The operator introduces the Seagate Technology Fiscal Second Quarter 2024 Conference Call and announces that the call will be recorded. Shanye Hudson, Senior Vice President of Investor Relations, will be leading the call with CEO Dave Mosley and CFO Gianluca Romano. Non-GAAP and GAAP measures will be mentioned and can be found on the company's website. The call will include forward-looking statements, but actual results may differ due to potential risks and uncertainties.

The paragraph discusses two main topics: the company's solid fiscal second quarter results and the launch of their new Mozaic platform. The company's revenue was in line with their guidance and they exceeded their non-GAAP earnings. They also discuss the launch of their Mozaic platform, which utilizes innovative technologies to increase areal density and improve data center operations. The company also mentions progress towards qualification and volume ramp of their first HAMR-based Mozaic product. Revenue was driven by improved cloud nearline demand and a seasonal uptick in consumer drives, offset by a decline in VIA sales.

Despite lower revenue levels, the company has seen a significant increase in non-GAAP operating income due to strong cost discipline and pricing adjustments. They expect the September quarter to be the bottom of the down cycle and are confident in their ability to return to their targeted financial model. Demand is gradually recovering in the U.S. cloud market and enterprise OEM demand has stabilized. Customer feedback indicates macro-related concerns, but IT hardware budgets are projected to improve in 2024, leading to increased HDD demand. There has also been some demand from non-U.S. cloud and enterprise customers in the December quarter. However, the pace of recovery in China is expected to be slower due to ongoing economic challenges.

The local government's efforts to support the economy in China are expected to increase demand for mass capacity markets in the second half of the year. Seagate has continued to execute on their mass capacity product portfolio, with initial shipments of their 24-terabyte PMR and 28-terabyte SMR drives in the December quarter. The 3-plus terabyte per disk product, based on the HAMR-based Mozaic platform, is nearing qualification completion with a hyperscale launch partner and volume ramp is expected to start in the March quarter. Seagate plans to ship 1 million units in the first half of the year and continue ramping up throughout the year. They are also broadening customer engagements and expect to complete qualifications with a majority of U.S. customers according to their planned timelines.

The Mozaic platform developed by Seagate will offer a significant increase in areal density, with plans to reach 5 terabytes per disk. This technology utilizes Super lattice platinum alloy media, a plasmonic writer with integrated laser, and advanced reader technology. It is compatible with existing drives and can also be used with SMR technologies for additional capacity gains. This increase in areal density will result in more cost-effective and efficient storage solutions for customers, with prototypes already in development and planned revenue for the second half of 2025.

Seagate is constantly improving their technology and operations with each new product generation, such as vertically integrating their laser manufacturing process to reduce costs. Their products offer a strong total cost of ownership (TCO) and can help data center operators save on power and space consumption. This can potentially accelerate the replacement cycle for data center infrastructure. Despite a down cycle, Seagate is well positioned to return to profitable growth and address data center operators' main concerns.

In the fourth quarter, revenue for the company increased by 7%, with non-GAAP operating income more than tripling and non-GAAP EPS exceeding expectations. This was due to improving demand trends and a focus on profitability. In the hard disk drive business, there was a 6% growth in exabyte shipments and a 7% increase in revenue, mainly driven by cloud customer demand and seasonal improvement in the consumer market. Mass capacity shipments increased by 4%, with nearline cloud demand offsetting the expected decline in the VIA market. The company expects nearline demand to continue improving in the upcoming quarter and for VIA market revenue to follow typical seasonal patterns in the future.

In the December quarter, legacy product revenue increased to $324 million due to higher seasonal demand in the consumer market. However, it is expected to decrease in the March quarter following typical post-holiday consumer demand trends. Non-HDD business revenue also increased to $171 million due to improved SSD demand. Non-GAAP gross profit and margin increased, driven by pricing adjustments, cost savings, and lower amortization costs. Non-GAAP operating expenses decreased, resulting in improved adjusted EBITDA and positive non-GAAP net income. Inventory remained flat at just below $1.1 billion.

The company's capital expenditure remained flat at $70 million in the fourth quarter, with most of the planned expenditures already completed. They expect a significant decrease in capital expenditure for fiscal year 2024 while still supporting their product roadmap. The company generated $100 million in free cash flow and returned $146 million to shareholders through dividends. They ended the quarter with $2.3 billion in available liquidity and a debt balance of $5.7 billion. The company expects incremental improvements in mass capacity demand to offset seasonal declines in certain markets. They project a revenue of $1.65 billion for the March quarter, with non-GAAP operating expenses of $260 million and an operating margin in the low double-digit percentage range. The non-GAAP EPS is expected to be $0.25 plus or minus $0.20, based on a diluted share count of 212 million shares and a non-GAAP tax expense of $27 million.

The company has increased confidence in a gradual recovery in demand for their product in 2024, coinciding with the launch of their new platform, Mozaic. This platform offers significant advantages for data center operators and the company has navigated the past 7 quarters with discipline and focus. They are well positioned to drive financial performance and are grateful for the efforts of their team, as well as the support of suppliers, customers, and shareholders. In terms of the outlook for their product, they are seeing progress on their Mozaic platform and expect a healthy ramp in the back half of the year.

The company is focused on balancing supply and demand on both current and next-generation platforms to ensure financial predictability. They plan to aggressively drive the HAMR transition this year and increase the number of HAMR exabytes by 2025. The team is working to overcome challenges and the margin is expected to increase through 2024. The company has already seen an improvement in profitability due to cost actions and mix improvements. This trend is expected to continue in the future.

In the December quarter, the company ramped up production in preparation for the current and next quarter's HAMR technology. This resulted in underutilization charges, but they expect to see improvements in the mix of high capacity drives and volume of HAMR in the coming quarters. The company is also targeting to bring back their gross margin to their target range. The dynamics with the hyperscalers have improved and their inventory situation has significantly improved in the last 6 months.

The rate of consumption for data centers has slowed down in the past 2 years, but is expected to accelerate in the future. The CAGR for exabytes has also decreased in the past 1.5 years, but is forecasted to be in the mid-20s. The push for AI has led to a focus on compute infrastructure, but now there is a need for data back end and replacement cycles for drives. Companies are having conversations with customers about volume plans and build to order options. Other supply chains are managed in a similar way.

The company's management is pleased with the understanding and support of their customers for the higher capacity drives and they are being cautious in their growth plans. The next question asked about the income statement and the pace of quarterly OpEx and normalized level of operating expenses. The company has had a positive trend in controlling costs and expects a slight increase in OpEx due to salary adjustments. They will continue to focus on cost control and expect OpEx to stay at this level for the next few quarters.

The company expects a higher OpEx cost next fiscal year, but still below $300 million. Free cash flow is expected to improve in the next few quarters due to increasing revenue and profitability. The launch of 2 terabyte HAMR drives will provide customers with a TCO incentive, but the price per terabyte will remain similar. The transition to HAMR may not be as quick as the transition from LMR to PMR in the past.

Dave Mosley discusses the cycle times for the new PMR product and mentions that it has a similar kit of parts as the HAMR drives. He also talks about the move from qualification to revenue recognition and how it will vary depending on the customer and feature set. Some customers have shorter qualifications, while others may take longer. Mosley expects to see revenue from a large number of additional customers in the first half of the year.

The company is discussing the transition to a generic feature set and the potential benefits it could bring. They are also considering the impact on margins and believe that the ramp up of HAMR technology will be a major lever in improving margins. They are becoming more optimistic about the timing of this improvement and may be able to achieve a lower level of revenue to reach their target gross margin. Qualifying more customers is also a priority for the company.

The speaker is discussing the company's recent improvement in profitability, which is attributed to a combination of pricing and cost management strategies. They also mention that demand is not yet at pre-pandemic levels and the supply chain is still not fully healthy, but they are working on addressing these issues. They suggest that price raises may occur in the future, particularly for legacy products, as the entire industry is facing similar challenges.

The speaker believes that in the next year or two, the industry will become more stable and predictable. However, there is currently not enough demand to meet the capacity online. The company has implemented a build-to-order program with customers to improve visibility and predictability. This is necessary to fund investment in technology and keep up with demand. The company is also incentivizing predictability and stabilizing the supply base. It may take some time for the industry to fully stabilize.

The speaker discusses the potential for reaching 30% gross margins and the challenges that may arise in the next 2-3 quarters, especially with the early stages of HAMR technology. They mention the importance of controlling the supply chain and the need for multiple sources to drive down costs. Another speaker may provide additional insights.

The company is ramping up its HAMR technology and plans to deploy it in various markets. The transition to HAMR and improving yields will lead to higher margins. However, the demand for data storage is still not at pre-pandemic levels. The combination of stronger demand and HAMR technology is expected to drive sequential improvement in gross margin. The company has sufficient back-end testing capacity.

The speaker is discussing the company's capacity to meet demand for larger hard drives and their build-to-order plans. They are seeing progress in this area and expect to see an increase in revenue and profitability in the upcoming quarter, but do not provide guidance beyond that. They are also ramping up volume and seeing a better demand environment.

The company expects sequential improvement in the quarter but does not provide specific guidance for revenue at the end of the year. They are seeing strength in demand for enterprise and AI applications, and anticipate HAMR drives to have higher gross margins than the company's average. They are taking their time to qualify customers and ramp up production for the new product.

The hyperscalers are discussing data center redesign, particularly around GPU compute and data sets. This may lead to incremental opportunities for near-line drives, as the compute infrastructure and memory architectures are changing. There are different types of AI applications being developed, which may require more data storage. However, this redesign is not expected to affect the tiers that the company is in, and there is a need for more power in AI applications.

The speaker discusses the potential benefits of transitioning to higher capacity drives for storing data, particularly in the context of AI applications which are rapidly expanding. They also mention the recent launch of Mozaic and the potential for AI-related opportunities, but note that the impact on data infrastructure is still secondary to the compute aspect.

The speaker discusses the potential for compute technology to enable new applications and efficiencies, leading to data growth. They estimate that large language models may become widespread by 2025. They thank stakeholders and conclude the call.

This summary was generated with AI and may contain some inaccuracies.