Seagate Technology Holdings plc (STX) 2024 Q4 Earnings Call Summary

Optimistic Highlights

• Strong Fiscal Year Finish: Seagate ended fiscal 2024 on a high note with an 18% year-on-year increase in fourth-quarter revenue, driven by strong global cloud demand.
• Profitability and Cash Generation: The company achieved a non-GAAP gross margin of nearly 31%, expanded non-GAAP operating profit by 64%, and grew free cash flow sequentially every quarter of the fiscal year.
• Product Roadmap Execution: Seagate is on track to complete the HAMR-based Mozaic 3+ product qualification and has started to ramp up its 28 terabyte PMR, SMR product platform drives.
• Demand Recovery: Nearline cloud revenue more than doubled from the year-ago period, with expectations for continued growth in fiscal 2025, driven by traditional cloud computing workloads and new AI-related deployments.
• Supply-Demand Dynamics: Nearline exabyte supply is committed through the end of the calendar year, highlighting strong demand and the effectiveness of the built-to-order strategy.

Pessimistic Highlights

• Global Macro Uncertainty: Near-term budget visibility for smart city projects is mixed, reflecting current global macroeconomic uncertainties.
• Operational Challenges: Seagate faced supplier issues during the summer, which impacted the high-volume ramp of HAMR-based drives.

Company Outlook

• Revenue Growth: Seagate expects September quarter revenue to be in the range of $2.1 billion ± $150 million, an 11% sequential increase and 44% year-on-year at the midpoint.
• Gross Margin Improvement: Continued improvement in gross margin is anticipated, benefiting from a richer mix of mass capacity revenue and ongoing pricing actions.
• HAMR Technology Confidence: Despite recent challenges, Seagate remains confident in HAMR technology, expecting it to play a crucial role in meeting future data storage needs.

Q & A Highlights

• Q: Can you discuss the market coming into supply-demand balance and capacity expansion? (Wamsi Mohan, Bank of America)

  A: Seagate is cautious about adding more capacity, focusing on predictability and product transitions to meet demand. The company is not planning to significantly increase capacity in the near term.

• Q: How do you see the trajectory of gross margins in the coming quarters? (Wamsi Mohan, Bank of America)

  A: Gross margin improvement is expected to continue, supported by price adjustments, favorable mix shift toward mass capacity products, and ongoing cost efficiencies.

• Q: What is the visibility on improving enterprise storage demand? (Asiya Merchant, Citigroup)

  A: Visibility is improving, with a gradual improvement in demand observed. Seagate expects stronger growth in the second half of the calendar year, driven by modest improvement in traditional server unit demand and increased exabyte content.

• Q: Can you provide an update on HAMR timing and conviction level for qualification with your first cloud customer? (Erik Woodring, Morgan Stanley)

  A: Seagate is optimistic about completing HAMR qualification and beginning shipments to revenue units later in the September quarter, based on progress in testing and improvements in process controls and firmware.

• Q: How do you view the pricing trajectory and market share concerns related to HAMR qualifications? (Amit Daryanani, Evercore)

  A: Market share is not the primary concern; the focus is on predictability and meeting customer needs. Pricing dynamics are favorable, and Seagate is committed to product transitions to meet exabyte demand efficiently.

• Q: What is the outlook for mass capacity demand and the impact of HAMR on gross margins? (Krish Sankar, TD Cowen)

  A: Demand for mass capacity products is expected to trend higher, with HAMR technology playing a significant role in improving gross margins by enabling higher capacity drives at efficient costs.