Seagate Technology Holdings plc Q2 FY2025 earnings call

• Seagate closed 2024 strongly with 7% sequential revenue growth in Q4, non-GAAP gross margin expanded over 200 basis points, and non-GAAP EPS exceeded $2. - Strong demand across markets, particularly in the cloud, with nearline product revenue nearly doubling year-on-year in Q4. - Achieved milestones with HAMR-based Mozaic platform, including qualification and sampling of 36 TB drives. - Production issue resolved, with revenue impact limited to Q3. - AI's data storage needs provide tailwind, with HDDs crucial for AI model training and data retention. - Focus on supply discipline, technology roadmap, and cost efficiency.

Seagate's December quarter revenue was $2.33 billion, up 7% sequentially. The Hard Disk Drive business saw revenue increase 8% to $2.2 billion with volume shipments of 151 exabytes. Mass Capacity revenue grew for the sixth consecutive quarter, totaling $1.9 billion and 140 exabytes, with nearline shipments at 126 exabytes in the December quarter. Legacy products sales were $275 million, up 2% sequentially. Other business revenue was $156 million.

• March quarter revenue expected in the range of $2.1 billion plus or minus $150 million. - Non-GAAP operating margin expected to remain in the low-20% range. - Non-GAAP EPS expected to be $1.70 plus or minus $0.20. - Supply constraints in Q3, but recovery expected, with focus on driving free cash flow and margin improvement.

• Production issue in Q3 led to supply constraints, impacting revenue, but the issue has been resolved.

Q: Erik Woodring from Morgan Stanley asked about the $200 million shortfall in the March quarter and its timing.

A: David Mosley said the issue is temporary, a supply issue not demand, and they're confident in predictability moving forward.

Q: Wamsi Mohan from Bank of America asked about the transitory nature of the $200 million and where we are in the cycle.

A: David Mosley said they're early in the cycle, build-to-order discipline provides predictability, and demand for data centers and refreshes is strong.

Q: Krish Sankar from TD Cowen asked about gross margin improvement with nearline growth.

A: Gianluca Romano said there's good opportunity to continue improving gross margin through mix, HAMR, and cost efficiencies.

Q: Amit Daryanani from Evercore asked about industry capacity additions and gross margin offsetting headwinds.

A: David Mosley said it's about mix, with higher capacity points providing a compelling value proposition.

Q: Timothy Arcuri from UBS asked about clarifying the $200 million impact.

A: David Mosley and Gianluca Romano explained it's a supply issue, not demand, and the impact is limited to Q3.

Q: Asiya Merchant from Citi asked about future gross margin targets.

A: David Mosley and Gianluca Romano said it depends on demand, and they're confident in the margin structure with predictable economics.

Q: Steven Fox from Fox Advisors asked about HAMR transition ramping.

A: David Mosley said HAMR transition should shorten cycles with learned productization lessons.

Q: Thomas O'Malley from Barclays asked about HAMR mix and impact.

A: David Mosley said HAMR is accretive and will ramp aggressively with strong customer pull.

Q: Aaron Rakers from Wells Fargo asked about HAMR gross margin accretiveness.

A: David Mosley and Gianluca Romano said HAMR is accretive to hard disk drive gross margin and depends on demand.

Q: Karl Ackerman from BNP Paribas asked about production capacity impact and hyperscale visibility.

A: David Mosley said production issue affected non-HAMR drives, and built-to-order models provide good visibility.

Q: Vijay Rakesh from Mizuho asked about HAMR mix by 2026.

A: David Mosley said they expect HAMR to ramp hard but didn't give specific numbers.

Q: C.J. Muse from Cantor Fitzgerald asked about $200 million impact timing and AI imagery/video sizing.

A: David Mosley said it's a supply hole, not demand, and video/imaging trends benefit HDD demand.

Q: Ananda Baruah from Loop Capital asked about HAMR margin accretiveness and pacing.

A: Gianluca Romano and David Mosley said HAMR is high capacity and accretive, ramping with qualification cycles.

Q: Krish Sankar from TD Cowen asked about nearline exabytes to surveillance.

A: Gianluca Romano said about 4-5 exabytes in different quarters.