Seagate Technology Q3 Earnings Call Highlights

Key Points

• Very strong Q3: Seagate delivered $3.1B in revenue (+44% YoY), record non‑GAAP gross margin of 47%, non‑GAAP EPS of $4.10 and free cash flow of ~$953M, and raised its longer‑term revenue growth target to a minimum of 20% annually.
• Data center demand dominates: The data center market accounted for 88% of exabyte shipments and 80% of revenue, with nearline capacity described as "almost fully allocated through calendar 2027" under build‑to‑order agreements that support pricing and supply discipline.
• HAMR/Mozaic ramp accelerating: Revenue shipments of Mozaic 4 began in late March and are expected to be the majority of HAMR exabytes exiting 2026 (up to 44 TB per drive), with Mozaic 5 targeting 50 TB qualification in late 2027 and a goal of ~70% nearline exabytes on HAMR by fiscal 2027.

Seagate Technology NASDAQ: STX reported what executives repeatedly described as a “very strong” fiscal third quarter of 2026, driven by sustained data center demand, record profitability, and accelerating adoption of its Mozaic HAMR-based hard drive platforms.

Chair and CEO Dave Mosley said the March quarter underscored “the durability of demand and the leverage in our model,” citing 44% year-over-year revenue growth, record gross margins, and free cash flow “at close to $1 billion.” The company also raised its longer-term growth expectations, with Mosley saying Seagate now believes it is “entering a period of structural growth” and increasing its annual revenue growth target to “a minimum of 20% over the next few years,” up from “the low-to-mid teens.”

Quarterly results: revenue, margins, and cash flow

Chief Financial Officer Gianluca Romano said Seagate exceeded its expectations for revenue, operating margin, and EPS while setting a “new profitability record.” Revenue for the March quarter was $3.1 billion, up 10% sequentially and up 44% year-over-year. Non-GAAP gross margin reached 47%, up 480 basis points sequentially, while non-GAAP operating margin expanded 560 basis points sequentially to 37.5%.

Non-GAAP EPS was $4.10, up 32% quarter-over-quarter and 115% year-over-year, according to Romano. Seagate shipped 199 exabytes in the quarter, up 39% year-over-year.

Cash generation was a central theme of management’s remarks. Romano said free cash flow increased to $953 million, up 57% from the prior quarter, representing Seagate’s “highest level in over a decade,” with a 31% free cash flow margin. The company invested $161 million in capital expenditures during the quarter and expects FY2026 capex to remain within its targeted 4% to 6% of revenue range, focused on the transition and ramp of HAMR products.

Data center demand and allocation visibility

Data center demand continued to dominate Seagate’s results. Romano said the data center market accounted for 88% of exabyte shipments and 80% of revenue in the March quarter. Data center shipments totaled 175 exabytes, up 6% sequentially and 47% year-over-year, while data center revenue rose 12% sequentially and 55% year-over-year to $2.5 billion.

Mosley emphasized customer focus on reliable supply, noting nearline products accounted for “close to 90% of total exabyte shipments” in the March quarter. He said Seagate has “exabyte scale supply agreements in place with nearly all major cloud and hyperscale customers,” with nearline capacity “almost fully allocated through calendar 2027.”

On contracting, Mosley described Seagate’s build-to-order approach as supporting “pricing and supply discipline,” while Romano later said the company has “now finalized our build-to-order for our fiscal 2027.” In response to a question on how much is locked in, Romano said “the vast majority” of nearline capacity is allocated over the next four quarters, though “it’s not 100%.”

Mozaic/HAMR ramp and technology roadmap

Seagate highlighted progress in the ramp of its HAMR-based Mozaic platforms. Mosley said “two of the world’s largest CSPs” are now qualified on its “4+ terabyte per disk product,” and that qualification timelines were “in line with PMR products.” Romano added that in the March quarter Seagate shipped Mozaic drives for revenue to 75% of the leading global cloud customers and expects to complete qualification with the remaining two customers in the current quarter.

Mosley said Seagate began revenue shipments for Mozaic 4 “in late March,” and based on current plans expects Mozaic 4 to represent “a majority of our HAMR exabyte shipments exiting calendar 2026.” He also outlined capacity targets, saying Mozaic 4 “can deliver up to 44 TB per drive,” while Mozaic 5 development is “progressing well” with “qualification shipments targeted for late calendar 2027” at “50 TB.”

During the Q&A, Romano clarified timeline targets, stating Seagate expects to reach “70% of exabyte, nearline exabyte, built on HAMR drive by the end of calendar 2027”—then corrected himself to “by fiscal 2027.” He also reiterated that by the end of calendar 2026, the “majority” of HAMR exabytes are expected to come from “40 TB drives” versus prior “30 TB” products.

Management also discussed how cost reductions are being achieved as the ramp progresses. Mosley said Seagate tries to change “as little as we can platform to platform,” describing minimal bill-of-materials changes while gaining areal density improvements. Romano said recent cost reductions were driven primarily by mix shifting to higher-capacity drives and full utilization of manufacturing; looking ahead, he expects mix changes—particularly the move to second-generation HAMR—to remain a key cost driver, noting “this is the main driver for the future cost reduction.”

AI demand drivers, pricing discipline, and operating model

Executives repeatedly tied demand to AI and broader data creation trends. Mosley said AI-enhanced applications are accelerating data creation and retention, and described Seagate as being in an “inference inflection,” where compute increasingly generates “mass capacity data.” He highlighted “agentic AI” as a potential driver of unstructured data creation and storage requirements, telling Morgan Stanley’s Erik Woodring that agentic workflows may “reference enormous data sets” and “create new data that needs to be propagated out in the world.” Romano added that agentic AI requires “historical data for agents to reason” and that compliance needs support long-term data storage.

On pricing, both Mosley and Romano said Seagate is not changing its pricing strategy, while pointing to variability in quarter-to-quarter pricing based on mix and contract timing. In response to questions from JPMorgan and Bernstein about whether pricing could accelerate as new contracts roll through, Mosley said Seagate continues to test market demand and aims to provide customers predictability through defined configurations and pricing. Romano said the company is “continuing to execute this strategy that allowed us to increase profitability for the last 12 consecutive quarters,” adding that for the “entire fiscal 2027” Seagate is confident it has an opportunity to increase profit and revenue sequentially.

On the cost structure, Mosley said operating expenses should be thought of as “relatively flat,” with Romano clarifying “flat on a dollar basis, not as a percentage of revenue.” In the June quarter outlook, Romano guided non-GAAP operating expenses to approximately $295 million.

Seagate also addressed capital allocation. Romano said the company retired $641 million of gross debt in the March quarter and returned about $191 million to shareholders through dividends and repurchases. He said Seagate still has about $400 million of convertible debt outstanding that it will “probably address this quarter or next,” and that after further debt reduction, “the majority will probably go to share buyback.” Mosley added that after focusing on working capital and debt, the company expects to move “back to where we were before, which is returning value to shareholders.”

Finally, management issued guidance for fiscal fourth quarter 2026. Romano said Seagate expects June quarter revenue of $3.45 billion plus or minus $100 million, implying a 41% year-over-year improvement at the midpoint. The company expects non-GAAP operating margin in the “lower 40% range” and non-GAAP EPS of $5.00 plus or minus $0.20, based on an estimated 16% tax rate and diluted share count of 231 million shares.

Romano added that despite “rising geopolitical tensions,” including the conflict in the Middle East, Seagate does “not currently expect material impacts to the business,” citing mitigation efforts for supply and logistics. He said the company’s agreements and demand visibility support confidence in “quarterly revenue growth and margin expansion through fiscal 2027.”

About Seagate Technology NASDAQ: STX

Seagate Technology NASDAQ: STX is a global data storage company that designs, manufactures and sells a broad range of storage products and systems. The firm's product portfolio includes traditional hard disk drives (HDDs), solid-state drives (SSDs), hybrid storage devices and integrated storage systems aimed at enterprise, cloud, OEM and consumer markets. Seagate also provides services that support its hardware offerings, including data recovery and storage management solutions.

Seagate's products are used in a wide array of applications, from large-scale data centers and cloud infrastructure to desktop and portable consumer devices.

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