Seagate Technology Q3 2025 Earnings Report

Seagate Technology EPS Results

• Actual EPS: $1.90
• Consensus EPS: $1.75
• Beat/Miss: Beat by +$0.15
• One Year Ago EPS: $0.33

Seagate Technology Revenue Results

• Actual Revenue: $2.16 billion
• Expected Revenue: $2.14 billion
• Beat/Miss: Beat by +$23.03 million
• YoY Revenue Growth: +30.50%

Seagate Technology Announcement Details

• Quarter: Q3 2025
• Date: 4/29/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, April 29, 2025
• Conference Call Time: 5:00PM ET

Seagate Technology (NASDAQ:STX) provides data storage technology and solutions in Singapore, the United States, the Netherlands, and internationally. It provides mass capacity storage products, including enterprise nearline hard disk drives (HDDs), enterprise nearline solid state drives (SSDs), enterprise nearline systems, video and image HDDs, and network-attached storage drives. The company also offers legacy applications comprising Mission Critical HDDs and SSDs; external storage solutions under the Seagate Ultra Touch, One Touch, and Expansion product lines, as well as under the LaCie brand name; desktop drives; notebook drives, DVR HDDs, and gaming SSDs. In addition, it provides Lyve edge-to-cloud mass capacity platform. The company sells its products primarily to OEMs, distributors, and retailers. Seagate Technology Holdings plc was founded in 1978 and is based in Dublin, Ireland.

Seagate Technology Q3 2025 Earnings Call Transcript

Presentation

[Operator]

Welcome to the Seagate Technology Fiscal Third Quarter twenty twenty five Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Shanee Hudson, Senior Vice President, Investor Relations. Please go ahead.

[Shanye Hudson, Senior Vice President of Investor Relations & Treasury at Seagate]

Thank you. Hello, everyone, and welcome to today's call. Joining me are Dave Mosley, Seagate's Chief Executive Officer and Gianluca Romano, our Chief Financial Officer. We've posted our earnings press release and the detailed supplemental information for our March results on the Investors section of our website. During today's call, we will refer to GAAP and non GAAP measures.

[Shanye Hudson, Senior Vice President of Investor Relations & Treasury at Seagate]

Non GAAP figures are reconciled to GAAP figures in the earnings press release posted on our website and included in our Form eight ks. We've not reconciled certain non GAAP outlook measures because the material items that may impact these measures are out of our control and or cannot be reasonably predicted. Therefore, reconciliation to the corresponding GAAP measures is not available without unreasonable effort. Before we begin, I'd like to remind you that today's call contains forward looking statements that reflect management's current views and assumptions based on information available to us as of today and should not be relied upon as of any subsequent date. Actual results may differ materially from those contained in or implied by these forward looking statements as they're subject to risks and uncertainties associated with our business.

[Shanye Hudson, Senior Vice President of Investor Relations & Treasury at Seagate]

To learn more about the risks, uncertainties and other factors that may affect our future business results, please refer to the press release issued today and our SEC filings, including our most recent annual report on Form 10 ks and quarterly report on Form 10 Q as well as the supplemental information, all of which may be found on the Investors section of our website. Following our prepared remarks, we'll open the call up for questions. In order to provide all analysts with the opportunity to participate, we thank you in advance for asking one primary question and then reentering the queue. With that, I'll hand the call over to you, Dave.

[Dave Mosley, CEO at Seagate]

Thank you, Shami, and hello, everyone. Seagate delivered another solid quarter of profitable year on year growth and strong execution. Our third quarter results are highlighted by a 31% year on year increase in revenue and 81% growth in non GAAP gross profit dollars. We continue to demonstrate strong financial leverage, expanding gross margin for the eighth straight quarter and achieving the third highest operating margin in the company's history. This performance supported non GAAP EPS performance at the top of our guidance range and increased free cash flow generation.

[Dave Mosley, CEO at Seagate]

These strong levels of performance reflect the combination of a healthy supply demand environment for capacity storage and the proactive steps we've taken over the recent cycle to transform how we operate. Our supply discipline, the visibility we gained through our built to order strategy and our execution on strategic pricing actions all contribute to sustainable and profitable growth over the long term. In addition to strengthening our operating model, these factors further enhance our agility, which is critical to our ability to navigate the fluid business environment. Based on the latest trade policy announcements, we expect minimal impact to fourth quarter financial performance due to tariffs. We are continuing to monitor the situation and evaluate strategic solutions, including geographically shifting certain of our manufacturing processes and aligning our supply chains to mitigate risks associated with trade policies over the long term should the need arise.

[Dave Mosley, CEO at Seagate]

In this dynamic macro landscape, we will continue to focus on managing controllable factors while executing our aerial density driven technology roadmap, which delivers increasing value to our customers. Seagate's HAMR based Mosaic drives represent the industry's only three terabyte per disk products. We are ramping volume to qualified customers and remain on track to qualify a broader range of cloud customers with shipments beginning in the second half of calendar twenty twenty five. Turning to the demand environment, we are mindful that tariff measures could affect customer buying decisions. However, current demand indicators remain intact, particularly among global cloud customers.

[Dave Mosley, CEO at Seagate]

In the March, cloud nearline revenue and exabytes were up by nearly 10% sequentially, almost doubling year over year amid a very tight supply environment. The growing demand for mass capacity storage aligns with the cloud CapEx investment cycle and ongoing build out of data center infrastructure to support AI transformations. Our drives continue to store close to 90% of the bits in large scale data center deployments. Data center architects are highly sophisticated and have consistently employed a strategic mix of storage solutions to optimize scalability, cost efficiency, and workload performance. Reinforcing this approach, Google recently unveiled details about their foundational Colossus storage system, highlighting the use of SSDs for fast data access while depending on hard drives for mass storage and data retention needs due to their scalability and cost benefits.

[Dave Mosley, CEO at Seagate]

This hybrid storage strategy is particularly vital for AI workloads that require access to massive datasets for training and inference and subsequently generate valuable data content that users want to retain. For instance, training in an AI model to generate images requires billions of static pictures, while AI based video generation demands thousands of hours of footage to accurately capture transitions and variations between frames. At 24 frames per second, each hour of video equates to roughly 80,000 images. Hard drives has historically benefited from the growth in video content on social media platforms and content delivery networks. Emerging text to video applications promise to revolutionize content creation and lower production costs likely to increase storage demand.

[Dave Mosley, CEO at Seagate]

In this context, hard drives are crucial for storing training data, maintaining model checkpoints and preserving both interest and generated content. Over the past eighteen months, large cloud and hyperscale customers have driven HDD demand growth. However, we have also started to see a pickup from smaller edge data centers and private clouds that seek to preserve their valuable data for privacy or sovereignty purposes. In the year ahead, nearline exabyte demand looks strong through calendar twenty twenty five, and we now have visibility of demand with several customers into the first half of calendar twenty twenty six as we negotiate new build to order agreements. DGET is in a strong position to address the favorable demand outlook as we ramp shipments of our high capacity drives.

[Dave Mosley, CEO at Seagate]

Our twenty four and twenty eight terabyte PMR platforms continue to ramp aggressively with exabyte shipments up roughly 60% quarter over quarter. Additionally, we are continuing to ramp HAMR based products with our first hyperscale customer and we are approaching the conclusion of our second major CSP qualification. Feedback from other cloud customers has been positive as they progress through their respective qualification timelines. We expect an appreciable increase in HAMR product shipments over the coming quarters as these future qualifications conclude. Based on the time required to fully scale HAMR production, we plan to fulfill build to order commitments through a blend of HAMR and PMR products over the next several quarters.

[Dave Mosley, CEO at Seagate]

It is becoming increasingly evident to both our customers and the market that HAMR is a groundbreaking technology that will extend TCO advantages for hard drives over other storage media for many years to come. More than a decade in the making, HAMR is pivotal in enabling Seagate to meet the world's exabyte demand growth through technology innovation rather than supply expansion, thereby supporting Seagate's ability to deliver sustained and profitable growth. I'll stop here and turn the call over to Gianluca.

[Gianluca Romano, Executive VP & CFO at Seagate]

Thank you, Dave. In the March, we delivered strong earnings and free cash flow generation underscored by solid execution and our focus on profitability. March revenue came in at $2,160,000,000 above the midpoint of our guidance and down 7% sequentially, limited by the temporary supply constraints we discussed last quarter. Despite lower revenue levels, we expanded non GAAP gross margin by 70 basis points sequentially to 36.2, supported by strong adoption of our high capacity nearline drives. Non GAAP operating margin increased to 23.5% of revenue sequentially.

[Gianluca Romano, Executive VP & CFO at Seagate]

Our resulting non GAAP EPS was $1.9 which is the top end of our guided range. Within our hard drive business, continuous strength in nearline cloud demand partially offset the anticipated decline across most of the other end markets due to typical seasonality and allocation of our available supply. Alt drive revenue was $2,000,000,000 down 8% sequentially on volume shipments of 144 exabyte compared with 151 exabyte in the December. Mass capacity revenue declined sequentially by $145,000,000 to $1,700,000,000 which represents a 48% increase year on year. Mass capacity shipments of 133 exabyte were down 5% sequentially and up 50% year on year.

[Gianluca Romano, Executive VP & CFO at Seagate]

Nearline represented roughly 90% of mask capacity volume in the March with shipments of 120 exabytes, down 5% sequentially, while up 55% year on year. We continue to experience strong broad based demand for our twenty four and twenty eight terabyte PMR product, which remains the highest revenue and exabyte volume product family. The richer mix of these higher capacity drives, along with initial volume ramp of HEMR based products, drove a sizable uptick in average nearline light capacity for the quarter. Sales of our legacy products totaled $254,000,000 down 8% sequentially, primarily reflecting expected seasonal trend in the consumer markets. Finally, revenue for our other businesses, which include systems, SSD and refurbished drives, was relatively flat at $157,000,000 Moving on to the rest of the income statement.

[Gianluca Romano, Executive VP & CFO at Seagate]

Non GAAP gross profit was $781,000,000 compared with $825,000,000 in the prior quarter and $432,000,000 in the prior year period. At the company level, non GAAP gross margin expanded by 70 basis points to 36.2% sequentially and expanded by over 1,000 basis points year over year. We continue to benefit from a favorable mix, including increased adoption of our data generation products and ongoing pricing adjustments. These factors support non GAAP gross margin for the hard drive business above the corporate average. Non GAAP operating expenses totaled $274,000,000 down 5% quarter over quarter.

[Gianluca Romano, Executive VP & CFO at Seagate]

Relative to our plan, we benefit from the timing from R and D related material expenses and certain one off items. For your awareness, the September will have fourteen weeks instead of the typical thirteen week period. As a result, we expect to incur higher operating expenses for the period. However, revenue patterns tend to be based on calendar quarters and would therefore be largely unaffected by the additional week. We will provide further clarity on our July earnings call.

[Gianluca Romano, Executive VP & CFO at Seagate]

Other income and expenses decreased 7% sequentially to $80,000,000 due to lower interest expenses from retiring debt and is expected to remain relatively flat in the June. Adjusted EBITDA was $563,000,000 compared to $591,000,000 in the prior quarter and $278,000,000 a year ago, doubling year on year. Non GAAP net income was $4.00 $7,000,000 resulting in non GAAP EPS of $1.9 per share based on diluted share count of approximately two fourteen million shares. We are managing the business for long term durability, optimizing both profitability and cash generation. In the March, we increased free cash flow generation to $216,000,000 compared with $150,000,000 in the prior period.

[Gianluca Romano, Executive VP & CFO at Seagate]

Based on our current outlook, we expect free cash flow generation to improve sequentially through the rest of the calendar year. Inventory remained flat at $1,500,000,000 as we prepare to support future demand growth including HAMR products. Capital expenditures were $43,000,000 for the quarter and represent roughly three percent of revenue for fiscal year to date as we continue to maintain capital discipline. We returned $152,000,000 to shareholders through the quarterly dividend and closed the March with ample liquidity of $2,100,000,000 including our undrawn amount of 1,300,000,000 from our new revolving credit facilities. Our debt balance was $5,100,000,000 at the end of the March after retiring approximately $536,000,000 of debt during the quarter, consistent with our intent to reduce debt.

[Gianluca Romano, Executive VP & CFO at Seagate]

Our resulting net leverage ratio was 2.1 times, and we expect to see further reduction in the coming quarters. Turning now to our June outlook. We have continued to see robust demand for our high capacity nearline products across the global cloud customer base, which, along with incremental improvement in the VM market, are expected to drive revenue and profits higher in the June. As noted earlier, we currently forecast minimal direct impact from tariff policies and will be monitoring for secondary impacts, including changes in customer demand. Based on what we know today, we expect June revenue to be in a range of $2,400,000,000 plus or minus $150,000,000 At the midpoint, this reflects 11% improvement sequentially and 27% improvement year over year.

[Gianluca Romano, Executive VP & CFO at Seagate]

Non GAAP operating expenses are expected to be approximately $285,000,000 And at the midpoint of our revenue guidance, we expect non GAAP operating margin to expand into the mid-20s percentage range. We expect our non GAAP EPS to be $2.4 plus or minus $0.2 based on a diluted share count of approximately $214,000,000 shares and non GAAP tax expense of roughly $10,000,000 As a reminder, starting in fiscal twenty twenty six, we estimate a tax rate in the mid teens as a value jurisdiction in which we operate adopt the Pillar two global minimum tax. To close, we are continuing to demonstrate strong financial discipline and operating leverage that support both profitable growth and greater agility to navigate the dynamic macro environment. I will now turn the call back to Dave for final comments.

[Dave Mosley, CEO at Seagate]

Thanks, Gianluca. I would like to conclude by reiterating three key points that underscore my excitement for Seagate's opportunities over the long term. First, we've transformed our business model and made a cultural shift to prioritize profits and cash generation with a sustained focus on driving healthy industry supply demand fundamentals. Second, these changes are taking place amid secular growth tailwinds for mass capacity storage that are underpinned by the ever increasing rise in data generation and data value. And third, Seagate's winning technology platform and clear roadmap positions us to capitalize on those tailwinds to deliver sustained profitable growth with agility.

[Dave Mosley, CEO at Seagate]

We look forward to sharing more about how this winning combination of technology leadership, profitable growth, and healthy industry fundamentals set Seagate up for even greater success at our Investor and Analyst event taking place on May 22. I'd like to thank our global teams, supply partners and customers for your ongoing contributions to our success and to our shareholders for your continued support. Operator, let's open up the call for questions.

[Operator]

We will now begin the question and answer session.

[Operator]

You.

[Operator]

The first question comes from Eric Woodring with Morgan Stanley. Please go ahead.

[Erik Woodring, Managing Director - Equity Research at Morgan Stanley]

Hey guys, good afternoon. Thanks for taking the question and nice quarter here. I know you guys were capacity constrained in the March. So can you maybe just help us better understand how and where you got some of the upside in the quarter with that supply shortage? And as I just extend that to the June, how do we think about the risk of pull forward impacting June revenue?

[Erik Woodring, Managing Director - Equity Research at Morgan Stanley]

Or maybe if I ask you differently, if you guided to the June a month ago, would you have still guided to $2,400,000,000 of revenue at the midpoint? Or has anything changed over the last month as it relates to your ability to your customers' maybe needs to pull forward any demand? Thanks so much.

[Dave Mosley, CEO at Seagate]

Thanks for the question, Eric. Simple answer is yes, we would have guided the same thing a month ago and that's largely this predictability that we've built in through the build to order process playing through. We were underserving the market last quarter. I think that's probably true not only for Seagate but for other players in the market. We'll be able to assess that more over time.

[Dave Mosley, CEO at Seagate]

And some of that's due to our operational issues that we had. We discussed this back in November. It really came through last quarter. Those operational issues have been fixed. And so all that's been planned for quite some time that affects the Q4 guide here that's in front of us.

[Dave Mosley, CEO at Seagate]

As far as longer term, the build to order continues to serve us quite well. And we're doing it through product transitions as well, which helps the qualification, predictability and all other financial aspects So I'm quite pleased with that.

[Operator]

The next question is from Assia Merchant with Citigroup. Please go ahead.

[Asiya Merchant, Technology Equity Research at Citigroup Global Markets Inc.]

Great. Thank you for the question and great quarter. If I can just, if you can double click on where we are with Hammer, where you are with your qualifications with your, other customers? And how much did Hammer contribute to the March results? And how we should think about the contribution of HAMR to your bits as you progress through calendar 2025?

[Asiya Merchant, Technology Equity Research at Citigroup Global Markets Inc.]

Thank you.

[Dave Mosley, CEO at Seagate]

Thanks, Assia. Yes, I'll let Gianluca speak specifically to the numbers. HAMR is growing quite well. I would say quarter over quarter since the last time we spoke, we're still on the exact same plan. So I'm very happy with the qualification progress.

[Dave Mosley, CEO at Seagate]

And we'll share a little bit more of that in the May 22 Analyst Day. So I'd say please attend. Relative to how we are standing right now, we talked about in the prepared remarks, one qualification major CSP almost complete and we have another quite a few in flight as well.

[Gianluca Romano, Executive VP & CFO at Seagate]

Yes. Also, referring back to Eric's question about the revenue increase compared to the midpoint of our guidance, I would say that is actually coming from more volume on HEMR products. So where we were able to squeeze a little bit more supply during the quarter was mainly on the HEMR part. And MR is ramping very, very well and very rapidly. And we will disclose more about MR future development in a few weeks from now at the Analyst Day.

[Asiya Merchant, Technology Equity Research at Citigroup Global Markets Inc.]

Thank you.

[Operator]

The next question is from C. J. Muse with Cantor Fitzgerald. Please go ahead.

[CJ Muse, Senior Managing Director at Cantor Fitzgerald]

Yes, good afternoon.

[CJ Muse, Senior Managing Director at Cantor Fitzgerald]

Thank you for taking the question. I guess, Dave, on the call today, you've discussed the industry undershipping end demand. You're seeing new demand from neo clouds and others. So the question is, how has your visibility improved? What kind of sense of urgency are you getting from your customers?

[CJ Muse, Senior Managing Director at Cantor Fitzgerald]

And I guess, is that extending beyond kind of a fifty two week lead time? And last part of the third part question would be, how do you see that kind of playing out in pricing over time? Thanks so much.

[Dave Mosley, CEO at Seagate]

Thanks, CJ. I think there's two components to your question. Obviously, build to order as we've discussed about the remainder of this calendar year and already into next calendar year, we're starting to have visibility. People are building data centers and refreshing data centers need that predictability of supply and we need that as far as running our own shop. So all of that is run fairly predictably.

[Dave Mosley, CEO at Seagate]

There's occasionally swaps where for some reason somebody comes down and another person needs more, But I think that's what we mean by healthy supply demand and agility. And relative to pricing, as we continue to plow through these product transitions, especially at higher and higher capacity points, we negotiate those new build order agreements. With that in mind, you know, we need to continue to get paid more and more for what we do because we're making the requisite investments to make these people more efficient in their own data centers. So there's a win win there, and we're factoring that into all forward looking financial discussions.

[Operator]

The next question is from Wamsi Mohan with Bank of America. Please go ahead.

[Wamsi Mohan, Senior Equity Research Analyst at Bank of America Merrill Lynch]

Yes, thank you. You just reported an increase of 70 bps in gross margins even when Airline was down quarter on quarter in total. In the June, you're guiding a similar gross margin expansion, but Airline, I think, should be up quarter on quarter. So why are we not seeing more upside on June for margins? And is the cloud versus enterprise mix changing significantly in the June because it feels like it was very tilted cloud in the March, if you can square those?

[Wamsi Mohan, Senior Equity Research Analyst at Bank of America Merrill Lynch]

Thank you.

[Gianluca Romano, Executive VP & CFO at Seagate]

Yes. Thank you, Wamsi. I'm happy you have strong expectations. I think we are doing a very good job in driving our profitability up every quarter since like eight quarters, as Dave said in the prepared remarks. Mix is important to us.

[Gianluca Romano, Executive VP & CFO at Seagate]

So of course, nearline and cloud in particular will be higher in the June. And we have no bill to order. We have contracts. And depending from the time of the negotiation of those contracts, we have price increase in certain quarters that are maybe higher than other quarters. But I would say the important is the trend is continuing, the strategy is strong and we will continue to deliver.

[Dave Mosley, CEO at Seagate]

I think the other thing, Wamsi, is that we also underserved the market quite a bit in Q3. And now we're back to serving customers the way we want to. So all this is long term planning, but we prioritize in particular the certain segments that Q3 needed where we actually had product for them.

[Operator]

The next question is from Krish Sankar with TD Cowen. Please go ahead.

[Analyst]

Hey guys, this is Eddie for Krish. Thanks for taking my question. Your guidance includes minimal impact from the tariffs in place and that makes sense due to the ninety day exemption. But I wonder if these tariffs were to take place in the September, how should we think about the impact on the financial model? Like is there a time lag where you guys might take the tariff hit initially and it's a matter of quarter or two until you raise prices or, you expect to pass through tariff related costs right away?

[Analyst]

Like, I just wonder, like, if you can share any color on how your conversation has gone with customers about pricing, how long it would take you guys to pass through tariff related costs would be helpful. Thank you.

[Dave Mosley, CEO at Seagate]

Yes. Thanks, Eddie. It's complex world. Like you said, there's many scenarios being run. And our first response is to go work the supply chain or operational details such as the rules are with our customers.

[Dave Mosley, CEO at Seagate]

And that will impact their demand,

[Dave Mosley, CEO at Seagate]

what

[Dave Mosley, CEO at Seagate]

they want, where, when. Ultimately, as we drive through these product transitions as we talked about before, we're going to be adding more value. So we have a chance to reset the negotiation. Passing through the cost is a last resort option, but we'll factor that in any cost increases due to whatever reasons into the go forward model. I think everyone understands that we need those margins as I referenced before to go reinvest in our business and keep driving forward the technology, which is great value to the customer.

[Dave Mosley, CEO at Seagate]

So I won't get into specifics about what the different scenarios are because we just don't know yet. But operationally, we've dealt with these kinds of problems before and we'll deal with them again. I think we're very agile, nimble operationally to do that.

[Analyst]

Take it, Dave.

[Operator]

The next question is from Amit Daryanani with Evercore. Please go ahead.

[Amit Daryanani, Senior Managing Director - Equity Research at Evercore]

Thanks for taking my question and congrats on a nice set of numbers here. Dave, as we look at the predictability in the business and you sort of talked about you see nearline exabyte demand, I think looking strong not just through the end of this year, but also into early twenty twenty six. Does that imply that you expect to see sequential revenue growth, gross margin expansion in the back half versus what you folks are guiding to June? I'd love to just understand how much visibility you have in the back half. And then maybe someone related to that, Meta had a white paper out, I think in the last ninety days, which got a lot of attention in terms of how QLC could be used almost as a new storage medium between traditional flash and nearline.

[Amit Daryanani, Senior Managing Director - Equity Research at Evercore]

I would love to get your perspective on that and if you see that having any sort of dampening effect in the nearline drives over the long term? Thank you.

[Dave Mosley, CEO at Seagate]

Sure, Amit. I'll let Gianluca take the gross margin, then I'll take the flash discussion.

[Gianluca Romano, Executive VP & CFO at Seagate]

Yes, Amit. Our plan has not changed. As we were discussing also in prior quarters, we see opportunity to grow revenue, profitability. Of course, this is our current expectation. We need to wait and see if there are any new rules that could impact this view.

[Gianluca Romano, Executive VP & CFO at Seagate]

But currently, we have no reason to change our expectations.

[Dave Mosley, CEO at Seagate]

And on the discussion about the Meta blog, I've read it. I my first reaction was it's a fairly niche application, and it makes sense. I mean, there's a lot of different types of applications in the cloud, some of which may benefit from QLC NAND, especially if they're very read intensive. But I don't think that it comes anywhere close to disrupting the general blend of, NAND and HDD in the in the cloud in the larger cloud. Again, NAND is a very critical technology for everyone, and the data center architects know how to manage it.

[Dave Mosley, CEO at Seagate]

They, we pointed to a Google white paper as well in in the prepared remarks, and there are others out there. I think a lot of our customers are some of the best storage architects in the world and they're making these decisions very consciously, spreading the workload, if you will, to maximize cost power performance, so on and so forth. And so from a hard drive perspective, we still believe there's a very substantial cost differential between any kind of NAND and hard drives, especially in the performance tiers that we have to operate in. And hard drives are much, much more capital efficient. We can add exabytes to the world in a much more capital efficient way.

[Dave Mosley, CEO at Seagate]

What I'm kind of excited about on this front is there's a bigger move to disaggregated storage, which will decouple compute from storage investments. And if that's if that's the case, I think for some cloud service providers and even some on prem instances, there's more opportunities for HDDs rather than less.

[Operator]

Next question is

[Operator]

from Aaron Rakers with Wells Fargo. Please go ahead.

[Jake Wilhelm, Vice President at Wells Fargo]

Hi. This is Jake on for Aaron. Thanks for taking the question and congrats on the results. Just wondering if you could get some color on how material you see emerging AI inference storage to your mid to long term TAM? And how, if at all, hyperscale purchasing patterns have changed over the last few quarters or two to support the ongoing shift in training to inference driven by some of these newer reasoning models?

[Dave Mosley, CEO at Seagate]

Thanks, Jake. What we would have said three or four quarters ago was that the first recovery, if you will, of the cloud was largely based on video applications, which a lot of people might call that AI models themselves. Think you have to be a little bit careful with this to the extent that large language models are opening up data analytics to much larger data sets. I think we're still in the early days of that. And then relative to new video applications, I think that's still in our future.

[Dave Mosley, CEO at Seagate]

So quite excited about it. There's a lot of and we've made some prepared remarks on this. There's a lot of new video applications coming that we believe that storage will really benefit from. And then there are bigger and bigger training sets, if you will. And some of those training sets, as they're ingested, they have to spin off more data that has to be stored so that you can go back and prove that they did it right.

[Dave Mosley, CEO at Seagate]

That data infrastructure that's going to come behind AI is very exciting to us.

[Jake Wilhelm, Vice President at Wells Fargo]

Great. Thanks. And then I was wondering if you could just give a little additional color on your capital allocation priorities moving into the back half of the year and how that's changed, if at all, given the increased tariff uncertainties? Thanks.

[Dave Mosley, CEO at Seagate]

No changes, but I'll let Gianluca answer specifics.

[Gianluca Romano, Executive VP & CFO at Seagate]

Yes. We are still working on reducing our debt. As you know, we have done a big step forward in the March. We reduced more than $500,000,000 of our debt, but we are still not at the level that we want. So in the next few quarters, we will continue to address the debt level.

[Gianluca Romano, Executive VP & CFO at Seagate]

And as we said, after that, we will restart working on the share buyback. And of course, we are always focusing on our dividends.

[Jake Wilhelm, Vice President at Wells Fargo]

Great. Thank you so much.

[Gianluca Romano, Executive VP & CFO at Seagate]

Thanks, Ricky.

[Operator]

The next question is from Vijay Rakesh with Mizuho. Please go ahead.

[Vijay Rakesh, Managing Director at Mizuho Financial Group]

Yes. Hi, thanks. Good quarter. Dave, just a quick question on the HAMR side. I'm just wondering how what the mix of Hammer would be by, let's say, exiting fiscal twenty six.

[Vijay Rakesh, Managing Director at Mizuho Financial Group]

And then Gianluca, do you are you still comfortable with the road map to the mid 40% 40 plus 40 plus mid 40% gross margin as you look out? Thanks.

[Dave Mosley, CEO at Seagate]

Yeah. We haven't guided exactly how fast our HAMR transition is going to be. Although, as these qualifications complete, as we referenced earlier, we're going to continue to accelerate. So I'm happy with the progress that the team's made right now. And I think as we look forward, there will be more and more HAMR drives in the world very, very soon.

[Dave Mosley, CEO at Seagate]

So I'm excited about that.

[Gianluca Romano, Executive VP & CFO at Seagate]

Yes. For the gross margin, as I said before, we continue to improve every quarter. So this is our objective. Are I think you need to wait a few more weeks to have a better idea of the model for the future. But the important is, we have a strong demand.

[Gianluca Romano, Executive VP & CFO at Seagate]

We have a very good mix. And this is, of course, helping in improving the profitability. Gross margin and operating margin, I would like to bring your attention on the very strong operating margin that we are generating at this point.

[Vijay Rakesh, Managing Director at Mizuho Financial Group]

Thank you.

[Operator]

The next question is from Timothy Arcuri with UBS. Please go ahead.

[Timothy Arcuri, Managing Director at UBS Group]

Thanks a lot. I had a multipart question. So you're guiding revenue up $250,000,000 How much of that's related to the $200,000,000 that you lost in March? I know it's probably a little hard to tell, but I guess the question is like, have you caught up with demand yet? That's the first part.

[Timothy Arcuri, Managing Director at UBS Group]

Then the, you know, back part is, I would think that customers are probably placing double orders, but I I how how could you tell if they were? Are there enforceable pieces that come with the orders? I know you're talking about visibility now, you know, into next year. How do how do you know how how, you know, much of that's real? Are there, you know, penalties that are

[Timothy Arcuri, Managing Director at UBS Group]

associated with these?

[Gianluca Romano, Executive VP & CFO at Seagate]

Thanks.

[Dave Mosley, CEO at Seagate]

Yes. Thanks, Tim. So the build to order model especially when we realized that we had these supply constraints now more than three months ago, we were communicating that specifically to the customers. Is long before any of the current macro issues have arisen. From my perspective, Q4 is happening to plan and Q1 will happen to plan after that as well.

[Dave Mosley, CEO at Seagate]

That's how these build order models are giving us that predictability.

[Gianluca Romano, Executive VP & CFO at Seagate]

I would say it's difficult to say how much of that $200,000,000 demand that we were not able to serve in March is now the demand in June. Of course, that demand has shifted to the future and is probably not part in June. And as I said before, we expect revenue to grow even in the following quarter. So it's just a situation where demand is above supply. I have no I don't think we have any evidence of double orders.

[Gianluca Romano, Executive VP & CFO at Seagate]

So I don't share that comment from you, but I would just say demand is continuing to go in the direction that we had even before, even a quarter ago or two quarters ago, not the build to orders are not changing in the next few quarters. And as Dave said, now we are starting negotiating even calendar '26.

[Dave Mosley, CEO at Seagate]

I think the other thing is that the data center infrastructure, the investments that need to be made are not these temporal things anymore, and there's not a lot of excess supply, as we just said, that to pull forward or to do deals at the end of quarters anyway. So as these new applications come online, we're not seeing any inventory buildup. We're seeing people demand be fairly stable. This is the point of the build to order. So happy that some of the new applications are starting to launch more and more data.

[Dave Mosley, CEO at Seagate]

I think this has been a fairly predictable world for us other than the supply issue that we had.

[Timothy Arcuri, Managing Director at UBS Group]

Okay. Thank you.

[Operator]

The next question is from Ananda Baruah with Loop Capital. Please go ahead.

[Ananda Baruah, Stock Analyst at Loop Capital Markets LLC]

Yes. Thanks guys. Appreciate you guys taking the question. Dave, just on sort of new data center creation, I guess the question is for GenAI data centers, how like, what's the what's a decent way is there a decent way to think about, you know, sort of typical storage consumption, you know, into a GenAI data center relative to, like, a classic cloud data center? I guess any context there would be useful.

[Dave Mosley, CEO at Seagate]

It's really hard, Ananda. I think there are many different kinds of applications, and and we're all looking for which are the killer apps and what order do they take off. And, you know, from from our perspective, some of the early applications around large language models are very compute intensive and opening up bigger and bigger data sets to be ingested and analyzed, maybe datasets that are old, things from the past, makes data more valuable. As I said before, still early days of that. And then if you get into the types of Gen AI that actually create new data, you know, video applications and things like that.

[Dave Mosley, CEO at Seagate]

Very exciting for storage, long term storage as well. So but it's still very early days.

[Ananda Baruah, Stock Analyst at Loop Capital Markets LLC]

And I I guess just to follow on there. Is there and this is maybe getting sort of like two in the week, but do you guys have any sense on if you're starting to see more storage arrays? I mean, well, you know, sort of more nearline drives that they use for their own storage arrays be placed into what's been existing data centers? Any context there?

[Dave Mosley, CEO at Seagate]

Yeah. What I would say is that and I referenced this already. This concept of disaggregated storage is much more interesting. So that compute and storage is decoupled to some extent. And then if you need to scale storage, you can without the overhead and cost associated with adding more compute to that.

[Dave Mosley, CEO at Seagate]

So the compute can scale one way and that storage can scale the other. That, to me, is a more interesting trend. As applications develop that need to ingest and spin off more and more storage, then that storage investment will be relatively more efficient. So I'm really interested in those architectural changes.

[Ananda Baruah, Stock Analyst at Loop Capital Markets LLC]

That's great. I appreciate it. Thanks, guys.

[Operator]

The next question is from Thomas O'Malley with Barclays. Please go ahead.

[Thomas O'Malley, Director - Equity Research at Barclays]

Hey, guys. Thanks for taking my question. June quarter, you're saying OpEx is impacted, but no real change on the revenue side. You guys are kind of talking about a continued growth profile into the back half of the year, talking about good visibility. Should we be thinking about September with any kind of headwind from that fourteen weeks?

[Thomas O'Malley, Director - Equity Research at Barclays]

Or does the same rule apply to the back half of the year with just revenue unaffected? Do we need to be kind of discounting that September quarter after the stronger June?

[Gianluca Romano, Executive VP & CFO at Seagate]

In general, no, when you have this extra week in the quarter, it was only impacting your OpEx. It's not really impacting your revenues. Revenues are generally negotiated based on a quarter, not based on a week.

[Dave Mosley, CEO at Seagate]

And and, Tom, I think I heard you say June. That'll be the September.

[Gianluca Romano, Executive VP & CFO at Seagate]

September is fourteen weeks.

[Thomas O'Malley, Director - Equity Research at Barclays]

Me. Sorry for misstealing. I was

[Thomas O'Malley, Director - Equity Research at Barclays]

just thinking of December. Yep. Thank you. Yeah. I, and then the second the second is just if you look at, if you look at the exabyte shipments, like, I you know, rewind the clock.

[Thomas O'Malley, Director - Equity Research at Barclays]

You're kinda getting back to where you were kinda pre pandemic from a total exabyte shipments. So I think you guys have talked about, like, a 60 exabytes is kind of the range where you need technology transitions to move ahead of that. So, you know, I guess part one is, you know, when do you guys think, do you think that this is in the next fiscal year that you're gonna kinda hit that wall? Because it sounds like you're accelerating very quickly. And then secondarily, like, on the pricing side, yeah, I know you talked about direct impact to tariffs, but indirect impacts, oftentimes, you know, the conversation comes up, will your large customers be more aggressive with pricing?

[Thomas O'Malley, Director - Equity Research at Barclays]

Do you feel like you're going to have you seen any behavior change with your customers? Are you safeguarding against that with this view that you have the year kind of fully baked already? Thank you. I know that was a bunch there.

[Dave Mosley, CEO at Seagate]

No worries. So recall our strategy. We're adding exabyte capacity through aerial density technology, which makes our ability to serve the market more and more efficient. As we do that, we can grow revenue and profit and deliver better value to customers as well. So I wouldn't think about 01/1960 or 01/1965 as being the peak ever.

[Dave Mosley, CEO at Seagate]

The drives are much more exabyte efficient than they used to be. And so we're really excited about our ability to deliver more and more exabytes and therefore see that kind of growth. From the broader perspective, tactically, we have not really seen very much impact from customers changing anything one way or the other. Nobody's losing their place in line. People are still making the data center infrastructure investments they are because data infrastructure is key to some of this the cloud applications or the AI applications that are to come.

[Dave Mosley, CEO at Seagate]

And so we expect predictability from that, and that's what we need as manufacturers as well as predictability. So that's one of the reasons we've driven these new strategies.

[Thomas O'Malley, Director - Equity Research at Barclays]

Thank you.

[Operator]

The next question is from Tristan Gerra with Baird. Please go ahead.

[Tristan Gerra, Senior Research Analyst at Robert W. Baird & Co]

Hi, good afternoon. A quick follow-up on the question you just addressed about adding capacity. So in an environment where you were in shortfall a quarter ago, do you have to and assuming your utilization rates are pretty much at peak, so are you dedicating more CapEx to ramp capacity? How linear is this of a step function? And are you going to pose on any capacity ramp because of the uncertainty of indirect effect of tariff?

[Dave Mosley, CEO at Seagate]

Thanks for the question, Tristan. So the issue that we had in supply that really manifested itself last quarter but started in wafer last summer actually during August. That issue was only on PMR products. And so we have the HAMR technology products. We've already planned the CapEx, so we don't need to add any additional CapEx to continue to ramp the HAMR products.

[Dave Mosley, CEO at Seagate]

I say this all the time, we already have this advanced manufacturing that's some of the most sophisticated manufacturers in the world building these devices atom by atom by atom. It takes a long, long time, And we're going to continue to invest in that. Some of that investment is in The U. S. As well.

[Dave Mosley, CEO at Seagate]

So we're going to continue to invest in that. But we need demand predictability. We need to be able to predict the rate of return. Right now, we're fairly happy with where our capital is versus the demand that we see and maintaining an eye with healthy supply demand balance. Should there be more demand, then we can address that when we need to, but we haven't done that just yet.

[Dave Mosley, CEO at Seagate]

Yeah.

[Gianluca Romano, Executive VP & CFO at Seagate]

So yeah. We are not planning for more heads or media production, but, of course, those heads and media will generate a higher volume of exabytes because of the technology transition, and this is how we want to address the increase in demand.

[Tristan Gerra, Senior Research Analyst at Robert W. Baird & Co]

Great. Thank you very much.

[Operator]

The next question is from Mark Miller with The Benchmark Company. Please go ahead.

[Mark Miller, Equity Research Analyst at The Benchmark Company LLC]

Congrats on your quarter and thanks for the question. I'm just wondering if you have seen any recent or do you expect any significant changes in data center CapEx by your major hyperscale customers? And second question is any significant components sourcing out of China?

[Dave Mosley, CEO at Seagate]

So Mark, I would say that we have decoupled supply chains long ago. So I think we can control sourcing whatever we need to make sure that we don't run out of parts or there aren't any significant cost impacts. So that's one of the reasons why we said whatever's happened so far has been minimal. But we we always watch specific sourcing issues, make sure that we, you know, have what we need. I think there are geocentric options for anything that we need from a sourcing perspective.

[Dave Mosley, CEO at Seagate]

And relative to predictability of the cloud customers, their demand, we've said before that this has been fairly predictable. Some of it's because the market's been underserved. But we're running the play and there's visibility into more demand in the back half of the year and even people are starting to book into calendar year 2026 because data center infrastructure is very important in their business models. It's a relatively small percentage of their CapEx too is what they spend on storage. So given how important it is and how data continues to grow, they're making that a priority.

[Mark Miller, Equity Research Analyst at The Benchmark Company LLC]

Thank you.

[Operator]

This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.

[Dave Mosley, CEO at Seagate]

Thanks so much, Gary. I'd also like to take the opportunity to once again thank our employees and our customers and our suppliers for contributing to our results and to our shareholders for your support. We look forward to speaking with you in a few weeks at our Analyst Event, May twenty two. Thank you.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• Gianluca Romano, Executive VP & CFO

Analysts

• Shanye Hudson, Senior Vice President of Investor Relations & Treasury at Seagate
• Dave Mosley, CEO at Seagate
• Erik Woodring, Managing Director - Equity Research at Morgan Stanley
• Asiya Merchant, Technology Equity Research at Citigroup Global Markets Inc.
• CJ Muse, Senior Managing Director at Cantor Fitzgerald
• Wamsi Mohan, Senior Equity Research Analyst at Bank of America Merrill Lynch
• Analyst
• Amit Daryanani, Senior Managing Director - Equity Research at Evercore
• Jake Wilhelm, Vice President at Wells Fargo
• Vijay Rakesh, Managing Director at Mizuho Financial Group
• Timothy Arcuri, Managing Director at UBS Group
• Ananda Baruah, Stock Analyst at Loop Capital Markets LLC
• Thomas O'Malley, Director - Equity Research at Barclays
• Tristan Gerra, Senior Research Analyst at Robert W. Baird & Co
• Mark Miller, Equity Research Analyst at The Benchmark Company LLC