Executive Vice President and Chief Financial Officer at Seagate Technology
Thank you, Dave. Seagate navigated its way through a very dynamic market environment and typically the slowest seasonal period of the year to deliver financial performance consistent with our revised expectation from the beginning of March. In the March quarter, revenue was $2.8 billion and reflected 3% year-over-year increase. Non-GAAP operating margin was nearly 17%, up 140 basis points year-over-year. Non-GAAP EPS was $1.81, up 22% year-over-year. The hard disk business ship approximately 154 exabytes, down 6% sequentially and up 10% year-on-year. Strong demand for high-capacity nearline drives boosted average capacity per total HDD drive to a record 6.7 terabyte, up 10% sequentially and 32% year-on-year. Demand for our nearline product supported mass capacity revenue of $1.9 billion, down 6% sequentially but up 18% compared with the prior year period. Shipment into the mass capacity market totaled 133 exabytes, down 3% sequentially and up 20% year-over-year. Our nearline product segment continues to grow, with revenue outpacing the broader mass capacity business once again. In the March quarter, we increased shipment to 117 exabytes, up 6% sequentially and 23% year-on-year, supported by the ongoing adoption of our 18-terabyte drives and initial volume shipments of our new 20-plus terabyte products. Our leading nearline portfolio, coupled with a very agile supply chain, resulted in record cloud market revenue in the March quarter. Consistent with our comments in early March, demand for the VIA market were lower than anticipated due primarily to delayed project spending in China, resulting from disruption related to COVID and shifting government priorities. We do expect demand to improve once COVID-related restrictions begin to ease and project installation can resume. Within the legacy markets, revenue came in at $642 million, down 17% sequentially and 26% year-over-year.
Quarter-over-quarter, the pace of decline was similar across each of the legacy end markets. However, the year-over-year decline was more pronounced in the PC market due in part to OEM continuing to balance component inventory. Non-HDD revenue was down roughly 19% sequentially to $237 million, coming off a record December quarter. Both our systems and SSD businesses were impacted by key component availability, which left us unable to fulfill all the customer demand, a trend that we expect to continue in the June quarter. Despite these challenges, non-HDD revenue was essentially flat year-over-year, and demand remains solid, notably for the system business with record order backlog exiting the quarter. Moving on to our operational performance. Non-GAAP gross profit in the March quarter was $817 million compared to $749 million in the prior year period. Our corresponding non-GAAP gross margin was 29.2%, down 150 basis points sequentially but up 180 basis points year-over-year. The ongoing transition to both higher capacity drives and cost-optimized products provided some offset to the slowdown in the VIA market and continued elevated logistics and component costs. HDD gross margin was inside of our long-term target range of 30% to 33%, and we expect our HDD and total company gross margin to trend higher in the June quarter. Non-GAAP operating expenses were $345 million, in line with our expectation. We estimate the opex will move slightly higher in the June quarter due to an increase in business travel and sales and marketing activities. Our resulting non-GAAP operating income was $472 million, which translates into non-GAAP operating margin of 16.8% and reflecting lower sequential business volumes and the temporary margin pressure discussed earlier. Based on diluted share count of approximately 222 million shares, non-GAAP EPS for the March quarter was $1.81, within our original guidance range and consistent with our update in early March. Inventory increased by $192 million to approximately $1.5 billion as we continue making strategic purchases of critical components, optimize use of ocean freight to reduce logistic costs and support future product demand.
Given the current macro environment, we believe inventory around this level is appropriate for the next couple of quarters. Capital expenditures were $97 million for the quarter, up slightly quarter-over-quarter. We expect to be at or below the low end of our target range of 4% to 6% of revenue for fiscal '22, which is adequate to support our future product and services road map while maintaining our focus on aligning HD supply with demand. Free cash flow generation for the March quarter was $363 million, up 32% year-over-year. Fiscal year-to-date through our March quarter, we have generated nearly $400 million more in free cash flow as compared to the previous year, enabling Seagate to continue its strong return of capital to shareholders. In the March quarter, we used $154 million for the quarterly dividend and $417 million to repurchase 4.2 million ordinary shares, exiting the quarter with 216 million shares outstanding and approximately $2.8 billion remaining in our authorization. We ended the March quarter with cash and cash equivalents of $1.1 billion and total liquidity with approximately $2.9 billion, including our revolving credit facility. Adjusted EBITDA was $2.7 billion for the 12-month period ending in March, with our leverage ratio declining slightly to 2.1 times. Total debt balance at the end of the quarter declined to $5.6 billion, reflecting the planned repayment of $220 million in debt during the March quarter. In summary, while the March quarter was very challenging, we delivered top and bottom line results which were within our original guidance range with agile operational execution and ongoing focus on optimizing profitability and free cash flow generation. Entering the June quarter, the operating environment has remained challenging. We have not yet seen an improvement relative to COVID shutdowns in China that we anticipated in early March, and non-HDD component shortages and geopolitical dynamics have intensified.
As a result, we expect these external factors to constrain demand growth over the near term. With that in mind, we expect June quarter revenue to be in the range of $2.8 billion plus or minus $150 million. We expect the actions that we are taking to mitigate external challenges combined with a more favorable product mix to support June quarter non-GAAP operating margin at the low end of our revised long-term range of 18% to 22% of revenue. Finally, we expect non-GAAP EPS to be in the range of $1.90 plus or minus $0.20, an increase of 5% sequentially at the midpoint. I will now turn the call back to Dave for final comments.