STX - Earnings call transcript Q2 2018 | Seagate Technology Holdings plc

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Operator

Good morning and welcome to the Seagate Technology fiscal second quarter 2018 financial results conference call. My name is James and I will be your coordinator for today. At this time, all participants are in a listen-only mode.

Following the prepared remarks, there will be a question and answer session.

As a reminder, this conference is being recorded for replay purposes. would Senior turn and Vice I to call Treasurer. time, Scolnick, Kate President, this like the to over At Investor Relations Please proceed, Kate.

Kate Scolnick

morning to Good and call. you. Thank everyone today’s welcome

Chief executive President XXXX Vice Chief quarter our Relations and Financial our Investor are Seagate’s detailed Morton, posted and from section We’ve on site press today and Dave our me Dave Joining at of December Mosley, earnings Executive Officer. supplemental Officer, Executive for Seagate.com. team our release information

for highlights and the December review call will we call, for quarter, today’s the provide March for outlook then the company’s During quarter, the questions. the open

We We’ve fall will to a go do frame. received in interest in a are remarks strategic questions approximately we to call likely the best early prepared and your lot and finalizing accommodate of hour, planning be for next we will our following date our the permits. half update most time today shortly, time our an as

our on Investor In quarter will addition, we GAAP March the measures. today, GAAP XX. our refer our supplemental will March Non-GAAP period to we website. reconciled our available and information quiet call would figures are of to like non-GAAP on On to note section figures that on begin

non-GAAP cannot have and/or directly be We to of effort. reasonably these measures impact without is unreasonable our accordingly, because to financial measures material not that guidance GAAP control the measures financial predicted; comparable reconciliation guidance reconciled not non-GAAP most items measures the out the available of GAAP measures our corresponding a are

could development block private demand of NAND of the to statements cause any turn to website. and vary Act, the technology and go general operating address of Please of and ability company’s Actual Cuts concerning ahead, transaction, continuity contains anticipated should forward-looking market for and customer current the market on subsequent our in supplemental forward-looking the are Investor company’s results as performance, the road long-term in and management’s equity Jobs our perspective shareholder not These reminder, statements execute investment and advancements, and from a equity value, and posted market, relied the impact results products, product our to differ date. be about like future generate conditions. today’s upon technology, statements. other over may call views to trends, now and on consummation supply As Ripple, that demand, cryptocurrency constraints our assumptions uncertainties materially from are and these risks, industry the supply, factors Dave. Bain Mosley. company’s Information conference our assessment would based SEC chain Dave filings contained of financial and information our this of to section of Capital access map to call Tax statements the the I forward-looking

Dave Mosley

Thanks thanks Kate. Good for joining us today. morning everyone and

earnings call, I seeing high in business. level today’s trends For the the will cover we’re

for record will up Seagate with Achieving December I’m income million, XX% up X% year-over-year. up our $XXX $X.XX, XX% achieved share environments HDD the Our non-GAAP outlook the billion, earnings pleased diluted our tax average in margins and HDD up competitiveness earnings XX.X%, taxes was and On cloud-based net reform. of up and drive expenses were for down and million. execution XX% capacity average year-over-year, share will expenses with our revenue drive across December portfolio profitability generation XX% a highlights, shipments cash was exabytes, a our to flow million, $XXX then flow $XXX growth per year-over-year, was year-over-year, and diluted million, year-over-year, the drive, discuss gross $XX, XX% XX.X operating we quarter March per exabyte I for per portfolio, results in X% the including quarter. have $XXX year-over-year. $XXX financial strong and The of Morton rapidly. the related certain up CFO, of year-over-year, quarter call terabytes reflects close for non-GAAP per operational one-time average income operating markets. XX% the quarter traction were solutions margins and million, year-over-year. provision million to Seagate selling grow a year-over-year. also of were basis, X% and million, and Dave quarter, particularly the a the the significant was enterprise, Beginning the record December GAAP consumer and XX% per revenues - across XX.X% $X.XX achieved of unit per year-over-year. price X% sequentially were of a cash operations very $XXX edge GAAP income of mass up as up $X.X continues of net GAAP Cash Seagate’s and capacity gross storage down free with $XXX gained up also for storage flow the X.X from with

In This December NAND provide addition into that the NAND supply of product continuity supply agreement has long-term our solid will to entered Seagate with expanding results, agreement for announced in we January portfolio. a quarter Toshiba Memory.

the profits now and customers. to providing today and we storage our enterprise mass technology and storage growth significant in several operational our storage broad ready our are future. for markets. depth into of to next to call grow on Dave portfolio value the go more that a last revenue scale on across flash-based to matured Diversifying have updating years HDD our enable multiple over activities. competitive over years with progress portfolio look We expanding while have forward over entire SSD you will solutions products several the our Morton We offering and I’ll future turn and meaningful the

David Morton Jr.

Dave. Thanks

revenue record terabytes. of For shipments drive and capacity growth profitability exabytes and the December year-over-year per record of with quarter, achieved XX.X we average exabyte X.X

HDD XX.X average the capacity capacity average per X.X exabytes with In strong year’s December enterprise growth record For years two to reached for a are record revenue up hyperscale ago. X.X terabytes shipped the the important our HDD up drive up our we Overall, year-over-year XX% drive, of in quarter a these drive. the serve we shipped quarter. designed and represent Seagate, X% continues we and in deployments from in demand per last terabytes an and confident market, XX% storage per Nearline environments. and market, exabytes opportunity The to cloud December portfolio over was XX.X Nearline HDD

was the enterprise Our SKU in quarter. the XXTb revenue product Nearline December leading

we for in contribution material volume In in to our sequential ramp we revenue the growth continue addition, Nearline revenue quarter. achieved as and product XXTb March

up expect continues portfolio storage opportunity multiple that application stringent and requirements. X will for for our believe Seagate, for needs. with and we XTb we’re workloads. different points to from XXTb continued for cases customers capacity demand we to well poised to capacity diverse As At cloud certain to Nearline capacity mass span their cause other delivers to customer points grow, Use help applications our

solutions Looking to ahead, is with generations that service cloud-based the technology and and in reliability, trajectory cost to mass ownership continues total constrained. to market, Seagate continue storage ability products. provide the of our benefits. companies enterprise of Critical massive in to of enterprise and strong large technologies quality greatest significant the remains growth the data leadership market continues long-term cloud be storage the and supply hyperscale In optimize and have have has growth and areal density supporting to velocity. providers demand demonstrated bid infrastructure spending

investment introduction open including portfolio towards HAMR almost five been continue the model. already and and solutions, in year-over-year rich last operating growth markets. In to leader space the capital expenditure compute, our magnetic SMR and markets, or edge strong consumer areal we progress gaming, anticipate value. we and costs our a in years, contemplated Over had existing up expense TDMR make the with will heat-assisted our exabyte for launching HAMR recording, and of in capacity and great which consumer, in the we’ve the and all high surveillance, PC are density areal NAS technology, We end a density XXXX verticals, future our long-term

to markets, Using great a X platter areal for well. continues points. perform platform platter for platform XTb density and providing inch customers our advantage, needing X.X Our X.X X, to ramp XTb capacity our XTb desktop per continues per value inch

In revenue, less legacy of mostly these total as cloud primarily we markets silicon from with than continue December quarter, products million, GB system we the business, was minimize workloads silicon XXX systems our for high XX% and hard to year-over-year these XXK performance non-HDD $XXX computing quarter cloud group, our the of assets divesting due and represented consolidated storage. ourselves positioning to down the alignment over revenue. the OEM drive to demand. mobile, our X% mission-critical believe the growth time silicon in December client addition to will consumer and move In

growth fiscal non-GAAP disclosed model of above and believe December invest the customer to equity basis, expenditures overhang highest GAAP commitment to $XXX NAND per for provide Looking million Toshiba Corporation maintenance silicon $XXX ahead, down December the for NVMe, growth address previously in base were of expanding ramp our additional Corporation. capital. the operating on without and strategic market $XX XX% of to beyond in SAS, supply basis agreement Seagate bullish that market Memory product we and for is HDD our consumer PCIe, capital the needs Toshiba significant our the approach be supporting million with long-term allows business quarter from year and about continue quarter. consortium markets. quarter cyclical expenses year-over-year. a the to the our non-GAAP up opportunities We approximately the economics expenses silicon revenue and track on us new margin exposure. exit with continued for to were portfolio participation capacity This with on revenue our our creation storage million requirements billion We and with contributions our and to to remain of and $XXX SSD, portfolio value Memory letter and Capital the for Operating products $X.XX Bain-led the leverage gaming million a in for acquisition opportunities

capital $XXX $XX $XXX quarter, March remain approximately cash to related total of previously and million. was consolidated expenditures Cash operations primarily restructuring the anticipate expenditures for to and December address capital in million These market was include expect demand. from free We capital capital flow than payments results our million charges. cash FYXX. revenue X% million to announced to be incremental approximately less the strong quarter in we for flow the maintenance some $XXX For cloud

and first For flow. cash against the we restructuring million in payments from half fiscal year, cash cash have $XXX $XX in charges, million billion flow operations, generated in nearly $X.X nearly of the including free

$X.X ended equivalents, and and remains quarter we and million cash shares December Our the cash healthy balance sheet with outstanding. XXX billion ordinary in

quarter, December for on the will for quarter $X.XX of XXXX. of payment be X dividend was Interest quarterly payable which the expense our approved has December million. board Our April $XX

our rates. debt of maturities towards well staggered our and given XXXX low redeeming structure the $XXX December interest levels continues notes. quarter, In expense be we million November senior financial Our capabilities deployed our and within interest to

net and down times quarter. to ratio is trend the debt of to December continues X.X Our EBITDA as

Dave Cuts and Jobs mentioned, $XXX tax a we quarter of the for to December As million Act. made provision income Tax adjustment in related Mosley one-time the

intangible a Specifically, deferred Seagate assets at recorded of cash corporate to impact the tax minor since is to not of re-measurement has and of The minimal for tax no non-liquid significant of XX% Seagate’s forward. the this our long-term the for earnings have to provision including be profits U.S. debt will Seagate The the which materially allowance impact the foreign million has going because XX.X% significant and assets We act enacted corporation the effective base anti-avoidance one-time reduction interest to the of foreign earnings. Act. no deemed impact We repatriation be Cuts derived most summary, that provisions, In for the the held global at low tax expense earnings the expect and liquid Jobs taxed the do not has believe impact of will and tax impactful assets rate taxed tax erosion not un-repatriated does international be U.S. the intangible due in U.S. of rate, Seagate Tax $XXX impact. income evaluated Seagate. the provisions accumulated company lower income, our to X% and

outlined global storage and these of thesis invest of data future in long-term our other block high value in alleviate and use verticals, cases in the are will that that will growth, investment IDC. of XXXX use few companies use made operations cases As for driving and agility the with data, and align growth improved companies Data we new A believe levels ledger Age important to We of report data innovation in transparency. some in technology distributed exponential we years we Ripple, ago, friction company the for a cases. chain which require an create proliferation of financial of tremendous require with integrity, transfer amounts consider

is defined the attention of of a real XRP and XRP, validated for our valuation assets, financial we Overall, recent on case team. December platform, a technology model believe Ripple robust and improvement and objectives. chain and the quarter leading a has While reflects crypto performance in the block profitability operational and management business execution our use

back ahead, opportunity our Dave advancements product optimize go-to-market markets. and aligning to the to the would focus like call Looking Mosley. on continue our I now we will and growth future business to portfolio towards turn

Dave Mosley

the operational environment. to the on focused and current years our reshaping past Dave. for two footprint cost Seagate Thanks structure team our demand The reducing has address

will supply chain sales from now I’m of our entirely to customers. revenue factories plans, growth have a as team significant on focus company to suppliers reduction efforts, to the profitability. proud completing and while shift sustainable flexibility well positioned always market to are our restructuring fulfillment and agility new and and Our and we opportunities our achieving for focused cost are for capturing we

macroeconomic outlook, trends our the environment conservatively about current environments. market well to spending we as Turning for optimistic remain cloud-based as

inventory the monitor year. inventory point, we are, the positions visible in supply year closely. On the channel general, for over that witnessed us Seagate’s or various inventory and heels last of component our are vantage IT we’re constraints continuing lower our From customers than so, to to outgoing last

supply For highest our continued solutions. exabyte tight as the March growth strong cloud year-over-year quarter, we in anticipate with capacity remains storage demand in

For serve, seasonal declines. the anticipate other markets sequential we demand we normal

other last to of result X revenue for than to from markets, our expect declines demand strong the December X% total seasonality cloud a and years sequentially quarter. growth This be year-over-year revenue the in the sequential revenues As we and lower down represents Seagate. few

gross cost We will sequentially customers, us quarter’s I’d their continue quarter’s line contributions in X% per containment sequentially targeting on to XX% today, $XXX for expect X% gross the quarter to margins to long-term and margins XX% questions operating Non-GAAP with thank million employees, and December range. our expenses we manage partners joining measures approximately expenses to for ’XX. within continue and suppliers tightly, be summary, further by like to end be the you the business fiscal down Thank of to our for now operating and with be our call our answers. open results. In call to we’ll up the as

Operator

[Operator question instructions] with Morgan Katy first from Stanley. Huberty comes Our

open. is line Your

Katy Huberty

gross to good is XX% was you. XX, keeping in you, how that you it into that and some over from what given Thank still ramp getting up morning. realistic There can margin is, Can get four there that cloud Thank but back about the headwinds sequentially, a three, were are that range really of quarters? talk a nice think next down year strong are the year-on-year. you ago, you’re you you

Dave Mosley

Hi Katy.

if and we assets pare, I to think the so work the some see I move year-over-year, saw that that and been in of over that are we have improve are continue. opportunities we’re as I I’d the slight to demand to I that more there called drag, picture enterprise quarter. time. there flat if that we last opportunities some there your that’s we are point, markets, higher, demand have so a yes, to non-HDD may it we solutions, can would the think characterize there picture are do still it out fix continues like say to but particular But do think continuing

Katy Huberty

good If Can you can do was flow around I half so in get than for how you really that year? capital put first quickly year? versus on historical cash see half higher working just second free billion; December, you $X.X comment seasonality, that but look you for full the think the would you

Dave Mosley

I’ll let that. Dave answer

David Morton Jr.

previous we Katy. still we’ve that we’re operations so cash Clearly some that on would when within velocity billion there’s billion, been flow hi to think thought working I in and you’ll our scope. Yes, $X lot be of the $X.X comments strong you confident Yes, confidence of from see I capital, end see linearity strong back year. a that up results, on so into the the think our of going well half

Katy Huberty

quarter. on the Great, thank Congrats you.

Operator

Thank you.

with Sachs. Our next Delaney question Mark Goldman comes from

open. is Your line

Mark Delaney

morning, may be much was the very procure, it deal do Toshiba a with you give or get us of an good is does Seagate able you could Toshiba potential for bits opportunity Then the now that factories? does with mix translate scale Can of of the in in longer a look thanks terms question. Toshiba’s type term, or a be go-forward elaborate could bit more you and scale a number bits market new your NAND of like for to hoping what that you me, Yes, cost-plus? revenue may have sort Memory. increased maybe either adds Toshiba, to proportionally the what the bits minus that Toshiba may and maybe--excuse as on opportunity of that Toshiba’s into, you sense place of ask I

Dave Mosley

go hand, can think with is we portfolio use. so from fairly the you the quick all way into details. we What any have that even the will I answer we of to devices enterprise, broad a into won’t no, have is which I I tell those consumer play

and get, until yet but we finally the this us now only NAND we a won’t believe haven’t deal trying the and quantified for really but we is chance it and while, a to done. all for intercept can Toshiba we the supply good those not right developing is that grow, to We’re NAND we’re that

Mark Delaney

Okay. saw momentum, follow-up the this is drive we share results on quarter. Clearly hard improved question market. the in Seagate in capacity demonstrating My market high which is

You with had been its how you first share cloud and your into understand to has us more strong of where the Toshiba know maybe XXTb main got and about market come you particularly just it’s economics competitor, WD think mid-range in the talk year. help I drive so can about this Seagate market, trying that announced, you’ve market

Dave Mosley

product is on like I versus see. tend to times a where portfolio. our There one another. lot Let’s people of fixate

product offering when fairly have requirements, so in do who strong We many, customers fairly diverse their are we’ll can a satisfy across we therefore and well.

as would I before, away well we’ve moving from over lot all competitiveness points the the and think we’ve about into standpoint, past in portfolio those year, capacity of various been a a to is from well. as I talked lower how some areal perspective, leading served we that components the so in has say of From play markets. have our that us density we’re flexibility

Mark Delaney

you. Thank

Operator

Thank you.

next comes Craig-Hallum. Christian Our from question with Schwab

line Your is open.

Christian Schwab

guys the extremely of A and same Congratulations great half your the first on for exabyte the enterprise of largest Are type follow-up on excited the order XXXX start. seeing you enthusiasm? a - was about year. competitor growth

Dave Mosley

I year. we. non-existent to Exabyte say last last almost would growth year, of year. are when non-existent the was as quarters Yes, cloud in you some almost growth compare it last was

a row demand fairly think quarters I we three in with flat profile. ran a

a is zero back go be years, the some constrained said seeing to that we’re we’ll few last there while, chase continue over percent it. quarters, at in you three bit When to demand calendar XX%, for higher last ’XX. your point, right are know but it If the than going point, go ends, to XX% and from it’s for and we to don’t we’ve point, backlash, weeks, been the to historically as now five this over so

Christian Schwab

you we successfully of you at want minus, guys that your you percentage may what portfolio have be allocation as the what debt, - of this to NAND, point? as return, is enhancing outlined investors as have product with you cash cash your maybe you some thinking would with well but well some view of structure far logical Then cost have know know, given your a is soon paid stability capital guys be lot a do I revenue off of addition dividend you of to increase as Great. reshaped flow how strategy? thought further have type as dividend been, flow, above should but or plus it that guys

Dave Mosley

year committed we question logical were when a we an question. seen, remain pieces way, get right in via the - so remained is shareholders interesting don’t as these is this I I forward-looking being Let’s say What now. would to committed the to see market value volatile. of really ago we can a asked because to into fairly different want to be we’ve it, the mechanisms returning

are think right happy where we with we’re I now.

Christian Schwab

Great. thank No other you. questions,

Operator

you. Thank

Our with next Fox question comes Research. from Steven Cross

Your line is open.

Steven Fox

product you I a morning. you Then bits don’t see commercialization meaningful SSCs, receiving you into might relationship, could Toshiba that want your we maybe understand year? the to on Hi, I start calendar but have from the get about quick to how be launches follow-up. more talk rest good into the of own could when

Dave Mosley

products are now SAS SATA of refresh qualification multiple products. across NVMe, in SAS, NVMe, and the products, consumer flavors portfolio, right even to also There

on product, this diverse So specifically fairly thing markets. offering, I that’s think going and what the those is reflecting points, in which it’s a same capacity

with get happy that be to the fairly and customer why some think bits that and able growth think I we supply that’s service come revenue technology when and strength flash competitively online, it on get all we’re with the intercept So integrated. brand we’ll all both we

Steven Fox

year? towards so capacity Thanks. your the you calendar have to the internal to continue rest lot or it you’re same high-end you mentioned, would Then we not of meet to see the more products, a of quick mix expect sounds just some capacity production bit constraints would as these follow-up, adding a of own shift like some of that

Dave Mosley

you we’ll buildings it and about, growth start like and so to had we talked I down, to we taken differently. way. did build some factory some look that little a that, range, We’ve applying footprints look bit capital the even things at bit X to that, want it X% actually if that as to and of of capital that at the we move

north, with things something pleased drive capacity obviously we continue had growth. of and in really the achieve that to per work. of going We’ve have moving to we’re to We’re the Yields is capital are way there focus a average lot that kind did years on can last restructuring, have yields now as in moving the our better we just this two on factories now the that, improving things but that the utilization getting we equipment wholeheartedly and after footprint. we and like focus

Steven Fox

Great, you. that’s very Thank helpful.

Operator

you. Thank

Our next question with from Cihra comes Rob Guggenheim.

Your line is open.

Rob Cihra

you Hi, much. thank very

to demand into cloud wanted Just a little dig more.

capex Thanks You’re guys been laid has from over growth quarters, can market, smooth of sort customers? very you group clearly the you if if just can tell of there’s that at cloud strong, as and always do that long-term out you benefiting you anything and so next or get of it much. how mercy out smaller you couple choppy that to the look have are us a be visibility capacity you demand you historically, to but see going at

Dave Mosley

Right. interesting. That’s

large and in there which less service would digest think we for relatively. they they where what have cloud call past, providers means I cycles a the while, in buy buy digestion then would big been tranches

space, component think in components, some diversification, not supply happened that magnified last component are drives, all space, the very, market I application [indiscernible]. been isn’t starting capacity by healthy a see - see diverse this different many it application the of to cycle, last one about very may cloud right we’re by as other geographically now, people by But which we more have especially know, hard supply and points, there year. issues

is think. get diverse I addressing their with customers all So different those to your helping point, visibility, us to all going help with needs better that,

Rob Cihra

you. Thank again. Thanks

Operator

Thank you.

question comes final Baruah from Ananda with Loop Capital. Our

open. Your line is

Ananda Baruah

the Hey, morning Appreciate guys. good questions.

impact that but calculation. was calculated Just if have the - two much that squeak margin? through my first you’re in, real real the you I Then the accurate, basis quick that yet just supply begin the has back gross Thanks this are, as off. XXX gross is customers? guess to envelope, that’s I’ll demand business Dave, file, system just cloud from key to a back point tightness headwind do I time of I can paring and paring sort material in you that impact through believe ones guys How it over how that you and margin, - maybe of the don’t the be agreements was going going know as one lot. to from engage with that quickly, far

Dave Mosley

Hi Ananda.

point well, There we do On to but control they very have at some longer our integrate the drive think in that’s I that. a build to you market if lot that and were and we to we different the looking lot tell do when add system so in on solution of gosh, complexity into to is be disruption solution start anyway I don’t the customers a to on. are going the didn’t really cheap, able bailiwick. core it’s like do guys and there we going I of is is quickly. move - Seagate and need you in people for market the who reason term, value beyond by the with we important markets competing that that first the from there - of so can componentry people don’t serve, where we above is necessarily at part chassis level, it will, all customers’ the if as think

us. what as churn should do it’ll and we’re less for I more you some stabilize obvious and building a which think markets complexity, for, those to been bit, little of see ultimately be we a customers as so it’s

really through and in in think far are how we places over other more it’s industry going started as Relative think it the on not it’s five do to but ago I tell, I years I yet. or well. that, can’t

believe We’re kind long of ability this drives. going and value smart add it’s understand to to term that maintains Seagate that We the the thing. do important above

that On which Rob drives, the visibility, and I second tightness give to you it’s market part, in question does the I back for visibility. the was was asked, question really think better think your enterprise long-term

I as quite to chain that problems think their to scale longer of a is architected kind are and Most term supply these does. it of properly our us sense actually bit talking making sure about players address they the visibility needs.

You the answered know, picture, hopefully that helps too. Rob I as demand

Ananda Baruah

a very That’s it. Got lot. helpful. Thanks

Dave Mosley

really and thanks this employees, their that, you business to and and suppliers quarter. for thank to quarter, like last I’d we’ll With help customers, next our Good. partners talk everyone.

Operator

Thank you today’s conclude Ladies does your and you much. for that conference. participation. very gentlemen, Thank

day. may wonderful You have all a and disconnect

Seagate Technology (STX) 29 Jan 182018 Q2 Earnings call transcript