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DATE
Tuesday, July 29, 2025 at 12:00 a.m. ET
CALL PARTICIPANTS
Chief Executive Officer — Dave Mosley
Chief Financial Officer — Gianluca Romano
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TAKEAWAYS
Revenue—$2.44 billion for the June quarter, up 13% sequentially and 30% year-over-year.
Non-GAAP Gross Margin—37.9%, expanding 170 basis points sequentially, described as a record high for the company.
Non-GAAP EPS—$2.59 non-GAAP earnings per share.
Fiscal Year Revenue—$9.1 billion in revenue for FY2025, representing nearly 40% growth.
Non-GAAP Operating Profit—$2.1 billion in non-GAAP operating profit.
Annual Non-GAAP EPS—$8.10 non-GAAP EPS.
Mass Capacity Revenue—Over $2 billion, up 40% year-over-year.
Nearline Shipments—137 exabytes shipped for nearline products, representing 91% of mass capacity exabytes shipped, up 14% sequentially and 52% year-over-year.
Total Volume Shipments—163 exabytes, up from 144 exabytes in the prior quarter.
Legacy Segment Revenue—$270 million in legacy market revenue, up 6% sequentially; other product lines contributed $163 million, up 3% sequentially (component figures do not sum to total revenue).
Adjusted EBITDA—$697 million, up 24% sequentially and 73% year-over-year.
Non-GAAP Net Income—$556 million in non-GAAP net income.
Operating Expenses (GAAP)—$286 million, up 4% sequentially.
Capital Expenditures—$83 million in capital expenditures for the quarter and $265 million for FY2025, or 3% of revenue.
Free Cash Flow—$425 million in free cash flow, nearly double the prior period's $216 million.
Shareholder Returns—$153 million returned via dividends, with nearly 75% of annual free cash flow distributed to shareholders.
Cash and Liquidity—$2.2 billion in cash and equivalents, including a $1.3 billion revolving credit facility.
Gross Debt—Approximately $5 billion at quarter-end; debt reduced by ~$150 million in the quarter.
Net Leverage Ratio—1.8x, with further reduction anticipated as profitability expands.
Sequential DRIVE Revenue—$2.3 billion in DRIVE revenue, a 14% sequential increase led by nearline cloud sales and seasonal VM market strength.
September Quarter Revenue Guidance—$2.5 billion plus or minus $150 million, reflecting a 15% year-over-year increase at the midpoint.
September Quarter Non-GAAP Operating Expenses—Approximately $290 million (non-GAAP), with the period including an extra week.
September Quarter Non-GAAP Operating Margin Guidance—Expected to reach the mid- to high-twenties percentage range.
September Quarter Non-GAAP EPS Guidance—$2.30 plus or minus $0.20 GAAP EPS guidance, based on a 16% tax rate and 221 million diluted shares.
HAMR Ramp—Mozaic 3+ products progressing in volume, with three major cloud service providers qualified and broader qualification advancing as planned.
Product Transition—Qualification for the 4 terabyte per disk platform has begun, with volume ramp targeted for the first half of calendar 2026.
Contracted Capacity—Build-to-order nearline capacity is largely booked through mid-2026, with visibility building into the latter half of the year.
Pricing Strategy—Chief Financial Officer Romano stated, “our like for like pricing will continue to slightly increase every time we negotiate a new lead to order.”
Capital Allocation Plans—Share repurchases are expected to resume in the current quarter.
SUMMARY
Seagate Technology Holdings plc(NASDAQ:STX) reported record-setting revenue growth and non-GAAP gross margins, driven by demand for higher-capacity drives from cloud and enterprise customers. The company is executing a technology transition to HAMR-based products, with significant customer qualification and a clear timeline for ramping advanced platforms. Build-to-order contracts secure nearline capacity through mid-2026, with further visibility into the second half of the year. Shareholder capital returns remain a core focus, with nearly three-quarters of free cash flow distributed and a plan to restart buybacks. Capital expenditures are projected to rise but remain within the 4%-6% of revenue target as production shifts to next-generation technologies.
Chief Financial Officer Romano stated, “Demand is strong, it's above supply,” attributing guidance constraints primarily to production capability and customer qualification needs rather than market weakness.
Gross margin gains (non-GAAP) are attributed to improved product mix, stronger pricing, and advancing manufacturing efficiencies, with further benefits expected as HAMR contributions scale.
Free cash flow is projected to expand further in the second half of the fiscal year, despite anticipated higher variable compensation outlays.
Beginning in FY2026, Seagate will be subject to a global minimum tax rate in the “mid-teens,” with both GAAP and non-GAAP tax rates aligning at 16% as specified in the outlook.
Long-term demand forecasts remain intact, with mid-twenties exabyte growth and top-line growth in the low- to mid-teens anticipated as customers shift toward higher-capacity, HAMR-enabled drives, as discussed at Seagate's Analyst Day.
Seasonality is described as diminishing in importance due to the ongoing transition toward mass capacity products, according to management’s commentary during the Q4 FY2025 earnings call.
INDUSTRY GLOSSARY
HAMR: Heat-Assisted Magnetic Recording, a next-generation hard drive technology enabling higher storage density per platter.
Exabyte: One billion gigabytes, used as a metric for large-scale data storage capacity shipments.
Nearline: Hard disk drives designed for high-capacity, high-availability storage in data centers, typically used for secondary or archival data.
BTO: Build-to-order; contractual arrangements with customers that determine production and allocation of product capacity over a specified time frame.
PMR: Perpendicular Magnetic Recording, a legacy drive technology preceding HAMR in high-density storage applications.
TCO: Total Cost of Ownership, reflecting combined capital and operational expenses associated with deploying storage solutions.
Full Conference Call Transcript
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.
Dave Mosley: 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 4 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 time frame 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 twenty-six and beyond. I'd like to thank our global teams, my 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.
Gianluca Romano: Thank you, Dave. We capped fiscal twenty-five delivering strong double-digit 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-operating margin by 270 basis points to 26.2%. Our resulting non-GAAP EPS was $2.59 as a high end of our guided range. For fiscal twenty-five, 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 recording 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. Spent from nearline cloud sales, along with seasonal improvement in the VM market, led to a 14% sequential increase in our 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. Husqvarna shipments 151 exabytes compared to 133 exabyte in the prior quarter. The airline shipments into cloud and edge data center made up the vast majority of mass capacity volume.
In the June quarter, New Airline 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 Mosaic products which continue to build customer momentum. Three major cloud service providers are qualified on our Mosaic products. With additional qualification proceeding extremely well. On top of strong payment growth from cloud customers, the airline 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. Based on the legacy market, totaled $270 million up 6% sequentially while revenue from our other product lines increased 3% sequentially. To $163 million. Starting 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 market accounted for about 75% of our fiscal twenty-five revenue. And include the airline products and systems sold into cloud and enterprise customers, as well as cloud-based via application. Edge IoT include 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 Celestia, 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 adjustments. These factors combined with a strong demand environment for data center products supported non-GAAP gross margin for the enterprise business above the corporate hedge. On GAAP operating expenses, totaled $286 million up 4% for quarter and in line with our expectations.
Other income and expenses, decreased 9% sequentially to $73 million due in part to the over 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 the 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 twenty-five. Which equates to 3% of revenue.
Looking ahead to fiscal twenty-six, 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 the second half of year twenty-five, compared to the first half. 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 dividend. 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 close the June quarter with ample liquidity of $2.2 billion including our Androna 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 notetations 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 net leverage ratio of 1.8 times 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 BTO strategy instilled confidence in sustained demand trend for our high capacity nearline drives. We support both revenue and margin expansion in the September quarter. As previously communicated, starting in fiscal twenty-six, we will be subject to a global minimum tax rate in the mid-teens. Accounting for factors and for the fourteen-week period, we expect September quarter revenue to be in a range of $2.5 billion plus or minus $150 million. As a midpoint, this reflects a 15% improvement year over year. Non-GAAP operating expenses are expected to be approximately $290 million replacing the fourteen-week period partially offset by lower variable compensation as we reset the annual plan for fiscal twenty-six.
Based on the midpoint of our revenue guidance, non-GAAP operating margin is expected to expand into the mid to high twenties percentage range. And on GAAP EPS, it's expected to be $2.30 plus or minus $0.20. Business sixteen percent tax rate. And non-GAAP diluted share count. Of 221 million shares. Our EPS guidance reflects estimated dilution from our twenty-eight convertible notes, and equity compensation. Allusion to non-GAAP earnings from the convertible notes of course, when the volume weighted average price of SEG 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, see a 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 structurally changed business model and leading technology roadmap. To deliver on our financial targets enhance value for both customers and shareholders. Operator, let's open the call up for questions.
Operator: We will now begin the question and answer session. If you have further questions, you may reenter the question queue. And your first question today will come from Erik Woodring with Morgan Stanley. Please go ahead.
Erik Woodring: Super. Good afternoon, guys. Thank you very much for taking my question. So, Luca, I just want to kind of ask you about the maybe implied growth margin guidance for the September quarter. Over the last eight quarters, you've expanded gross margins by over 200 basis points sequentially on average. I believe at the midpoint of your guide, depending on the interpretation of mid to high twenty percent operating margins, you're guiding to something of, like, 20 basis points of sequential margin expansion.
Can you maybe one just to confirm that math and then two, just help us understand the puts and takes and maybe why we're not seeing that gross margin imply gross margin expansion in September, you know, despite the confidence that we're hearing from you guys about getting to 40% gross margins in a few quarters. Thanks so much.
Gianluca Romano: Thank you, Eddie. I would say your estimate is a bit low. Actually, I say it's 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 guiding up gross margin and operating margin, I'll say, significantly more than what you are modeling right now. So our path to achieve the milestone or the fourth 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.
Operator: And our next question today will come from Asiya Merchant with Citigroup. Please go ahead.
Asiya Merchant: Great. Thank you for taking my question. If you can tell a little bit on the AI inference edge demand, both on the cloud side, maybe also on the edge side. You know, what are you seeing perhaps in the customer commentaries that you're having that would suggest that, you know, there is an uplift here from AI? And sort of what's kind of your as you look ahead into the next few quarters, what are you implying or what are you seeing in terms of AI exabyte demand just specifically from inferencing? And workloads that are sort of baking you know, workloads that you're expecting for your guidance. Thank you.
Dave Mosley: Thanks, Asiya. Yeah. 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 efficiencies, hospitals, there's a lot of big data sets that exist, especially video data sets that exist at the edge. Some of those applications are taking lots of call 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, starting to crossover from a point where you maybe treated data as something that you had to sort through and then delete. Now it's just snapshot set.
Snapshot just keeps saving lots of snapshots at the edge because you might wanna go back and look through it. So those are actually driving from the edge the edge growth that we've made reference to as well.
Asiya Merchant: If I may just you know, how does that affect kinda what you guys shared? I'd be analyst event in terms of you know, exabyte CAGR as you kind of look ahead? Thank you.
Dave Mosley: Yeah. I think the biggest wildcard in that, it was still sticking to the same and y keggers that we talked about, you know, mid-twenties that we're comfortable with that. But there are we are watching some of these new applications that people talk about viral applications that happen to be very data dependent or very interesting to us. And most of those are edge applications because there's a lot of data at the edge that ultimately gets just thrown away. And so if it could be processed or stored longer, it's more interesting to us. So I think the cloud knows how to deal with the data that actually ultimately resides on the cloud very well. Great.
And especially big sovereign datasets. Sorry. Especially sovereign datasets. Where people are wanting to keep the data locally like we made reference to in the prepared remarks. I mean, those are interesting as well.
Operator: Thank you. And your next question today will come from James Edward Schneider with Goldman Sachs. Please go ahead.
James Edward Schneider: Good afternoon. Thanks for taking my question. Maybe if you could talk a little bit about the HAMR contribution you saw in terms of revenue in this quarter and whether you expect how much you would expect that to increase if at all in the September quarter? And then maybe, you know, following on to that, any kind of impact you expect that would have on, gross margins either positive or negative in the out quarter? Thank you.
Dave Mosley: Yeah. Thanks, Jim. So, the HAMR is growing steadily, and we're very happy as we get more people qualified like we talked about, then we'll continue to ramp. What we're very focused on in the company right now is getting to the four terabyte per plat platform. And we're, you know, sit in some sense winding up for that, which you know, we'll expect that ramp early in calendar twenty-six, 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?
Gianluca Romano: Yeah. No. We are ramping HAMR. Highest quarter over quarter and we have already three major cloud customers that are qualified on Mosaic three. And we are starting Mosaic four terabyte per disc. So we are executing our roadmap. One of it, you know, we recently discussed at our investor day. And we expect Q1 to be another step higher in thermal 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.
James Edward Schneider: Thank you.
Operator: And your next question today will come from Wamsi Mohan with Bank of America. Please go ahead.
Wamsi Mohan: Yes. Thank you. Yeah. 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 in the December quarter. Thank you so much.
Dave Mosley: Yeah. I'll let Gianluca jump in here, but relative to the HAMR ramp, sorry. Let me just talk about this quarter versus last quarter. Last quarter, obviously, the planning for these quarters is six months, nine months ago with build to order or more. In some cases. And so have to look at what is qualified exactly to your point and then what's going to be qualified in six months or nine we're leaning into the product transitions that happen along the way. If anything, we could make more product of any time, we would make it, but we're also trying to incentivize these product transitions to three plus and then four plus as well.
And we're consuming a lot of our operational efficiency that way. Maybe there was a little bit of an over poll to your question last about last quarter and that's indicative of strong demand. I mean, the demand may be stronger as we get out to the back half of the year. We certainly see fairly strong demand right now. We're trying to balance our manufacturing capability and that planning that we've done long term, what we had promised people nine months ago. We're trying to balance all that together, but also prioritizing the product transitions.
Gianluca Romano: Yes. No. Once you said, well, we had a very strong June quarter. We now 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, it's above supply. So our guidance is mainly based on what we think we are ready to supply during the quarter. And that volume of exercise, 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 call, and as you know, we are qualifying a big number of customers on HAMR.
And so now, of course, we are slightly impacted in the volume that we sell. Because now we need to keep some volume for a for customer call. But we are going in the direction that, you know, we recently discussed is another step further into our improvement in not only 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 an iron number of share 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.
Wamsi Mohan: Thanks, Gianluca. 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 calls, would you say that's something that just continues to roll forward as you're qualifying more customers, or do you have a potential for really meaningful step up once you get into December because now you've got these CSPs called on Mosaic three. Thank you so much.
Gianluca Romano: 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 now is coming from having a little bit more supply available. So we are executing our plan now. We don't see any major constraint right now in achieving what we said recently. We are very, very confident.
Operator: And your next question today will come from Thomas James O'Malley with Barclays. Please go ahead.
Thomas James O'Malley: Nice. Thanks for taking my question. On the HAMR side, I'll ask a different way. I don't think you guys wanna give out the exact percentage of revenue over the next couple of quarters. I think you did a good job at the Analyst Day of showing where the crossover point was in the first half of fiscal year twenty-seven. But maybe from a customer perspective, like, a large part of the ramp thus far has been with a single customer. You're talking about multiple customers qualified. At this point, are customers two, three, etcetera, outside of customer one, making up a significant portion of the ramp. Like, ten percent or more, let's say.
I just been trying to get an understanding of the adoption outside of the first guy. Thank you.
Dave Mosley: 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 wanna wait till the four terabyte per floater, but everybody has pretty good visibility, and we have multiple customers pulling our And that's indicative of the exabyte demand. Maybe to the earlier question that Wamsi was asking, you know, 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, you know, get through these transitions as fast as we can to be much more efficient with the exabytes.
Thomas James O'Malley: Oh, cool. And in terms of that transition, I think you guys 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 with, like, a hundred and sixty 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 in any different way Just wanted to see if there was an update there.
Dave Mosley: With continued ramp of MOSAIA three plus platforms, we could continue to grow. But, you know, four plus allows significant growth above that. Yeah. So it's not a wall so much anymore. You know, it really was when we were stuck in the middle of two terabytes per plat or product, but, you know, but we're way past that now.
Thomas James O'Malley: Super helpful. Thank you.
Operator: And your next question today will come from Amit Jawaharlaz Daryanani with Evercore. Please go ahead.
Amit Jawaharlaz Daryanani: Thanks a lot. Good afternoon, everyone. Dave, as you think about the LTAs that are giving you visibility sounds like into early twenty-six 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 are the ramp up over the next twelve months. You end up in a pretty good cost advantage, I think, on a per exabyte basis on HAMR exabytes. Do you think these LTA will enable you to keep those cost savings for Seagate or would you see a bigger drop in price per exabyte that you have to engage with the customers with at that point?
Dave Mosley: Yeah. No. We don't have to incent it's a good question. Don't have to incentivize the transition. I mean, there's a significant TCO benefit of running these new products in your data center. So if you think about a forty terabyte versus a thirty terabyte to for example, and you're gonna run that for six or seven years. That's a huge TCO benefit. So there's an incentive baked in right there. You know, we know what our costs are going to be and we know what pricing we want to incentivize and we know what margin would that we need to be able to go back and refeed our R&D and our supply chain and everything else.
So we're balancing all these things in the planning that we're doing. Gianluca, do you wanna talk about pricing?
Gianluca Romano: Yeah. We are not changing our pricing strategy that we have started more than two years ago. So our like for like pricing will continue to slightly increase every time we negotiate a new lead to order. Of course, the mix is going into more higher capacity drives, so but it's also that part also set. But again, everything is aligned to how we are executing our plan that we presented just a few weeks ago.
Amit Jawaharlaz Daryanani: Perfect. Thank you.
Operator: And your next question today will come from Aaron Christopher Rakers with Wells Fargo.
Aaron Christopher Rakers: Yep. Thanks for taking the question. I wanna ask a little bit about free cash flow generation and how we think about share repurchase. So I think in the prepared comments, you had pointed out that you should be in your CapEx revenue or CapEx spend range of 4% to 6%. I guess the first part of this is that would seem to apply, you know, apparently healthy, you know, uptick in the CapEx spend. Year over year for fiscal twenty-six versus fiscal twenty-five. And I guess why would that be?
And then the second question is, you know, 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. You know, 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, you know, being built and capacity for share repurchase. Any thoughts around that would be helpful. Thank you.
Dave Mosley: 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 pickup for that, but then there's also us looking forward into FY twenty-seven and FY twenty-eight and saying how do we make sure we stage for four terabytes a platter and five terabytes a platter make sure we have the right gear for that.
There you know, that may drive CapEx a little bit. We'll still be well within our range though. And then Gianluca on the Yes, Aaron. So free cash flow is improving a lot. Now you have seen already in the June quarter a major step up. This will continue, as we said, during the second part of calendar twenty-five, and we'll also continue for the second part of our fiscal twenty-six. 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, obviously, it's 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. Thank you.
Aaron Christopher Rakers: Thanks.
Operator: And your next question today will come from Ananda Prosad Baruah with Loop Capital. Please go ahead.
Ananda Prosad Baruah: Thanks, guys, for taking the question. Dave, just going back to your prior remarks about the AI drivers that you're seeing in your business. And this is this would be sort of not at the edge of the data center remarks. And did you actually make mention that you're seeing multiple types of AI video drivers And if you are, could you do you mind just sort of speaking to those again? I just wanted to get clear on those. Thanks.
Dave Mosley: Well, yeah. I would say, Ananda, there's the video properties that I call them, the things that are storing a lot of video on the cloud and then sharing that video across many users around the world. Right? So we all are familiar with those and use those every day. There's also just unstructured data that's coming into the cloud for processing. Could be video content as well. And then there's video generation from some of the newer AI applications also that, you know, some of those are starting to go viral as well. That's a small trend so far.
So the video processing, the unstructured data processing is big and then the video properties, as I call them, is just huge. Creating, you know because humans are creating all kinds of diverse content and then storing them through these applications.
Ananda Prosad Baruah: 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. Thanks.
Dave Mosley: 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, you know, 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.
Ananda Prosad Baruah: Got it. Thanks a lot.
Operator: And your next question today will come from C.J. Muse with Cantor Fitzgerald.
C.J. Muse: Yeah. Good afternoon. Thank you for taking the question. So I was hoping to better understand your ability to drive revenue growth both short term and longer term. So the September quarter, you're guiding up 2%. You have an extra week, but you talked about select HAMR bits. Know, 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 twenty-six, you know, 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 capacity to support that type of growth? Thanks so much.
Dave Mosley: Yeah. I'll let Gianluca deal with the longer term period. But, you know, obviously, as I said before, the quarter of quarter stuff was a lot of the supply perspective on these quarters was dictated six months ago or nine months ago under build to order. And I don't think our customers look at it as fourteen week or an extra week or whatever. So if there happens to be a little bit more demand at the end of the quarter, you know, maybe it'll come our way. It you know, there's maybe some evidence that it did last quarter. I don't really get into the, you know, what happened in one week period.
From our perspective, the way we put more exabytes online is to go through the product transition, not necessarily by capital to try to, you know, build more for demand because that would be a long, long lead time anyway. So we're actually very focused on getting the new products in, qualified, up the ramp, so on and so forth to and that'll help build our margins.
Gianluca Romano: Yes. The mix is going in the right direction. So we are increasing both mosaic, so the HAMR product, and the last generation of PMR product. So you will see the increase in exabyte that are not implied in our guidance and also what we have done in the most recent quarter. We are increasing exabyte. We are not increasing unit. So this is all technology transition. So more and more, we move customers to HAMR. 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 term of revenue growth. So the low two meetings regarded 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 any you know, 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 it to be more, we will be able to generate a little bit more revenue. But right now, this is a visibility.
C.J. Muse: Very helpful. Thank you.
Gianluca Romano: Thanks, C.J.
Operator: And your next question will come from Krish Sankar with TD Cowen. Please go ahead.
Krish Sankar: Hey, guys. This is Eddie for Krish. Just a question on the guide. It seems that your guidance implies incremental gross margins about, like, 50% Even though we are still below the $2.6 billion revenue baseline, you outlined on the Analyst Day. I wonder as you go from the $2.5 billion in September to $2.6 billion and above, why would your incremental gross margin not be better than the 50% number you guided at the Analyst Day? Like, are there some headwinds in the near term? It's just, like, a little bit puzzling, especially given that the HAMR ramp is still in very early stages.
So someone should expect, like, revenue gross margin accretion above the 50% you guided, but I so any color on that regard would be helpful.
Gianluca Romano: Yes, guys. I think you need to look at your mods a bit deeper because they implied gross margin as a guidance is way higher than what you are saying. 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.
Krish Sankar: Sorry, Gianluca. I meant 50% incremental gross margin. Not 50 basis point.
Gianluca Romano: Okay. Perfect. Well, no. I'll say that now every quarter will be a bit different depending exactly from, you know, the mix that we change quarter over quarter. But I'll say our first goal is to achieve a $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 not the low to mid-teens as we discussed, as the analyst Dave and increase our profitability for incremental 50% gross margin. So I would say nothing changed in only the last eight weeks. So I think the plan is ongoing, and we are executing well.
Krish Sankar: Got it. Thank you.
Gianluca Romano: Thank you.
Operator: And your next question today will come from Timothy Michael Arcuri with UBS. Please go ahead.
Timothy Michael Arcuri: Thanks a lot. Dave, you made a comment I haven't heard you make before. You said the capacity is booked out to mid twenty-six and visibility is extending into the back half. What does that mean? Because build to order I mean, the lead time to build to drive is a year. So if you place an order now, you're not gonna get the drive until this time next year anyway. So sort of by definition, you have a year, you know, worth of visibility. Are you changing how you book that? Capacity? And I guess part of that is, what does that really give you? Like, do you know exactly what's gonna ship in December?
I know you don't wanna give us guidance, but can customers push out, like, if you wanted to guide December, could you tell us what you're gonna ship in December? You know, I'm just wondering if something changed for you to give that comment. Thanks.
Dave Mosley: Nothing's really changed. So you're and you're somewhat right. Remember, we're leaning through these product transitions. So we have customers who are driving us to not only start the ramp of Mosaic three plus, start the ramp of Mosaic four plus and so on. And they're working with us on qualifications. And that's some of the stuff that we talk about visibility. They generally want exabytes. They don't want specific boxes, but they want the most efficient boxes they can get. And so do we have pretty good visibility into that? Yes. And we have long lead times you know, some of the components, so we have to make sure we start those components right now.
If that helps you comment, Tim.
Timothy Michael Arcuri: Yeah. I guess I'm just trying to figure out, like, do you know exactly what you're gonna ship in December? I know you don't wanna give guidance, but, I mean, could December be down potentially, or do you visibility to say, look, we know exactly what we're gonna ship in December and, you know, we don't wanna tell you, but we at least know what's gonna be.
Dave Mosley: Right. I would say we know what the customers want. And, you know, demand is very strong. That's why we made we you know, as far as what else might happen in the world, I don't know what else might happen in the world. But, you know, from our perspective, demand is still strong, probably stronger than what we have capacity for. And even though we're building capacity as we get through some of these transitions, via exabyte capacity via the transition.
Gianluca Romano: And Tim, we said previously also in prior calls, we expect calendar twenty-five to sequential increase revenue and profitability. So we continue in that direction. So December will be higher revenue and higher profitability.
Timothy Michael Arcuri: Thank you.
Operator: And your next question today will come from Steven Bryant Fox with Fox Advisors. Please go ahead.
Steven Bryant Fox: Hi. Good afternoon. I was just curious if there's a 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. You know, tailwinds as you go through the year. What kinda seasonal warnings would you throw up Gianluca?
Dave Mosley: The season is starting to really diminish in our business. So, you know, if the legacy and other businesses are still have some seasonality. And then VIA is interesting because as time marches on Vias, some of the Vias 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. Is more muted now, but I think the bulk of our business, there really isn't any seasonality anymore.
Steven Bryant Fox: Thanks. And just real quickly know what that Again, sorry.
Gianluca Romano: Sorry. In total, I would say mass water is usually our lower quarter in terms of revenue. But as Dave said, that season nineteen, but every year becomes a little bit smaller.
Steven Bryant Fox: Thank you. And just real quick, if I could squeeze one in. Know someone asked you about receivables. I'm not clear on the answer in terms of why the receivables were up so much the quarter. Thanks.
Gianluca Romano: Oh, there's 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 now our free cash flow was really strong already. So nothing unusual, I would say, in the business. Bed drive. Receivable higher. Yeah. I'd say we're back to running the business the way we want to and, you know, we've got the supply chain moving the way we want to. So we're, you know, very pleased with the progress in FY twenty-five.
Steven Bryant Fox: Great. Thank you.
Operator: Your next question today will come from Tristan Gerra with Baird. Please go ahead.
Tristan Gerra: Hi. Good afternoon. High level question. It looks like NAND hasn't been cannibalistic to HDD demand for some time. Each storage type has their own respective 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 HDD demand in certain end markets or the dynamics such that, notably with HAMR, your density versus production cost may the gap with NAND.
Dave Mosley: Yeah. It's a complex question, but I would say that your last point is the way we think about it. We're continuing to increase the capacity point per drive and also, you know, keep our costs in line. We have a great value proposition for customers, and so therefore, in the markets that we that are really material to us, like the cloud markets, the interface between NAND and HDD is not really changing that much. And when I say interface, keep in mind, there's a lot of NAND in the cloud. Right? There's a lot of front end memory in these application spaces and in some cases, some are very memory dependent.
But when it comes to mass data storage, the interface between all demand that's being used and all the hard drive bits that are being used is changing that much. And because of the economics that you talked about, because of the like we've talked about in the analyst day, the total amount of capital that would be required to replace the bytes in that are HDD with NAND. So NAND's a great technology. It's got a lot of interesting applications on the edge. They need to manage the business well.
That may be the result that may be what's resulting in some of the behaviors that you made reference to, but in the bulk of mass storage application certainly in the cloud, the architectures are not changing.
Tristan Gerra: Great. Thank you very much.
Operator: And your next question today will come from Vijay Raghavan Rakesh with Mizuho.
Vijay Raghavan Rakesh: Yeah. Hi, Dave and Gianluca. Just first question on the gross margin side, assuming your margins, you know, go to, like, like, 38.7, 38.8, 3.8% in the September quarter, is that pickup coming from pricing, utilization, the HAMR mixer? Can you give us some attribution? Like, what person goes to from the pricing improvement versus utilization versus the HAMR mix? And then I follow-up.
Gianluca Romano: And you're talking about the SAP Yeah. September quarter. Sorry. Yeah. Oh, yeah. Yes. Oh, I would say all those factors that you mentioned. So HAMR volume will be higher and VCs of course, a good add to our gross margin. And the pricing strategy, as we said before, is not changing. So for the few contracts that we will have 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.
Vijay Raghavan Rakesh: Got it. And Dave, you mentioned three customers on HAMR now. And I think you guys have said five customers by the end of fiscal twenty-six. Can you talk to what the how the other two are going and how you expect the number two and number three ramps to progress, I guess? Thanks.
Dave Mosley: Yeah. So earlier, I talked about the fact that there were more people ramping the product. So that is relative to the three customer comment. We haven't really set five yet, but we've said major customers will be qualified by early twenty-six. That's what it said in the prepared remarks. And we actually talk about that at Analyst Day as well. So we're still on exactly that path to your question. About how are the calls going. They're going very well. I think as customers need more advice, they see that as they get through qualification, they see that an option and then they're creating that demand.
Obviously, we, with the build order, we have to be very prescriptive of it. So we know exactly what we're gonna be able to build. We know which wafers are flowing and we know what heads of media capabilities we're going to have to hit those things. We'll be as predictable as we can for them. But the progress on the qualifications is going quite well.
Vijay Raghavan Rakesh: Alright. Thank you.
Operator: And your next question today will come from Mark S. Miller with The Benchmark Company. Please go ahead.
Mark S. Miller: Yeah. I'm trying to get my arms around the impact of this global minimum tax, which kicks in fiscal twenty-six. Believe you said the non-GAAP tax rate will be sixteen percent. Can you give any insight what the GAAP tax rate will be with this global minimum tax?
Gianluca Romano: Yeah. It will be very similar. So, like, whatever minimum task is impacting us on both GAAP and non-GAAP.
Mark S. Miller: Okay. Thank you.
Dave Mosley: Thanks, Mark.
Operator: This concludes our question and answer session. I would like to turn the conference back over to management for any closing.
Dave Mosley: Thanks, Nick. Thanks everyone for joining us today. Fiscal twenty-five was an incredible year for Seagate and I'm really proud of our team's execution. We are 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 powering 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.
Operator: Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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