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Seagate Technology Holdings plc (STX) Citi's 2024 Global TMT Conference (Transcript)
STXSeagate(STX)2024-09-04 17:52

Company and Industry Overview * Company: Seagate Technology Holdings plc (NASDAQ:STX) * Industry: Hard Disk Drive (HDD) manufacturing and storage solutions * Event: Citi's 2024 Global TMT Conference, September 4, 2024 Key Points Revenue and Profitability * Revenue: Sequential revenue growth of more than 10% expected for Q3 2024, with guidance ranging from 1.05to1.05 to 1.40 billion. * Profitability: Sequential profit guidance increased from 1.05to1.05 to 1.40 billion, with the midpoint of 1.25billionexpectedtobesurpassed.∗∗∗Driver∗∗:Improvedmixof48TBCMRand28TBSMRdrives,alongwithbetterpricingthanexpected.MarketSegments∗∗∗Cloud∗∗:Cloudsegmentremainstheprimarydriverofgrowth,withsequentialimprovementsinceSeptember2023.∗∗∗EnterpriseOEM∗∗:EnterpriseOEMsegmentstartingtoimprove,drivenbyserverdemandandpotentialAIapplications.∗∗∗VideoImageApplication∗∗:Videoimageapplicationsegmentexpectedtocontributetotheupcycleinthenextfewquarters.DemandDrivers∗∗∗DataGrowth∗∗:Continuousgrowthindatastoragedrivenbyvariousapplications,includingAI.∗∗∗AI∗∗:AIexpectedtobeasignificantdemanddriverforHDDs,particularlyinthelongterm.∗∗∗Capacity∗∗:Focusonprofitabilityandlong−termdemand,withdisciplinedcapacitymanagementtolimittheimpactofdowncycles.TechnologyandProductRoadmap∗∗∗HAMR∗∗:HAMRtechnologyprogressingwell,withqualificationsinmultiplemarketsegments,includingenterpriseOEMandvideoimageapplications.∗∗∗Capacity∗∗:HAMRdrivesexpectedtoachieve40TBperdiskbytheendof2025,withlowercostperterabytecomparedtoPMRdrives.∗∗∗Cost∗∗:HAMRdrivesexpectedtohavesimilarunitcostasPMRdrives,withhighercapacityandimprovedprofitability.SSDCannibalization∗∗∗Cloud∗∗:SSDcannibalizationnotsignificantinthecloudsegment,withHDDsstilldominatingstoragesolutions.∗∗∗Enterprise∗∗:SSDcannibalizationexpectedtoincreaseintheenterprisespace,particularlyforlow−capacitydrives.∗∗∗Legacy∗∗:LegacyHDDsegments(mission−critical,client,andconsumer)expectedtodeclineinimportance,withfocusshiftingtomasscapacityandHAMRdrives.CapitalAllocation∗∗∗DebtReduction∗∗:Focusonreducingdebttoapproximately1.25 billion expected to be surpassed. * **Driver**: Improved mix of 48TB CMR and 28TB SMR drives, along with better pricing than expected. Market Segments * **Cloud**: Cloud segment remains the primary driver of growth, with sequential improvement since September 2023. * **Enterprise OEM**: Enterprise OEM segment starting to improve, driven by server demand and potential AI applications. * **Video Image Application**: Video image application segment expected to contribute to the upcycle in the next few quarters. Demand Drivers * **Data Growth**: Continuous growth in data storage driven by various applications, including AI. * **AI**: AI expected to be a significant demand driver for HDDs, particularly in the long term. * **Capacity**: Focus on profitability and long-term demand, with disciplined capacity management to limit the impact of down cycles. Technology and Product Roadmap * **HAMR**: HAMR technology progressing well, with qualifications in multiple market segments, including enterprise OEM and video image applications. * **Capacity**: HAMR drives expected to achieve 40TB per disk by the end of 2025, with lower cost per terabyte compared to PMR drives. * **Cost**: HAMR drives expected to have similar unit cost as PMR drives, with higher capacity and improved profitability. SSD Cannibalization * **Cloud**: SSD cannibalization not significant in the cloud segment, with HDDs still dominating storage solutions. * **Enterprise**: SSD cannibalization expected to increase in the enterprise space, particularly for low-capacity drives. * **Legacy**: Legacy HDD segments (mission-critical, client, and consumer) expected to decline in importance, with focus shifting to mass capacity and HAMR drives. Capital Allocation * **Debt Reduction**: Focus on reducing debt to approximately 5 billion, with potential share buyback in the future. * Dividend: Dividend remains a priority for shareholder return, with protection during the down cycle.