Seagate(STX)2024-10-23 00:59Financial Data and Key Metrics - Revenue for Q1 2025 was 1.58, at the high end of the guidance range [6][15] - Non-GAAP gross margin expanded by 240 basis points sequentially to 33.3%, the highest level in over a decade [7][18] - Non-GAAP operating income increased 35% sequentially to 27 million, with expectations for improvement in the December quarter [19] Business Line Data and Key Metrics - HDD exabyte shipments grew 20% sequentially to 128 exabytes, with revenue increasing 16% to 1.7 billion, driven by strong nearline cloud demand and enterprise sales [15][16] - Mass capacity shipments totaled 128 exabytes, up 23% sequentially, representing a record 93% of total HDD exabyte shipments [16] - Legacy product sales totaled 164 million [17] Market Data and Key Metrics - Cloud demand for nearline drives remained robust, particularly from U.S. cloud providers, with positive global demand trends [8] - Enterprise and OEM markets saw the first meaningful uptick in nearline demand after a period of stability, with average capacity per enterprise drive reaching a new record high [9] - VIA markets remained stable, with a shift towards higher capacity drives due to longer data retention needs and increased video analytics [10] Company Strategy and Industry Competition - The company is focusing on ramping its final PMR platform, expanding Mozaic adoption, and executing its Mozaic product roadmap to address mass capacity storage needs [12] - HAMR technology is expected to play a vital role in supporting future demand growth, with qualifications progressing well and shipments expected to ramp by mid-2025 [13] - The company is confident in its technology leadership, with plans to extend its HAMR roadmap to 4+ terabytes per disc, further reducing cost per terabyte [14] Management Commentary on Operating Environment and Future Outlook - Management highlighted a favorable demand environment, with strong cloud demand and improving enterprise and OEM markets [6][8] - The company expects significant revenue growth for fiscal 2025, with seasonal demand fluctuations typical for the March quarter [7] - Management expressed confidence in the company's ability to drive profitable growth, supported by its build-to-order model and technology roadmap [7][14] Other Important Information - The company increased its quarterly dividend by nearly 3%, reflecting confidence in future opportunities [7] - Inventory increased to 2.7 billion in available liquidity, including an undrawn revolving credit facility [20] Q&A Session Summary Question: Demand visibility and seasonality for the March quarter [24] - The company has good demand visibility through its build-to-order model, with confidence in bookings for the next year [25] - Seasonality in some markets is expected, but cloud demand remains predictable with low inventory buffers [25] Question: Market share and pricing environment [28] - Market share is seen as an outcome of the company's strategy, with a focus on predictability and profitability rather than pushing for market share [29] - The pricing environment remains positive, with ongoing improvements in gross margin driven by mix and pricing actions [31] Question: Cyclicality and gross margin upside [33] - The company has improved its processes to manage supply and demand, with a focus on cost reduction and aerial density gains to drive gross margin expansion [34] Question: Gross margin expansion in the December quarter [36] - Gross margin expansion is expected to continue, driven by pricing actions and the ramp of the latest PMR products, though the pace may moderate compared to previous quarters [37] Question: HAMR qualification and customer feedback [38] - The company is confident in the progress of HAMR qualifications, with multiple global cloud and enterprise customers now testing the technology [39] - Feedback from customers has reinforced the value proposition of the Mozaic platform [40] Question: Impact of HAMR ramp on gross margins [43] - HAMR is expected to be accretive to gross margins in the near term, with cost per terabyte below that of PMR [45] Question: Operating expenses and share repurchase plans [47] - Operating expenses increased due to variable compensation, with expectations to remain flat through the rest of the fiscal year [47] - The company plans to address debt maturing in January with cash on hand, with share buybacks likely further in the future [47] Question: Capacity outlook and technology transitions [50] - The company plans to expand exabyte capacity through technology transitions, leveraging higher capacity points to drive efficiency and cost reduction [51] Question: Nearline demand visibility and seasonality [53] - Nearline demand visibility extends out to nine months, with mass capacity demand expected to remain strong through the front half of the year [53] - Seasonality is expected in the legacy and VIA markets, with the March quarter typically being weaker [54] Question: Capacity management and component changes [60] - The company is focused on technology transitions rather than adding more units, with aerial density gains allowing for more efficient capacity expansion [61] Question: Unit shipments and idle capacity [63] - The company did not provide specific unit shipment guidance but noted that factories are relatively full, with a focus on transitioning to higher capacity products [64] - Idle capacity is minimal, with high utilization rates in both ads and media fabs [74] Question: Build-to-order visibility and SMR mix [77] - The majority of build-to-order agreements are fully committed by customers, providing strong visibility [79] - SMR is primarily used by a few cloud and client server customers, with the company focusing on maximizing factory utilization [78] Question: AI and PC refresh cycle [72] - The company sees potential for AI-driven PC refresh cycles, particularly for creative professionals, though the timing remains uncertain [73]