Seagate(STX)2024-01-25 02:07Financial Data and Key Metrics - Revenue for Q2 2024 was 127 million, with non-GAAP operating margin expanding to 8.2% of revenue, up 540 basis points quarter-over-quarter [19][20] - Non-GAAP EPS was 1.1 billion, driven by strong nearline cloud demand, offsetting declines in the VIA market [20] - Nearline product shipments grew to 65 exabytes, up from 56 exabytes in the prior quarter, reflecting improved demand among U.S. and China cloud customers [21] - Legacy product revenue rose to 171 million, primarily due to improved SSD demand [22] Market Performance - U.S. cloud market demand showed gradual recovery, with enterprise OEM demand stabilizing, while China's recovery is expected to be slower due to economic challenges [9][10] - Incremental demand was observed among non-U.S. cloud and enterprise customers in the December quarter, with expectations for VIA market recovery post-Lunar New Year [10] Strategic Direction and Industry Competition - The company launched the Mozaic platform, a breakthrough in mass capacity storage, leveraging HAMR technology to achieve higher aerial density and lower TCO for data center operators [6][13] - Mozaic is expected to drive significant TCO and sustainability benefits, with the first HAMR-based product nearing qualification completion and volume ramp starting in the March quarter [12][13] - The company is vertically integrating laser manufacturing to enhance supply flexibility and reduce production costs, supporting long-term profitability [16] Management Commentary on Operating Environment and Future Outlook - Management expects the September 2023 quarter to mark the bottom of the down cycle, with gradual recovery in demand and improved profitability [8][9] - The company is confident in achieving a 30% non-GAAP gross margin benchmark at quarterly revenues 20% below prior cyclical peaks [9] - Demand recovery is expected to continue, with nearline demand improving in the March quarter and beyond, supported by normalized inventory levels among CSP customers [21] Other Important Information - The company generated 146 million to shareholders through dividends, maintaining strong liquidity with 70 million, with fiscal 2024 CapEx expected to be significantly lower than fiscal 2023 [25] Q&A Session Summary Question: Outlook for HAMR units in H2 2024 and 2025 [30] - The company is focused on ramping HAMR aggressively in 2024, with expectations to drive significant exabyte growth in 2025 [31][32] Question: Margin ramp and underutilization charges [33] - Margins are expected to improve sequentially through 2024, driven by cost actions, pricing adjustments, and the ramp of HAMR products [35][36] Question: Hyperscaler inventory dynamics and pricing actions [38] - Hyperscaler inventory levels have improved, with demand expected to accelerate, particularly as AI applications drive data center investments [39][40] Question: OpEx trajectory and capital structure [43] - OpEx is expected to remain around $240 million for the next few quarters, with free cash flow improving as revenue and profitability increase [44][45] Question: Customer value of HAMR drives [46] - HAMR drives offer TCO benefits, with price per terabyte expected to be nominally lower, incentivizing transitions from lower-capacity drives [47] Question: HAMR transition timeline [48] - The HAMR transition is expected to be slower than the PMR transition due to longer cycle times, but the company aims to accelerate as yields improve [50] Question: Qualification to revenue recognition timeline [51] - Qualification timelines vary by customer, with some hyperscalers expected to complete qualifications in 2024, driving revenue recognition [52] Question: Gross margin trajectory [53] - The company expects to achieve 30% gross margins at lower revenue levels than previously anticipated, driven by HAMR ramp and demand recovery [54] Question: Pricing actions and margin improvement [55] - Pricing actions and mix improvements are contributing to margin recovery, with further improvements expected as demand strengthens [56][57] Question: Build-to-order program update [59] - The build-to-order program is active, providing better visibility and predictability for the supply chain, with progress improving each quarter [60] Question: Vertical integration of laser technology [61] - Vertical integration aims to enhance supply chain control and reduce costs over time, supporting the ramp of Mozaic products [62] Question: Gross margin drivers [64] - HAMR ramp and demand recovery are key drivers of gross margin improvement, with sequential improvements expected through 2024 [65][67] Question: Back-end testing capacity [68] - The company has sufficient back-end testing capacity to support the HAMR ramp, despite longer test cycles for higher-capacity drives [69][71] Question: Book-to-bill trends [72] - The company is seeing improved visibility and predictability in orders, supporting the build-to-order framework and supply chain stability [73] Question: Enterprise HDD revenue outlook [74] - The company expects sequential improvement in enterprise HDD revenue but does not provide specific guidance beyond the March quarter [75] Question: AI-related opportunities [85] - AI-related opportunities are still in early stages, with potential for increased demand as data center architectures evolve to support AI workloads [86][87]