The operator welcomes participants to the Seagate Technology Fiscal Third Quarter 2024 Conference Call and provides instructions for the call. The Senior Vice President of Investor Relations introduces the CEO and CFO and mentions the availability of earnings information on the company's website. The call will refer to both GAAP and non-GAAP measures, with non-GAAP figures reconciled to GAAP figures in the earnings press release. The call also contains forward-looking statements, but actual results may differ due to risks and uncertainties associated with the business.

The paragraph discusses the financial results of Seagate in the March quarter and attributes their success to both improving market demand and strategic actions taken during the downturn. It also mentions positive trends in nearline cloud demand and an improvement in enterprise OEM markets. The company's focus on profitability includes pricing strategies, supply-demand balance, technology advancements, and expense controls. The cloud market is leading the demand recovery.

The company experienced strong revenue growth from sales to cloud customers for a second consecutive quarter, with improvement in both US and global markets. They expect this trend to continue throughout 2024. Demand in the enterprise and VIA markets is also expected to improve, with new applications emerging in the VIA market. The pace and magnitude of demand in China will depend on economic recovery and government efforts. Overall, the company expects steady revenue growth throughout the calendar year.

Seagate's build-to-order initiative has improved their ability to deliver growth and provide better supply assurance for their customers. They are currently working on qualifying and ramping up production for two high-capacity product families, one using PMR technology and the other using HAMR technology. These two product families share common components and processes, allowing for efficiencies in production and customer qualifications. The PMR drives are already in qualification with some customers and are expected to begin shipping in the first half of fiscal 2025. While progress is being made on HAMR technology, there was a temporary slowdown due to an issue with a mechanical component, but a solution has been implemented with support from the customer.

Verification tests for HAMR-based Mozaic drives are expected to be completed in the June quarter, and the company plans to ship a few hundred thousand drives to meet customer demand. They are also focused on broadening the number of customers qualified on Mozaic products and have successfully completed a qualification with a top non-cloud customer. The company has a clear roadmap to 50 terabyte drives and expects minimal changes to costs and low capital intensity as they scale production. This positions Seagate well to continue capitalizing on megatrends like AI and machine-learning. The initial phase of GenAI has focused on building out infrastructure, but as development shifts to deployment, enterprises will begin to use trained AI models for data transformation and content creation.

In the March quarter, Seagate saw an increase in revenue and operating income, driven by favorable demand trends and cost discipline. Their Hard Disk Drive business saw growth in exabyte shipments and revenue, mainly due to the nearline cloud market. Revenue in the mass capacity market also increased, driven by demand from the nearline cloud market.

In the March quarter, mass capacity shipment totaled 89-exabyte, a 6% increase from the previous quarter. This was driven by strong demand for nearline products, which saw a 10% increase in shipment. The company expects demand for nearline products to continue to improve in the June quarter and beyond. Legacy product revenue decreased due to lower seasonal demand in the consumer market, while non-HDD business revenue remained flat. Non-GAAP gross profit increased by $65 million and non-GAAP gross margin improved for the fourth consecutive quarter. Underutilization costs affected margin but are expected to decrease in the June quarter and abate in the second half of the year. The company expects to return to a 30% minimum margin benchmark in the current year.

In the March quarter, Seagate's non-GAAP operating expenses increased by 4% but were slightly better than expected due to timing of R&D spending and cost control efforts. Adjusted EBITDA improved by 29% and non-GAAP net income nearly tripled, resulting in non-GAAP EPS of $0.33 per share. Free cash flow generation increased to $128 million and capital expenditures were down. The company returned $147 million to shareholders and ended the quarter with $2.3 billion in available liquidity. Seagate also announced the acquisition of its ASIC assets by Broadcom for $600 million in cash, which will be reflected on the balance sheet in the June quarter. The company expects to use a portion of the net proceeds to support its supply chain and pay down debt, and anticipates annualized OpEx savings of $40 million starting in fiscal 2025. Inventory increased to $1.2 billion to support the demand recovery and ramp of new products.

In summary, Seagate's debt balance was $5.7 billion at the end of March quarter, with a majority of it maturing beyond three years. They expect continued improvement in their mass capacity markets and a modest improvement in other markets. The June quarter revenue is expected to increase by 12% sequentially and 16% year-on-year at the midpoint. They also anticipate non-GAAP operating margin to improve into the low-teens percentage range. Seagate's strong expense management and supply discipline have contributed to profitability expansion and their balance sheet and free cash flow generation position them well to support their capital return commitments. Their product portfolio, including HAMR technology, offers attractive economics for customers and for Seagate.

The speaker discusses their product strategy and how it will drive financial leverage over time. They believe their Mozaic platform offers cost-effective storage solutions and supports datacenter operators' focus on sustainability. The company has also published their annual ESG report and is working towards their sustainability goals through their product circularity program. The speaker thanks their team, suppliers, customers, and shareholders for their support. The first question from a Morgan Stanley representative asks for clarification on the progress of HAMR and the company's goal of onboarding large CSPs by the end of 2024.

During a recent earnings call, Erik Woodring asked Dave Mosley about the impact of a hiccup in the timing of a mechanical component and whether it would affect the call process with customers. Mosley clarified that the issue had been resolved quickly and would not slow down the program or impact other qualifications. He also expressed optimism about ramping up the HAMR technology and achieving 3 terabytes per platter. Amit Daryanani asked about the potential for a more gradual recovery in the cloud market, but Mosley indicated that the recovery may be steeper based on the company's recent performance and guidance.

The speaker discusses the demand recovery on the cloud side and mentions that the demand has been low in the past but is now increasing. They mention that they are happy with the growth and are optimistic about the future, but they still have underutilization charges and unused factory capacity. They plan to continue to drive the demand in order to have long-term financial health and predictability. The speaker also mentions that they do not expect underutilization charges in the near future.

During a conference call, an operator from Wells Fargo asks a question to Gianluca Romano, who is representing a company. Romano discusses the company's pricing strategy and how it has contributed to gross margin expansion. He mentions that they have had success in improving pricing in recent quarters and expect further improvement throughout the year. Another question from Bank of America asks for more information about the company's qualifications at their CSP and non-CSP customers.

In response to a question about the difference between CSP and non-CSP customers, Dave Mosley stated that there is no significant difference in the hardware. He also mentioned that the qualification process can be more complicated for CSP customers due to potential software features. Gianluca Romano added that the financial impact of the Broadcom deal will mainly result in a $40 million decline in OpEx for fiscal year 2025. In regards to HAMR, Dave mentioned that they may ship a few hundred thousand units this quarter and Krish Sankar asked about the expected unit shipments for the second half of this year and exiting 2024.

Dave Mosley, CEO of Seagate, discussed the company's plans for the HAMR transition and how it will impact their gross margin. He believes that the transition will provide better value to customers and ultimately lead to higher margins. The company is currently facing high demand for their products, which is helping their factories and driving the transition even more aggressively. They expect to achieve a gross margin of 30% or higher this year and anticipate it to increase further as they ramp up HAMR production.

The speaker, Dave Mosley, is responding to a question about how the company is handling customer demand for the next 12-24 months. Mosley acknowledges the challenges of balancing supply and demand during the recent downturn and emphasizes the need for diligence in controlling builds and not overbuilding. He also mentions that the company is having conversations with customers about their build-to-order plans.

The speaker discusses the importance of predictability and how it leads to the best financial outcome for customers. They mention the million HAMR unit that was guided for the first half of the year and how it will affect gross margin. They also mention the completion of the qualification and the total amount of material. The speaker declines to give a forecast for the back half of the year as it will depend on customer demand and qualification timing.

The speaker believes that once materials are segregated, there may be some rework or scrap to do, but they can easily pivot between different product families. They clarify that the HAMR gross margin will improve in the second part of the ramp and that the ramp of 28-terabyte SMR and 32-terabyte HAMR will not have a one-to-one swap in demand, but they are working with customers on two different qualifications at the same time and the qualifications are going well. They are staying communicative with customers.

The speaker discusses the company's predictability in an improving demand environment and the potential for gross margin increases due to supply and demand dynamics. They also mention their focus on product transitions to add value and increase margins. The other speaker adds that each cycle is different and they are currently seeing a good recovery in the cloud segment, but are still waiting for other segments to follow suit before a strong upcycle can be seen. Overall, they are positive about the company's future.

The company expects to see an improvement in gross margin quarter-over-quarter and to reach their target range by the end of the year. They have been able to achieve this through better pricing and cost management, and they anticipate being able to reach their target range even with lower revenue. The company sources many components externally, including a mechanical piece used in their products, and they have multiple sources for this component. The company expects to see growth in exabytes as the industry recovers from a period of negative growth.

The company is discussing their demand cycle and the potential for expansion. They are encouraged by what they are seeing and believe their new products could drive even more growth. They want to reestablish financial predictability and control supply tightly. If there are delays in qualifications, they have more flexibility to adjust their plans and discuss with customers which products to prioritize.

Dave Mosley discusses the impact of AI on the business and how it is driving customer demand. He also addresses concerns about the ability of the ACD industry to compete with Flash in AI, noting that while hard disk drives may have cost-competitive advantages, other factors such as read-write capability, space, and power consumption should also be considered. Mosley believes that AI is transforming many different types of applications and that the new compute capabilities are driving this growth.

The speaker discusses the potential for new applications in the technology industry, particularly in the areas of cold storage, big data, and AI. They express excitement about the opportunities for growth and mention the importance of Flash technology in enabling these applications. They also acknowledge the need to carefully manage supply to avoid another downturn in the industry.

During a recent conference call, Seagate's CEO and CFO discussed the company's ramp-up with its largest customer for HAMR technology. They mentioned that multiple vendors are being qualified simultaneously and that the company has confidence in being able to ship drives within the quarter. When asked about the affected supplier, the executives stated that they will continue to work with them and rely on other sources as well. They also expressed confidence in their product strategy and HAMR technology for meeting long-term demand for mass capacity storage. The executives thanked stakeholders for their support.

The speaker thanks the audience for joining the conference and expresses excitement for future interactions. The operator then concludes the conference and thanks attendees for their participation.

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