The first paragraph is an introduction to the Seagate Technology Fiscal First Quarter 2025 Conference Call. The operator outlines that participants will initially be in listen-only mode and provides instructions for asking questions later. Shanye Hudson, Senior Vice President of Investor Relations, welcomes attendees and introduces key participants, including CEO Dave Mosley and CFO Gianluca Romano. It mentions that the earnings press release and supplemental information for the September quarter are available on the company's website. The call will discuss both GAAP and non-GAAP measures, with non-GAAP figures reconciled in the press release. It notes that some forward-looking statements may differ from actual results due to risks and uncertainties.

In the paragraph, Dave Mosley discusses Seagate's strong start to the fiscal year, highlighting significant revenue growth of nearly 50% and an over 150% increase in non-GAAP gross profit compared to the previous year. The results were attributed to supply discipline and strategic cost efficiencies. Fiscal first-quarter revenue reached $2.17 billion, and non-GAAP EPS was $1.58, both exceeding the company's guidance. Growth was driven by cloud demand and improvements in enterprise and OEM markets. Non-GAAP gross margins expanded to 33.3%, the highest in over a decade, aided by the HDD business. The company anticipates further margin expansion with the introduction of high-capacity nearline drives, including Mozaic based HAMR products.

Seagate is optimistic about its future prospects due to a favorable business landscape and its leading technology road map, reflected by a nearly 3% increase in its quarterly dividend. The company benefits from a build-to-order model that offers good demand visibility and anticipates revenue growth for fiscal 2025 despite seasonal fluctuations. Seagate is maintaining supply discipline and is ready to meet demand growth through technology transitions, with HAMR playing a key role. Cloud demand for nearline drives, particularly in the U.S., is strong, and global demand trends are positive, driven by the increasing use of video content on e-commerce and social media platforms. Video content is found to be highly engaging, and longer personalized videos can enhance revenue opportunities. HDDs remain crucial for storing large volumes of data in public cloud environments. Seagate also noted increased nearline demand from enterprise and OEM customers after a stable period.

The paragraph discusses the rise in demand for traditional servers and higher-capacity storage, driven by data retention needs and video analytics, leading to record-high enterprise drive capacities. It highlights a shift towards cloud storage solutions and the role of Seagate's HDDs, including Mozaic HAMR products, in providing cost-effective, scalable, and eco-friendly storage for both AI applications and data retention. HDDs are emphasized for their economic, scale, and environmental benefits compared to NAND storage, offering lower costs and a reduced carbon footprint, crucial for meeting the growing data demands of cloud customers and supporting the uptake of generative AI. Seagate's product roadmap addresses these trends with an eye on the challenges of cost, scale, and power efficiency.

The company plans to drive profitable growth in fiscal 2025 by focusing on three areas: scaling its final PMR platform, expanding Mozaic adoption, and executing the Mozaic product roadmap for mass capacity storage needs. The PMR platform has reached 28 terabytes and has become their second highest revenue product, with efforts ongoing to increase volume and expand the customer base. The company is also advancing its Mozaic HAMR platform, with several customer qualifications completed and others in progress, targeting a broader customer base by mid-2025. They are confident in HAMR technology, citing positive feedback on its cost-effective high-capacity storage solutions, and aim to enhance their technology leadership with future advancements.

The paragraph discusses Seagate's recent financial performance and advancements in technology. The company has achieved a significant increase in disc capacity to 4 terabytes per disc through aerial density improvements, positively impacting cost and margins. Seagate is experiencing strong revenue and profitability growth, with a reported revenue of $2.17 billion for the September quarter, marking a 15% sequential and 49% year-over-year increase. Non-GAAP operating income rose by 35% sequentially, reaching $442 million, with a 20.4% operating margin. Exabyte shipments in the Hard Disk Drive business grew by 20% sequentially, leading to increased revenue, particularly in mass capacity, which grew for the fifth consecutive quarter due to demand from nearline cloud and enterprise sales. Mass capacity shipments totaled 128 exabytes, a 23% sequential increase.

In the paragraph, it is highlighted that mass capacity shipments now account for a record 93% of total HDD exabyte, indicating strong growth in scalable storage. Seagate increased its nearline shipments to 109 exabytes, up from 84 exabytes, with strong customer reception. The demand for nearline products is expected to improve further in the next quarter, despite stable VIA product demand currently facing challenges due to China's economic uncertainties. Sales from legacy products account for 12% of total revenue, while other businesses, such as systems and SSDs, contribute 8% and have grown by 25% year-over-year. Non-GAAP gross profit rose by 24% in the September quarter to $723 million, driven by favorable product mix, pricing adjustments, and cost efficiencies, resulting in a 33.3% gross margin.

The paragraph reports on the company's financial performance and future expectations. Non-GAAP gross margin improved by 240 basis points quarter-over-quarter, especially strong in the HDD business and mass capacity. Non-GAAP operating expenses rose 10% due to higher variable compensation, while adjusted EBITDA increased by 23% to $498 million. Non-GAAP net income was $337 million, with EPS at $1.58. Free cash flow was $27 million, influenced by working capital normalization to support supply chain and mass capacity demand, with an improvement expected. Capital expenditures were $68 million, and the company plans to maintain them at 4% to 6% of revenue. $147 million was returned to shareholders through dividends, with an increased future quarterly dividend of $0.72 per share. The quarter closed with $2.7 billion in liquidity, including an undrawn credit facility.

In the recent quarter, Seagate's inventory increased to $1.4 billion to support rising demand for mass capacity, while its debt stood at $5.7 billion, with most maturing in fiscal '27 and beyond. The company had a net leverage ratio of 3.2 times and expects further reduction. Outlook indicates increasing revenue from global cloud demand for high-capacity drives and improvement in enterprise and OEM markets, despite declining sales in legacy markets. For the December quarter, Seagate projects revenue of around $2.3 billion, a 6% sequential and 48% year-over-year increase, along with expanding operating margins and non-GAAP EPS of $1.85. CEO Dave Mosley highlights profitability growth and technology advancements to meet customer needs.

The paragraph discusses Seagate's strong demand for high-capacity nearline drives and their commitment to delivering scalable, cost-efficient storage solutions to meet the anticipated rise in data demand, including from GenAI applications. Seagate's leadership and effective business model position the company for future success. During a Q&A session, Wamsi Mohan from Bank of America asks about Seagate's build-to-order strategy and demand growth expectations for the coming fiscal year, particularly regarding March quarter seasonality. Dave Mosley responds, highlighting the benefits of the build-to-order model for predictability and expressing confidence in meeting future demand. He also notes that Seagate plans to build only what is necessary, while ramping up HAMR technology by mid-next year to compete against competitors with higher capacity products.

The industry is still recovering from challenges faced a couple of years ago, but there is satisfaction with the progress of the build-to-order models despite some market seasonality. There is caution regarding the upcoming year. In terms of cloud inventory, there is no build-up, with buffers remaining low, leading to satisfaction with cloud and mass capacity predictability. The company feels confident in its capacity leadership, shipping leading products, and mentions no one else is shipping over 30 terabytes. They are progressing with qualifications and ramps, aiming to reach 4 terabytes of disk. Market share has declined from the mid-40s to the 30%-high 30% range, possibly due to disruptions from HAMR technology or customer-specific changes. The company considers industry pricing in HDD to have been rational and contemplates its trajectory in 2025.

The paragraph discusses the company's strategy shift to a build-to-order model for better predictability and longer-term planning rather than focusing solely on market share. During low demand, the emphasis is on cash generation predictability. As margins improve, the company aims to capitalize on increased demand, expecting market share to stabilize. There's confidence in maintaining exabyte share due to customer interest in higher capacity products. Gianluca Romano adds that the pricing environment is improving, contributing to higher gross and operating margins each quarter. The removal of extra costs and the ramp-up of new PMR products are expected to further enhance margins in the upcoming quarters.

In the paragraph, Amit Daryanani from Evercore asks Dave Mosley from Seagate about concerns regarding cyclical peaks in the HDD industry and how Seagate ensures that exabyte shipments are being deployed rather than sitting in customer inventories. Dave responds by acknowledging the cyclical nature of the business, which has evolved from client-server models to cloud-based models, affecting seasonality patterns. He mentions that the pandemic caused unusual market fluctuations. To ensure that shipments are deployed, Seagate has improved its processes for monitoring customer inventory and employs a build-to-order model, which helps manage supply more effectively.

The paragraph discusses the strategy for increasing capacity and reducing costs by improving aerial density gains, aiming to introduce terabytes at lower costs to better serve the market, particularly benefiting data centers looking for efficient, long-term solutions. It mentions potential upsides to gross margins, rooted in properly managing supply and demand. Erik Woodring from Morgan Stanley questions why there isn't greater gross margin expansion in the December quarter compared to previous quarters, despite positive pricing and mix trends. Gianluca Romano is addressed for clarification.

In the paragraph, a company representative discusses their financial progress and strategic goals, highlighting that they benefited from a better cost structure in the past quarter but won't have the same advantage in the upcoming quarter due to changes in utilization charges. However, they remain optimistic due to improvements in pricing and the introduction of new products, including PMR and HAMR, and emphasize a strategy of consistent, gradual progress rather than rapid changes. Toshiya Hari from Goldman Sachs inquires about the timeline for getting a customer's qualification for HAMR products and whether the qualification process will be smoother for additional customers. Dave Mosley reassures that past issues have been resolved, suggesting a more efficient qualification process moving forward.

The speaker discusses their confidence in the reliability of their new drives, which have been rigorously tested to detect failure modes under extreme conditions. They report no failures in recent tests and express confidence that these issues are resolved. Customers are informed of the progress, and some non-cloud customers have already qualified the product and are receiving shipments. The speaker emphasizes that, despite rigorous testing and challenges, they have solved the issues, which reassures them about future high-volume production. Asiya Merchant from Citigroup asks about potential impacts on gross margins as the company ramps up HAMR technology. She inquires whether lower shipment volumes and ramping issues might negatively affect margins initially, while acknowledging that once fully implemented, the technology could improve margins.

In the paragraph, Dave Mosley discusses the impact of ramping up HAMR technology on margins, asserting that while they don't want to give away benefits in the near or long term, HAMR should be accretive to gross margin. He emphasizes the need to manage supply and demand properly, as the factories are already operating at full capacity. Gianluca Romano adds that HAMR's cost per terabyte is lower than PMR, making it advantageous. Operator Aaron Rakers from Wells Fargo asks about the company's operating expenses, which were higher than expected, and inquires about future expense projections and the potential for share repurchase activities once a $480 million debt matures in January.

In the paragraph, Gianluca Romano discusses the company's operational expenses (OpEx), attributing the increase between June and September to variable compensation rather than hiring more staff. He forecasts that expenses will stabilize between $280 to $285 million for the rest of the fiscal year. The company aims to address maturing debt with available cash and prioritizes dividend increases over share buybacks, which will be considered after further debt reduction. Timothy Arcuri from UBS queries about the capacity outlook, noting that the company is nearing its current maximum capacity and questions growth prospects without capacity expansion. Dave Mosley responds that capacity will be increased through new product transitions.

The paragraph involves a discussion about expanding data storage capacity efficiently without significantly increasing hardware, which will help reduce costs at higher capacities. The conversation shifts to a question from C.J. Muse regarding growth visibility for fiscal '25, specifically concerning mass storage and nearline capacity. Dave Mosley responds, indicating strong visibility for mass capacity over nine months due to a build-to-order model that provides predictable economics and stable demand without excess inventory or cyclical fluctuations. He expresses confidence in business stability through the first half of the year and possibly into the second half.

Gianluca Romano discusses the seasonality of their business, highlighting that the March quarter is typically the slowest for their legacy products, with growth noticeable in June and strong performance in September and December. This seasonality also affects some mass capacity products. C.J. Muse appreciates the insight. Stephen Fox from Fox Advisors asks about managing capacity given potential demand increases from enterprise and VIA, referencing prior comments on debottlenecking. Dave Mosley responds by acknowledging the potential for increased demand from market recoveries and technologies like GenAI, but notes they remain cautious and additional supply would require long lead times.

In the paragraph, Dave Mosley explains that even with new technologies like HAMR and increases in areal density, companies can manage growing data demands. By improving areal density, they can reduce the number of components needed for each drive, enabling them to produce more drives at a lower cost while still maintaining good profit margins. This allows them to respond to increased capacities in markets driven by trends such as GenAI and video applications efficiently, despite long lead times for new technology implementations.

The paragraph discusses discussions around the strategy and future planning in data storage, specifically addressing aerial density and HAMR technology. Ananda Baruah and Gianluca Romano discuss the industry's ability to manage exabyte shipments over the long term, focusing on a technology transition rather than increasing unit production. They suggest this approach is more profitable and are monitoring demand for future adjustments. Vijay Rakesh inquires about unit shipment expectations for 2025 and potential adjustments in capacity and headcount. Dave Mosley responds, indicating that factories are currently full and mass qualifications for customers will be completed by mid-2025, with plans being made based on customer demands.

The paragraph discusses a company's transition from its PMR product to its new HAMR technology. The transition is less aggressive than it might have been a year ago due to no longer having idle factory capacity. The company is leveraging similar components between the two products, which provides flexibility. They are aggressively ramping up the latest PMR products and moving quickly into the technology transition, expecting the HAMR transition to add capacity that will meet increasing demand. The discussion hints at growth through technology transitions, with expectations of more substantial volume from HAMR in fiscal year 2026.

In the paragraph, Dave Mosley addresses concerns about potential delays in transitioning to HAMR technology, stating that he isn't worried due to their ability to pivot easily between technologies. The company is confident in their current PMR technology, which remains profitable, and can switch back if necessary. Regarding AI, Mosley acknowledges its complexity and mentions that while traditional AI workloads are familiar, new workloads are emerging. He does not provide a specific timeline for when AI contributions might become significant.

The paragraph discusses the growing demand for AI, particularly in video applications, which is seen as a major driver for customers' business models. The speaker does not perceive this trend as a bubble but as a competitive landscape with new technologies and applications. They express excitement about AI's creative use in traditional workloads. In response to a question about the potential for AI chips in PCs to drive a major refresh cycle, the speaker notes limited visibility but anticipates change in the PC space, which has been slow to adopt new applications. They suggest the future focus will be more on new applications, particularly video-related, rather than just new hardware specifications.

The paragraph discusses the potential of enabling creative professionals to create more aggressively with video, audio, and other analytical tools at the edge, which is expected to generate more data. Some of this data will be managed by existing cloud service providers, while some will be closer to the edge, an area of excitement for the future. There's uncertainty around AI PCs' development, but optimism exists about their future impact. Dave Mosley and Mark Miller discuss high factory utilization rates, specifically over 90%, in both ads and media fabs, with plans to maintain this to avoid cost implications. Karl Ackerman asks about build-to-order visibility, seeking clarity on whether it involves take-or-pay contracts or strong interest indications for storage capacity expansions.

In the paragraph, Dave Mosley and Gianluca Romano discuss the mix of SMR (Shingled Magnetic Recording) drives in the market, noting that only a few cloud and client server customers use SMR technology. Mosley emphasizes that they configure drives based on customer needs and aim to keep their factories operating at full capacity. Romano mentions that most orders are fully committed by customers over time. Mosley concludes by expressing confidence in their technology's ability to meet customer needs, thanking their team, partners, and shareholders, and looks forward to future growth. The session ends with the operator closing the conference call.

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