STX - Earnings call transcript Q4 2018 | Seagate Technology Holdings plc

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Operator

Good morning and welcome to the Seagate Technology Fiscal Fourth Quarter and Year-end 2018 Financial Results Conference Call. My name is Jedi, 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. like Vice the Treasurer. President, I'd Kate over time, Senior Scolnick, Investor this to call turn to At Relations and proceed, Kate. Please

Kate Scolnick

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

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

the September highlights fiscal call review the then During June the the today's will call, the in for year company's quarter we open questions. for outlook quarter, provide XXXX, for the and

our today and permits. remarks are for our as accommodate do We approximately following half to to we the prepared will an hour, call time best planning questions go your

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

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

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

William David Mosley

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

and the quarter fiscal earnings results cover call, the high-level will today's from June For XXXX. I

million financial and XX.X%, discuss billion, CFO, September income net Morton, from cash certain We of million. quarter year-over-year, June up was $XXX down to XX% unit the and then XX% million HDD across quarter year-over-year. June $X.XX. approximately were GAAP up was operations per $XXX was diluted earnings share GAAP the margins for year-over-year. flow and revenue drive operating Our call outlook Dave will free were $XX, report I growth in per highlights, quarter. pleased selling the year-over-year. strong financial expenses and results a and close Seagate's year-over-year XX% our XX.X year-over-year X.X reflect terabytes very the average quarter for for the will with $XXX I’m $XXX diluted of were profitability. GAAP achieved of non-GAAP and non-GAAP X% up non-GAAP the per $XXX Seagate the a per flow per earnings drive, of XX.X%, million of shipments and exabyte On margins average portfolio income price with capacity net HDD revenues Cash XX% share $X.X basis, achieved record The of for up gross gross exabytes, was million. $X.XX.

results, growth flow fiscal generation. model Turning demand the in and solid execution year and to the growth shipments drove with cash competitiveness products globally. year-over-year our profitability our mass XXXX revenue, Strong exabyte data alignment business and of their for storage our solutions full reflects year-over-year growing

non-GAAP $X.XX, margins depth year-over-year gross of XX.X% of growth billion XX% For of share GAAP operational on flow of XX% growth I'll turn call exabyte achieved billion total and XX.X% the from the non-GAAP cash full gross operations, revenue and and Dave fiscal cash year more shortly. year-over-year. diluted up up into of year-over-year. respectively. GAAP XX% net year-over-year up income of XX% XX% flow, XX%, $X.XX, net year-over-year, per growth earnings year-over-year. of of of $X.X to Morton $X.X and and and approximately XXXX, over of X% our non-GAAP free share up to XX% diluted per earnings GAAP Seagate go activity margins income

Before our Dave to results Executive made a CFO transition. I our for Senior for three and for years Morton, like with the over we to decided leave at Seagate regarding CFO addition earnings I'd has has do who to address to company. role close another Finance XX in years so, the announcement our company today been

also Chief six Senior the a Board an finance taking on I will role leadership the Dave Morton our of and behalf integral conducting thank last years Scolnick, team appointed the his we business. of been and Kate part And that, and for the over call Officer. Kate President for to the search Treasurer senior Vice management Company leadership On like increased responsibilities. will Seagate's contributions over Interim of Board, team. Financial his the Kate and is We Officer has Financial to I’d be to has With the the Chief turn Dave. many a organization and thank for

David H. Morton

Dave. Thanks,

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

For year up average drive, drive, hard nearline ago. reached shipped disk and the XX% a years we market, In the with of approximately exabyte the a drive XX% enterprise June we X per from X.X capacity shipped per terabytes average year-over-year. exabytes and up over last two drive market, record XX.X our capacity quarter XX% record terabytes per XX.X approximately up

upside continues a in mission-critical portfolio remains that growth per supply our year-over-year be resulted persistent and with Cloud-based exabyte X saw capacity we intra-quarter over demand enterprise some bit addition, constrained. extremely demand to drive for terabyte. storage XX% In average

XX and Our nearline quarter we XX growth nearline revenue the and terabytes product product. terabytes significant June the sequential in volume was enterprise SKU achieved leading in our

expect the a were the in and markets and portfolio to portfolio we XX% flat growth We primarily broad-based to drive for developing consolidated approximately business from business storage business In for Memory portfolio in margin we these from year-over-year. to million, market the us offerings. capacity delivers actively end disk significant quarter exabyte was supply the our for gaming have to for quarter, in and about we At structure year-over-year without to invest same compute, these overhang storage. growth silicon as million nearly believe gaming nearline the revenue mass agreement As XX% in address all markets, margin and the we this, network either demand move surveillance, points markets that exposure are multiple up with client $XXX exposure. and growth the year-over-year free storage and different customer believe storage of years, optimize for cyclical consumer or time PC silicon we and our strategic planned to cloud allows operations application memory terabyte capacity represented application grows continued profitable mix. had silicon expanding June cash including sub to over contributions. the verticals, X% in revenues edge SaaS, our model several million. market in opportunity consumer $XXX portfolio and product the Cash over workloads revenue silicon-based In next minimizing our participate where flow year-over-year, storage the X Within needs we capital in quarter requirements the due mission-critical Cloud approach as declined or revenue. shaping revenue workloads. that and products NVMe, bullish relatively attached will Corporation are provide our are June June Toshiba June of Non-hard leverage $XXX time, revenues were our our the DVR, opportunities developing the quarter was systems our we've flow XXK

from fiscal year-over-year. flow and year-over-year up billion $X.X year, was of free XX% billion, $X.X flow For cash operations up the full was cash XX%

the on of XX% highest for higher result our with customer non-GAAP levels basis. from operating drive our were XX.X% a we the our planned benefits. On some with Capital utilization business, target in Our approximately have non-GAAP $XX of margins annual our and the factories. material margin as the Year-over-year, linearity high in down in the and of our coupled well-managed long-term in were portfolio. demand. across from basis and expenses GAAP demand upside better a compensation cycle are capacity on sequential a on on year-over-year year-over-year the to XX% portfolio, inventory higher our enterprise disk higher support down which quarter needed for $XXX basis hard vertically basis accelerated capacity was June were and spend performance range mix and on non-GAAP margins cash products integrated cost XX.X% points and margins shift shift June GAAP persistent slightly cash days, XX%. product as rest product enterprise X% storage continued a included basis market were environment mass a conversion X and a portfolio had mix solutions benefited reflecting million of June in and June expenditures future The our than Expenses quarter line GAAP basis, quarter, the that gross newest maintenance within ramping variable a a million, better some of Gross quarter mix for our capital.

revenue. fiscal below the X% capital XXXX, expenditures of were For total

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

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

our within million company our fiscal of well level debt $XXX year and the financial our interest interest staggered given and rates. of repurchased capabilities, to XXXX, low expense maturities During continues and structure outstanding debt the be

$X.X net consortium to part last by debt quarter our ratio of XX EBITDA Equity, the of June investment finalized Private Our the led as the a we return Bain as quarter. that Toshiba months financial In June the expected X.Xx approximately is Memory X-year a X% in its is maturity intended held to investment have of to annum over acquisition is billion be life. Corporation. per of This to

to XXXX, slightly we quarter, and storage of shareholders, increase of the products. the into cash to XX% enacted products an we did of And XX%. fiscal actions returned For the on of I tariffs on flow some recently model trade high-end above to operations last our XX% range some to long-term the Seagate as perspective provide including from wanted U.S., imported updated proposed

are technology disruptive decades response and place changes in of technology that a global took managing this manufacturing company, for suppliers and will duty mitigation suppliers. any every reference additional chains customers has to the the with nearly complex actively customers minimally plans. new supply operations In evaluating tax global implement in changes may to we tariff plans disruptive region. affected be take experience and affected our minimally working additional month In As Seagate that and identify to effect mitigation

to XXXX Overall, and leverage any reflects we'll solid quarter now power forward, conditions financial in well business. execution change and June within Mosley. financial I update Dave as full would our are that the earnings our in fiscal model. and the turn as performance to back our like there operational the you business call Going if

William David Mosley

and higher Strong investments IT Dave. demand. and to global macroeconomic edge data infrastructure leading conditions Thanks, center global persist cloud in

compute are For SSD Seagate, mature nearline, such trends markets. trends more growth -- secular the and market in in offsetting than market as surveillance mission-critical in as and

features important to Seagate supply growing SaaS, going and well and the revenue rate customers. achieve over few qualifications to is years. of are we're To execution, cash year. application our growth for this of the portfolio growth meet solutions, XXXX out fiscal as supply the a storage through macroeconomic the with the spending, demonstrate fiscal revenue With NAND growth the flow profitability TMC and Given we of to technology These accelerate designs, security qualify and expectations workload growing of related our gaming storage are and broad year aspect conditions base in including NAND in verticals next we XXXX. storage and sequential generation on bringing fiscal believe requiring sustain are and that environments, multi-actuator of of specific current strong our environment new enhancements, in will double-digit we favorable through number quarterly now mass integrate and data cloud products markets NVMe, growth pace we needs revenue our have An customers cloud forecast advancements and particularly another customers. and SSD to continued the consumer

quarter, enterprise and their the continued portfolio actively optimize seasonal compute in and revenue, media working and sequential and heads customers as for to September and we're our storage mass remain year-over-year with exabyte the product our serve needs our We demand For anticipate solution growth to work set. we profitability bit we gaming constrained entire across demand markets. strong

approximately year-over-year forecasted quarter sequentially, revenues total be XX%. approximately up Cash demonstrating September the million, quarter of be expect rate flow the to December as growth for through revenue the quarter are well. of significantly $XXX to should X% We sequential operations continue September year-over-year. in from growth over This up

and margins business consumer products products, HDD SSD as continue expect quarter gaming, long-term yield capacity of the our range, September our our ramp XX% the in at our to and within participate midpoint to We portfolio, gross be the seasonal revenue. for competitively XX% highest for to enterprise to we compute HDD ramp demand

very remains Our vertically utilization integrated high. factory

executing tightly This plan manage plan sequentially. Toward these increase September retirement opportunities. quarter operating by X% to in outside the day-to-day efforts, overall our approximately to a our align activities. our continue operating of We work we're expenses future with restructuring and organization is that will expenses voluntary our

September then fiscal operating at providing financial our year XX% range a and low-end of to overall September, further expenses of financial million leverage for quarter's of expenditures capital and and XX%. the To beyond, product revenue. address the our to $XXX increasing and decline quarter, model the demand HDD transitions December high-capacity to X% Beyond we've will planned we're 'XX mass signals long-term to storage our approximately FYXX approximately in model the

targeted call we're today. you contributions FYXXXX of year, Seagate our long-term us the have value expenditures below of strong capital fiscal fiscal year open-up Thank success and the to for questions XXXX X% well-positioned for efforts in creation results. future and and business the beyond. for These employees joining forecasting summary, For to suppliers, for remain answers. we'll call now alignment on our to and customers, In partners to our like their and thank revenue. X% range I’d And

Operator

Stanley. And question Katy is Instructions] Morgan first Huberty from from our [Operator

now Your open. line is

Kathryn Huberty

but morning. Good tailwind, forward business you. the is going seems the like a was HDD also It in enterprise Thank strong risk how June. biggest

about into quarter. in the well doesn't seasonal back you margins comment you SSD, that, you cloud better then whether as like wonder talked as over you next the saw a three the any where it ago, see whether helping seeing just just to upside from of improvement what half, the as business can you six in high the And in ramp well but follow-on sequential cap softening months both you're as months as So, September expect volumes products go demand? you sound mission-critical as on new

on changed Thank So just if front. that you. has wondering anything

William David Mosley

Thanks, Katy.

higher quarters, has Last to up, mission-critical see would steady, very need fairly that last couple little if quarter consider to I was carefully we’re say. bit a been than it So ratchet of so stable. I would but watching that market do we

a were would going over customers cloud also front, different X a on. mix things the and of And say the continues and now I of and demand once XX On XX up terabytes. buying globally at many very there's terabytes that upon strong. couple last time are number are who a X years Strong up there

see and you where do exabytes, for our investment which you these see well. as buildouts have So with more as to we the media more to chase continue is people and demand heads

So the that’s very I foreseeable we don't want do see that think you I abating next as for months. will Dave, in strong. industry six the answer extent the but that To as some to can, …? future much

David H. Morton

With the track. as just to we some the wage around end And Yes, will from inflationary in those cautiousness higher profile higher back through well that, tell -- I of range, we we to remains the of be and the think said, points, us regular as I'd regards pressures continue Katy. materials you margin and some constrained to impact, the the year, the some to continue as on in shape on that meeting margin both raw moving as navigate that as of specifically inflation. capacity half that at bit everything there's sequential our a continue obviously that end of of into particularly see

William David Mosley

Katy. right, That’s

that to we're to new So we higher we launch And the we’ve want do seeing that, products. really time. as all the answer mix

yield think we’re as products new of those get don't those quickly can. bad us. long-term the to And headwinds but are for yield are ramp trends think, I we of Some to as have -- facing that to some those we I

think they’re very good. I

Kathryn Huberty

Congrats on the Okay. Thank you. quarter.

William David Mosley

Thanks.

Operator

Thank you.

Our Cross Fox next question Research. Steve from from is

is line open. now Your

Steven Fox

third you next as that success exactly where gave but was that you I maybe color proceeds? second, the little waterfall wondering revenues, the commercially provide ramp the if the for a front, how would quarters and be just on could more on few go morning. then a if a through have you can I helpful. Good And some about where, detail you NAND Thanks. a had follow-up. bit on most You think

William David Mosley

Yes. the too don't enterprise that's what course, in the most our the see Steve, that much. interfaces after from of experience heavily, to I going had we're we’re addressing, Seagate and past. drives, think that we've tip hand we I deep with SaaS But you want can mean, has really qualified

horizontal is a as very good So for And know, all online, of we customers get new we existing supply SaaS. market -- of as to the possible the bit fairly in as fairly to little a with demand more of There's those some it's We new NAND NVMe feature feel pretty more in product customers maybe well as in the portfolio. and already changing took like transition just feel transition a share. we've linked lot quickly. and sets. we there customers new proliferation

the other but associated especially the enterprise. deploy to with we to as gaming intimacy stay pretty enterprise really There -- our market that, also with consumer So with do assets should try features new stays focused it really that will -- we switches look markets customer we and on well. are NVMe, against,

Steven Fox

helpful. small a addressing to in that? of obviously, in increase or it bottlenecks Is bump and you’re the CapEx, terms are it's related more talking components what up being in like CapEx I Great. testing And continued. But That’s curious just -- then this you etcetera? was about QX with

William David Mosley

with individual that, more higher 'XX we be things sure Yes, higher we’re some for comp there things short-term the as the looking be short-term on we relatively and like capacity more test then and to But long-term. will and points piece lead move market the that. there. need to disk capacity FYXX so test and The we longer tactical capacity into drives, like answer and because have they’re out making times, stands component will right

Steven Fox

very Great. much. Thank you

Operator

Thank you.

Ananda Our Loop question Baruah from is Capital. next from

Your line open. is now

Ananda Baruah

the guys. the you’ve morning, the certainly Dave, It's taking while Hi. quick, Hey, been on working well for the Good solid question. Thanks role. performed real results. Congrats been and great just you with in congrats. company

what’s for store So in forward to seeing next we you. look

be a to have Just able a when -- or you when being? cloud, envision you environment, in going to when sense get may not sense of back yet you could. a Dave, cloud do that you yet or have would couple, if of just that constrained you are you if you a

William David Mosley

we of six years, see to I the these the question Katy's over so that you’ve Yes, phases in watchers XX would cloud next digestion don't last industry the through. answer say as the that for months. goes in seen well,

by happening. near Some be installs, only that hyperscale a the its Longer-term now customers globally, doing will driven least. see but just going bit people thing horizon globally what's the macro, little few propagation on not at don't the of right not a it's nice we for the of us massive in are in is that that

north. other is capacity are these The points thing driving that

data, So actually I answering of the install, think as data very large. growth not people are they’re they’re doing is the the just yesterday's call

our highest drives. they want So capacity

Just last over seen we’re in last almost we've XX% few years but that period this just a CAGR, the in up. ticking is

So are carefully. watching we

one I any think, that see here. in we digestion of these past, your near-term bit question Amanda, by don't the about the we've phases answer been but to

Ananda Baruah

the how like-for-like of with are impacting impacting pricing? kind of And dynamics the conversations tenure your And contract are customers? the yet, constraints

William David Mosley

getting have I they that cycle the to this install. that acknowledge little do strategic people more bit a think be to on is

just don't up answer and lines. few weeks new show you’re bunch And big it we the that center, lead a you building of demand, data surprise last kind so, because in a therefore of in if with can't us

the that I highest reference way made I think large-scale for stay same Pricing is think that customers and ever cycle of still the that capacity with introductions to most that we and have. in continue have you answer areal density and our will about affecting smart we new that cost will reductions product is to. to are aggressive points

Ananda Baruah

much. so Thanks Great.

Operator

Thank you.

is Tim from question next Long BMO. from Our

is open. now line Your

Tim Long

Thank you.

I few, if a Just could.

September views? then numbers. is about [ph] a them sounds bit just And sequential just et around on there into with On visibility? and you little enhancements, to that how out talk a any in visibility there, and It talk tons cetera. in capacity just security you December the than of mentioned of little growth as see anything other you the Could new products could to us looking December there's sense workload model? constrained, into revenue And and you. the about ramping the you Thank demand like give your that the the

William David Mosley

as comes of So maturation say some with of this that would I new the the far developments, feature as market. the

You OEMs their we've some applications of from see -- customers the who arguably want cloud. or specific there key pick plethora a different can that in they for years the optimized of features for developed and over the early movers

starting Now some X the you're to and see scenarios of Tier people so on. growing for optimization

what is makes great anything and a or think the increased I their data that drives fact it lot that something necessarily companies. business It's does creates get that the more of to so up they revenue other it a speeds with transition can centers get done. done relationship that between their effective, that than not --

there another coming. -- been and through months this traditional little think. before -- a I'm again we've that bit at digestion or phase all will it's trepidation mean, rates, it'll time, muted probably tell, and a cycles is hard now, always little growth is cloud six these think it above the to Beyond broad-based I I so I really given there's how stay But maybe we from of more

Tim Long

Thank Okay. you.

Operator

you. Thank

Aaron Rakers from question next is Wells Fargo. from Our

Your open. line now is

Aaron Rakers

how silicon the it here know is above that just Yes. you your of in XX% that we growth you. and as disk of the healthily that should we appear kind on think And that to kicking drive that And have XX% quarter. I range. that with congratulations business. into also to we that just as hard think about even about back consideration, I margin going the go year-over-year business kind margin gross gross line, XX% curious Thank ask would mentioned I’m of actually forward. also progressing? wanted and taking

kind sustainability gross disk as of any the of drive margin color So of well. hard that

William David Mosley

to income, Yes, time new certainly businesses where is be which of NAND we business I what the I'm The SSD operating grow the our on. think able we accretive we that have. really over that supply focused to given have, will that agreement, lines

say it's fix margin as go I think over been we and line, to forward. it's accretive line so far that operating the or fair income to we’re on gross move it -- is been to that not going the

Aaron Rakers

Okay. And hard disk margin? drive gross

David H. Morton

obvious our don’t Aaron, opportunities get we on of reasons. want silicon into they we upside for had some to business. intimated as Clearly, competitive separation Yes, that have

at just forward. And all so accretive we look going it as

Aaron Rakers

Fair enough.

William David Mosley

Yes, it well, on the depends portfolio pretty Aaron.

You things know can flow revenue growth and trying for cash all to balance the on. we generations

Aaron Rakers

Yes, you. agree. Fair Thank I enough.

William David Mosley

Thanks.

Operator

Thank you.

Our from Guggenheim Partners. next Rob is question from Cihra

Your line is open. now

Robert Cihra

enterprise much all? the question sorry, drives on you do how could but Thanks manage in. you see same the -- Thanks. a long guess from Great. question. reducing keep great just time due the at client I economics? for and very you -- and at costs do I long but lead drive Where you long-term at no to had -- point squeezing -- metrics scale sort obviously in your terms, only leverage of, -- one not The could I that, mean, capacity you mean, nearline. and focus do how

William David Mosley

that’s think compute really to seeing we’re happen Yes, in some of the growth markets, in going I the non-client particular. and don't Rob, surveillance

the edge edge burgeoning be edge device, to the mean, classify video gaming Some even devices, I market. going as of a is big we the cashing might that, at

couple said cloud, think So, market the its answer I demand then cash become last don’t of balance I those to the Could to question, the as growing in years. will and the balance we like revenue that we’re all and things, flow. to first all big, grow but going grow Aaron's to try fast look to pretty

more we’re and it other have drive that pivot if if the to to I nice to so for growing there, are do be and able winnowing hesitate well. away in could been capacity would So But and forth so they’re to and say to as to heads disks anything, us that. going need markets on exabytes

Robert Cihra

Okay. That’s fair. Thank you.

William David Mosley

Thanks, you talk Okay. partners quarter. a great to all employees and of our again Thanks. quarter, customers, suppliers, like for to again would thank I we'll and everyone. next

Operator

participation your for the conference. today’s in you thank gentlemen, This and Ladies concludes conference.

You may now disconnect.

Kate Scolnick	SVP, Investor Relations and Treasurer
William David Mosley	CEO
David H. Morton, Jr.	EVP and CFO
Kathryn Huberty	Morgan Stanley & Co. LLC
Steven Fox	Cross Research LLC
Ananda Baruah	Loop Capital Markets LLC
Tim Long	BMO Capital Markets
Aaron Rakers	Wells Fargo Securities
Robert Cihra	Guggenheim Securities LLC

Seagate Technology (STX) 30 Jul 182018 Q4 Earnings call transcript