% of total revenue at $2.7 billion, up 28% year-over-year [11] - Client segment accounted for 6% of total revenue at $176 million, up 26% year-over-year [11] - Consumer segment represented 5% of revenue at $168 million, down 3% year-over-year [11] Market Data and Key Metrics Changes - The company shipped over 3.5 million units of its latest generation ePMR products, offering capacities up to 32 TB [10][11] - The demand for higher capacity storage solutions is driven by the growth of AI and cloud technologies [5][6] Company Strategy and Development Direction - The company is focusing on increasing drive areal density and accelerating HAMR and ePMR roadmaps to meet customer demands [5][6] - A strategic investment in Qolab was announced to advance next-generation nanofabrication processes [9] - The company is hosting an innovation day to share updated roadmaps for HAMR and ePMR products [9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing demand for storage solutions driven by AI and cloud growth [4][5] - The company anticipates revenue for Q3 2026 to be $3.2 billion, reflecting approximately 40% year-over-year growth [14] - Gross margin is expected to be between 47%-48% for the next quarter [14] Other Important Information - The company returned $1.4 billion to shareholders through share repurchases and dividends since the launch of its capital return program [13] - A quarterly cash dividend of $12.50 per share was approved, payable on March 18, 2026 [13] Q&A Session Summary Question: Gross margin guidance and durability of incremental margin - Management confirmed a stable pricing environment and effective cost control, leading to an expected gross margin of 47%-48% [16][18] Question: Purchase orders and pricing strategy - Management highlighted the value delivered to customers and the stable pricing environment, allowing for better economics in long-term agreements [24][26] Question: Customer engagement and contracts - The company has developed a customer-centric approach, resulting in longer-term contracts and improved relationships with hyperscale customers [31][33] Question: UltraSMR mix and gross margins - The UltraSMR mix has crossed 50% and is expected to increase, positively impacting gross margins due to its software-based nature [38][40] Question: Yields and reliability of ePMR products - Yields on ePMR products are in the low 90s%, with positive feedback on reliability from customers [44] Question: HAMR roadmap and investments - The qualification process for HAMR has been pulled forward, with expectations of neutral to accretive gross margins once ramped [53][70] Question: Revenue per exabyte and mix changes - Revenue per exabyte is driven by strong demand from cloud customers, with stable pricing contributing to growth [78]