Chief Executive Officer at Seagate Technology
Thanks, Shanye, and hello, everyone. In our remarks today, we will discuss the September quarter performance in the context of an intensely challenging macro environment, and outline the aggressive actions we are taking to manage the company during this tough period. Despite these near-term challenges, the underlying data demand drivers remain strong as does the opportunity for mass capacity storage solutions. And I will outline why we're confident that as current conditions improve, Seagate is in an outstanding longer-term position. For the September quarter, revenue came in at $2.04 billion, which was inside the revised guidance range that we provided at the end of August.
Non-GAAP EPS of $0.48 was well below our expectations, impacted by multiple gross margin headwinds that I'll touch upon shortly. As we shared in late August, three main factors were influencing our outlook: the impact of COVID lockdowns and the related economic slowdown in China, broad-based customer inventory adjustments, and weakening global consumer spending. Since the August time frame, macro sentiment has further deteriorated, which has led to a more cautious spending environment and more significant inventory adjustments as we move through the final weeks of the September quarter. These factors incrementally impacted sales volumes in the economically sensitive consumer markets as well as certain U.S. cloud customers. We currently expect customer inventory drawdowns will remain a factor through at least the December quarter.
We reacted quickly to adjust our production levels to the current demand environment and our gross margin performance reflects the resulting factory underutilization costs that increased markedly through the month of September. It's important to note that consistent with some of the U.S. CSP comments, end user demand for core data and analytics applications remain solid, which supports our view that the business will improve as elevated inventory levels are consumed. In the meantime, we continued to respond to the changing market conditions and further reduced production output across all product lines with the exception of our 20-plus terabyte products, where demand has held firm and pricing relatively stable.
Our actions underscore our focus on maintaining strong supply discipline, and we believe this will enable us to quickly return to a more favorable pricing environment across mid- to lower-capacity products as conditions normalize. Stepping back, today's highly uncertain macro environment stems from multiple factors outside of our control, such as rising interest rates, inflationary pressures and geopolitical dynamics. With that in mind, we are focused on managing what we can control and taking aggressive actions to appropriately respond to the near-term market environment and enhance profitability over the long term. In addition to adjusting our production output to drive supply discipline and pricing stability, we are implementing a restructuring plan to sustainably lower costs, including a reduction in our global workforce.
These are very difficult decisions to make and ones that we do not take lightly. However, we believe they are necessary to align our cost structures with the realities of the near-term market, while still enabling us to support future mass capacity storage opportunities as demand recovers over the longer term. We are improving working capital by reducing our inventory levels over the next couple of quarters, and we are significantly lowering our fiscal '23 capital expenditures while maintaining investments that support the launch and ramp of the 30-plus terabyte product family based on HAMR technology. These cost-saving actions, together with our supply discipline enable us to drive increased leverage to earnings as conditions improve over the near term.
Longer term, we remain confident in the secular growth of mass capacity storage and believe our technology leadership positions us to capture the significant future growth opportunities. Consistent with our focus on enhancing longer-term shareholder value, we are maintaining our quarterly dividend; however, we are temporarily pausing our share repurchase program to ensure we can continue to make necessary investments to support our current business and underpin our longer-term strategic plans. Let me now share some perspectives on the end markets, starting with VIA. The global economic slowdown has continued to impact VIA-related project budgets and installation time lines, which has led to a buildup of customer inventory.
These trends have dampened the typically strong seasonality in the back half of the calendar year, particularly in the China market. Stimulus programs to help boost the local economy have been announced; however, timing for economic recovery is not yet apparent, while COVID lockdown restrictions remain in place. Our long-term expectations for VIA demand have not changed. While we have significant direct customer exposure in China, end market demand is global and continues to expand, as smart video applications are adopted to address real-world challenges. For example, reducing traffic congestion, is one areas of focus for smart cities, which caused U.S. drivers alone, an estimated $53 billion in 2021.
These savings can only be realized after capturing and storing large volumes of data and application best served by HDDs. In the nearline markets, we saw a double-digit percentage sequential revenue declines across both cloud and enterprise OEM customers, reflecting the broad-based inventory adjustments that I described earlier. Recall, we had been anticipating the customer inventory correction to be largely complete in the December quarter. However, amid intensifying macro uncertainties, customers have grown more cautious with their spending plans, which we believe will extend the recovery in the calendar year '23. U.S. cloud customers are still reporting healthy demand tied to digital transformation, artificial intelligence and other applications that unlock data value and continue to rank among CIO's highest investment priorities.
While enterprise CIOs continue to move workloads to the public cloud, according to a recent study, 80% of cloud users also have a hybrid cloud strategy, illustrating the desire to operate seamlessly across the network of public and private clouds. We believe these trends support our view for mass capacity exabyte growth to return to the upper 20% range as the broader markets recover. These same trends underscore the positive market momentum we are seeing in our enterprise systems business, which recorded revenue growth of over 45% sequentially. While we expect sequential sales levels to reflect some lingering supply challenges in the December quarter, our systems results illustrate how customers are still allocating budget dollars towards areas that drive business value.
The data trends that rely on cost-efficient, higher-capacity storage solutions remain intact. As a leader in HDD technology, Seagate is well equipped to address demand by continuing to execute our strong product road map. We are leveraging the current production slowdown to double down on our development actions and accelerate cycles of learning to continue delivering TCO value to customers. Sales of our 20-plus terabyte product family grew meaningfully quarter-over-quarter, supported by strong demand from cloud customers. 20-plus terabyte drives now rank as our highest volume and revenue platform, surpassing 18 terabytes as expected. We are extending this product family using conventional CMR technology into the mid-20 terabyte range, which also offers SMR capabilities into the upper 20-terabyte range.
Development of our 30-plus terabyte platform based on HAMR technology remains firmly on track. In addition to HAMR, these drives incorporate many new technology innovations to reflect years of development, design and integration know-how to form the backbone of our future product portfolio. We continue to execute our development plans meeting key milestones, including reliability metrics and aerial density gains that also position us to extend drive capacities well beyond 30 terabytes. As I shared in our July earnings call, customer revenue shipments are expected to begin around mid-calendar 2023. And I could not be more pleased with our great progress this quarter. In closing, we are navigating through the macro challenges that are impacting our business over the near term. However, the long-term growth trajectory for mass capacity storage remains solid, driven by the fundamental demand for data and the need for businesses to harness its value. We believe that the actions we have undertaken will ultimately strengthen our position over the long term.
Looking ahead, as we incessantly push the technology innovation road map, we believe our customers will continue to value Seagate as their primary storage solutions provider. Gianluca will now cover the financial results in more detail.