Seagate Technology Holdings plc Q3 FY2025 earnings call

• Seagate delivered solid Q3 results with 31% year-on-year revenue growth and 81% growth in non-GAAP gross profit dollars, expanding gross margin for the 8th straight quarter and achieving the third highest operating margin in company history.
• HAMR-based Mozaic drives are ramping volume to qualified customers and on track to qualify broader cloud customers with shipments starting in H2 2025.
• Cloud nearline revenue and exabytes were up nearly 10% sequentially and almost doubling year-over-year in the March quarter amid tight supply.
• Focus on supply discipline, build-to-order strategy, and strategic pricing actions for sustainable growth.
• Monitoring tariff impacts and evaluating strategic solutions like geographically shifting manufacturing processes to mitigate risks.
• Emphasis on aerial density driven technology roadmap to deliver value to customers, with hard drives crucial for AI workloads and data retention.

In the March quarter, Seagate's revenue was $2.16 billion. The hard drive business contributed $2 billion, down 8% sequentially. Mass capacity revenue was $1.7 billion, a 48% year-on-year increase, with mass capacity shipments of 133 exabytes, down 5% sequentially but up 50% year-on-year. Nearline represented roughly 90% of mass capacity volume in the March quarter, with shipments of 120 exabytes, down 5% sequentially but up 55% year-on-year. Legacy products totaled $254 million, down 8% sequentially. Revenue for other businesses (systems, SSD, repurposed drives) was $157 million, relatively flat.

For the June quarter, Seagate forecasts revenue in the range of $2.4 billion ±$150 million, with non-GAAP operating margin expected to expand into the mid-20s percentage range. Non-GAAP EPS is expected to be $2.40 ±$0.20. Sees minimal direct impact from tariff policies and expects free cash flow generation to improve sequentially for the rest of the calendar year. Estimates a mid-teens tax rate starting in fiscal 2026 due to global minimum tax adoption.

• Tariff measures could affect customer buying decisions.
• Potential secondary impacts from trade policies, including changes in customer demand.
• Supply chain risks related to manufacturing and sourcing.

Q: Erik Woodring asked about supply constraints in the March quarter and how it led to upside, and risk of pull forward impacting June quarter revenue.

A: Dave Mosley responded that the build-to-order process has provided predictability, operational issues from November were fixed, and the same guidance for June quarter would have been given a month ago as the build-to-order continues to serve well.

Q: Asiya Merchant asked about HAMR qualification and contribution to March quarter results.

A: Dave Mosley said HAMR is growing well with qualification progress, and Gianluca Romano added that HAMR ramping contributed to the revenue increase in the quarter.

Q: C.J. Muse asked about improved visibility in demand, sense of urgency from customers, and pricing.

A: Dave Mosley stated that build-to-order provides visibility, customers have urgency, and pricing is factored into forward-looking discussions as they negotiate new build-to-order agreements.

Q: Wamsi Mohan asked about gross margin expansion in June quarter and cloud vs enterprise mix.

A: Gianluca Romano said mix is important, nearline and cloud will be higher in June, and Dave Mosley mentioned underserving the market in Q3 and long-term planning.

Q: Hadi Orabi asked about impact of tariffs in September quarter and passing through costs.

A: Dave Mosley said it's a complex world, they work on supply chain details, and passing through costs is a last resort but factored into the model.

Q: Amit Daryanani asked about visibility in back half and Meta's QLC paper impact.

A: Gianluca Romano said plan hasn't changed, and Dave Mosley said Meta's QLC is niche and doesn't disrupt HDDs in larger cloud, with data center architects using hybrid storage strategies.

Q: Jacob Wilhelm asked about AI inference storage TAM and capital allocation.

A: Dave Mosley talked about early days of AI applications and data growth, and Gianluca Romano said focus on reducing debt and then share buybacks.

Q: Vijay Rakesh asked about HAMR mix exiting fiscal '26 and gross margin roadmap.

A: Dave Mosley said HAMR transition is accelerating, and Gianluca Romano said they continue to improve gross margin every quarter.

Q: Timothy Arcuri asked about catching up with demand and realness of orders.

A: Dave Mosley said build-to-order provides predictability, and Gianluca Romano said demand is continuing in the expected direction without evidence of double orders.

Q: Ananda Baruah asked about Gen AI data center storage consumption and nearline drives in existing data centers.

A: Dave Mosley said Gen AI is early days, and disaggregated storage is an interesting trend for HDD opportunities.

Q: Thomas O'Malley asked about exabyte shipments peak and customer pricing behavior.

A: Dave Mosley said aerial density technology allows growth without hitting a peak, and no significant customer pricing behavior change seen yet.

Q: Tristan Gerra asked about CapEx for capacity ramp and tariff uncertainty.

A: Dave Mosley said HAMR CapEx is already planned, and they focus on healthy supply-demand balance.

Q: Mark Miller asked about data center CapEx by hyperscale customers and component sourcing out of China.

A: Dave Mosley said supply chains are recoupled, and demand from customers is predictable as data infrastructure is a priority.