Seagate Technology Holdings plc Q2 FY2026 earnings call

• Seagate closed out calendar 2025 with a record-breaking quarter, exceeding top and bottom line expectations and setting new company records for exabyte shipments, gross margin, operating margin, and non-GAAP earnings per share.
• 2025 was transformational, with revenue up over 25%, gross margins improved by nearly 740 basis points, and operating margins expanded. HAMR technology is a long-term enabler, with Mozaic 3 HAMR products qualified with major U.S. CSP customers and Mozaic 4 products in development.
• Strong demand in data centers, particularly for high capacity nearline drives, with nearline capacity fully allocated through 2026 and orders for 2027 expected. Video and AI applications driving data growth.
• Shipped 190 exabytes in the December quarter, up 26% year-over-year, with data center accounting for 87% of shipments. Average cloud nearline capacity increased to nearly 26 terabytes.
• Non-GAAP gross profit increased to $1.2 billion, up 14% quarter-over-quarter and 44% year-over-year. Non-GAAP operating expenses were relatively flat, with operating expense as a percent of revenue declining to 10.3%.

The data center market accounted for 87% of Seagate's shipment volume in the December quarter, with revenue totaling $2.2 billion for the quarter, up 5% sequentially and 28% year-on-year. The edge IoT market made up the remaining 21% of revenue at $601 million. December quarter revenue came in at $2.83 billion, up 7% sequentially and 22% year-over-year. Non-GAAP gross margin was 42.2%, up 210 basis points sequentially, and non-GAAP operating margin expanded by 290 basis points sequentially to 31.9%.

• March quarter revenue expected to be in the range of $2.9 billion, plus or minus $100 million, representing a 34% year-over-year improvement at the midpoint.
• Non-GAAP operating expenses expected to be approximately $290 million. Non-GAAP operating margin expected to approach the mid-30% range.
• Non-GAAP EPS expected to be $3.40 plus or minus $0.20, based on a tax rate of about 16% and non-GAAP diluted share count of 230 million shares.
• Expect free cash flow generation to further expand in the March quarter supported by sustained demand trends, operational efficiency, and capital discipline.

Q: Given supply-demand dynamics, curious about gross margins going forward and pricing outlook.

A: William Mosley said pricing is dictated by demand, with flat to slightly up possible as they roll through '27 and '28, and Gianluca Romano mentioned executing better than Investor Day models, continuing to optimize profitability.

Q: Similar question on gross margin drivers between mix and price.

A: William Mosley said demand persistence is key, with great dialogues with customers on future planning, and Gianluca Romano noted they are executing well and progressing in the right direction on gross margin.

Q: Asked about exabyte supply growth and HAMR crossover point.

A: William Mosley said they are planning to transition to 4 terabytes of platter, with a prescriptive ramp, and it will be very profitable, replacing legacy products with better value proposition.

Q: Talked about upside to HAMR rollout targets and blended cost reductions.

A: Gianluca Romano said HAMR transition is progressing well, qualifying top cloud service providers, and the new 4 terabyte per disk product will help with exabyte mix and cost reduction when ramped.

Q: Curious about portion of LTAs with fixed or multi-quarter pricing agreements and pricing as LTAs roll off.

A: William Mosley said as LTAs roll off, they change based on demand and available supply, with '26 fairly booked and looking to start '27 similarly.

Q: Asked about directional guidance on exabyte shipments for calendar '26.

A: Gianluca Romano said they are not guiding calendar '26, but expect nearline exabytes to grow in the mid-20%, continuing the trend of extracting more exabytes from manufacturing.

Q: Talked about March quarter guide and gross margin expansion.

A: Gianluca Romano said the March quarter is expected to be good, driven by pricing strategy, mix, and HAMR ramp, not related to systems business.

Q: Wondered about opportunity for significant price increases in NAND flash and HAMR mix trajectory.

A: William Mosley said HAMR mix is constrained by factory capacity and transition to 4 terabyte per platter, with demand for high capacity points, and pricing dictated by demand.

Q: Asked about HAMR as a percentage of mix and drivers of gross margin.

A: Gianluca Romano said they don't give specific details on pricing, mix, and cost impact, but they are interrelated, with mix helping cost reduction and supply-demand supporting pricing strategy.

Q: Wondered about accelerating mix up due to tight supply and node transitions timeline.

A: William Mosley said they are predictable for customers with long lead times, executing well on node transitions, and customer behavioral changes help with road map alignment.

Q: Asked about cost down curve with 4 terabyte per platter Mozaic drive.

A: Gianluca Romano said the 4 terabyte per disk product will help reduce cost and improve profitability, qualifying major customers, and the impact will be strong in the next calendar year.

Q: Asked about LTSAs for '26 and '27, including pricing lock-in.

A: Gianluca Romano said volume and pricing are well defined for '26, with most volume allocated, and for '27, volumes are indicated but pricing not fixed yet.

Q: Asked about CapEx and depreciation outlook.

A: Gianluca Romano said CapEx is aligned to 4% to 6% of revenue, supporting HAMR transition, and depreciation follows CapEx with a 10-year useful life.

Q: Asked about activity in the warm tier of storage.

A: William Mosley said the tiering architecture in data centers is well set, with hard drives working 24/7 in large data applications, and the architectural tier for large data is likely to remain constant for the next decade.

Q: Asked about HAMR ramping in March quarter and OpEx as percent of revenue.

A: Gianluca Romano said HAMR ramp is included in guidance, contributing to margin improvement, and OpEx is approaching the long-term target of 10% of revenue, expected to be achieved in the March quarter with revenue growth helping to improve further.