Seagate Technology Holdings plc Q1 FY2026 earnings call

• Seagate delivered strong fiscal 2026 start with 21% year-over-year revenue growth. Non-GAAP gross margin set a new company record at 40.1% and non-GAAP operating margin climbed to 29%. Non-GAAP EPS exceeded the high end of the guidance range.
• Announced a ~3% increase in the quarterly dividend, reflecting confidence in execution and cash flow generation from HAMR technology and strong demand for high-capacity hard drives.
• Data center revenue was 80% of total revenue in the September quarter, driven by global cloud service providers and enterprise customers. Shipped 182 exabytes, up 32% year-over-year, with the majority to data center customers.
• Progress on HAMR-based Mozaic platforms: 5 global CSPs qualified on 3+ terabyte per disk products, shipped over 1 million Mozaic drives in the September quarter, on track to qualify remaining 3 global CSPs by H1 2026, and started qualification on Mozaic 4+ terabyte per disk platform with initial volume ramp in H1 2027.
• AI is reshaping hard drive demand, with growing need for high-capacity nearline drives due to AI inferencing and unstructured data growth from video content and AI-generated videos.

In the September quarter, the data center end market, which includes nearline sales into cloud, enterprise, and VIA customers, represented 80% of overall revenue. Data center revenue was $2.1 billion, up 13% sequentially and 34% year-on-year. The edge IoT market, which includes consumer, client-centric markets, and network attached storage, made up the remaining 20% of revenue at $515 million.

• December quarter revenue expected to be in the range of $2.7 billion ± $100 million, representing a 16% year-over-year improvement at the midpoint.
• Non-GAAP operating expenses expected to remain relatively flat at approximately $290 million, with non-GAAP operating margin expected to expand to around 30%.
• Non-GAAP EPS expected to be $2.75 ± $0.20.
• Free cash flow expected to expand in the December quarter.
• Capital expenditures anticipated to be 4%-6% of revenue in fiscal 2026.
• Quarterly dividend increased by ~3% to $0.74 per share.

• Supply chain constraints and timing issues in ramping HAMR products.
• Uncertainty in the pace of adoption of new AI-driven applications and their impact on hard drive demand.
• Potential variability in quarterly financial results due to factors like contract renegotiations and seasonality in the edge IoT market.

Q: Congrats on a great quarter. If you look at strong orders and order backlog through to 2027, any plans to add capacity and supply chain bottlenecks?

A: Strategy is through product transitions, not adding unit capacity, but adding exabyte capacity via HAMR product transitions.

Q: Update on HAMR rollout and adoption by customers?

A: 5 global CSPs qualified on HAMR, ramp continues with focus on product transitions and yield improvement.

Q: How should we think about margins and yields on HAMR drives compared to legacy PMR drives?

A: We don't have ePMR, last generation PMR drive is great, working to get HAMR yields up and on par, still early in HAMR's lifetime.

Q: What's the outlook for nearline demand growth relative to Analyst Day projections?

A: Mid-20% CAGR is still under consideration, focused on getting bigger drives out to drive exabyte supply.