STX - Earnings call transcript Q3 2018 | Seagate Technology Holdings plc

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Operator

Good morning and welcome to the Seagate Technology fiscal third quarter 2018 financial results conference call. My name is Amanda, 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 site We've on press today and Dave our me Dave Joining at March Mosley, earnings Executive Officer. supplemental Officer, Executive for team seagate.com. release information

the for time we March for call call, During questions planning half will and will our approximately company's and highlights for an remarks for go provide review outlook your we quarter, following prepared today's do the then permits. the the open questions. the quarter, best June our to accommodate as hour, the today call We're to

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

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

cause consummation address of as long-term Bain products; These forward-looking access constraints to impact concerning tariffs of Private and development uncertainties, while and and restrictions, import/export section that transaction; company's and are Please call in roadmap ability statements an to execute over trends; shipment and trade for of other the continuity and demand as macroeconomic Information and Equity product forward-looking management's Mosley. footprint; Dave. would As these supply and on industry could based forward-looking barriers, the market current vary should quotas; our differ go statements. filings manufacturing views ahead, potential on duties risks, NAND contains XXXX; ability results our in the to to of turn factors assumptions for relied any anticipated Actual operating to are technology the a current in conditions; and Investor now statements our today's website. contained from the our be and volume reminder, our company conference maintaining agile development results materially this upon not performance; our and market new conditions. Capital information product demand general about: Dave future from achieve subsequent statements date. the financial of supply; SEC posted customer may supplemental like company's I call to the advancements and, growth such and

William David Mosley

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

For today's quarter. the March results earnings call, I will from cover the high-level

year-over-year terabytes growth CFO, report over our Seagate the per year-over-year, share per were margins March year profitability. of exabytes, were Morton, net am drive, I March results quarter X% certain per Dave revenues reflects over Achieving million, was gross year operating XX% and XX% we March GAAP edge year portfolio down per have across $XX.XX, expenses revenue the the over and year. execution. year record X% year. over shipments $XXX markets Seagate's a financial quarter non-GAAP year year. business for and The And year. of and earnings cash up XX% date, with and achieved year income were significant with price our with share basis, achieved XX% I average gained GAAP and XX% the $X.X year-over-year HDD $XXX And selling financial year. year portfolio am $XXX call free in for flow XX% million, $X.X entire up per quarter profitability year. capacity outlook reflect was year. free close flow year was turn highlights, in the a drive cash and operations model billion, our Cash pleased generation down unit the the enterprise over to pleased I quarter. year diluted into Our $X.XX. of non-GAAP XX% aligns quarter and will $XXX XX.X%, opportunities. HDD year, trending will We income discuss flow strong up June $XXX net And growth data a mass cash achieved solutions now million, of million, Seagate's our across activities. to of call over depth the were margins On flow then expenses traction and to on $X.X average operational with the operations billion the Fiscal the earnings a I'll storage up over HDD X.X XX.X%, over million. of cash for XX.X that of year $X.XX, up diluted of have with to from up exabyte over flow was gross from GAAP growth over of up up Morton operating XX% we competitiveness more Dave $XXX for billion. the year. go million, revenue

David H. Morton, Jr.

Thanks, Dave.

were growth year, cloud year For strong We against portfolio are and disk disk important hyperscale revenues, year executed Seagate, reflect for March were quarter, in deployments this exceeded opportunity The growth year. year-over-year the well operational storage confident results continues and these X% to X% exabyte environments. revenues our the quarter and total nearline expectations. profitability, In demand and our serve we shipments. up and an designed hard market over March in our represent revenues up over to hard in drive quarter, drive

storage the XX.X X.X exabytes, a with nearline our average we average and a hard two the capacity drive per capacity remains drive, market, Cloud-based XX% constrained. years exabytes, XX% of ago. and up shipped to shipped bit XX.X In supply quarter record terabytes the per reached X.X enterprise disk extremely we For last drive. per drive record market, terabytes demand and enterprise be year over continues persistent March up from

in product nearline leading revenue quarter. XX-terabyte enterprise the the was Our March SKU

In achieved as addition, we revenue significant nearline ramp revenue material product and we contribution. sequential our in XX-terabyte volume for growth

year, solutions broad-based network-attached for NVMe, the markets, to storage to nearline Cloud cloud the we with either profitable consumer, exposure. different and edge move million, up points portfolio market planned these grows the cloud memory year, as In multiple legacy the compute, disk storage. be Systems growth or nearly developing participate our our from revenues, March sequentially. for opportunity verticals, computing and customer a time and will As and application than quarter supporting consolidated and the represented the our quarter end offerings. of non-hard OEM our due to for of products business drive leverage to portfolio application where a needs revenue. PC workloads life these in points allows disk end less to opportunities gaming margin mass Critical provide we capacity March markets believe the over year-over-year portfolio continue the next revenues SAS, to down we've Corporation, in ability massive quarter, including we and product for and exposure Silicon products are we year have the bullish or silicon-based Toshiba in the of developing total time, actively X% growth revenue demonstrated SSD, and XX%, in primarily of storage, Group, portfolio storage overhang revenues Seagate X% XXK mass workloads. expanding delivers high-performance up and the divestiture some were we In continued few reliability, with of our is markets, invest for and non-hard were continue benefits. contributions. as cost percentage sub-X-terabyte systems silicon to us have primarily the to market ownership March all PCIe, were that model address from about greatest over exabyte without significant capacity We cyclical and the strategic opportunities revenue are quality, had capital the technology Memory storage demand supply Silicon drive growth years, assets. agreement believe provide client The silicon several optimize technologies At in storage consumer areal approach of data our the over gaming, additional density expect that generations our storage products. over in leadership that consumer, has and to Year same to we requirements $XXX minimizing the mission-critical growth

These areal ownership for measurable leader in the two-dimensional five the to our technologies cloud-based recording years, shingled, provide other continue for recording particularly advantages mass density Over been over solutions. and of cost magnetic environments. perpendicular, we've market memory-based last technologies, areal storage with density the total

on in $XX We expenses terabytes March hard great make a our to in newest drives continued progress expenditures nearline XX existing offer are basis products year. our on which GAAP XX% investment future recording long-term were introduction capacity approximately capital. over quarter, quarter operating and HAMR recording anticipate up for that volume million million down our heat-assisted drive March XXXX, our points of space portfolio This disk ramping non-GAAP drive open year will push towards highest for per rich a Operating economic maintenance up $XXX our in costs a contemplated in launching the the expenditure expense the Capital platform technology. and value of continue and already were capacity million capital magnetic next-generation and for and and customers. model. high-capacity We the design the $XXX will basis, beyond support

flow and from operations March was expenditures $XXX Year For have to X% we to cash in below we free the date, generated nearly XXXX, consolidated anticipate fiscal flow $X.X billion million and from free flow of million. in $XXX capital revenue. remain flow. over in $X.X was operations billion cash Cash cash total quarter

days, Our levels persistent quarter are that well-managed market in cash conversion with inventory environment was customer demand cycle March for demand. five line a the coupled with reflecting

responsiveness two Product within challenge made for advantage last agility supply Seagate. supply provides storage and in believe have many significant chain our complexity a we operational optimize manufacturing chain years, footprint is the right competitive the a marketplace significant component management. the we to and Over changes and now our

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

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

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

net is of to XX ratio debt to EBITDA last down trend continues the times March months as Our one and under quarter.

in global products and technology has and manufacturing imported area a the nearly We technology decades of supply As world. could work trade Seagate increase China and vendors into tax company, suppliers the and U.S. have experience recently the managing chains global actions that every throughout complex of with announced region. tariffs operations technology some In in U.S. the customers, trade, potential on

Given issue, impact the is fluid any to of for nature too Seagate's changes operations. or determine it speculative the

However, the performance reflects within leverage quarter financial and we March operational earnings monitor solid our model. and the power Overall, to business continue our financial situation. in

storage growth align will in product go-to-market for advancements we markets. our ahead, continue mass Looking operations to the existing and portfolio

the customers now term, to that the storage markets additional call long will and back be Dave believe Over will with reliable to our we and technologies. would cost-efficient leverage like turn new opportunities growth Mosley. I there

William David Mosley

Thanks, Dave.

power, the of to stages perspective in outlook, optimistic earnings market transformation. are Seagate's global cloud a global persist. in remain we and the investments we nearline we Turning environments that share macroeconomic broad-based storage our Specific as products, about conditions to current cloud-based the early

June the quarter, enterprise for revenue, we demand and solutions. our For with capacity strong exabyte, growth, and anticipate profitability year-over-year supply highest continued tight

important is that we unit year demand markets typically serve, year in all we note, over other we exabyte seasonal as the would sequential June in quarter. the see to declines, growing It however, markets. is demand anticipate nearly Within

a March X% of As of expect fiscal trends, of revenues quarterly we total revenue result approximately reflecting growth to revenue demand the be XX% total year-over-year and these sequentially, roughly from for XXXX. approximately quarter, growth exabyte flat,

our Based range. Cash increase upon with We compensation and our flow to our to operations $XXX annual track overachievement in expect employees performance fiscal XXXX. line over continue fiscal anticipate the should for be to be in achieve from the in an sequentially of our billion $X on year June gross XX% XXXX March million, at operations quarter. trajectory in for to long-term from least margins we for and variable quarter June for within for we quarter XX% cash are plan, be flow the

expenses to will operating be We anticipate tightly, non-GAAP down expenses X%. continue manage our X% day-to-day sequentially we to operating and overall

further enterprise continue will Looking all regions customers our year. the throughout in ahead, calendar indicates feedback capacity largest demand from strong

in you addition, these Diverse that In markets, that long-term markets data anticipate customers other Seagate. contributions and second thank Thank the the the existing favorable call and continued also customers, today, to and and up on vertical for answers. growth joining suppliers, in strong opportunities translate in business on our with strong we'll for exabyte quarter's call horizon. will continue and edge are seasonal now like strength requirements trends for March customers partners, half. storage believe I'd questions and We for we new results. employees are profitability with the alignment the to their our us particularly exhibiting markets business opportunities to growth summary, open and In

Operator

Thank you.

the first Fox question of comes line Our Steven Cross of Research. from

Your open. line is

Steven Fox

constraints if how you was case, if Thank the your share and wondering could of calendar faster growing about head continues you you've whether had be the disk that facing good do to reallocate And and markets. you. talk might you year? of towards any have and you think morning. Thanks, some I chain lost on the client, throughout rest that's supply the

William David Mosley

their capacity can Steven, disk head we sure be markets lead right right place have that As at times long, due quite we the of and times and to the make to, for seasonality. to right in alluding the the have you're year

disks. our So frankly, I pretty pulling, think client, and quite well on few enterprise heads a plan strong. executed and remain That's continues we to

be at any much untoward loss continue it to and going I opportunities we'll to So We We more there, up to was or us. there then client was more media apply as for and was the in. continue that wouldn't heads share we'll going the to that point say knew And throughout year. see And down. anything ramp said more the it demand. resources to and try actually course that that strength more We executed pretty high-capacity plan. and to of the seasonally meet we that try to

Steven Fox

away is as the that at as there side, a Thanks. And client possibly on X of maybe you more hurdle in quick client? the follow-up that below a and below, X-terabyte move bar as chance for getting and you from your involved looking raise and terabytes are

William David Mosley

In some seeing markets, desktop of in the in you're the comments especially the of market. script, our fragmentation

example, some the but demand And it's higher parts exhibiting for in surveillance, keeps the of units, for market, particular up. going capacity seasonality

for terabytes, offering answer density heads areal and are of X we terabytes moving from terabytes, point, media technology X your on. to exactly terabytes, X length. same seeing or with So have X their terabyte as baseline people and to we'll the that and X to And so technology

Steven Fox

so you thank much. Great,

Operator

Thank you.

Ananda comes of question the Capital. next from of Baruah Our Loop line

is open. line Your

Ananda Baruah

thank Hey, guys the question. Can for you taking hear you, me guys, okay?

William David Mosley

Yes.

Ananda Baruah

actually performance congrats the well high in continues on Okay, difficult conditions. love more sounds and a in around up trends great. general. maybe context would executing market pick on momentum get strong Dave, trends guess the like I I just cloud It comments there. Hey, capacity little to and to

the you momentum up. I We And made but may just but half what's it even to is leading comment about strength conviction? even (XX:XX) the helpful. really in picking half Could any secondarily, multiyear an year, to into it the are continues thought as comments momentum just you And second Is continues around of would like build? accurate Thanks. – the (XX:XX), made sounds you be strength a year well. second process then, calendar that view number not think one, XXXX a be

William David Mosley

Ananda. Thanks, Good.

where at where years, market there's famine, been So if feast The the were you of last the of and there we where longer and more were CAGR, visibility. a and – much five than lead it will. some times markets starting you but see We're that market the as generally, demand be remember periods were about was it if exabytes the that markets slowed seasonality, XX% misinterpreted other abate but the increasing periods lot predictable, a faster down. sometimes in history to time the there nearline

And because or feast the cloud anymore. hard that's some is not drives on of of installations high-capacity as build-out major pulling really famine,

that or something this centers still the but is below, points, where behind say capacity necessarily diverse, aren't strong that, the and are and on-prem demand the more quite quite geographically. developing for I a think data highest technologies so the capacity little legacy terabytes we'll smaller is is points X bit, and

perspective, my that from back strong year feels actually So half the of last through up this middle year and of calendar strength picked well. as

year calendar XXXX, of on-prem certainly We'll size these are the back and the most like very the of a companies be but install year half big it's may of the little healthy. into feeling still patterns are out providers of first, Looking bit I this the see service in of it premature. middle think some cloud that

be year. And it wouldn't so, at for another if I extend all does surprised

Ananda Baruah

Okay, for that. I'll thanks (XX:XX).

William David Mosley

Thanks.

Operator

Thank you.

Katy Stanley. Morgan question next the from of line Huberty Our is of

is line open. Your

Kathryn Lynn Huberty

gross revenue margins slightly, mix, range at Thank are you, and the middle this your and XX% morning. Enterprise sequentially. good just is only record quarter, yet up long-term of up

holding quarter. you non-HDD improvement can gross follow-up. any quick in a your have And on the what's in the And margins? I then, saw answer so, you back comment And if whether in margin gross

David H. Morton, Jr.

Dave Hi, Katy, it's Morton.

build-wise, some to X% had And were total to I'll were regards but build-wise. reductions. only production remind volume sequential margins, absolute down this gross the about down volumes talk to also X%. time is I'd we probably quarter also our that total like in units, So everybody We

And absorption that, about so, from if that think headwinds. added you loss some the

were If approximately you though, a absolute year-over-year dollars look $XX basis, at however, margin from million. it gross up

starting where mobility these the contributions, that's really see changes associated that streams. so build-out and I'd had to from you're TB costs to and workloads your into as of with the with is XX ramping well. the to material so, remind and aggressively startup And cloud the expansion we volume some still client/server that more due so you our these also

to great small non-hard contributors in quarter all, In we regards all of did in some our revenue, some the see So specifically there. drive top incremental margin accretion team, operations. disk line by to our

still we online. have some about go. margin And within group as near-term opportunities some optimization our some the have alignment to opportunities then, still However, we Memory coming Toshiba further will in spoke We this Corporation the year. us half of provide That well. back Systems

Kathryn Lynn Huberty

there terms that average? that of possible up corporate line is margins closer longer-term next to any in gross sight of the months, in non-HDD the or Is XX And is goal? a getting

William David Mosley

longer-term this Mosley, a is Dave the it's I way, think – by Katy.

think our than resources will than markets. at I longer-term think staging But I that From intercept able us perspective, the a those least, that. it's to growth be these goal to for markets, longer-term margin a we're of be of lot parity. to hit

Kathryn Lynn Huberty

thank very much. Okay, you

Operator

Thank you.

is question next of Delaney Our Goldman Mark Sachs. of the line from

Your line is open.

Mark Delaney

Good for the taking and thanks morning questions.

think and was but the with market. nearline think specifically in within I hoping you the demand. positive being comments on why seeing is well, and you the I view may line bits you be could we're XXXX, question market. first And to about help able year capacity us The the understand are Certainly, ship nearline there potentially as constrained into throughout

William David Mosley

We're areal I to earlier call going solutions. – call is the have answer with answer think this to to we're my have comments. density going the to to

answer that a will much it the changes, bit as be fairly try more big alluded think times go that footprint within our can a are big pivot demand little is pretty markets, see nearline question pivot the asking the now We As operations. those last budgets for question is back But constraints is markets question can I answer we're we lead our it. far I the we but capital calendar think it of And stage client how can. some probably are long but from because delicate long how the right this. strong tight not at components, in for to trying big now the decisions. through year. The previous everyone best right of and some think We'll any to We on just everyone's us, as the to directed as and this going and half I of peak? to

Mark Delaney

that's million and half where Okay, back a in. understood just on follow-up some can to OpEx, to comments extent had you the of hold that to disciplined levels a non-GAAP you for fiscal OpEx of target in about OpEx get coming year. The this investing calendar about helpful. exiting stands what year? $XXX the the company I And still talk Can

William David Mosley

quicker we're we the same revenue. We've year with That's near-term, there good. call opportunities, bogey around the market of density and product we that to then and about these challenges this a faster to be we to I'll trajectory. to them, half driven there, actions still and some all on that footprint – We've the some of even a in. question launch time that needed and from after is on and a set is get get get new when driven actually the areal could some it launches actions answer all materials are ago this the said Obviously,

footprint are. this in to of half the the mode be So looking now through of that year. right still near-term do that we're same our We want opportunities maintained what back

to inside So the the market we're to. footprint the hard can we worked so staying that all trying everything meet time that to same demand, get at we

Operator

you. Thank

Guggenheim Partners. of comes line Rob Our next question of the from Cihra

open. is Your line

Robert Cihra

just Great, question. quick thanks very a much,

that else you business Thanks. Is what Enterprise small. to the can a quite up of or going year. to growing? there? do over get build it that change it lot still Is it's forward, little I a Toshiba the business, deal? that does was planned what guess year SSD momentum big take On But to there tied bit the

William David Mosley

in either vendor Yes, perspective, from node the supply that has hindered the process that's that node past of us one from from NAND fact that inside we're even of vendor, changing fairly our process the the or is always to things vendor and disruptive. to

customers people on general, think in of all the a I disruption been lot us, the realize actually have but NAND So like supply. the with on we've journey this been they to and

So key having longer-term visibility predictable that chain in and supply is stable, a to growth more area.

Robert Cihra

you. Thank

Operator

conference Thank does question-and-answer management. you. this And over turn the to today's would back conclude like I to session.

William David Mosley

like to employees Thank to I'd everyone Thanks. thank for to and talk the our earnings customers, their suppliers, and we'll on business partners, next quarter, you. March contributions the call.

Operator

you gentlemen, the and Ladies today's This conclude thank for in participation conference. your does program.

disconnect. now day. may have great Everyone You a

Seagate Technology (STX) 1 May 182018 Q3 Earnings call transcript