STX - Earnings call transcript Q3 2019 | Seagate Technology Holdings plc

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Operator

Good morning and welcome to the Seagate Technology Fiscal Third Quarter 2019 Financial Results Conference Call. My name is Amanda, and I'll 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 Vice turn President, I to call time, Hudson, Shanye Investor this like the to over At Relations. Please proceed, Shanye.

Shanye Hudson

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

Chief Romano, Joining our Officer; press website. section XXXX release information We Mosley; quarter are supplemental me earnings Seagate's detailed our today posted our and Chief our of for Gianluca and Financial on Officer. Dave Investor Executive March the

measures, for non-GAAP in will March figures that reconciled a SEC. We and the refer is figures release GAAP Form with to website been which our quarter, non-GAAP earnings our and our to XXXX GAAP X-K on furnished filed are posted was has on

you, the with our our call turn to is extend minute do our our duration. and in should performance, introductions, upon and I'll call vary general statements, subsequent to production, these a posted our length expectations are SEC financial XX assumptions and current permits. opportunities views June over call best XX-K and our market be management's could from and remarks plan that, this to other and ability future growth on of today's factors growth from materially we These in most quarter Actual relied supplemental approximately your conditions. not minutes our we'll financial quarter, the and date. contained statements to Information Starting that accommodate questions statements. expected demand, following planned trends, forward-looking filed to based risks, are be contains Today's And differ As industry results reminder, concerning ramp in uncertainties product next forward-looking website. statements information any Form XX of results time recent on prepared cause Dave. as with including the outlook Investors section to market to if may the our call about

Dave Mosley

quarterly our are welcome Ireland. morning Shanye. from Dublin, Good and earnings joining we call, Thanks, to everyone, which

quarter, then share outline on our discuss the During for I will provide cover and outlook call, quarter. and on today's advancing results perspectives will roadmap. progress June some from financial March our Gianluca our technology details of the the the quarter March market, key highlights our

we suppressed remarks, Following met call in expectations $XXX Free share end challenging $X.XX, $X.XX the increased executed flow prepared our we results billion financial will our efforts questions. control through the the business to earnings dividends remained per or cash above financial $X.XX the business and the achieved focused of million, buybacks, and Seagate In nearly and headwinds. revenue exceeded that the these shareholders capital returns. $X.X seasonal guidance edge expected to multiple economic ongoing commitment long-standing In by for expenses, revenue was our Notebooks transition and demonstrating geopolitical SSDs, results market, shortages, CPU cash We and in optimize uncertainties. PCs. surveillance by the the generation, to metric. our XX% of up quarter, for face drive flow our quarter-over-quarter to open operational demand March non-GAAP and desktop range. compute deliver across well impacted efficiencies, achieved to recorded high proactively billion revenue managing conditions of slowdown and revenue We to of through every over navigating market, returned

from to both quarter-over-quarter. average improved a customers and enterprise the of the terabytes. X market, and hyperscale expect to drives. market X resolution drive capacity on as current the few the over However, long improves to In per seasonal Nearline levels drive above slightly megapixels challenges our grow weighed revenue macroeconomic X camera term, for we Revenue

not and global other OEM the cloud from fully customers. However, offset that demand revenue did slower

service to the providers slow demand XXXX. As our inventory reminder, during as buildup drives began cloud work for the through quarter, Nearline a in calendar December

we an we the I phase, are improvement customers the second that just this calendar half among mentioned recovery demand approaching The year. we of select pause expect is broader in hyperscale demand digestion short-lived. this indication and inventory However, starting anticipate the be to end of

slowdown We experiencing to product also believe in customers generation, some attributed the of we to Nearline cloud drives. is our next the demand are our anticipating capacity transition high

shipping that pleased We are drives to planned. very late in terabyte announce began we our as March XX

cost the of Qualifications We underway major drives and to cloud our performance customers. lowest the enable capacity highest disk are are ownership at customers. industry's delivering many improved at for enterprise total

drives We revenue expect our terabyte XXXX by expect calendar to begin time and XX to in this year. highest later SKU be volume will high ramping next

XXXX fiscal we on year our focused deliver plans. continue is to technology Seagate, execution and successfully of and a For advancement

We technology at path over new based it terabytes XX this for capacity significant higher capacities, XXXX, expect with in technology customers. same large the drives calendar best that's making our to XX and while working providing HAMR, customers by a the of to the technology. qualify transition of double innovative to works. HAMR available our Perhaps than breakthroughs on time recording more introduce today, enablers year terabytes These seamless one stated hyperscale just our capacities are to

We our strides technology. on also made multi-actuator

are more a derive our reach The drive. for cities, rates to demonstrated the expected video years hard utilization new vehicles, not to Open technology to the learning a is creation fastest creation. decision three the other heavy closer of rapid combined rise new We Project double occur and This to employ and cloud with edge actuator data also AI ever rates all workloads need Datasphere HAMR MACH.X our drives at compared a data. twice of only data sustained With data believe this high cases IoT centers, will a in transition has but by once Global we address by value the rise large learning to required data hard edge. dual-actuator, density multi-actuator recent IT X.X high to the XXXX. that emerging autonomous the in use referred to inform the bandwidth drive, speed transfer Summit, including During single streaming we era Compute rates staggering source drive. new factories, set To from from the data XXX believe or every computing. a is will genomics, smart smart big and Seagate which from to applications making, machine as machine we real-time applications, processing giving zettabytes growth record

fast our may growth and buildup prior IT the between long for over demand access data private edge, to starting transition edge secure at X.X cloud to XX% growth and are of data a environments XX/X. in to XX% enable With We Exabyte estimates to this in associated see and exceed the Nearline drives and term.

call innovative capture the well into over on Importantly, positions technology outlook I'll portfolio our quarter. to quarter results third to opportunities. Gianluca for fourth more monetize these and go our to Seagate's depth turn us share the and

Gianluca Romano

delivered a Dave. quarter, billion, down revenue the we Consistent earnings cash underscored total March with business challenging you, with the free Thank XX shipment on In flow profitability sequentially our solid phase and our in strong exabytes down $X.XX quarter-over-quarter. was of by expectations, and quarter XX% environment. XX% of execution focus operational March

as shipments of includes earlier. Nearline Revenue drives of softer Dave market, quarter-over-quarter, the of new exabytes exabyte disk were demand as vast terabytes, for flat of offset revenue capacity global providers into concerns were ongoing typical our up the the We into mission-critical impact which well drives prior down and to macro market. majority represented The The the Nearline quarter partially of from a a terabyte for enterprise as advance reflect over XX% X.X record which discussed percent Nearline for the and quarter. results the XX% transition in the service up December seasonality shipped quarter-over-quarter. revenue, decline Exabyte hard shipment to XX customers XX% approximately shipments OEMs. Our cloud as hit quarter. drives XX of in market, March from the enterprise the average Nearline cloud

Nearline XX the March remained enterprise Our in the terrabyte quarter. drive highest-selling product

started ramp qualification few terabyte quarter the indicated complete next over industry's XX drive the as expect capacity customers their to highest we have Dave quarters. As the production to in ship current and earlier,

the ownership the coming positioned for market believe opportunities capture are expected total these to drives, customers reliability we benefit Given quarters. and in of cost of we high well

and partially exabyte NAS surveillance quarter-over-quarter. and application surveillance, gaming for micro which existing offset We quarter. address seasonal which and market headwind sequentially, product mission-critical data our for impacting cash portfolio was the edge XX% and contributed gaming, and non-compute positively margin flow. total leverage to our revenue XX% And of to the drives, customer contributes Revenue of quarter also March the market DVR including sales NAS, shipments non-compute demand prior applications. Exabyte for platform compared respectively. and to grew in DVR, to consumer continue the for XX% consumer includes trend Sales XX down breach the

hard terabyte. approximately of per While, Revenue December drives compute including from the and to X.X average remain edge capacity compared notebook, represented quarter. total market disk the XX% revenue in drive XX% at flat desktop

decline Our down exabyte with ongoing platforms XX% with than quarter-over-quarter seasonality, for results XX and combined compute as notebook CPU PCs. Exabyte nearly shortages. typical desktop from were a shipments steeper edge seasonal

a March business drive revenue disc as solution quarter. percent system flat made of from up Non-hard remaining X% the revenue Our December SSD the quarter of including and cloud

our we capture portfolio have past customers. delivered the quarters, opportunity shared to the on over that we focused to management value of As couple are highest

disc revenue time at as to drives. it variable over and $XXX manage expected fully expenses gross the and Accordingly, capacity underutilization ahead to with Capacity We the rightly in to remains conditions. test is XX.X% million, capacity down planned came that industry decline relatively for of was to it effectively Nearline expectations expense. surveillance and the continue expectation decline December to utilization quarters. several margin X% with gross stable compensation underutilization on reflects we occur as to our capacity systems the as and the aligned costs manufacturing make half margin lower more ongoing make these of above expect our as better past utilize was higher couple to margin revenue X% which drives in also resume and About compared improve to quarters. good cloud lower costs take Non-GAAP associated sequentially, in when transition, capacity year-over-year higher longer over operating to XX.X% demand closely production than expense transition, and mix, product declined sequential sequentially compared we more such Non-GAAP progress portfolio SSD March HDDs. decline discipline next head to are our the spending take quarter correlated of quarter. would

capital continue managing end the in $X.XX R&D March discipline focus to and We our and we the high future and expenses efficiency well EPS solutions. Through quarter technology investment of our to products expense for operational utilizing non-GAAP on advance guidance deliver of range. above

XX% to led also period. return on in invested $XXX working were X% quarter basis the at ROIC up as sequentially prior target we has the On XX% million lower in during operations of capital, inventory cash to revenue. of long-term focus operational capital. to decline solid nearly XX% in compared generated the expanded X% value Our quarter a total and $XXX between quarter-over-quarter. of from end four our million Capital in year range March rolling a quarter expenditure March improved We the X% including

ordinary were free repurchased by $XXX X%. we We X, and $X.X per the XXXX. cash XX% year-to-date X.X payment payable on ordinary count with July million quarter our and quarter. has million quarterly Cash be have utilized will shares equivalents approved from and XXXX. billion the Fiscal flow million dividend the we XX.X at share ordinary the Board share outstanding. shares resulting of million quarter exited $XXX to Our prior up share, million, was the $X.XX cash repurchase of which and $XXX our end reduced

including entered credit was $X.X drawn The balance the quarter from as million net quarter, During revolving the billion, we of a $XXX facility. March company's March billion revolver. new $X.X

Our March of gross X.X months XX debt as last EBITDA to quarter. times ratio is the non-GAAP

environment, Moving to we all the non-GAAP business range plus of least $X.XX to margin gross conditions we end total quarter, plus this similar to and we non-GAAP X%. markets. our minus quarter, be in revenue across $X.XX our or outlook for environment at of expect demand the flat June X%, XX.X% anticipate of EPS or relatively a the minus June in billion In be

operational profitability optimize continue During free Seagate flow. to and will to drive efficiencies period, cash our this

starting I to challenging in year. expect remain our the comments. based quarter, to with will interaction turn While back final recover customers, somewhat conditions half on now the of Dave we business second for June the demand the call calendar

Dave Mosley

well In Thanks, Gianluca. on Seagate summary, multiple is levels. executing

near-term managing industry to our align capital by free operational optimize and efficiencies with flow. and conditions, cost cash driving investments are We and profitability

such contributed with HDD R&D growth during mission harvesting to particularly are markets drivers slower while these bottom We opportunities periods critical line investment. requiring exabyte demand no our nicely which as and low

headwinds and coming year products future trajectory leveraging mass to quality the data XX reliability and quarters demand in customers' We clouds. fueling and near-term growth are storage for high-capacity of the engineered requirements. roadmap industry are we private and density, executing our precision innovation demand plus set both our and will our technology to believe long-term with heritage the public introduce expertise higher rich solution We for provides abate applications experiencing Seagate. of Data hungry new storage are mass areal a the of storage in opportunities address and

XX% be well this customer to the importantly, strong to relationships, make fiscal expect ahead growth. well CAGR and positioned portfolio XXXX XX% to for the capitalize us Seagate's to Looking exabyte technology drives on of above long-term TAM Nearline we

call partners for now customers, ongoing to success and opening I'd up like support for our and open questions. of suppliers, employees thank the your Gianluca contributions and questions, the to for I Before will our their business. business

Operator

the comes Stanley. from of Huberty Morgan Instructions] first Katy line Our [Operator question with

line Your open. is

Katy Huberty

to morning. expand margins long-term see gross in expect couple the you to range margin September the take demand trajectory comes gross you demand in a back? to cloud or would surveillance as be quarter, quarters Good model? about and think target it XX% How If XX% we the you. does to of back Thank the do stronger

Dave Mosley

of quarter of in but factory I second, see what I'll just we last as is if I -- went pass digestion to got a phases, if under-utilization over what would out say about then Gianluca gross faster, the expansion. Katy, these was, it through margins talked we period Hi we might

a bit. know, these bit how we're hindered actually we're I last move few side which part, then say margin. that's I this We got spoke down if a the January cash to too a I going is build [indiscernible] not of for just is that's see timeframe when holding product make think our really we able were on watched faster seeing you which faster. We have like product but on than sure little should we I've sure carefully, anticipating cash were Go the it we the I'm a gross right my before gross now a that last either. our right the that, that would margin back we transitions I about back back I'd ability in this to the cloud of in into in towards think weren't mean, have snapped signs much half, Again, to little I bit may flow, get be on, us extra I fall. the back Gianluca. everyone. the our focused so, And what think ahead ahead, rather we weighing very we've is things comes think percentage we are think starting inventory bit now, said range. free to just conservative making sure and little months. Otherwise,

Gianluca Romano

FQX. release, less earnings Last impact in to that we quarter-over-quarter produced, of or the about the related were expect said still half expecting we gross to we more and be same margin lower Yes. volume decline

we expect to FQX in in of are order where in. our But, year volume second come bit same Our in advantage little building will to calendar part at factory more be capacity the take higher. demand of the a we the time, more

less QX. in under-utilization and QX charges be So, more of same the the or will impact

Katy Huberty

you. Thank

Operator

Thank you.

Markets. of RBC Capital the Our next from line of Mitch is Steves question

Your line is open.

Mitch Steves

PC results It disk probably there thanks side? on quantify had any constraints, impacts guys, impact secondly, us some I way when my CPU it taking think upbeat drive of the on the weakness be what And a hard you seeing will question. question are like since help just the more an then that the for to side guys Hi is business. is? sounds you to due that

Dave Mosley

talked the say I SSD capacity of backdrop, in the incursions, especially lower Mitch. all Yes, for script stuff. we it's transitions, natural like the about against would the

think enterprise, markets, you're you're long Xs to terabyte, we XXX and seeing the good channel, what are a think to low entrepreneurial. I will, will talked yet. usually in capacities sorry I very some be you the seen some think I products, but the more a channels problem a tail, they capacity, distribution high about you be and then gigabytes just the bit still haven't people making the So quarter. of if call X In edge disk way there little channel few, much if players, seeing healthy compute the or about capacity to Where still some would so the X terabytes. lower drive last We some are this constraints CPU tend it. distribution bifurcation smaller are

weeks while, of are basis, of those not just absolute strong ago. value markets couple be And was and the creative at markets. includes healthy higher I it new the as some on capacity should new which on So channel, stuff, as quarters relative look that a fairly hand of a and it's the nearly

So, time built online in as the this half through in of up to but the really my year, is expected as start you will momentum the know, hasn't well much back frame. as come perspective January it I

Mitch Steves

demand to the gross that And that line Got impacting under it. line, given prior clarify, well, margin [ph] bit? shipping is margin just as the a

Dave Mosley

the time would provide of be capacities, to the low more them high capacity our so and distribution some some get absorbing to high yes. capacities it some moving again. factories, channels, at the stuff nice know, nice you tended outlets over we that product extent be the answer And, is To of to have

Mitch Steves

you. Thank it. Got

Operator

our line comes And question Ananda you. from of Loop Baruah Capital. Thank next of the

Your line open. is

Ananda Baruah

for Good real the guess, Hi. you good quick Dave just afternoon thanks morning, question. a for I guys. Gianluca, guess I guys. me. from and taking couple

safe got days about we of Dave, that a quick it through say So sort calendar picking of guess half to XX we’re up of comment feel see, confident from next into year? at you kind regards see, that long this that I hopeful how how started? second last but do to all point, the long second about you just to of part your fiscal you how the cycle since with further the this can is get XXXX the this you back that, are -- do I as long guess you Thanks. get demand, sort we're that is hyperscale just once

Dave Mosley

interesting. It's

So a of couple points.

February just on higher better especially with the we some starting to coming So, that It or December. discussed the CSP X got one ownership the we dynamics data not cost way an be think there have in long the again, we're been it, was all propositions the or anticipated, last I also were one same something, one is fairly again, year. globally. the have months of the readjustments the of exact to The And inventory tail. also be X It's months. back aspect ago will global. also half was the now half out say build X moving were see but fairly high-capacity not was of call, on think the some year of to that of smaller going total build confidence X back And has or that then anticipation datacenters center a drives It's There out months off it's cloud gone for a disturbed of out. on of pull obviously. the on just that only through we CSPs the reason

talking confident a So, that we to you there lot in we're sure. feeling were February, for more

of last as far touching pronounced more through do and out than this because, world a I'd peak the the that more helping strong, still one been came like been all back bit exabytes be we but the at who same the this, would maybe As but but we're a that time, roomers the this been it's global OEMs much as hearing little quickly, bigger turning say much trepidation. feels in wider, cycle, it it's pretty would it's The on next the last because just because of builds, reach one. broad a based than last that say are way, one's it been of little there ODMs and wouldn't more I feels and bit one way,

Ananda Baruah

see and much. the That's so helpful. I'll stop Thanks there floor.

Dave Mosley

Thanks.

Operator

you. Thank

line from next of Our of question Stifel. Kevin Cassidy is the

open. line Your is

Kevin Cassidy

for my Thanks taking question.

and the volumes, did year compare other last On product new that ramp? what any how the are XX-terabyte unit to

Dave Mosley

for us we transitions and to us XX Yes, HAMR going to dropping Kevin. basically there into as well, platform fourteen, a into a different probably drives beyond to XX-terabytes like other ready. get ten us take different through because this X drive variance particular platform Thanks, SMR to and XX will with this of to platforms. point, lot had it bit, will quite we is This your families when twelve and we've is, from we take HAMR are X the

So aggressive feel with are comfortable our qualification really and well gone ramp so testing to internal it. ability product. its about through and we this that's all fairly why yield we very It's

ramp well. going as pretty I steep be think to a it's

fiscal it's XXXX. places see thought revenue XX, other that's of year fall just So, on started, we My that's focused the in senses that substantial. the months of I maybe internally. head are think gone start months, well to XX-terabytes given the value required And pause of and in hyperscale our X where efforts for ramps in of of times when lead for was some giving pretty wafers as that last lot ago world the couple a versus largely have around that, those the early, that proposition we'll it the

Kevin Cassidy

you. Thank great. Okay,

Operator

you. Thank

is next of Aaron Wells the from Rakers Fargo. question Our line

open. is line Your

Aaron Rakers

of even the some an competitors on far you inventory of getting context kind notes visibility stocking paid relationship the kind from question. of building the customers. of Thank of for the wholesome visibility Yes. Kind taking high the hyperscale inventory, your one in capacity and as and as of for drives, Nearline

also characterize that when that would curious do might Thank they have your ? the And you Do similar you into I'm then market? that you come how XX compare versus visibility? So terabytes competitively and how see you you. relationship as competitors

Dave Mosley

believe, people lead XX Aaron, the are going as very customers All it's are know talking do the far to they we're opportunistic terabytes have and I Relative a on stocking, have there ramp. families different the a in recently. buyer's I are that we it good question It's such and really, and be that customers able that, is, it much other on second the we market first. like, variance scale think I beyond along been there more to visibility go are like ramp. that with I SMR things that. seems, don't don't with as when start to like ready few huge

we too out right controlling in so like drives the very, are inventory. were, ago, and had I if thinking if to higher lower about our capacity, us carefully serves watching we didn't capacity very it, bills either, that's much our that pushed really we were If helps that anticipation XX make don't of way more cash we of I the days sure were carry So said, we earlier, we

Aaron Rakers

Okay, thank you.

Operator

Thank you.

comes Our Citi. Suva next online of question of Jim

open. line Your is

Jim Suva

just you're or bit seeing the customers an second or mentioned little anecdotal rebound year improving is of prepared more their your trends In you that in longer assets a that that comments trying half to the level progresses, environment in demand? whereas using the upon conviction of based you. demand out figure help sweating older Thank

Dave Mosley

said. because I think Jim, a both what of it's, there's bit interesting little you of

when going or more people making so, they're that to for buy or the these right X wait next product, comments. the TCO the X and that's, X they'll to hyperscale global years investment The hyperscale first get be is know they proposition, are

specific lots to very smaller earlier relative out, and disrupted, issues the and were been think are liquidity about build to especially see starting do edge because again, among people all through think channels applications back these were more will plans have of items trying the been some of as I pretty choppy, entrepreneurial new of comments players, of take that market application I grow to has we're our will there people to data we that, way coming know those off. some my

visibility but So, have good frame against we're was time in them, the confidence think this given we back didn't having in I still the the some expressing next world of just so cycle. issues December very

Jim Suva

Thank much. you so

Operator

that conclude And back to call session. Management. does to you. question-and-answer Thank like our I'd over the turn

Dave Mosley

our for Amanda. once again suppliers And thank for want ongoing business I you thanks quarter Thanks, third our employees, of our performance. quarter. you. We'll to to Thank their and customers, to partners contributions all to next shareholders their support. talk

Operator

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

disconnect. have great now may You Everyone a day.

Seagate Technology (STX) 30 Apr 192019 Q3 Earnings call transcript