Seagate(US:STX)2025-10-28 22:02Financial Data and Key Metrics Changes - Seagate reported revenue of $2.63 billion, representing an 8% sequential increase and a 21% year-over-year growth [15][23] - Non-GAAP gross margins reached a record 40.1%, up 220 basis points sequentially [15][19] - Non-GAAP operating margin expanded to 29%, a level last seen in fiscal 2012, with non-GAAP EPS of $2.61, exceeding guidance [6][15] Business Line Data and Key Metrics Changes - Data center revenue accounted for 80% of total revenue at $2.1 billion, up 13% sequentially and 34% year-over-year [16][18] - The company shipped 182 exabytes (EB) in the September quarter, a 32% increase year-over-year, with the majority delivered to global data center customers [15][16] - Edge IoT revenue made up the remaining 20% at $515 million, with expectations for seasonal improvement in the December quarter [18] Market Data and Key Metrics Changes - Demand from global cloud service providers (CSPs) continued to grow, with cloud exabyte demand increasing for the ninth consecutive quarter [17][18] - The average nearline drive capacity increased by 26% over the past year, contributing to exabyte volume growth [17] - The company noted a significant increase in unstructured data generation, particularly from video content, driving demand for hard drives [8][9] Company Strategy and Development Direction - Seagate is focused on executing its HAMR (Heat-Assisted Magnetic Recording) technology roadmap to meet growing exabyte needs [7][13] - The company aims to transition customers to higher-capacity drives, leveraging advancements in areal density as a competitive advantage [11][12] - Seagate is committed to returning at least 75% of free cash flow to shareholders over time, with a recent 3% increase in quarterly dividends [21][22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the sustainability of cash flow generation and the ongoing demand environment for high-capacity hard drives [6][15] - The company anticipates continued strong demand from global cloud data centers, projecting December quarter revenue in the range of $2.7 billion ±$100 million [23] - Management highlighted the transformative impact of AI on hard drive demand, particularly in relation to data storage needs [7][8] Other Important Information - Seagate's cash and cash equivalents increased by 25% sequentially to $2.4 billion, with a net leverage ratio of 1.5x [22] - The company shipped over 1 million Mosaic drives in the September quarter, with expectations to achieve 50% exabyte crossover on nearline HAMR drives in the second half of calendar 2026 [10][11] Q&A Session Summary Question: Plans to add capacity and supply chain bottlenecks - Management indicated that capacity will be added through product transitions rather than increasing unit capacity, focusing on exabyte capacity instead [28][29] Question: Update on HAMR rollout and customer adoption - Management confirmed that five global CSPs are now qualified on HAMR, contributing to revenue and profitability growth [33][34] Question: Expectations for incremental margins - Management acknowledged that current incremental margins are higher than previously projected, but variability is expected due to customer negotiations and product transitions [39][40] Question: Cost reduction expectations - Management stated that cost improvements are anticipated as higher capacity drives are transitioned, with ongoing focus on maintaining a balance between supply and demand [42][44] Question: Visibility of inference demand and seasonality - Management expressed confidence in the growth of inference demand driven by video content, with expectations for lower seasonal impacts due to the predominance of data center revenue [50][52] Question: Pricing strategy in a constrained environment - Management noted that pricing strategies have remained consistent, with slight increases during contract renegotiations, while transitioning customers to higher capacity products [56][58] Question: Managing supply and demand balance - Management emphasized the importance of predictable long-term plans from customers, which aids in managing supply chain challenges [102][103]