Seagate Technology Holdings Plc (STX) — Q3 2025 Transcript

Thank you. Hello everyone and welcome to today's call. Joining me are Dave Mosley, Seagate's Chief Executive Officer, and Gianluca Romano, our Chief Financial Officer. We've posted our earnings press release and the detailed supplemental information for our March quarter results on the Investors section of our website. During today's call, we will refer to GAAP and non-GAAP measures. Non-GAAP figures are reconciled to GAAP figures in the earnings press release posted on our website and included in our Form 8-K. We've not reconciled certain non-GAAP outlook measures, because the material items that may impact these measures are out of our control and/or cannot be reasonably predicted. Therefore, reconciliation to the corresponding GAAP measures is not available without unreasonable effort. Before we begin, I'd like to remind you that today's call contains forward-looking statements that reflect management's current views and assumptions based on information available to us as of today, should not be relied upon as of any subsequent date. Actual results may differ materially from those contained in or implied by these forward-looking statements as they're subject to risks and uncertainties associated with our business. To learn more about the risks, uncertainties, and other factors that may affect our future business results, please refer to the press release issued today and our SEC filings including our most recent annual report on Form 10-K and quarterly report on Form 10-Q, as well as the supplemental information all of which may be found on the Investors section of our website. Following our prepared remarks, we'll open the call up for questions. In order to provide all analysts with the opportunity to participate, we thank you in advance for asking one primary question and then re-entering the queue. With that, I'll hand the call over to you, Dave.

Thank you, Shanye, and hello, everyone. Seagate delivered another solid quarter of profitable year-on-year growth and strong execution. Our third quarter results are highlighted by a 31% year-on-year increase in revenue and 81% growth in non-GAAP gross profit dollars. We continue to demonstrate strong financial leverage, expanding gross margin for the eighth straight quarter, and achieving the third highest operating margin in the company's history. This performance supported non-GAAP EPS performance at the top of our guidance range and increased free cash flow generation. These strong levels of performance reflect the combination of a healthy supply-demand environment for mass capacity storage and the proactive steps we've taken over the recent cycle to transform how we operate. Our supply discipline, the visibility we gain through our build-to-order strategy, and our execution on strategic pricing actions all contribute to sustainable and profitable growth over the long-term. In addition to strengthening our operating model, these factors further enhance our agility, which is critical to our ability to navigate the fluid business environment. Based on the latest trade policy announcements, we expect minimal impact to fourth quarter financial performance due to tariffs. We are continuing to monitor the situation and evaluate strategic solutions, including geographically shifting certain of our manufacturing processes and aligning our supply chains to mitigate risks associated with trade policies over the long-term should the need arise. In this dynamic macro landscape, we will continue to focus on managing controllable factors, while executing our aerial density driven technology roadmap, which delivers increasing value to our customers. Seagate's HAMR-based Mozaic drives represent the industry's only 3 terabyte per disk products. We are ramping volume to qualified customers and remain on track to qualify a broader range of cloud customers with shipments beginning in the second-half of calendar 2025. Turning to the demand environment, we are mindful that tariff measures could affect customer buying decisions. However, current demand indicators remain intact, particularly among global cloud customers. In the March quarter, cloud nearline revenue and exabytes were up by nearly 10% sequentially, almost doubling year-over-year amid a very tight supply environment. The growing demand for mass capacity storage aligns with the cloud CapEx investment cycle and ongoing build-out of data center infrastructure to support AI transformations. Hard drives continue to store close to 90% of the bits in large scale data center deployments. Data center architects are highly sophisticated and have consistently employed a strategic mix of storage solutions to optimize scalability, cost efficiency, and workload performance. Reinforcing this approach, Google recently unveiled details about their foundational Colossus storage system, highlighting the use of SSDs for fast data access, while depending on hard drives for mass storage and data retention needs due to their scalability and cost benefits. This hybrid storage strategy is particularly vital for AI workloads that require access to massive data sets for training and inference, and subsequently generate valuable data content that users want to retain. For instance, training an AI model to generate images requires billions of static pictures, while AI-based video generation demands thousands of hours of footage to accurately capture transitions and variations between frames. At 24 frames per second, each hour of video equates to roughly 80,000 images. Hard drives have historically benefited from the growth in video content on social media platforms and content delivery networks. Emerging text-to-video applications promise to revolutionize content creation and lower production costs, likely to increase storage demand. In this context, hard drives are crucial for storing training data, maintaining model checkpoints, and preserving both interest and generated content. Over the past 18 months, large cloud and hyperscale customers have driven HDD demand growth. However, we have also started to see a pickup from smaller edge data centers and private clouds that seek to preserve their valuable data for privacy or sovereignty purposes. In the year ahead, nearline exabyte demand looks strong through calendar 2025, and we now have visibility of demand with several customers into the first half of calendar 2026 as we negotiate new build-to-order agreements. Seagate is in a strong position to address the favorable demand outlook as we ramp shipments of our high-capacity drives. Our 24 and 28 terabyte PMR platforms continue to ramp aggressively, with exabyte shipments up roughly 60% quarter-over-quarter. Additionally, we are continuing to ramp HAMR-based products with our first hyperscale customer, and we are approaching the conclusion of our second major CSP qualification. Feedback from other cloud customers has been positive as they progress through their respective qualification timelines. We expect an appreciable increase in HAMR product shipments over the coming quarters as these future qualifications conclude. Based on the time required to fully scale HAMR production, we plan to fulfill build-to-order commitments through a blend of HAMR and PMR products over the next several quarters. It is becoming increasingly evident to both our customers and the market that HAMR is a groundbreaking technology that will extend TCO advantages for hard drives over other storage media for many years to come. More than a decade in the making, HAMR is pivotal in enabling Seagate to meet the world's exabyte demand growth through technology innovation rather than supply expansion, thereby supporting Seagate's ability to deliver sustained and profitable growth. I'll stop here and turn the call over to Gianluca.

Thank you, Dave. In the March quarter, we delivered strong earnings and free cash flow generation, underscored by solid execution and our focus on profitability. March quarter revenue came in at $2.16 billion, above the midpoint of our guidance and down 7% sequentially, limited by the temporary supply constraints we discussed last quarter. Despite lower revenue levels, we expanded non-GAAP gross margin by 70 basis points sequentially to 36.2%, supported by strong adoption of our high-capacity nearline drives. Non-GAAP operating margin increased to 23.5% of revenue sequentially. Our result in non-GAAP EPS was $1.90, which is at the top hand of our guided range. Within our hard drive business, continuous strength in nearline cloud demand partially offset the anticipated decline across most of the other end markets, due to typical seasonality and allocation of our available supply. Hard drive revenue was $2 billion, down 8% sequentially on volume shipment of 144 exabytes, compared with 151 exabytes in the December quarter. Mass capacity revenue declined sequentially by $145 million to $1.7 billion, which represents a 48% increase year-on-year. Mass capacity shipments of 133 exabytes were down 5% sequentially and up 50% year-on-year. Nearline represented roughly 90% of mass capacity volume in the March quarter, with shipment of 120 exabytes, down 5% sequentially, while up 55% year-on-year. We continue to experience strong product-based demand for our 24 and 28 terabyte PMR products, which remains the highest revenue and exabyte volume product family. The richer mix of these higher capacity drives, along with initial volume ramp of HAMR-based products, drove a sizable uptick in average nearline drive capacity for the quarter. Sales of our legacy products totaled $254 million, down 8% sequentially, primarily reflecting expected seasonal trends in the consumer markets. Finally, revenue for our other businesses, which include systems, SSD, and repurposed drives, was relatively flat at $157 million. Moving on to the rest of the income statement, non-GAAP gross profit was $781 million, compared with $825 million in the prior quarter and $432 million in the prior year period. At the company level, non-GAAP gross margin expanded by 70 basis points to 36.2% sequentially, and expanded by over 1,000 basis points year-over-year. We continue to benefit from a favorable mix, including increased adoption of our latest generation products and ongoing pricing adjustments. These factors support non-GAAP gross margin from the hard drive business above the corporate average. Non-GAAP operating expenses totaled $274 million, down 5% quarter-over-quarter. Relative to our plan, we benefit from the timing of R&D related material expenses and certain one-off items. For your awareness, the September quarter will have 14 weeks instead of the typical 13-week period. As a result, we expect to incur higher operating expenses for the period. However, revenue patterns tend to be based on calendar quarters and would therefore be largely unaffected by the additional week. We will provide further clarity on our July earnings call. Other income and expenses decreased 7% sequentially to $80 million, due to lower interest expenses from retiring debt and is expected to remain relatively flat in the June quarter. Adjusted EBITDA was $563 million, compared to $591 million in the prior quarter and $278 million a year ago, doubling year-on-year. Non-GAAP net income was $407 million, resulting in non-GAAP EPS of $1.90 per share, based on a diluted share count of approximately 214 million shares. We are managing the business for long-term durability, optimizing both profitability and cash generation. In the March quarter, we increased free cash flow generation to $216 million, compared with $150 million in the prior period. Based on our current outlook, we expect free cash flow generation to improve sequentially for the rest of the calendar year. Inventory remains flat at $1.5 billion, as we prepare to support future demand growth, including HAMR products. Capital expenditures were $43 million for the quarter and represent roughly 3% of revenue for fiscal year-to-date as we continue to maintain capital discipline. We returned $152 million to shareholders through the quarterly dividend and closed the March quarter with ample liquidity of $2.1 billion, including our undrawn amount of $1.3 billion from our new revolving credit facilities. Our debt balance was $5.1 billion at the end of the March quarter after retiring approximately $536 million of debt during the quarter, consistent with our intent to reduce debt. Our resulting net leverage ratio was 2.1 times, and we expect to see further reduction in the coming quarters. Turning now to our June quarter outlook, we have continued to see robust demand for our high-capacity nearline products across the global cloud customer base, which along with incremental improvement in the VIA market are expected to drive revenue and profits higher in the June quarter. As noted earlier, we currently forecast minimal direct impact from tariff policies and will be monitoring for secondary impacts, including changes in customer demand. Based on what we know today, we expect June quarter revenue to be in a range of $2.4 billion, plus or minus $150 million. At the midpoint, this reflects an 11% improvement sequentially and a 27% improvement year-over-year. Non-GAAP operating expenses are expected to be approximately $285 million. And at the midpoint of our revenue guidance, we expect non-GAAP operating margin to expand into the mid-20s percentage range. We expect our non-GAAP EPS to be $2.40, plus or minus $0.20, based on a diluted share count of approximately 214 million shares and non-GAAP tax expense of roughly $10 million. As a reminder, starting in fiscal 2026, we estimate a tax rate in the mid-teens, as the various jurisdictions in which we operate adopt the pillar to global minimum tax. To close, we are continuing to demonstrate strong financial discipline and operating leverage that support both profitable growth and greater agility to navigate the dynamic macro environment. I will now turn the call back to Dave for final comments.

Thanks, Gianluca. I would like to conclude by reiterating three key points that underscore my excitement for Seagate's opportunities over the long-term. First, we've transformed our business model and made a cultural shift to prioritize profits and cash generation with a sustained focus on driving healthy industry supply-demand fundamentals. Second, these changes are taking place amid secular growth tailwinds for mass capacity storage that are underpinned by the ever-increasing rise in data generation and data value. And third, Seagate's winning technology platform and clear roadmap position us to capitalize on those tailwinds to deliver sustained profitable growth with agility. We look forward to sharing more about how this winning combination of technology leadership, profitable growth, and healthy industry fundamentals set Seagate up for even greater success at our investor and analyst event taking place on May 22. I'd like to thank our global teams, supply partners, and customers for your ongoing contributions to our success and to our shareholders for your continued support. Operator, let's open up the call for questions.

Hey guys, good afternoon. Thanks for taking the question and nice quarter here. I know you guys were capacity constrained in the March quarter. So can you maybe just help us better understand how and where you got some of the upside in the quarter with that supply shortage? And as I just extend that to the June quarter. How do we think about the risk of pull forward impacting June quarter revenue? Or maybe if I asked you differently, if you guided to the June quarter a month ago, would you have still guided to $2.4 billion of revenue at the midpoint? Or has anything changed over the last month as it relates to your ability to your customers maybe needs to pull forward any demand? Thanks so much.

Thanks for the question, Erik. Simple answer is yes, we would have guided the same thing a month ago, and that's largely this predictability that we've built in through the build-to-order process playing through. We were underserving the market last quarter. I think that's probably true not only for Seagate, but for other players in the market. We'll be able to assess that more over time. And some of that’s due to our operational issues that we had. We discussed this back in November. Really came through last quarter. Those operational issues have been fixed. And so all that's been planned for quite some time that affects the Q4 guide here that's in front of us. As far as longer-term, the build-to-order continues to serve us quite well. And we're doing it through product transitions as well, which helps the qualification predictability and all other financial aspects of Seagate. So, I'm quite pleased with that.

Great. Thank you for the question and great quarter. If I can just if you can double click on where we are with HAMR, you know, where you are with your qualifications with your other customers and how much did HAMR contribute to the March quarter results? And how we should think about the contribution of HAMR to your bytes as you progress through calendar '25. Thank you.

Thanks, Asiya. Yes, I'll let Gianluca speak specifically to the numbers. HAMR is growing quite well. I would say quarter-over-quarter since the last time we spoke. We're still on the exact same plan. So I'm very happy with the qualification progress. And we'll share a little bit more of that in the May 22 Analyst Day. So I'd say please attend. Relative to how we are standing right now, we talked about in the prepared remarks one qualification, a major CSP almost complete and we have another quite a few in flight as well, so…

Yes, also, now referring back to Erik's question about the revenue increase, compared to the midpoint of our guidance, I would say that is actually coming from more volume on HAMR products. So where we were able to squeeze a bit more supply during the quarter was mainly on the HAMR part. And HAMR is ramping very, very well and very rapidly. And we will disclose more about HAMR future development in a few weeks from now at the Analyst Day.

Thank you.

Yes, good afternoon. Thank you for taking the question. I just did, you know, on the call today, you've discussed the industry on your shipping end demand. You're seeing new demand from NeoClouds and others. So the question is, how is your visibility improved? What kind of sense of urgency are you getting from your customers? And I guess is that extending beyond kind of a 52-week lead time? And last part of the third part question would be, how do you see that kind of playing out in pricing over time? Thanks so much.

Thank you, C.J. Your question has two parts. We have visibility into the build-to-order demand for this year and into next year. Companies are constructing and upgrading data centers, and they need reliable supply to operate efficiently. This demand is fairly stable, with occasional adjustments as some customers may require more than others. This reflects a healthy balance between supply and demand along with agility. Regarding pricing, as we navigate through product transitions, particularly at higher capacity levels, we are negotiating new build-to-order agreements while keeping in mind our need to receive higher compensation for our efforts. This is crucial as we continue to invest in enhancing the efficiency of our customers’ data centers, creating a mutually beneficial situation that we are incorporating into our future financial strategies.

Hi. Yes, thank you. You just reported an increase of 70 bps in gross margins, even when the nearline was down quarter-to-quarter in total. In the June quarter, you're guiding a similar gross margin expansion, but nearline, I think, should be up quarter-on-quarter. So why are we not seeing more upside on June quarter for margins? And is the cloud versus enterprise mix changing significantly in the June quarter because it feels like it was very tilted cloud in the March quarter, if you can square those? Thank you.

Yes, thank you, Wamsi, I'm happy you have strong expectations. I think we are doing a very good job in driving our profitability up every quarter since like eight quarters as Dave said in the prepared remarks. Mix is important to us. So of course, nearline and cloud in particular will be higher in the June quarter. And we have no build-to-order, we have contracts and depending from the time of the negotiation of those contracts, we have price increases in certain quarters that are maybe higher than other quarters. But I would say the important is the trend is continuing, the strategy is strong, and we will continue to deliver.

I think the other thing, Wamsi, is that we also underserved the market quite a bit in Q3. And now we're back to serving customers the way we want to. So, you know, all this is long-term planning, but we prioritize in particular the certain segments that Q3 needed where we actually had product for them.

Hey guys, this is Hadi for Chris. Thanks for taking my question. Your guidance includes minimal impact from the tariffs in place, and that makes sense due to the 90-day exemption. But I wonder if these tariffs were to take place in the September quarter, how should we think about the impact on the financial model? Like, is there a time lag where you guys might take the tariff hit initially? And initially, it's a matter of quarter or two until you raise prices or you expect to pass through tariff related costs right away? I just wonder like if you can share any color on how your conversations are going with customers about pricing, how long it would take you guys to pass through tariff related costs would be helpful. Thank you.

Yes, thanks, Hadi. It's a complex world. Like you said, there's many scenarios being run. Our first response is to go work the supply chain or operational details, such as the rules are with our customers. That will impact their demand, what they want, where, when. Ultimately, as we drive through these product transitions, as we talked about before, we're going to be adding more value, so we have a chance to reset the negotiation. Passing through the cost is a last resort option, but we'll factor that into any cost increases due to whatever reasons into the go forward model. I think everyone understands that we need those margins, as I referenced before, to go reinvest in our business and keep driving forward the technology, which is great value to the customer. So I won't get into specifics about what the different scenarios are because we just don't know yet, but you know, operationally we've dealt with these kinds of problems before and we'll deal with them again. I think we're very agile and nimble operationally to do that.

Thank you, Dave.

Thanks for taking my question and congrats on a nice set of numbers here. Dave, as we look at the predictability in the business and you sort of talked about you see nearline exabyte demand I think looking strong not just to the end of this year, but also into early ‘26. Does that imply that you expect to see sequential revenue growth, gross margin expansion in the back half versus what you folks are guiding to June? I'd love to just understand how much visibility you have in the back half? And then maybe someone related to that, you know, Meta had a white paper out, I think, in the last 90-days, which got a lot of attention in terms of how QLC could be used almost as a new storage medium between traditional flash and nearline. Would love to get your perspective on that and if you see that having any sort of dampening effect in the nearline drives over the long term. Thank you.

Sure, Amit. I'll let Gianluca take the gross margin, then I'll take the flash discussion.

Yes, Amit our plan has not changed. As we were discussing also in prior quarters, we see opportunities to grow revenue and profitability. Of course, this is our current expectation. We need to wait and see if there are any new rules that could impact this view, but currently we have no reason to change our expectations.

And on the discussion about the Meta blog, I've read it. My first reaction was it's a fairly niche application and it makes sense. I mean, there's a lot of different types of applications in the cloud, some of which may benefit from QLC-NAND, especially if they're very read intensive. But I don't think that it comes anywhere close to disrupting the general blend of NAND and HDD in the cloud, in the larger cloud. Again, NAND is a very critical technology for everyone. And the data center architects know how to manage it. We pointed to a Google white paper as well in the prepared remarks. And there are others out there. I think a lot of our customers are some of the best storage architects in the world. And they’re making these decisions very consciously, spreading the workload, if you will, to maximize cost power performance, so on and so forth. And so from a hard drive perspective, we still believe there's a very substantial cost differential between any kind of NAND and hard drives, especially in the performance tiers that we have to operate in. And hard drives are much, much more capital efficient. We can add exabytes to the world in a much more capital-efficient way. What I'm kind of excited about on this front is there's a bigger move to disaggregated storage, which is to decouple compute from storage investments. And if that's the case, I think for some cloud service providers and even some on-prem instances, there's more opportunities for HDDs rather than less.

Hi, this is Jacob on for Aaron. Thanks for taking the question and congrats on the results. I was wondering if you could get some color on how material you see emerging AI inference storage your mid to long-term TAM. And how, if at all, hyperscale purchasing patterns have changed over the last few quarters or two to support the ongoing shift in training to inference driven by some of these newer reasoning models?

Thank you, Jacob. A few quarters ago, we noted that the initial recovery in the cloud was primarily driven by video applications, which many consider to be AI models. It's important to approach this with some caution, as large language models are making data analytics accessible to much larger data sets, and we are still in the early stages of that development. Regarding new video applications, I believe they are still on the horizon, and I'm quite enthusiastic about this. We've made some comments on this previously, and we see a plethora of new video applications that we think will greatly benefit stores. Additionally, as training sets expand, they will generate more data that needs to be stored for verification, and the data infrastructure supporting AI is essential to us.

Great. Thanks, And then I was wondering if you could just give a little additional color on your capital allocation priorities moving into the back half of the year and how that's changed, if at all, given the increased tariff uncertainties? Thanks.

No changes, but I'll let Gianluca answer specific.

Yes, we are still working on reducing our debt. As you know, we have done a big step forward in the March quarter. We reduced more than $500 million of our debt, but we are still not at the level we want. So in the next few quarters, we will continue to address that level. And as we said, after that, we will start working on the share buyback. And of course, we are always focusing on our dividends.

Great. Thank you so much.

Thanks, Jacob.

Yes, hi, thanks, good quarter. Dave, I have a quick question about HAMR. I'm curious about the mix of HAMR as we approach the end of fiscal '26. And Gianluca, are you still confident in achieving the mid-40% gross margin in the future? Thanks.

Yes. We haven't guided exactly how fast our HAMR transition is going to be, although as these qualifications complete as we referenced earlier, we're going to continue to accelerate. So I'm happy with the progress that the team has made right now. And I think as we look forward, there will be more and more HAMR drives in the world very, very soon. So I'm excited about that.

Yes. For the gross margin, we continue to improve each quarter, which is our goal. You’ll need to wait a little longer to get a clearer picture of the future model. What's important is that we have strong demand and a favorable product mix, both of which are contributing to our profitability improvements. Our gross margin and operating margin reflect this. I want to highlight the robust operating margin we are currently achieving.

Yes, thank you.

Thanks a lot. I had a multipart question. So guiding revenue of $250 million. How much of that's related to the $200 million that you lost in March, I know it's probably a little hard to tell. But I guess the question is like, have you caught up with demand yet? That's the first part. And then the back part is, I would think that customers are probably placing double orders, but how could you tell if there were? Are there enforceable pieces that come with the orders? I know you're talking about there's ability now into next year. How do you know how much of that is real? Are there penalties that are associated with these? Thanks.

Yes. Thanks, Tim. So the build-to-order model, especially when we realized that we had these supply constraints now more than three months ago, we are communicating that specifically to the customers. This is long before any of the current macro issues have arisen. From my perspective, Q4 is happening to plan and Q1 will happen to plan half of that as well. That's how these build-to-order models are giving us that predictability.

It's challenging to determine how much of the $200 million demand we couldn't fulfill in March is reflected in June's demand. Clearly, demand shifts to the future, and it may not all be captured in June. As I mentioned previously, we anticipate revenue growth in the upcoming quarter. This is simply a scenario where demand exceeds supply. I don't believe we have any evidence of double orders, so I don't agree with that comment, but I can say that demand continues to move in the same positive direction as it was a quarter or two ago. The build-to-order model will remain unchanged in the next few quarters, and as noted, we are beginning to negotiate for the calendar year 2026.

I think the other thing is that the data center infrastructure, the investments that need to be made are not these temporal things anymore, and there's not a lot of excess supply as we just said that to pull forward or to do deals at the end of quarters anyway. So as these new applications come online, we're not seeing any inventory buildup. We're seeing people demand the demand be fairly stable. This is the point of the build-to-order. So happy that some of the new applications are starting to launch more and more data. And I think this it's been a fairly predictable world for us other than the supply issue that we had.

Thanks for the question, everyone. Dave, regarding the creation of new data centers, specifically for Gen AI, how should we consider the typical storage consumption in a Gen AI data center compared to a traditional cloud data center? Any insights on this would be helpful.

It's really hard, Ananda. I think there are many different kinds of applications, and we're all looking for which are the killer apps and what order do they take off. And from our perspective, some of the early applications around large language models are very compute-intensive and opening up bigger, bigger data sets to be ingested and analyzed maybe data sets that are old, things from the past, makes data more valuable. As I said before, still early days of that. And then if you get into the types of Gen AI that actually create new data, video applications and things like that, very exciting for storage, long-term storage as well. But it's still very early days.

Is there any indication that you are starting to see more nearline drives being placed into existing data centers for storage arrays?

Yes. What I would say is that I referenced this already, this concept of disaggregated storage is much more interesting. So that compute and storage is decoupled to some extent. And then if you need to scale storage, you can without the overhead and costs associated with adding more compute to that. So the compute can scale one way and that storage can scale the other. That, to me, is a more interesting trend as applications develop that need to ingest and spin off more and more storage than that storage investment will be relatively more efficient. So I'm really interested in those architectural changes.

Hey guys. Thanks for taking my question. June quarter, you're saying OpEx is impacted, but no real change on the revenue side. You guys are kind of talking about a continued growth profile into the back half of the year talking about good visibility. Should we be thinking about September, any kind of headwind from that 14 weeks? Or does the same rule apply to the back half of the year with just revenue unaffected? Do we need to be kind of discounting that September quarter after the stronger June?

In general, when you have this extra week in the quarter, it is only impacting your OpEx. It's not really impacting your revenues. Revenues are generally negotiated based on a quarter, not based on a week.

And Tom, I think I heard you say June quarter. That will be the September quarter.

Yes, September, it is 14 weeks.

I apologize for the confusion earlier. I was referring to the stemmer. Thank you for your patience. Regarding the exabyte shipments, if you consider past data, we're approaching the levels seen before the pandemic in total exabyte shipments. You mentioned that around 160 exabytes is the threshold that requires technology transitions to go beyond. So, part one of my question is whether you anticipate reaching that point in the next fiscal year, especially since it seems like your growth is accelerating rapidly. Additionally, concerning pricing, while you mentioned the direct impact from tariffs, I'm curious about the indirect effects. Are your larger customers becoming more aggressive with pricing? Have you noticed any changes in their behavior? Are you taking steps to protect yourself from this, given your current strategic outlook? Thank you.

No worries. So recall our strategy, we're adding exabyte capacity through aerial density technology, which makes our ability to serve the market more and more efficient. As we do that, we can grow revenue and profit and deliver better value to customers as well. So I wouldn't think about 160 or 165 as being the peak ever. The drives are much more exabyte-efficient than they used to be. And so we're really excited about our ability to deliver more and more exabytes and therefore, see that kind of growth. From the broader perspective, tactically, we have not really seen very much impact from customers changing anything, one way or the other. Nobody is losing their place in line. People are still making the data center infrastructure investments they are because data infrastructure is key to some of this cloud applications or the AI applications that are going to come and so we expect predictability from that, and that's what we need as manufacturers as well as predictability. So that's one of the reasons we've driven these new strategies.

Hi, good afternoon. I want to follow up on your previous question regarding the addition of exabyte capacity. Given that you were experiencing a shortfall a quarter ago and your utilization rates are nearly at their peak, are you increasing your capital expenditures to expand capacity? How straightforward is this process? Will you pause any capacity expansion due to the uncertainty surrounding the indirect effects of tariffs?

Thanks for the question, Tristan. The supply issue we experienced last quarter actually began last summer during August and primarily affected PMR products. We have already planned the capital expenditures for our HAMR technology products, so there’s no need to increase CapEx to ramp up these products further. We utilize some of the most advanced manufacturing processes in the world to create these devices atom by atom, which is time-consuming. We will continue to invest in this area, including some investments in the U.S. However, we need predictable demand and to assess our return on investment. Currently, we're satisfied with our capital allocation in relation to the demand we see while maintaining a healthy balance between supply and demand. If demand increases, we will address it when necessary, but we haven't needed to make any changes yet.

Yes, we are not planning for more heads or media production, but of course, those haven’t meet or will generate a higher volume of exabytes, because of the technology transition. And this is how we want to address the increasing demand.

Great. Thank you very much.

Congrats on your quarter, and thanks for the question. I’m wondering if you have seen any recent or do you expect any significant changes in data center CapEx by your major hyperscale customers? And second question is any significant component sourcing out of China?

So Mark, I would say that we have recoupled supply chains long ago. So I think we can control sourcing whatever we need to make sure that we don't run out of parts or there aren't any significant cost impacts. So that's one of the reasons why we said whatever has happened so far has been minimal. But we always watch specific sourcing issues to make sure that we have what we need. I think there are geocentric options for anything that we need from a sourcing perspective. And relative to predictability of the customers, their demand. We've said before that this has been fairly predictable. Some of it is because the market has been underserved, but we're running the play and there's visibility into more demand in the back half of the year and even people are starting to book into calendar year '26 because data center infrastructure is very important in their business models. It's a relatively small percentage of their CapEx to what they spend on storage. So given how important it is and how data continues to grow, they're making that a priority.

Thanks very much, Gary. I'd also like to take the opportunity to once again thank our employees and our customers and our suppliers for contributing to our results and our shareholders for your support. We look forward to speaking with you in a few weeks at our analyst event May 2. Thank you.