Seagate(STX) - 2025 FY - Earnings Call Transcript

Financial Data and Key Metrics Changes - The industry is experiencing strong growth, particularly in the nearline space, with a focus on improving both revenue and profitability [2][3] - The expectation for exabyte growth and revenue growth is more closely aligned than in previous cycles, indicating a more disciplined approach to capital expenditures [5][6] Business Line Data and Key Metrics Changes - The company is transitioning to second-generation HAMR products and has qualified three major customers, with expectations to qualify more in the coming months [2][3] - The build-to-order model is helping to manage inventory and demand effectively, with no indications of increasing inventory levels among customers [18][20] Market Data and Key Metrics Changes - Demand is currently outpacing supply, and the industry is managing capital expenditures carefully, which is expected to extend the current growth cycle [7][8] - The AI sector is contributing to data retention, as companies are holding onto more data for future AI applications, which is expected to drive further demand [12][13] Company Strategy and Development Direction - The company is focused on technology transitions, particularly with HAMR, which is expected to significantly increase gross margins and exabyte sales in the near future [27][36] - The strategy includes maintaining a balance between supply and demand while leveraging new technologies to enhance growth [9][41] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the sustainability of the current cycle, noting that demand is expected to continue growing, particularly with the integration of AI [11][12] - The company is optimistic about the future profitability and expects to reach a gross margin of 40% in the coming quarters, driven by the ramp-up of HAMR products [37][60] Other Important Information - The company is close to achieving its goal of reducing debt to $5 billion and is considering share buybacks as free cash flow improves [60] - The integration of Intevac is progressing well, with expectations of enhancing manufacturing capabilities [55][58] Q&A Session Summary Question: How does the company view the sustainability of the current cycle? - Management acknowledged that every cycle is different but expressed confidence in the current cycle's sustainability due to strong demand and disciplined capital management [5][8] Question: What is the impact of AI on data storage demand? - AI is already influencing data retention practices, with companies retaining more data to leverage AI capabilities, which is expected to drive future demand [12][13] Question: How is the company managing inventory levels? - The build-to-order model is providing visibility into customer demand, allowing the company to manage inventory effectively without indications of excess inventory [18][20] Question: What are the expectations for HAMR product adoption? - The company expects significant growth in HAMR product sales, projecting that 40% of nearline exabytes will be sold through HAMR products within the next fiscal year [27][36] Question: How does the company plan to handle potential declines in cloud demand? - Management indicated that the build-to-order model would provide early visibility into demand changes, allowing for proactive adjustments to operations [19][20]