The operator welcomes participants to the Seagate Technology conference call and introduces the CEO and CFO. The company's earnings press release and supplemental information for the June quarter are available on their website. The call will refer to both GAAP and non-GAAP measures, with non-GAAP figures reconciled in the earnings press release. The call also contains forward-looking statements that may differ from actual results due to risks and uncertainties associated with the business.

The paragraph discusses the financial results of Seagate in the fourth quarter of fiscal year 2024, highlighting a strong increase in revenue and non-GAAP gross margin. The company also achieved its three financial priorities for the year, including increasing profitability and cash generation. The BTO strategy played a role in these results, and the company is focused on executing their mass capacity product roadmap in the new fiscal year.

The company expects to complete product qualifications and ramp up production of their HAMR-based Mozaic 3+ and 28 terabyte PMR, SMR drives in the upcoming quarter. They attribute the strong demand for nearline cloud storage to both traditional cloud computing workloads and new AI-related deployments. As cloud providers prioritize spending on AI applications, HDDs are expected to play a crucial role in enabling AI adoption. In the enterprise OEM markets, there has been a gradual improvement in demand and the company projects stronger growth in the second half of the year.

In addition to demand for traditional storage solutions, there is also an increase in demand for higher density storage solutions due to the preparation for future AI applications. Sales for VIA products are better than expected, but may fluctuate in the second half of the year. Smart city project demand remains strong, but budget visibility is uncertain. The demand for high capacity nearline drives has recovered faster than expected, leading to tighter supply conditions. Seagate's BTO strategy aims to provide demand predictability and supply assurance for customers. They are working with customers to address their exabyte growth needs through product transitions while maintaining profitability and supply discipline. Seagate is currently transitioning to two new high capacity drives and customer acceptance of their new PMR product is increasing.

Seagate has successfully launched HAMR-based Mozaic drives with capacities of up to 28 terabytes and plans to ramp up production for various markets. They have shipped a small volume of these drives to non-cloud customers and are currently in the process of qualifying them for their lead CSP customer. They plan to launch new HAMR qualifications this quarter and estimate that it will take around three quarters to complete. They are also working on the next generation of HAMR drives, Mozaic 4+, which offers 33% more capacity with minimal changes to the bill of materials. This technology allows Seagate to scale drive capacity through aerial density gains, providing cost and efficiency benefits for customers.

In the June quarter, Seagate saw strong financial performance with double-digit revenue growth and profitability exceeding expectations. Revenue was $1.89 billion, up 14% from the previous quarter and 18% from the same time last year. Non-GAAP operating income was up 79% to $327 million, resulting in a non-GAAP operating margin of 17%. Exabyte shipments grew 15% to 114 exabytes, driven by increasing demand for mass capacity products.

In the mass capacity market, Seagate saw a 22% increase in revenue to $1.4 billion, driven by strong demand for nearline cloud storage and VIA products. Mass capacity shipments also increased by 17% and now make up over 90% of total HDD exabytes. Seagate's nearline product portfolio is well-positioned to meet growing demand. Non-HDD and legacy product revenue were slightly down. Non-GAAP gross profit increased by $151 million and gross margin expanded by 480 basis points, supported by price adjustments, favorable product mix, and cost efficiencies.

In the June quarter, the company's underutilization costs decreased to $20 million and are expected to remain minimal due to an improving demand environment. Non-GAAP operating expenses were in line with plans, while adjusted EBITDA and non-GAAP net income both saw significant increases. The company also had a strong cash flow and balance sheet, with $1.4 billion in cash and cash equivalents and $2.9 billion in available liquidity. They also returned $147 million to shareholders through dividends and plan to maintain capital discipline in the future.

The company has seen a decrease in net debt and an increase in cash and cash equivalents. They expect mass capacity revenue to increase in the next quarter, driven by demand from cloud customers and the enterprise market. They also expect an increase in growth margin and non-GAAP EPS. The company's focus on profitability and cash generation has led to strong performance and they plan to continue this focus in the next fiscal year. Additionally, they will focus on supporting growth through product transitions.

Seagate is working closely with customers to address their data storage needs and has introduced two new high capacity products. They are confident in their HAMR technology and are grateful to their teams, suppliers, customers, and shareholders for their support. They have committed nearline capacity through the end of calendar year 2024 and are being cautious about adding more capacity due to the current demand not being at pre-pandemic levels. They have been hiring back employees but are still far from their previous supply capabilities. They are focusing on predictability in their operations.

The company is confident in their supply and is focused on driving product transitions to meet exabyte demand. They prioritize predictability over adding more capacity. The gross margin has been improving due to the reduction in underutilization charges and pricing actions, and they expect this trend to continue in the upcoming quarter. However, it is difficult to estimate the impact on the full quarter due to increasing volume.

The company expects underutilization charges to decrease in September and not impact the company until fiscal 2025. They also expect improvement in pricing and have seen an increase in enterprise storage demand from OEM customers. However, visibility for this demand is not as good as for CSPs. The company believes that on-prem storage will grow in the future due to the need for data at the edge for AI applications. There is no update on HAMR timing.

The speaker provides assurance for the market on timing for the qualification of HAMR for their first maker cloud customer in the September quarter. They express high conviction based on data and thousands of drives running in their shop and at customer sites. They mention some supplier issues but are optimistic about getting over the high bar soon. The next question is about gross margins for the September quarter and long-term targets, as well as an update on exabytes committed for this year and any projections for FY ‘25 or calendar ‘25 for the speaker or the industry.

Gianluca Romano discusses the company's improved gross margin in the last few quarters and their optimistic outlook for further improvements. Dave Mosley mentions evidence of strengthening demand in the cloud and expects enterprise on-prem demand to improve in calendar '25. He also mentions that their exabytes are committed through calendar '24 and they are driving product mix through new product introductions. The next question asks about pricing on the mass capacity side, and it is noted that pricing has increased mid-single-digits and is expected to continue to increase through the end of the calendar year or fiscal year.

The speaker asks about the pricing and market share in relation to the HAMR volumes and qualifications happening in mid-2025. The CEO responds by stating that they have products ranging from 20 to 32 terabytes and will go up to 40 terabytes to meet customer demand. They prioritize predictably running their factories and meeting customer needs over market share. The pricing discussion is led by Gianluca, who mentions that they have taken more deals in the back half of the year due to better dynamics and tighter supply. The future pricing and market share will depend on the continued demand for their products.

The company is experiencing an increase in demand, which has allowed them to raise prices and improve their gross margin. They expect this trend to continue in the coming quarters, especially in the cloud and enterprise OEM segments. The company is also seeing improvements in the industry and ecosystem, which is contributing to the overall health of the business. One potential driver of gross margin improvement is the qualification of 28-terabyte SMRs, but it is not clear how much of the nearline business is currently using them. The company is guiding for flat gross margin, excluding underutilization charges.

In the paragraph, Gianluca Romano and Dave Mosley discuss the drivers behind the incremental margin flow-through in the current quarter. They mention that the June quarter came out better than expected and they are positive for the current quarter. They also mention that they have qualified SMR at all customers and it is not relevant to margins. In terms of capacity, they have options to go wherever they want in different flavors of SMR. They also mention that their max exabyte shipment capacity is about 120 exabytes and they just shipped 114, with plans to ship more in September.

The company is cautious about expanding capacity too quickly due to recent supply chain challenges and will instead use existing capacity and product transitions to meet demand. They will closely monitor demand and add back employees as needed, but will prioritize using existing resources before considering new capital expenditures. Demand for HDDs has been historically high and is expected to continue growing, but the company will address it as needed.

The speaker is discussing the demand for mass capacity and exabytes in the data storage industry. They mention that there is strong demand currently and it is expected to continue for several quarters. However, they also mention that there may be a moderation in cloud demand leading up to the ramp of HAMR technology in mid-calendar 2025. They note that the initial decline in demand was significant.

The company has seen negative growth in demand for nearline exabytes since the middle of the pandemic. They are not back to normal demand yet and will be cautious moving forward. They have a new product, HAMR, in qualification and will ramp up volume in the next few quarters. They have learned valuable lessons from high volume and process issues and will aggressively drive new product introductions to help reconstitute industry margins. The company's utilization levels are currently underutilized but are expected to reach 85-90% by the end of the year.

The paragraph discusses the potential impact of underutilization on the company's fiscal year '25 and how it may affect their cost per terabyte and gross margin. The speaker mentions that while utilization is generally high, some factories have been taken offline and the company is considering bringing them back online. The speaker also addresses a question about fixed pricing for nearline exabyte committed for calendar '24 and discusses how ASPs and mix may drive gross margins higher in the second half of the year. They also mention the potential impact of HAMR revenues on gross margins.

Dave Mosley, CEO of HAMR, discusses the company's plans for the future. He mentions that they hope to ship a significant volume in the next few quarters, which will help their gross margin grow. When asked about whether HAMR will be accretive or dilutive to gross margins, Mosley explains that they are not thinking about it in those terms. HAMR unlocks new capacity points quickly and is a better TCO proposition. The transition to HAMR will also drive for more product efficiency, especially as they get higher capacity drives. Mosley also discusses the company's long-term strategy and potential for recapitalizing the balance sheet in the future.

The speaker discusses the challenges of addressing demand and debt in a tough year. They mention the need to address debt and the possibility of higher demand in the future. The company has already addressed some of their debt and hopes to bring it down even further. The speaker also addresses a question about capacity and how the new technology will affect it over the next 12 months.

An analyst asks about the impact of AI on the company's demand and pricing in the upcoming quarters, and the CEO explains that it is difficult to predict due to the mix of demand and the company's efficiency. He also mentions that they are not planning to add any drive capacity and are waiting to see how the mix develops. The CEO also discusses the demand for AI and its impact on the company's business, noting that they are starting to see some demand but it is difficult to predict when on-premise inferencing will start. He also mentions the involvement of Tier 2 CSPs in this market.

The speaker discusses the current state of the cloud and AI industries, stating that cloud migration is still in the early stages while AI is in the very early stages. They believe that video and big data applications will drive demand for AI, and the company is excited about the potential opportunities in this area. However, they have only received a few purchase orders for AI and it is still in the early stages. The speaker clarifies that they have qualified with some non-cloud customers, but did not specify any Chinese customers as previously mentioned.

The company is currently ramping up production and shipments of their product to various customers. They are also working on improving the firmware and are confident in its qualification. They are constantly making updates and changes to the product to meet the needs of different customers and market segments. One question from an analyst was about the introduction of AI chips into PCs, but this was not addressed in the paragraph.

Dave Mosley, CEO of Seagate, discusses the potential for AI applications in the PC ecosystem and the storage of data generated by these applications. He expresses enthusiasm for the future and Seagate's strong position in the market. The company's focus on fundamentals, financial and operational execution, and increasing areal density will drive value for customers and shareholders. The conference has now ended.

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