Seagate Technology Holdings Plc (STX) — Q4 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 detailed supplemental information for our June quarter and fiscal year-end results on the Investors section of our website. During today's call, we'll 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 material items that may impact these measures are out of our control and/or cannot be reasonably predicted. Therefore, a 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 and 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 reentering the queue. With that, I'll hand the call over to you, Dave.

Thanks, Shanye, and hello, everyone. Seagate closed out fiscal '25 delivering strong financial results for the June quarter marked by 30% year-over-year revenue growth and record gross margins, which improved for a ninth consecutive quarter, a trend that is set to continue as HAMR adoption gains momentum. We achieved non-GAAP earnings per share near historic highs and generated strong free cash flow. For the fiscal year, revenue increased 39%, non-GAAP gross profit dollars nearly doubled, and operating profit more than tripled, demonstrating our focus on supply-demand alignment and ongoing cost discipline. Our execution resulted in one of the most profitable fiscal years in the company's long-storied history. The structural changes in our business model and strong product pipeline make Seagate well positioned to deliver improving profitability and cash generation in fiscal '26. Reflecting our confidence, we expect to resume share repurchases later this quarter, enhancing capital returns to shareholders. Operationally, in fiscal '25, we started the high-volume ramp of two new nearline platforms, including the industry's first heat-assisted magnetic recording hard drive, an engineering feat more than a decade in the making. These new cost-effective and energy-efficient platforms aligned well with data growth driven by traditional compute workloads and increasingly from AI-supported applications. Looking at the current end market dynamics, we see a continuation of strong global cloud demand for our nearline products. The visibility afforded by our build-to-order strategy indicates our nearline exabyte production capacity is largely spoken for through the middle of next calendar year, with visibility building into the second half. We believe BTO contracts are also beneficial for our customers by providing predictable assurance of supply. With installed data center capacity expected to more than double by 2029 on a gigawatt basis, these contracts support the CSP's efforts to keep pace with end-user demand. Within cloud data centers, we see an evolving diversity of workloads and applications addressed through a combination of storage media, optimized across a multitude of factors, including performance, cost, floor space, and energy efficiency. The diverse solutions that emerge are shaped by how these factors are prioritized and the scale that is required. For instance, one of the world's largest cloud service providers recently developed a tiered storage solution to support an application for a widely used social media platform. Leveraging hard drives for both mass data storage, in addition to a caching layer to enable fast, repeatable data access, this customer was able to realize significant cost savings and efficiency gains compared with alternative storage solutions. In today's data-driven world, the growing need for mass capacity storage extends beyond the cloud to edge data centers. There are multiple trends that underpin this view. First, as more data is created at the edge, it will be replicated and retained across multiple locations to capture actionable insights through AI models. To preserve the integrity of these models, large volumes of data are being retained longer to support checkpoints and inferencing. Additionally, today, roughly 50% of the world's data centers are concentrated in just four countries. As data sovereignty regulations evolve and proliferate around the globe, we expect a growing demand for localized data storage. In this context, mass capacity hard drives will be critical from a footprint, efficiency, and TCO perspective, ensuring data is safe, secure, and compliant. For data centers at the edge, we expect enterprise storage demand will mirror the trends we've seen in the cloud, where upfront AI infrastructure investments led to increased demand for mass data storage over time. Supporting this point of view, a leading enterprise IT infrastructure provider is introducing new tiered storage system solutions later this year for AI applications designed to optimize their end customers' TCO and data utilization requirements by integrating high-capacity hard drives based on HAMR technology. While momentum for our high-capacity HAMR drives builds, we also have continued to increase exabyte shipments of our PMR 24 to 28 terabyte platform to address demand. In fact, in the June quarter, we achieved record quarterly sales and volume shipments for any nearline product with this platform. Leveraging the commonality across our PMR and HAMR platforms, we are executing the volume ramp of Mozaic 3+ products. We are tracking to plan with shipments expanding to additional CSPs in the September quarter. Across the board, qualifications are progressing exceedingly well, and we continue to expect the key global CSP customers to be qualified by mid-calendar 2026. Our progress in bringing HAMR-based Mozaic drives to market at scale strongly positions Seagate to address the significant opportunities we foresee in the cloud and at the edge. The top priority during fiscal '26 is executing our 4-plus terabyte per disk qualification and volume ramp. This product will support cloud workloads with capacities of up to 44 terabytes and also supports lower capacity drives ideal for edge workloads. As planned, we recently started qualification with a global CSP on the 4 terabyte per disk platform and expect to begin volume ramp in the first half of calendar 2026. This timeline is consistent with our target for exabyte shipment crossover on HAMR-based nearline drives in the second half of calendar '26. Ongoing investments in innovation such as granular on platinum media and breakthrough photonics technology are critical to delivering our aerial density roadmap. We continue to make steady progress with 5 terabytes per disk technology, aligning to our goal of introducing it into the market in early calendar 2028, a timeframe when we also expect to demonstrate double that capacity, 10 terabytes per disk in the lab. To close, I believe this is one of the most exciting periods in Seagate's history. Recall, at our Investor and Analyst Day in May, we discussed how Seagate is in the right markets with the right technology and the right execution to enhance shareholder value. Demand for mass data storage is expected to grow as our cloud and edge IoT customers continue investing in AI-driven strategic imperatives to unlock and protect data value. Amid this strong demand backdrop, we are mindful of the evolving trade policy landscape. Based on our current outlook, we expect minimal tariff-related impacts to the business. We will continue to closely track developments and stand ready to deploy mitigation strategies that minimize potential future impact to Seagate and our customers over the long term. In this dynamic environment, our HAMR-based technology roadmap makes us uniquely positioned to capture these growth opportunities in the cloud and at the edge as we push forward aerial density gains to efficiently expand exabyte output while enabling our customers to benefit from the improving total cost of ownership. As a result, we are confident in our ability to produce compelling growth in revenue, profitability, and cash generation in fiscal '26 and beyond. I'd like to thank our global teams, supply partners, and customers for your contributions to a strong fiscal year and to Seagate's ongoing success. Let me now turn the call over to Gianluca.

Thank you, Dave. We capped fiscal 2025, delivering strong double-digit top and bottom line growth and achieving record gross margin levels. June quarter revenue came in at $2.44 billion, up 13% sequentially and up 30% year-over-year. We expanded non-GAAP gross margin by 170 basis points sequentially to 37.9%, and we increased non-GAAP operating margin by 270 basis points to 26.2%. Our resulting non-GAAP EPS was $2.59 at the high end of our guided range. For fiscal 2025, we grew revenue by nearly 40% to $9.1 billion. We achieved non-GAAP operating profit of $2.1 billion, marking one of our strongest annual performances, and recorded non-GAAP EPS of $8.10. These results underscore our solid operational execution and the ongoing momentum for data center demand, particularly among global cloud customers. Trends from nearline cloud sales, along with seasonal improvement in the VIA markets led to a 14% sequential increase in hard drive revenue, reaching $2.3 billion. Volume shipments increased to 163 exabytes from 144 exabytes in the March quarter. Mass capacity revenue topped the $2 billion mark, up 15% sequentially and 40% year-on-year. Mass capacity shipments were 151 exabytes compared to 133 exabytes in the prior quarter. Nearline shipments into cloud and edge data centers made up the vast majority of mass capacity volume. In the June quarter, nearline represented 91% of mass capacity exabytes with shipment of 137 exabytes, up 14% sequentially and 52% year-on-year. Our 24 and 28 terabyte PMR products have been widely adopted by global cloud and enterprise data centers to support their massive data workloads. At the same time, we are ramping our HAMR-based Mozaic products and continue to build customer momentum. Three major cloud service providers are qualified on our Mozaic products with additional qualification proceeding extremely well. On top of strong demand growth from cloud customers, nearline sales into the enterprise OEM market show a modest sequential improvement in the quarter, and we expect stable demand over the next few quarters. The remaining 80% of revenue came from legacy and other product lines. Sales from the legacy market totaled $270 million, up 6% sequentially, while revenue from our other product lines increased 3% sequentially to $163 million. Starting in the September quarter, we plan to adjust how we discuss our end markets. We will focus on two main areas: data center and edge IoT. The data center markets accounted for about 75% of our fiscal 2025 revenue and include nearline products and systems sold into cloud and enterprise customers as well as cloud-based VIA applications. Edge IoT includes consumer and client-centric markets, along with network-attached storage. We believe this new framework is better aligned with industry practice and reflects the AI-driven market we serve today. Moving on to the rest of the income statement. Non-GAAP gross profit increased to $926 million, up 19% quarter-over-quarter and 59% compared with the prior year period. Our resulting non-GAAP gross margin expanded to 37.9%. We continue to benefit from a favorable mix, including increased adoption of our latest generation products and ongoing pricing adjustment. These factors, combined with a strong demand environment for data center products, supported non-GAAP gross margin for the Archive business above the corporate average. Non-GAAP operating expenses totaled $286 million, up 4% quarter-over-quarter and in line with our expectations. Other income and expenses decreased 9% sequentially to $73 million due in part to lower net interest expense during the quarter. Adjusted EBITDA was $697 million, up 24% quarter-over-quarter and up 73% year-on-year. Non-GAAP net income was $556 million, resulting in non-GAAP EPS of $2.59 per share based on a diluted share count of approximately 215 million shares. Turning now to cash flow and the balance sheet. We invested $83 million in capital expenditures for the June quarter and $265 million for fiscal '25, which equates to 3% of revenue. Looking ahead to fiscal '26, we anticipate capital expenditure to be inside our target range of 4% to 6% of revenue, while we continue maintaining capital discipline. Free cash flow nearly doubled in the June quarter to $425 million, up from $216 million in the prior period. Based on our current outlook, we expect free cash flow generation to expand further in the second half of calendar year 2025 compared to the first half. This is even accounting for a substantial variable compensation payout in the September quarter, which is consistent with our strong performance. In the June quarter, we returned $153 million to shareholders through the quarterly dividends, and we returned nearly 75% of free cash flow to shareholders for the fiscal year, demonstrating a strong commitment to our capital return strategy. Cash and cash equivalents increased 9% sequentially to close the June quarter with ample liquidity of $2.2 billion, including our undrawn revolving credit facility of $1.3 billion. We reduced our debt balance by approximately $150 million during the quarter, including retiring $505 million through a new $400 million note issuance and cash on hand. We exited the quarter with gross debt of approximately $5 billion. The combination of lower debt and strong profitability resulted in a net leverage ratio of 1.8x with further reduction anticipated in the coming quarters as profit expands. Turning now to September quarter outlook. From a demand perspective, the visibility gained through our B2O strategy instills confidence in sustained demand strength for our high-capacity nearline drives and support both revenue and margin expansion in the September quarter. As previously communicated, starting in fiscal 2026, we will be subject to a global minimum tax rate in the mid-teens. Accounting for these factors and for the 14-week period, we expect September quarter revenue to be in the range of $2.5 billion, plus or minus $150 million. At the midpoint, this reflects a 15% improvement year-over-year. Non-GAAP operating expenses are expected to be approximately $290 million, reflecting the 14-week period, partially offset by lower variable compensation as we reset the annual plan for fiscal '26. Based on the midpoint of our revenue guidance, non-GAAP operating margin is expected to expand into the mid- to high 20s percentage range. And non-GAAP EPS is expected to be $2.30, plus or minus $0.20 based on a 16% tax rate and non-GAAP diluted share count of 221 million shares. Our EPS guidance reflects estimated dilution from our 2028 convertible notes and equity compensation. Dilution to non-GAAP earnings from the convertible notes occurs when the volume-weighted average price of Seagate stock trades above approximately $108 during the period. We target to partially offset the dilutive impact of the convertible notes through share repurchases, which we expect to resume in the current quarter. To close, Seagate's strong June quarter performance underscores our continued focus on driving growth, enhancing profitability, and optimizing cash generation. We are executing our strategic objectives, underpinned by a structurally changed business model and leading technology roadmap to deliver on our financial targets and enhance value for both customers and shareholders. Operator, let's open the call up for questions.

Gianluca, I would like to ask you about the implied gross margin guidance for the September quarter. Over the past eight quarters, you've achieved an average sequential expansion of gross margins by over 200 basis points. I understand that at the midpoint of your guidance, considering the interpretation of mid- to high 20% operating margins, you're indicating about 20 basis points of sequential margin growth. Could you confirm that calculation? Additionally, could you clarify the factors at play and explain why we're not seeing the implied gross margin expansion in September, even with the confidence you're expressing about reaching 40% gross margins in the coming quarters?

Thank you, Erik. I would say your estimate is a bit low. Actually, I say is significantly lower than what is implied in the guidance. So we have just achieved a new record high in our history in terms of gross margin and having a very high operating margin. But we are guiding up revenue. We are driving up gross margin and operating margin, I would say, significantly more than what you are modeling right now. So our path to achieve the milestone or the first milestone that we discussed at our Investor Day just a few weeks ago is intact. Now we are going exactly in that direction. I think we can be there fairly soon.

Could you provide some insights on the demand for AI inference at the edge, both in the cloud and on-site? What feedback are you receiving from customers that indicates there is an increase in demand for AI? As you look towards the upcoming quarters, what does this suggest about your expectations for AI exabyte demand, particularly regarding inference and the workloads you anticipate for your guidance?

Thanks, Asiya. It's a fairly complex space, a lot of different things being called AI. What I would say, generally speaking, in the cloud, it's about video properties. We've seen this for many quarters in a row now where video is actually stored in the cloud and the diversity of video that's actually coming in from all parts of the world that gets stored in the cloud, those are tremendously rich data sets for us to ultimately store on hard drives. As far as edge goes, you're starting to see all kinds of different applications, whether they're video applications themselves, factories, safety, factory efficiency, hospitals. There's a lot of big data sets that exist, especially video data sets that exist at the edge. And some of those applications are taking us. So call them inferencing, but they need a lot of data to be fed with at the edge. And then there's also just the normal growth of, I'll call it, data and analytics, text data analytics still. But interestingly, at the edge, we're starting to cross over from a point where you maybe treated data as something that you had to sort through and then delete. Now it's just snapshot, snapshot, just keeps saving lots of snapshots at the edge because you might want to go back and look through it. So those are actually driving some of the edge growth that we've made reference to as well.

If I may, just how does that affect kind of what you guys shared at the analyst event in terms of exabyte CAGR as you kind of look ahead?

Yes, I think the biggest uncertainty here is still aligned with the exabyte compound annual growth rates we've discussed, which are in the mid-20s and that we're comfortable with. However, we are paying attention to some new applications, particularly those that are highly data-dependent and have gone viral. These edge applications are intriguing because a lot of data generated at the edge often gets discarded. If we can find ways to process or store that data longer, it becomes more valuable to us. The cloud effectively manages the data that resides there, especially when it comes to sovereign data sets where there’s a strong desire to keep data local, as we mentioned in the prepared remarks. These aspects are also noteworthy.

Could you discuss the revenue contribution from HAMR this quarter and your expectations for its growth in the September quarter? Additionally, what impact do you anticipate that will have on gross margins in the upcoming quarter, whether positive or negative?

Yes. Thanks, Jim. So HAMR is growing steadily, and we're very happy as we get more people qualified like we've talked about, then we'll continue to ramp. What we're very focused on in the company right now is getting to the 4 terabyte per platter platform. And we're, in some sense, winding up for that, which we'll expect that ramp early in calendar 2026, like we said in the prepared remarks. As far as gross margin, the current product sets are still accretive to gross margin. As we get higher and higher, we expect it to be more accretive. But Gianluca, do you want to give some more color on that?

Yes. No, we are ramping HAMR higher quarter-over-quarter, and we have already three major cloud customers that are qualified on Mozaic 3, and we have started Mozaic 4 terabyte per disk. So we are executing our roadmap, the one that we recently discussed at our Investor Day, and we expect Q1 to be another step higher in terms of volume and of course, in terms of revenue. And as we discussed, because HAMR is higher capacity drive and lower cost per terabyte, we expect a positive impact to our gross margin.

Yes, you had a strong quarter, clearly, but you guided revenue slightly below consensus for the September quarter and your DSO also jumped up. So I was wondering if you could clarify if there was anything that you would point out in linearity in the quarter? And I guess the question is, how well is your HAMR capacity ramp aligned with qualifications and demand? Like are you tracking better on production versus demand because of qualification, which could maybe potentially drive some catch-up in the December quarter?

Yes, I'll let Gianluca jump in here. In relation to the HAMR ramp, let me compare this quarter to last quarter. The planning for these periods took place six to nine months ago, often with build-to-order models. We need to assess what has actually been qualified and what will be qualified in the next six to nine months, while leaning into the product transitions occurring in that timeframe. If we could produce more of any product, we would, but we are also focusing on encouraging transitions to 3 plus and then 4 plus. This is consuming a lot of our operational efficiency. There might have been a slight overpull last quarter, which indicates strong demand. Demand could potentially be stronger as we approach the latter half of the year. We are currently observing fairly robust demand and working to balance our manufacturing capability with the long-term planning we committed to nine months ago, while also prioritizing these product transitions.

Yes. No, Wamsi, you said well, we had a very strong June quarter. We achieved better results than also what we were estimating at the beginning of the quarter, and we are guiding a better quarter in September. Demand is strong, is above supply. So our guidance is mainly based on what we think we are ready to supply during the quarter and that volume of exabytes, they will be fully sold. We also need to dedicate a little bit of our production to qualification. So some of our volume is dedicated to qualification. And as you know, we are qualifying a big number of customers on HAMR. And so, of course, we are slightly impacted in the volume that we sell because we need to keep some volume for customer qualification. But we are going in the direction that we recently discussed is another step further into our improvement in not only in revenue, but even more importantly, in profitability. And when you look at our guidance, of course, you need to remember that starting this quarter, we will be subject to the global minimum tax. So when you look at EPS, of course, there is an impact from the tax expense. And there is also an impact from a higher number of shares outstanding because of the convertible and equity compensation. So when you model all those things correctly, you will see actually a fairly good improvement in both gross margin and operating margin.

Just to clarify that one last point you made around the capacity ramp and some of the capacity being tucked away sort of for these qualifications. Would you say that, that's something that just continues to roll forward as you're qualifying more customers? Or do you have a potential for a really meaningful step-up once you get into December because now you've got the CSPs qualified on Mozaic 3?

We don't guide December. But as I said before, we are going into the direction of continuing to improve revenue and profitability. And of course, part of this revenue is coming from having a little bit more supply available. So we are executing our plans. We don't see any major constraint right now in achieving what we said recently, and we are very, very confident.

On the HAMR side, I will ask it differently. I don't think you want to disclose the exact percentage of revenue for the next few quarters. You demonstrated effectively at the Analyst Day where the crossover point would be in the first half of fiscal year '27. However, from a customer perspective, much of the growth so far has been with a single customer. Are additional customers, like two or three, starting to represent a significant portion of the growth, say 10% or more? I'm trying to understand the adoption beyond the initial customer.

Thanks, Tom. Yes, simple answer to your question is yes. The other customers are starting to ramp as well, and the pull is pretty strong also, depending on who's called where they may ask for more of the last-generation product or may want to wait until the 4-terabyte per platter, but everybody has pretty good visibility, and we have multiple customers pulling hard. And that's indicative of the exabyte demand. Maybe to the earlier question that Wamsi was asking, we add exabyte capacity by getting through these transitions. And so that's been our move is we're not really trying to add gross capacity of number of drives. We're trying to get through these transitions as fast as we can to be much more efficient with the exabytes.

Helpful. And in terms of that transition, I think you guys had previously said on the mass capacity side, like where you kind of ran into a wall in terms of where you were willing to produce was like 160 exabytes on the mass capacity side. Is that still the right way to think about where things are stopping before you get just the growth from the technology side? Or are you looking at that in any different way now? I just wanted to see if there was an update there.

With continued ramp of Mozaic 3+ platforms, we could continue to grow. But 4+ allows significant growth above that, yes. So it's not a wall so much anymore. It really was when we were stuck in the middle of 2 terabytes per platter product, but we're way past that now.

Dave, as you think about the LTAs that are giving you visibility, it sounds like into early '26 right now. Can you just touch on what pricing assumptions are you seeing embedded on an exabyte basis in these contracts? And really, as you think about the HAMR products starting to ramp up over the next 12 months, do you end up in a pretty good cost advantage, I think, on a per exabyte basis on HAMR exabytes. Do you think these LTAs will enable you to keep those cost savings for Seagate? Or would we see a bigger drop in price per exabyte that you have to engage with your customers with at that point?

Yes, we don't need to incentivize the transition. There is a significant total cost of ownership benefit to running these new products in your data center. For instance, comparing a 40 terabyte system to a 30 terabyte one over six or seven years reveals a substantial TCO advantage. This provides a built-in incentive. We understand our costs, the pricing we want to set, and the margins necessary to support our research and development, supply chain, and other areas. We are carefully balancing these factors in our planning. Gianluca, would you like to discuss pricing?

We are maintaining the pricing strategy that we implemented over two years ago. Our like-for-like pricing will continue to experience slight increases each time we negotiate a new build to order. Additionally, we are seeing a shift toward higher capacity drives, which also factors into the overall strategy. Everything is in line with the execution of our plan that we shared a few weeks ago.

I want to ask a little bit about free cash flow generation and how we should think about share repurchase. So I think in the prepared comments, you had pointed out that you should be in your CapEx spend range of 4% to 6%. I guess the first part of this is that, that would seem to imply a fairly healthy uptick in the CapEx spend year-over-year for fiscal '26 versus fiscal '25? And I guess why would that be? And then the second question is kind of tied to that is that as we see the generation of free cash flow, you've hit the sub-$5 billion gross debt level. How do we think about the right level of cash operationally you're willing to hold? Or how maybe in the opposite way, we should think about excess cash being built and capacity for share repurchase. Any thoughts around that would be helpful.

Thanks, Aaron. I'll hand it over to Gianluca in just a second. But just to handle from an operations perspective, I mean, obviously, given what we've been through in the last few years, we were pretty tight on CapEx. So I'm not sure that looking at a year ago or two years ago baseline is a great way to think about it, some of our gear needs to be replaced. There's a small tick up for that, but then there's also us looking forward into FY '27 and FY '28 and saying, how do we make sure we stage for 4 terabytes of platter and 5 terabytes platter mix, make sure we have the right gear for that. That may drive CapEx a little bit. We'll still be well within our range, though. And then Gianluca?

Yes, Aaron. So free cash flow is improving a lot. You have seen already in the June quarter, a major step-up. This will continue, as we said, during the second part of calendar '25 and will also continue for the second part of our fiscal '26. We have reduced our debt, as you said, at the target level we were targeting since more than a year at this point. And Dave just announced that we are restarting share buyback. So again, we are executing our plan. I think this is a good time to restart the share buyback. And in terms of liquidity, you were asking and excess cash flow or excess cash, we don't have excess cash right now. I think we can maybe still increase a little bit our cash position, but the vast majority of our free cash flow, of course, will go back to our shareholders through the dividend and through the share buyback.

Dave, regarding your previous comments about the AI drivers you've noticed in your business, could you clarify if you're observing various kinds of AI video drivers? If so, could you elaborate on those for me? I just want to ensure I understand them clearly.

Yes, Ananda, there are the video properties that I refer to, which involve storing a lot of video in the cloud and sharing that video among numerous users globally. We are all familiar with these and use them daily. Additionally, there is unstructured data coming into the cloud for processing, which can also include video content. Furthermore, some new AI applications are generating video, and some of those are beginning to gain popularity. While this is still a small trend, video processing and unstructured data processing are significant. The video properties I mentioned are enormous, as humans are creating a wide variety of content and storing it through these applications.

And are you seeing from the autonomous sector, anything starting to happen with generative AI? Any visibility into that? And that's it for me.

That's an interesting question. So we do have some partnerships with people that are making autonomous vehicles. Typically, so far, the data is actually gathered in the field and then processed in a local cloud. And it's fairly data-rich. But so far, there hasn't really been a generation of data at the extreme edge and then monetization somewhere else besides just teaching the car how to drive better. Should that ever happen so that the cars themselves become units that are actually picking up a lot of data and then sharing it some other way, that could be a huge opportunity. So far, we haven't seen that. It's more about training and inferencing just to make sure that the vehicles are driving right and staying safe.

So I was hoping to better understand your ability to drive revenue growth, both short term and longer term. So for the September quarter, you're guiding up 2%. You have an extra week, but you talked about select HAMR bits going to qualification. So I would have thought perhaps with the extra week, maybe you could have had more output. So is there something else going on there? Is there a mix issue? Would love to have help there. And then for fiscal '26, at your Analyst Day, you talked about longer-term growth of low to mid-teens top line. And I'm just curious, at what point in the HAMR ramp do you think you'll have the capacity to support that type of growth?

Yes. I'll let Gianluca address the longer-term period. However, I want to mention that the quarterly supply dynamics were influenced by decisions made six to nine months ago regarding build-to-order. I don’t think our customers are focused on whether it’s a 14-week quarter or an extra week. If there’s a slight increase in demand at the end of the quarter, it might benefit us, and there is some indication that it did last quarter. But I don’t focus on what happens in a one-week timeframe. From our perspective, increasing our online exabytes involves transitioning to new products rather than purchasing additional capital to meet demand, as that process would take a considerable amount of time. Therefore, we are prioritizing getting our new products qualified and ramped up, which will enhance our margins.

Yes. The mix is going in the right direction. So we are increasing both Mozaic, so the HAMR product, and the last generation of PMR products. So you will see the increase in exabytes that are implied in our guidance and also what we have done in the most recent quarter. We are increasing exabyte. We are not increasing units. So this is all technology transition. The more and more we move customers to HAMR, the more and more we have the opportunity to increase the exabyte. And of course, that will result in higher revenue. In terms of what we said at our Analyst Day in terms of revenue growth, so the low to mid-teens, we guided next quarter at $2.5 billion. If you look where we were a year ago, I think it's probably 15% higher. So I don't see anything different compared to what we were saying a few weeks ago and what we are executing. Of course, every quarter is different. And as I said before, we guide based on what we think we are producing in the quarter. If we will produce a little bit more, we will be able to generate a little bit more revenue. But right now, this is the visibility.

This is Eddy for Krish. I have a question about the guidance. It appears that your forecast suggests incremental gross margins of around 50%, even though we remain under the $2.6 billion revenue baseline mentioned during the Analyst Day. As you transition from $2.5 billion in September to $2.6 billion and beyond, I'm curious why you wouldn't expect your incremental gross margin to exceed the 50% figure provided at the Analyst Day. Are there potential challenges in the near term? It seems a bit confusing, especially since the HAMR ramp is still in its early stages. One would anticipate gross margin improvements above the 50% you outlined. Any clarification on this would be appreciated.

Yes, guys, I think you need to look at your model a bit deeper because the implied gross margin in the guidance is way higher than what you are seeing. Again, look at your model, look at the impact of the increase in the share outstanding, the increase in the tax. But the gross margin in our guidance is much higher than 50 basis points sequentially.

Sorry, Gianluca, I meant 50% incremental gross margin, not 50 basis points.

Okay. Perfect. Well, no, I would say that every quarter will be a little bit different depending exactly from the mix that we change quarter-over-quarter. But I would say our first goal is to achieve the $2.6 billion in revenue and the 40% gross margin. And I think we are trending well in that direction. And after that, our goal is to continue to increase revenue in the low to mid-teens as we discussed at the Analyst Day and increase our profitability for incremental 50% gross margin. So I would say nothing changed in the last eight weeks. So I think the plan is ongoing, and we are executing well.

Dave, you mentioned something I haven't heard before. You said the capacity is fully booked until mid-2026 and that visibility is extending into the latter half of the year. What does that entail? Considering that the lead time to build to order is a year, if you place an order now, you won’t receive the drive until this time next year anyway. By that logic, you inherently have a year’s worth of visibility. Are you altering how you manage that capacity? Also, what does this actually reveal? For instance, do you know precisely what will be shipped in December? I understand you may not want to provide specific guidance, but if you were to guide for December, could you indicate what you plan to ship then? I'm curious if there's been a change that prompted your comment.

Nothing has really changed. You are somewhat correct. We are navigating through these product transitions. Our customers are encouraging us to not only begin ramping Mozaic 3+, but also to start ramping Mozaic 4+ and beyond. They are collaborating with us on qualifications. This is part of what we refer to as visibility. Generally, they want exabytes instead of specific boxes, but they do seek the most efficient boxes available. Do we have good visibility into that? Yes, and we also have long lead times for some components. Therefore, we need to ensure that we start acquiring those components right away. If that clarifies your comment, Tim.

Yes. I guess I'm just trying to figure out like, do you know exactly what you're going to ship in December? I know you don't want to give guidance, but I mean, could December be down potentially? Or do you have enough visibility to say, look, we know exactly what we're going to ship in December, and we don't want to tell you, but we at least know what it's going to be.

I would say we have a clear understanding of customer needs and demand is very strong. While I can't predict any outside factors that might influence things, from our viewpoint, demand remains robust, likely exceeding our current capacity. Even as we work on increasing our capacity during these transitions, particularly with the exabyte capacity, we are committed to meeting that demand.

And Tim, we said previously also in prior calls, we expect calendar '25 to sequentially increase revenue and profitability. So we continue in that direction. So December will be higher revenue and higher profitability.

I was just curious if there's any seasonality we have to think about as we figure out the full fiscal year quarters. It seems like there's a lot of positive quarter-on-quarter tailwinds as you go through the year. What kind of seasonal warnings would you throw up, Gianluca?

The seasonality, Steve, is starting to really diminish in our business. So if the legacy and other businesses, they still have some seasonality. And then VA is interesting because as time marches on via some of the VA workloads are moving to the cloud as well. And so we're seeing not the typical seasonality that we would have seen in the VIA markets. It's actually more muted now. But I think the bulk of our business, there really isn't any seasonality anymore.

Sorry, in total, I would say March quarter is usually our lower quarter in terms of revenue. But as Dave said, that seasonality impact every year becomes a little bit smaller.

And just real quick if I could squeeze one in. I know someone asked you about receivables. I'm not clear on the answer in terms of why the receivables were up so much in the quarter.

There is nothing strange. As you know, in the past, we did also some factoring, and we didn't do any factoring this quarter. And that's because our free cash flow was really strong already. So nothing unusual, I would say, in the business that drive receivable higher.

Yes. I'd say we're back to running the business the way we want to, and we've got the supply chain moving the way we want to. So we're very pleased with the progress in FY '25.

High-level question. It looks like NAND hasn't been cannibalistic to HDD demand for some time. Each storage type has their own respective end market. And there's been so much in terms of capacity cuts in NAND recently that has precluded any production cost down. So as eventually NAND capacity normalizes and production costs return to a normal curve, should we view this as a potential pressure on HDD demand in certain end markets? Or are the dynamics such that notably with HAMR, your density versus production costs maintain the gap with NAND?

Yes, it's a complex question, but I would say that your last point aligns with our perspective. We are consistently working to enhance capacity per drive while managing our costs effectively. We offer a strong value proposition for customers. In key markets that matter to us, such as the cloud markets, the relationship between NAND and HDD has not significantly altered. When I mention this relationship, it's important to note that there is substantial use of NAND in the cloud, as a lot of front-end memory is utilized in these applications, some of which are very reliant on memory. However, for mass data storage, the interplay between the NAND being utilized and the hard drive bits remains stable. Given the economic factors you've mentioned, and as we discussed during Analyst Day, the total investment needed to substitute HDD with NAND is considerable. NAND technology is indeed promising and presents many intriguing applications on the edge; businesses must manage it well, which could be influencing the behaviors you've referred to. However, for the majority of mass storage applications, especially in the cloud, the architectures remain unchanged.

I have a question regarding the gross margin. If your margins reach around 38.7% to 38.8% in the September quarter, can you explain if this increase is due to pricing, utilization, and the HAMR mix? Could you provide some details on how much of this improvement can be attributed to pricing versus utilization versus the HAMR mix? I also have a follow-up question.

Yes, I would say all those factors that you mentioned. So HAMR volume will be higher, and this is, of course, a good help to our gross margin. And the pricing strategy, as we said before, is not changing. So for the few contracts that we will have renewed in the September quarter, we will have a little bit better pricing. And we are selling all our production. So of course, also on the cost side, we are getting fairly good cost per terabyte decline. So I would say not differently from the last few quarters, we are trending in the same direction, and we are continuing this sequential improvement.

Got it. And Dave, I think you mentioned three customers on HAMR now. You've also mentioned five customers by the end of fiscal '26. Can you discuss how the other two are progressing and your expectations for the ramp-up of the second and third customers?

Yes, earlier I mentioned an increase in the number of people ramping the product in relation to the three customer comments. We haven't confirmed five yet, but we expect to qualify major customers by early '26, as stated in my prepared remarks and discussed at Analyst Day. We are on track with that. Regarding the customer calls, they are going very well. As customers require more time to qualify, they recognize this as an option and start generating demand. With the build-to-order model, we need to be precise about what we can produce, including which wafers are available and the capabilities of the heads of media needed to meet those demands. We aim to be as predictable as possible for them. The progress with the qualifications is going quite well.

Thanks, Nick. Thanks, everyone, for joining us today. Fiscal '25 was an incredible year for Seagate, and I'm really proud of our team's execution. We're operating in a strong demand environment, driven in part by advancements in Gen AI and the march towards all these agentic models. These breakthroughs have solidified data as one of the world's most critical resources. Hard drives are a key component in empowering businesses to harness the full value of their data and Seagate's leading technology roadmap makes us uniquely positioned to capture value from those growing opportunities. We appreciate the ongoing support of our customers, our suppliers, our employees, and the shareholders, and we look forward to sharing our progress in the quarters ahead. Thank you.