Seagate(STX) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Seagate reported June revenue of $2,440 million, up 13% sequentially and 30% year over year [2][3] - Non-GAAP gross margin expanded by 170 basis points sequentially to 37.9% [2][7] - Non-GAAP operating margin increased by 270 basis points to 26.2% [2] - For fiscal 2025, revenue grew nearly 40% to $9,100 million, with non-GAAP EPS of $8.10 [3][11] - Non-GAAP net income was $556 million, resulting in non-GAAP EPS of $2.59 based on a diluted share count of approximately 215 million shares [8] Business Line Data and Key Metrics Changes - Hard drive revenue reached $2,300 million, a 14% sequential increase, driven by nearline cloud sales [3][4] - Mass capacity revenue exceeded $2,000 million, up 15% sequentially and 40% year on year [4] - Nearline shipments into cloud and edge data centers accounted for 91% of mass capacity volume, with shipments of 137 exabytes, up 14% sequentially and 52% year on year [4] - Sales from the legacy market totaled $270 million, up 6% sequentially, while revenue from other product lines increased 3% sequentially to $163 million [5] Market Data and Key Metrics Changes - Data center markets accounted for about 75% of fiscal 2025 revenue, including nearline products sold to cloud and enterprise customers [6] - The company plans to focus on two main areas: data center and edge IoT, reflecting the AI-driven market [6] Company Strategy and Development Direction - Seagate is ramping HAMR-based MOSEIK products and building customer momentum, with three major cloud service providers qualified on these products [5] - The company aims to maintain capital discipline, with anticipated capital expenditures for fiscal 2026 within the target range of 4% to 6% of revenue [10] - The strategic focus is on driving growth, enhancing profitability, and optimizing cash generation, supported by a structurally changed business model and leading technology roadmap [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustained demand strength for high-capacity nearline drives, supporting revenue and margin expansion [11] - The company anticipates September revenue in the range of $2,500 million, reflecting a 15% improvement year over year [12] - Management noted that the global minimum tax rate will impact future earnings, with a projected non-GAAP tax rate of 16% [12][131] Other Important Information - Free cash flow nearly doubled in June to $425 million, with a commitment to return nearly 75% of free cash flow to shareholders [10][11] - Cash and cash equivalents increased 9% sequentially to $2,200 million, with a gross debt of approximately $5,000 million [11] Q&A Session Summary Question: Can you confirm the implied gross margin guidance for September? - Management indicated that the estimate was significantly lower than what is implied in the guidance, expecting higher revenue and margins than modeled [18][20] Question: What are the trends in AI inference edge demand? - Management noted strong demand for video properties in the cloud and various applications at the edge, indicating growth in data storage needs [24][25] Question: How is the HAMR contribution expected to change in the coming quarters? - Management confirmed steady growth in HAMR and expects a positive impact on gross margins as higher capacity drives are ramped up [34][35] Question: What is the outlook for revenue growth and capacity ramp? - Management stated that demand is strong and above supply, with guidance based on production capabilities and ongoing qualifications for new products [41][42] Question: How will the global minimum tax impact financials? - Management confirmed that the global minimum tax will affect both GAAP and non-GAAP tax rates, with a similar impact expected [131]