Seagate(STX) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Seagate reported a 31% year-on-year increase in revenue, reaching $2.16 billion, and an 81% growth in non-GAAP gross profit dollars [5][13] - Non-GAAP gross margin expanded by 70 basis points sequentially to 36.2%, and non-GAAP operating margin increased to 23.5% of revenue [13][16] - Non-GAAP EPS was$ 1.90, at the top end of the guidance range, with free cash flow generation increasing to $216 million compared to$ 150 million in the prior period [18][19] Business Line Data and Key Metrics Changes - Nearline revenue represented approximately 90% of mass capacity volume, with shipments of 120 exabytes, down 5% sequentially but up 55% year-on-year [15] - Mass capacity revenue declined sequentially by $145 million to$ 1.7 billion, but represented a 48% increase year-on-year [14] - Legacy product sales totaled $254 million, down 8% sequentially, reflecting expected seasonal trends [15] Market Data and Key Metrics Changes - Cloud nearline revenue and exabytes were up nearly 10% sequentially, almost doubling year-over-year amid a tight supply environment [8] - Demand for mass capacity storage aligns with the cloud CapEx investment cycle and ongoing data center infrastructure build-out to support AI transformations [8][10] - Nearline exabyte demand looks strong through calendar 2025, with visibility of demand extending into the first half of calendar 2026 [10] Company Strategy and Development Direction - The company is focused on managing controllable factors while executing its aerial density-driven technology roadmap [7] - Seagate's HAMR-based Mosaic drives are positioned as the industry's only three terabyte per disk products, with ramping volume to qualified customers [7][12] - The company aims to transform its business model to prioritize profits and cash generation, capitalizing on the growth in data generation and value [23] Management's Comments on Operating Environment and Future Outlook - Management expects minimal impact from trade policy changes on fourth-quarter financial performance and is monitoring the situation closely [6][20] - The company anticipates robust demand for high-capacity nearline products across the global cloud customer base, driving revenue and profits higher in the upcoming quarter [20] - Management expressed confidence in the long-term growth potential driven by increasing data generation and the need for mass capacity storage [23] Other Important Information - The company returned$ 152 million to shareholders through dividends and maintained liquidity of $2.1 billion at the end of March [19] - Seagate's debt balance was$ 5.1 billion, with a net leverage ratio of 2.1 times, and plans for further reduction in the coming quarters [19] Q&A Session Summary Question: How did Seagate manage upside in the quarter despite supply constraints? - Management indicated that the predictability built through the build-to-order process allowed them to guide revenue effectively, despite previous operational issues being resolved [29][30] Question: What is the status of HAMR qualifications and its contribution to results? - Management confirmed that HAMR is growing well, with several qualifications in progress, and that it contributed positively to the quarter's results [34][37] Question: How has visibility improved regarding customer demand? - Management noted that build-to-order models provide predictability, and there is a sense of urgency from customers for data center investments [41][42] Question: What is the impact of tariffs on financial models? - Management stated that passing through tariff-related costs would be a last resort, and they are focused on maintaining margins to reinvest in technology [50][52] Question: What is the outlook for revenue growth and gross margin in the back half of the year? - Management expressed confidence in sequential revenue growth and gross margin expansion, with strong demand visibility extending into early 2026 [55][58] Question: How does the company view the impact of emerging AI workloads on storage demand? - Management highlighted that AI workloads are expected to drive significant storage demand, particularly for video applications and large datasets [64][65]