- Earnings call transcript Q1 2023

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Operator

Good morning, and welcome to the Seagate Technology Fiscal First Quarter 2023 Earnings Conference Call [Operator Instructions]. Please note that this event is being recorded. I would now like to turn the conference over to Shanye Hudson, Senior Vice President, Investor Relations and Treasury. Please go ahead.

Shanye Hudson

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

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

administration's the X-K without not reconciled posted call, today, from in that statements Form our on assumptions, the any may figures that corresponding subsequent implied not SEC those control future we'll Form to and/or and remind information most may is on our was date. on are today quarterly us During to Bureau our in our forward-looking more factors, which please the measures To GAAP website like Actual available XX, results contained charging statements, alleging as other by risks that as that Seagate affect or Security, to supplemental today's Commerce's release report to August and included they regulatory, website. the non-GAAP out filings, of are results, unreasonable on be measures. disclosing of material Department impact and report may upon BIS, Investors well recent I'd management's may that the measures not factors press release including export with subject to annual legal, press today's also materially we of issued and should the GAAP section uncertainties as U.S. refer contains differ regarding associated about Non-GAAP our of proposed violations any letter received and the of the on found these outlook from items an learn available you that or Industry and to Therefore to filed based our business. or figures including SEC. today on and be are certain regulations. of Form risks refer of our reconciled X-K current filed and earnings in, the with be relied XX-K these measures views of our GAAP all logistical, reconciliation We've and U.S. as information, uncertainties predicted. because cannot non-GAAP XX-Q call a efforts. reflect expectations other forward-looking business a as reasonably

laws BIS, with been to We export have intend control them complied regulations. engaging to a believe with relevant resolution. we've to responded and cooperating We've seek the that all letter with and and we continue

now Q&A During won't we'll be and Dave. the I'll to of moving portion you, the forward. additional appropriate, turn call, With matter, further that, as over on updates, call provide we commenting this this

Dave Mosley

Thanks, In aggressive during challenging manage Shanye in performance remarks the we the hello, we to context intensely outline and the does as why in this near-term outstanding challenges, data that an longer-term will mass conditions underlying period. demand strong opportunity current remain storage the is position. today, quarter the an environment everyone. and outline Seagate I solutions. our macro taking Despite as tough September these improve, company the will are of confident for drivers capacity actions discuss we're

August. shortly. touch was $X.XX headwinds that was end we upon of revenue provided Non-GAAP the of that $X.XX EPS well which below expectations, our by at multiple billion, the quarter, guidance inside at For I'll revised the gross September in impacted came margin range

our cautious has and significant broad-based inventory slowdown and to will has macro relatively continued we August performance production which drawdowns output resulting consumer quarter. elevated stable. the quarter. spending inventory CSP increased timeframe, comments, the the main will of markets, demand late consistent well end-user are markedly our the the consumed. production and customer It's through in As note we demand the the that factor and shared as data August, the inventory sentiment changing economically through in our adjustments, for reduced current at to across further weakening and were further incrementally remain factors sales our economic in more a analytics solid, which exception adjust and to some applications a we to remain COVID with outlook, all of as influencing improve factors that the currently of underutilization spending. In volumes lockdowns held supports and reacted September. three as deteriorated, environment global with reflects impact costs China, Since related expect firm as levels of December lines least sensitive XX the September environment more terabyte conditions the to factory through gross respond to meantime, important final weeks the month We levels quickly the pricing product customers. U.S. These adjustments our demand inventory impacted plus of consumer where certain has products, view the core move customer cloud that led business margin the We U.S. market

to term. to in and over enhance this factors to such uncertain inflationary focused maintaining the that across managing appropriately and are normalize. profitability long to and of control pressures Stepping multiple conditions our capacity With on favorable more mid discipline Our rising near from rates, us today's as dynamics. return what environment supply respond lower environment, strong outside aggressive underscore we macro a enable the as products and quickly believe market can control, stems actions geopolitical on mind, will our term we to back, environment interest taking pricing actions focus we highly

make addition to and decisions output global stability, drive we including we ones reduction restructuring In a sustainably and to that to not plan lower workforce. production pricing lightly. very implementing in adjusting to supply are our do are a discipline costs, These our difficult take

with over the to the longer structures market, cost necessary opportunities support still of near-term recovers believe demand future storage align the us capacity our term. they enabling mass as while realities to However, we are

working capital by ramp We significantly expenditures the cost-saving These and levels together our capital and 'XX inventory we family couple next enable over with the while discipline fiscal support of quarters, HAMR investments we focus maintaining lowering the with enhancing plus us are terabyte as on and are our technology. launch our capture XX are value, of on dividend. growth improving our that reducing future based product in actions, us improve the leverage increased capacity the confident to believe near Longer maintaining leadership remain drive shareholder secular earnings term. growth positions the we term, of to significant longer-term storage mass conditions technology to our our quarterly opportunities. Consistent supply over

our pausing to to necessary program can investments However, share repurchase longer-term make we strategic ensure support our to plans. our continue underpin are we and current temporarily business

Stimulus These some calendar trends to have with economic which on time impact dampened markets, starting help end the buildup a budgets strong year, announced. market. The local Let inventory. boost of perspectives back the been the and customer typically has China me the slowdown has installation to continued now economy have VIA. the share lines, in of the led to seasonality particularly programs global VIA-related in project half

is COVID yet economic remain apparent, for place. not timing recovery restrictions while lockdown However, in

not Our VIA changed. have long term expectations for demand

is video direct have significant expand, end market exposure smart to are challenges. continues as global real-world adopted demand in China, applications to and we customer While address

we realized which reducing capturing described had HDDs. can revenue both by inventory anticipating XXXX. the largely earlier. in in data example, reflecting Recall the best adjustments we and a savings is declines For been area alone cities December These markets, the nearline of application congestion served after enterprise percentage for customer focus I double-digit traffic customers, saw estimated to be quarter. sequential only OEM drivers one an smart large U.S. cost cloud that inventory broad-based correction of storing volumes the be In across $XX complete and billion and

tied to macro priorities. transformation, amid year plans, However and have digital U.S. data we intensifying that more extend applications intelligence cautious highest investment continue rank reporting value among the healthy demand believe which are will to grown into customers customers recovery their CIO's artificial with cloud unlock and calendar still 'XX. uncertainties, other spending

move positive cloud growth broader recorded of public network trends cloud, revenue support as XX% return recent of our also capacity cloud to to While users we a clouds. according systems study, of across underscore a These momentum mass are to which private same to strategy, workloads public illustrating market hybrid the the view business, for our sequentially. seeing enterprise these enterprise range believe the to exabyte seamlessly the the markets XX% over upper continue recover. and in desire growth have XX% CIOs We operate to trends the

allocating The supply trends lingering results some areas levels how our While dollars budget illustrate we the are storage customers reflect intact. data rely sequential expect December higher-capacity sales in drive that still quarter, business cost-efficient, solutions value. remain systems on to toward that challenges

a demand product technology, address well-equipped in to to strong our HDD As execute by continuing roadmap. Seagate is leader

family expected. cycles by value terabyte to delivering meaningfully of our production product as TCO in to drives leveraging strong as grew slowdown supported learning volume the our double current XX XX-plus on rank highest platform, quarter-over-quarter, our terabyte revenue and actions are down from customers. of terabytes We development surpassing cloud demand XX-plus accelerate Sales to continue now customers.

capabilities the range, remains We upper the into which XX-terabyte based Development CMR are technology mid-XX offers terabyte into our firmly track. extending of this conventional product on XX-plus also family HAMR on SMR using platform technology terabyte range.

design, our to future to incorporate innovations years addition of development, backbone know-how integration product In the technology new drives form reflect that many portfolio. of HAMR, these the and

density also to plans, execute to well terabytes. including and that XX position reliability continue metrics beyond We capacities drive aerial key extend us meeting our development milestones, gains

call, closing, more are progress are challenges around macro impacting XXXX. navigating earnings this the term. over July that quarter. are with business revenue our we not I our pleased to shipments In in begin could mid-calendar the be through shared I near As our customer expected great

and growth term over We long will for driven for we trajectory harness our undertaken to the by ultimately the need value. remains mass demand fundamental solid, its capacity the long position businesses actions have that term. the strengthen data However, for the believe storage

Looking continue results now storage as believe their cover push innovation the will detail. solutions roadmap, Gianluca financial the our ahead, as we we provider. primary more will technology value in to incessantly customers Seagate

Gianluca Romano

that a landscape we production in lower X%, end was Non-GAAP below macro as operating the expectation Dave into of August came December demand. $X.XX margin less reflecting the we the gain due described Revenue and visibility quarter Dave. you, higher underutilization evolving quarter at mix our for remarks. favorable revenue, charges, continue lower Thank our as his in billion, to market to output at

of to a balance strong position million reduce plan the environment reduce to at expenditures macro by sheet, significantly include restructuring reducing this inventory long put target below profit which of the to profitability, long and actions decisive and company output a the faster approximately our executing reserve believe taking year, own We a are revenue correction X% on in expenses, range customers of begins percentage our of revenue, production and to term fiscal the rest expand operating $XXX will term to cost rapid and global capital resulting improve the to lowering action than be business growth. We as in our X% sustainably financial for cash when enable annualized. recover revenue CapEx

billion the total continued product capacity were exabytes to the year-over-year. Nearline XXX down percentage total end cloud in drive more inventory XX% XX% XX% both basis, mass quarter, increased made pressure with exabyte, of which X impacted calendar end. sequentially revenue XX% represented mass our and expected HDD points Mass up markets. legacy exabytes, capacity year-on-year. as shipments revenue results of quarter. capacity macroeconomic year down OEM capacity XX% and customers, and through customer of our over growth sequentially, market across mentioned, of last XX% sequentially the demand terabyte XX% drives XXX the buying we totaled ongoing our in shipments adjustment Average XX.X capacity total terabytes, per XX% hard the In September at family, September markets, for to intensifying reflecting at enterprise represents mass a September capacity down quarter. shipments to XX-plus XX sequentially total have and behavior the disk On Moving reserved both exabytes, $X.X which reflecting shipped are and

our view was As points and growth year-on-year. percentage mainly end in of capacity was of up the down sequentially a traditional capacity challenges X revenue, That slowdown mass edge. points term China. the confident and quarter-over-quarter to December capacity the percentage in macroeconomic in quarter, with through the HDD due the the both prevailing the uptick mass usually the VIA to revenue negating mass X markets market. percentage prolonged we Specific seasonal in Consistent economic down our at long August, will expect VIA cloud we the market of the extend said, remain at seen

legacy the million, to pronounced expect more markets, due Within was typical decline in in we market, sequentially. December Similar do for overall demand spending, mission-critical $XXX deteriorating the XX% in Quarter-over-quarter, down a market of markets not and to soft uptick revenue was seasonal VIA enterprise to spending. the in pace quarter. the particularly consumer see the legacy China

non-HDD our $XXX reflects The petabyte solution scale sequentially. XX% was the system Finally, our up business supply revenue for increase million, our component quarter-over-quarter enterprise in business. for improving

$XXX the diluted which and strong compensation over million, Non-GAAP hiring. quarter-over-quarter. non-hard to drives made a were of expense at the mix, by gross markets favorable quarter, quarter Non-GAAP we December variable operating proactive disk conditions. spending cost restructuring market mass These margin share associated profit in headwind further XXX to business. by in expected approximately plans by quarter lower down reach the an derived million, performance. and In throughout in in was gross management, EPS for to output due by in a $XX $X.XX. a expect of on gross point than was shares, driven lower represented capacity quarter-over-quarter quarter. included operational margin were compounded the million and million $XX with the revenue non-GAAP of OpEx from to Based expenses increase lower pause the decline adjustment the market we including response basis discretionary down control production XXX less to margin impacts our percentage count non-GAAP the September later million, quarter September Underutilization starting about more to $XXX to corresponding XX.X%, our impacted Moving savings

$X.X and Moving Despite revolving quarter, inventory strategic over is total our at liquidity to position on credit September expected support ended our sheet approximately balance revenue with the demand. meet We customer a which $X.X ended and for just fairly the facilities, of than to flow. cash September quarter billion. including billion, plans flat sufficient lower

flow to and as capital by raised balance but $XXX temporarily September the the In million essentially quarter as $XXX remaining with program, remain capital cash we of million near-term inventory the finished XXX flat we the shares, as for term outstanding X.X million significantly We $X.X conditions quarter, the repurchase course billion the in and quarterly million months approximately cash shares XX leverage total resulting capital was August, develop. end authorization. decline fiscal XXXX chain for were ordinary the from EBITDA quarter. just $XXX current demand exiting times. the at our $XXX $X.X million the was our of new in ratio prior generation payment expect due debt we billion flexible a with in previously in light total million, was operations align over and $X.X committed Reflecting XXXX, priorities, of improvement are last fiscal we levels and the In of our good dividend for below debt the billion to higher loan of offset $XXX purchase supply Adjusted opportunistic through share used expenditures. amount, three with expenditures pausing We prevailing Free of million for the environment. quarter. in

expect for December the quarter million. approximately We expense be $XX to interest

investment disrupted geopolitical environment, a shared face to challenging amid macroeconomic like is demand continue customers, cash and environment. teams. the diligently Seagate, we and by our ahead, business managing Looking

turn on corrections December factors call the At range, in bear the weight $X.XX. cost. EPS mid-single of Please higher for to to of reflecting be we these range range revenue in plus revenue outlook That's our is the non-GAAP expect our customer inventory to in mind in quarter. be expected to Dave operating will expect back guidance, December minus quarter and $X.XX margin $XXX be digit final impact million. minus revenue now from or the $X.XX. of expect the financial the for billion, the is as comments. We We I And to a ongoing follows: from midpoint non-GAAP in underutilization

Dave Mosley

strengthen team we Seagate's on that agility to to to are is financial experience history, and conditions our well roadmap determination future significant environment. recover, through rapidly acting actions which successfully right market incredibly quickly to uncertain opportunities improve, the capture conditions, a the taking ahead. liquidity with forward I'm Gianluca. proud as makes unwavering adjust this driving near-term year of position We're Thanks, focus. and adverse Throughout to plus technology as through We're us and period. highly our Seagate our has work. their many putting as poised XX optimize operated

deep take all Finally, customers, our to to we the stakeholders, I sense shareholders. we your and, would questions. operate now to continue communities of to Gianluca with course, like commitment a of operate, our and in of our people, which our

Operator

[Operator And will with now question-and-answer will Mohan America. Please come We begin Instructions] of first question Wamsi go ahead. the session. today from Bank our

Wamsi Mohan

Yes. Good Thank you. morning.

in expect the level? ask If you As the is lower back do on December? the quarter. your same higher sub you've I in should What Thanks. to into reported expect magnitude? Or December XXXX. checked quarter, much quarter $X with view levels? expecting you the a revenue And And way look a since you are I not how all charges shipping? also inventory went back and currently the could below-demand you just we are exit December inventory billion underutilization levels

Dave Mosley

let Thanks, the underutilization I'll Gianluca quantify Wamsi. charges.

we're of what's builders, they customers customer inventory inventories have hoped quarter. expecting yes, to and then to the this levels blunt watch at the hopefully. your that way. that down owned inventory have that think little the what actually our as flow-through can is, We'll we which We would conditions get controlling the our get happened that question of think well. I believe but answer weighing it underutilization results a would have down And charges I build we are by inventory own that everybody by macroeconomic plan, now, owned bit in the on higher our

Gianluca Romano

Yes.

quarter, beginning we then end production September. even quarter again increased at actually through the more of twice the September. of the we the And during During September reduced and

be had we of in the So December than will quarter. more million charges $XX underutilization higher. September

lower with And prior to So we of the And production for keep the we a look of see start already and in at something. to or need in can I we in of demand month then think than Dave December, the we October, November. beginning ramp quarter production if back lower. quarter start add to the it wants the will, March course,

Dave Mosley

Yeah.

also other is point think There's is. I macro just certainly all to low pretty of this of historically. It about challenges us. still your ahead

get frank. be to really predicting there levels. inventory Channel want -- we're F consumer in F F think for watching of is bit there's on fairly high, see unit are that for seasonality little of recovery at us. weak. basis, is will the I on we or a expecting sentiment but start no be this inventory QX of We've QX basis in there. We been quarters. better, QX, cloud all still recovery year will not also in not is three And just hard QX. some to kind purchase And the And about the orders run-rate things but F to that an slow recovery to pretty a And in just will absolute sort muted China certainly. the

the the the these working dependent of is on So through levels. pace customers inventory recovery all

Wamsi Mohan

really is investor why in color where to it's to Dave. if I is, it I guys could believe subject regulations? that about a products could give you can you standpoint. for have I some lot said guess, you confidence this the you But the you not this resides, talk it share an area. from Clearly, color, the for you can't why shipments -- investors I know on your IP regulation -- or export articulated you Thanks Thank important just And with mean, you. export sense you the any Does do? the So about and have why position. do are

Dave Mosley

all we mean, in believe think compliance I think we'll be it's the said, a commenting like have we at it program Yeah, for Shanye don't cooperate really to Wamsi, I with policies good this we place at on really us transparently, time. all and appropriate procedures. and

I to just that's what I us confidence. appropriate said, don't builds transparently. So think it's commenting. But like our we'll be for communicate

Wamsi Mohan

Okay. so much. Thank you

Operator

Sankar next And will ahead. Please Cowen Company. Krish our and question from with come go

Krish Sankar

taking Thanks Hi. hi. my for question. Yeah,

it then in think had just The the or first about one curious the XXXX? heading there to quantify growth pricing see XXXX, relative calendar revenue think we Is extrapolate of to kind should for I way for a how Dave. if 'XX? how last I'm into a to about environment? qualitatively And FYXX And we downturn or follow-up.

Dave Mosley

the It's quantify to still benign. some hard was growth. let call cap, the would terabyte pricing XX-plus a the of But pricing high I'll relatively say Gianluca too family, little environment revenue at I discussions.

think I nearline legacy in was competitive are cap really those especially low because depressed right markets the now. space, so and there

So they mindful as when much And can people now. to that competitive. this it want get full to of is demand their in all right times a factories. the sign of just as we're factories keep industry was think aren't I And the running fairly

So in I back see need think we demand the environment. supply to a and balance come to better see

Gianluca Romano

so now. In of market, the low the saw we low the capacity price maybe pricing pressure, the from some legacy coming right also drives, very NAND

the and said, still high-capacity fairly say very Dave as the environment drive, price stable. favorable On is

down say would I we seen different from in have So what prior cycles.

Krish Sankar

among in cloud or in clearly, market share digestion. seen you, high of shifts you pressure. favor Have your follow-up, environment, it. your customers, pricing very obviously it. especially And just this There's either as inventory levels then Very Got there's Got against a U.S. helpful. the any hyperscalers?

Dave Mosley

let's we're say I'd build right right make the inventories We're We're at absolute market trying point not And these for stuff. saying, sure time. this levels. watching share, all really we in

they there different various And various I think have different dynamics at within hyperscalers. challenges I can models, that business them. articulate So

business models. have Some multiple

as from architectural chain some there's overages So chain led people shortages there's the you're and some In are transitions and comments. in even supply situations the macro where there of to wrong some hearing stuff, are supply then shortages. And also of implications supply of too still the bought chain. there their cases, much

So the I has inventory it's how data higher There's the that with drives built. think for really consumption to There are Fundamentally, aging complicated of mass ones as vectors capacity is capacity changed. have which creation the this drives not an of on. TCO replacement and way. just of mass new capacity the proposition, fleet better going drives old

of trends We drives so that being still exist. used. them in The to are all of the data relevant coming than are product the keeps full all cloud. to because at hyperscaler people the data today ever. And are incentivizing that the move more that centers They're believe the offerings

is this environment. temporary just think we a So

Gianluca Romano

the stable we still for to a good in keep means or supply down and cycle, the of cash be me—in cycle a should also cash focus priority and free not share Down the on flow as -- market very positive important course, is production, And for demand we preparing pricing keeping sure, term the the flow. try possible, that environment And free and demand to -- solid. for -- see not reduced to keep very, is this balance. as long

Krish Sankar

Thanks Dave. Thanks, Got it. Gianluca.

Operator

Please with question Paribas. ahead. next Karl from BNP will our And go come Ackerman

Karl Ackerman

questions for as Dave well, me Two and Yes. Gianluca. Good morning, please.

one first HAMR. The on is

as guess, And address you your create the progress capacity And I think about you you demand transition could also so thinking to you for prepared question, in how to HAMR referenced head buy-in your softer discuss need possibly some equilibrium, that to Thanks. from does the as HAMR I ways on reach retooling this media and the transitioning HAMR about the period? guess of remarks. during you I customers production? and guess are cloud

Dave Mosley

in one that fabs, have to the mean, Thanks, What numerous and lesson you things. I current more is Yeah. I capacity to that free in you environment in more your say from that past where have. would experiments Karl. use downturns the accelerate that's run I

can cost we on all we're not the get talking get are but So to and ability that. We're of and platforms better the HAMR that drives, so much up down do that definitely way. also accelerate yields to that gaining and the we XX-terabyte introductory, not scrap about confidence us taking address things only that like to advantage dates, capacity only the but to beyond move platform about example, we say, to take up componentry That market capacity can then to the talking XX-terabyte we're also of HAMR, so up higher for just allows out points.

subsystems that and a in remarks, happy And prepared one on going everything We're right about all of I now product and long, would the we've certain and progress. with else So development right of it's for full CapEx, in is just say together. inside Seagate. brought transitions like these technology small said mechanical being long not for been also stage very to planning the really time. piece Relative is electronics now I HAMR. It's about readers and

a media. recording that only complicated. and Those them. tremendously that there's can The tools how tools to pretty they're heads and that making are So recording are we use sophisticated. be run tools repurposed We few know average

being lot ramp a of able So that to way. hit confidence the on

Karl Ackerman

squeeze I If That's in. may very more one helpful.

hard of input strength you. normal? are times your would other and quarter, in or match the that challenges facing what Thank set this I long lead for have still drive business? guess, And you Given those you components still consider systems there loosened maybe are for challenges you business back to

Dave Mosley

Yeah.

from it's I drive hard think easy a perspective, answer. an

inventory now. of right plenty have We

that bleed system side, and side, to had we need think had broader I we So drive shortages. or has to the sorry, off. the Relative have to industry shortages, the

that. power or assemblies breaking like things sometimes $X most completely that like What that not nicks And of would done I just yet. say is sometimes component, supplies individual or is free. It's

success is very complexity the reasons is for high. of our of systems the not One business the

take chain they they'll designs. smaller from are bespoke to people see to complex, they world, even some aggregating really less so and a that, achieve to very but for may what struggling supply mean and solutions they're simpler We And used perspective that market. can that the have on get in competitors exit

So channel a in well. business I think as had of success bit quite we've our

we'll We think I SKUs building building these supply chain trends. them well, market have and by really very, are few advantage. that believe a all of very So trends

Operator

question Timothy Arcuri our go from UBS. And next come ahead. Please with will

Timothy Arcuri

maybe I be loan. the seem this like the loan, it next covenants, over Xx quarters. thanks. seems you And to the on Hi, term think, breaching term has some I recall the that is few covenant might

So of be how we is of the through the sort question I dividend. that? comfortable guess can with talk Can you sort

Gianluca Romano

Yeah. cash happy have. our is we with are no, No, we higher than liquidity balance prior that quarter. Actually, the

As have during September increased our the debt have quarter. we seen, you

structure. if level will, We there, we but it. comfortable actions covenants, sure, we dividend, our debt are, as course, are while. we are -- we looking looking buyback our of take remarks, with pausing for do our a for said are we But at have on at now the And we of in to share prepared

Timothy Arcuri

that. So I guess just following up on

what of cut dividend continuum capital, just the right you a the of in commitment that fair would Is words, is list? at for commitments top figure the do is In I'm not have the trying statement? the other would -- out the dividend. to So to the you

Gianluca Romano

to want dividend. the protect Yes. We

part dividend that. of an want of return. And dividend. the we and one we to know shareholder protect that important is is know, you our priority As And

Dave Mosley

us invest all in through the continue And that make ourselves these we'll other time. and periods Seagate of to things

buybacks, reasons of pause plan bit plan things, up relative do. capital just can, getting to this that more a can It's We sure on why right those inventory, have to what now, dipping we're the a we little want out that's flowing not one we we to our the to with into definitely early make to plan we're and as aggressively and the share but we're come execute all working execute safe. to as as as

Timothy Arcuri

what normalized revenue my would from letter. the I sort you letter on I'm the maybe -- right if what to us can as from trying revenue to come to I'm handicap And Maybe this follow-up, handicap trying be is right were normalized a question something this revenue, so the help Great. of BIS. -- had

Shanye Hudson

Shanye. Tim, is This Tim. Hey, I'm sorry.

and Sorry. to actually complied cooperate all on of this relevant Again, things. that as but control we laws actually I to just comment we're going mentioned further sort export continue -- we BIS, earlier, any as with not with it two matter, relates to we've call. We believe this

Timothy Arcuri

Okay, you Shanye, much. okay. so thank

Operator

ahead. will our Morgan come Woodring question Stanley. from Please And with next go Erik

Erik Woodring

you. time U.S. at the my I since the good hyperscalers the first incrementally the meaning has beginning may. September? trends Hey, have habits today of in line that guys. of two, Can buying for about you And that's back had or first And relatively still what in Dave, about beginning have or preannounced the Maybe, a maybe at Does certain then of talked cautious Thanks in September, just part marry follow-up. if with early comments that text spoke U.S. with saw September, purchasing mentioned morning, then your latter about in for the you for taking September, the deteriorated that questions. what the the that preannouncement you from preannounced, you you terminology. terminology, in talked I September. today, you worsening over uncertainty imply I hyperscaler demand

Dave Mosley

the been I course do think the changing through of summer. things have

you have We to me need to negotiating the yes, we course that and so cost -- in saw our LTAs. run that little happened can I on. in. of give communicate cases What supply chain LTAs lots of above through us and that of predictability. the you color predictability factories bit a our LTAs. in with cases, kind was market we many been partners think a we're pulling the so some let constantly lower it of And we give past, customers in change. the efficiency exactly summer and -- the Typically, say I have had won't when get because And So

times. out subject time for They at changes things different longer are renewal. to up come They're others. Some than

ending a complex. of LTA, the helps quarter example, the to or next it's we one, at to negotiating some what for the as are of data So them end happen, that sense build-outs the get that's get within that fairly that if But we this and color. continue happened have close of summer, the changed we're going to the really center a inventory, for

Erik Woodring

And is just current after let's Thanks. -- restructuring your to, incorporate OpEx think December impact to Kind million Okay. plan, Or incorporates kind of be That's does September, Thanks, for you $XXX the efforts? not helpful. of Dave. of, maybe, through some Gianluca, of call the of view just in restructuring? can OpEx XXXX that then one then but your you. about it go parts the quarterly starting closer it, restructuring your base some early your quarters this run-rate March the

Gianluca Romano

Yeah.

the some the for quarter. few you executing the restructuring will would $XXX already plan November in $XXX say We so very the aggressive. December It's are range in is million probably million impact in I quarters. next see

Erik Woodring

so Thanks Okay. much.

Gianluca Romano

Thank you.

Operator

question come Please Rakers Aaron Fargo. go with Wells next will And our ahead. from

Aaron Rakers

they're degree at the I've drivers I'm what the Yeah. well, of for appreciating kind the what actually from the cloud little LTAs cloud as visibility vendors business. how or if as And bit going of curious probably past demand far call have in different. any the get That I able they've over they as back the you've discussions predictability Thanks the holding, a seen for your overall that change just vendors. have that these that level gone the better and questions. one you're assessing with of months was trying each far hear as regard the got think as taking two the inventory relative to of I you to how -- them comments to With that is business, in to of not of changed can. to establish couple

Dave Mosley

are they large. that pretty Aaron, on look fairly relatively they're is Right, if -- off is aging at exabytes you The and are it's aging will that the off, what's that exabytes small. space. actually putting But I -- a complex say

is. believe also I'm usage believe inventory. -- try to the in we -- a there's we not how growth say little quantify too the So to not going of it's exabytes that I'm going much is to much large, but

in necessarily I pauses to, not their build-outs on customer depending some their which have And happened. other in that complexities why problem -- center the you're specifically the of models it's there's driving business are reasons supply It's think chain. talking can data be there.

different us I So -- people before timed they've LTAs. and the is to -- have that what one just of and I they space as lots out, it's There's one next complex globally. -- the as We would visibility said lower. significantly given kinds would of say next is a

So sure through and then making therefore, coming we're reality relative of it. in that on a disciplined we're to we're period what to building

Aaron Rakers

suggested And we some nearline far start believe to rate growth. materialize. high comments call, work if was then your or and the in even growth XX% think growth I'm in business capacity forward? through of the that's underpinning something kind as past, that changed in in we Is the to had the as I you return me the we expectation north about talked structurally there point wrong, Correct as XX% we've I of a shipments nearline mid-XX% mind in going at recovery the see this,

Dave Mosley

and nearline. between there's difference cap a So mass

sorry, would nearline run bit So mass grow higher And or a -- bit typically then capacity a little would higher. lower. little

reason kind the -- will next So get the an years. do drives about drivers with continue as the are what trajectory this is we still of for and think year growth which down the rate But kind XX more we those using aggressively that as But for of I believe come to will data. can obviously, new for fiscal well, more think get exabytes we into build efficient out over I the to we're difference. come as afterwards. the our there drives 'XX that the is we And why in excited be as anomalous answering that's We're so factories pretty fundamental cloud, period sure. into to

Aaron Rakers

Yeah, thank you.

Operator

next Please Muse come our with question ahead. And C.J. go Evercore. from will

C.J. Muse

taking hoping I morning. Good into Yeah. I guess the question. deeper margins. to a first little dig bit Thank gross was for you question,

And Is provide will also cuts. of that margins versus fixed how variable utilization math COGS? as restructuring, of could further there kind of any part gross about have time of think talked to you what on what You kind impact frame? the on and kind about

Dave Mosley

you're fundamental let Gianluca to a you. it speculatively would I say when don't just this for answer premise, I'll that cash. just to manage comes lot down trying of anything quantitatively build

for. just we ultimately pull we at we're our stores want any have, as that up gross our paid that making to we and that cash point. we're use So not this sure We are a managing watching margin as outcome much going that don't tied we and get start from cash

supply the the because in a We we are -- and we're going business factory dent to of so impact workers for chain the inventory, right going of to the mindful future it's to now. and But resize in on. critical that, make we're believe make big very the of just

you answer? do Gianluca, want So to

Gianluca Romano

in the actually the I to utilization higher the September on a bit we quarter, be lower. revenue that a expect we said expect be Well, $XX as and before, bit to you go the had million than more December quarter. little little charges, When into we

compared that, need So of On higher. the September at is, impact had total the disk to revenue, capacity actually quarter, hard also margin look the general. In And to HDD mix. course to to system. higher top the quarter. gross had margin percentage lower system lower little compared mass gross prior a And you a we percentage have we bit than in the of

we in very expect to in and quarters margin in just as depends go term. as especially expect more the long the seen normalized And improve, from probably soon doing ago. is in term, then in it in comfortable be range margin, as we how will guidance, three So with have and why microeconomic were exactly decrease further a have we actually correction and as be gross to strong should our gross we Asia short not will also there December. back situation a will China, are over, But this reason no the be the again. level. the We that mix But you we revenue inventory

C.J. Muse

helpful. Very

a earlier. VIA market thinking question at surveillance curious But about China, the specific to and issues and guess, As being in from that the regulations to you're question, further entities you relates entity BOC the around worried your as referred separate of in on the all list. risk totally BIS I BIS and business? increased out unverified as of you're of that a placed if or kind part China contemplating Is to coming potential something it that to list follow-up

Dave Mosley

that And products, regulations the them, the of just the all as other time and well, impacts how impact over not right? for it's there parts how watch come but our still we've process might for all some it seen market. of we market only out It's it markets. impact Well, not demand, might broader

there people or video for end city applications, surveillance traffic like customers a speaking, control, People script, as demand think about, we in I that is the is safer. in because smart healthy to I somewhere there. is around demand broadly satisfying going we And ultimately, diversity world different still our or of healthcare else shift make the do demand. want said whether efficiency, it's talked think the

going last come underserved we for and to back. we has that ultimately, the think year, been market it's probably So think

-- or right into building we sure because packing the that purchase just we're now we want to not orders. see it's make the So products

C.J. Muse

you. Thank

Operator

And Credit Shannon our Suisse. next will question ahead. come from Cross with go Please

Shannon Cross

maybe you you beyond about could inventory you and working other capital have could any Thank Gianluca, a very incremental cash follow-up. levers drive Thank CapEx, And within then lower areas see much. a or pull to other talk you flow? bit you. I that

Gianluca Romano

focus all main But can inventory working now. in for right level we use manage the on capital. Well, that we the is sure, the driver can we

almost from billion has quarter. $X.X the start grown the Our of $X.X September COVID to the in before inventory billion

not we will all reduce now have couple diligently happen our of we one reduce in will quarters. the It opportunity to So quarter, but in course, inventory our inventory. of right next

Dave Mosley

with use, on those experiments material to Shannon, but big, the go so as do time, are and products. And capacity, to scrap. yields we the on the can can right right not drive It's excess these team and the numbers that still the

Shannon Cross

down areas about it but you. like headcount if costs? I there of obviously, Thank some a And restructuring a say then, obviously And if where know I But very kind to seems challenges focused. you're can environment inventory bit don't I talk is making structural macro little and there's actual given that? business? is it this a restructuring, more the the with the that? you Dave, this, than changes Okay. structural reducing Or can maybe Because that, off this like are and on big other flex am seems you're

Dave Mosley

sensitive chain. have and still supply the ability right happening not There communities Yeah. up. of say the the are the toughest I we'll we're would job, only to the are and really impacts people to flex the parts Obviously, impacts but now. big people

some as We are the support well, legacy a just completing which lowering products from of efficient of output and products perspective. are transitions more product products, future to

product of the resetting a bit. down the coming and little line complexity the factory footprint is So

very where But actually factory the realities there that what it about impact have, footprint. there talked haven't we are may line We much. demand out

as there's we products OpEx the just the in the environment. We're the this a current at structural think then well. future that mindful that massive in there's time. business. because we that's right into and of I nature as well around very the been that accelerate dealing all fact So planning with That come of the of this help we're change to as data point don't capacity mass will out. support with do restructure need We're reality

Shannon Cross

thank you. Okay,

Operator

Citigroup. go And with ahead. Jim will Please from Suva our question come next

Jim Suva

Thank much. you very

think recovery? Do and from you bit be the been prolonged look after in on inputs a outlook, do a ended, you your supply all demand would more in about December to think then? actually Or bit to be September the prolonged and think the it's the pretty quarter, just and at these given free December December little characteristics think as going going we're the and you ELAs that's equilibrium like right-size Or And very do you demand? quarter. to You've do quarter, clear you sufficient which customers? clear your it longer that's be restructuring going

Gianluca Romano

bit say now. right difficult Well, a it's to

for of tangible or of will at right demand of also And the for keep November, down quarter So to look a of month production the are is March then keeping the and ramp we to October and November more more back down for level what we the if we doing at it see sure. it for need few the June and weeks. time if a end it's

Dave Mosley

in happened That's almost capacity Yeah, to back I time to XX% think, fiscal negative. first question this well. before. 'XX, is was Jim, likely the Mass in calendar be ever 'XX. mid-XXs going as Shannon's that's FYXX maybe ties up

reduce space. So this those of a supply growth. growing. certainly in a in plans just we've don't data may discipline. see think manufacturing the maintain that that build healthy the sure I it's not growing all It's we be may to make not application got is our to know, but more And pop muted again. really We confident long term big to we we're spikes It some drivers. back

this and with comes. take then future we'll deal so now as And reset it right the

Jim Suva

you Great. Thank much. so

Operator

And with Ho go Bank. ahead. will our Sidney Deutsche next Please question come from

Sidney Ho

for my margin. Thanks on My taking Great. question. question first is gross

gross a follow-up But margin Maybe margin would And there revenue a how help various level? by helpful. break be underutilization between in you normalized logistics importantly, maybe charges, answer your your like on down to versus more sounds us gross costs, mix? the costs, components COVID it your under Anything question. previous I've down based will December earning question. quarter-over-quarter much So are be

Gianluca Romano

exactly margin is substantially is And on is months. be why will based or we the level September longer. if need production being the than quarter line the Well, today, We to declining. main production impacted keep underutilization reason have be percentage gross at know more. low, still time bit even we the But that with that period higher top course, the least of don't lower level a of the charges the where of even little because we go two will the

I So the say, would is, that majority.

bit flat We are less there's unit. don't spending freight, In Actually been will deteriorate. because terms less the of know we the ship COVID think on fairly we part quarter-over-quarter. cost, little a that now we

the restructuring, with then -- quarter, the positive next will have start P&L, in the the impact go some to we to course. And restructuring in drivers. of main the are our when those March So

Sidney Ho

Okay. the previous comes nearline cycles Do the then XXXX, two or -- fixed least on December March quarter? how in That's the question And helpful. maybe it through quarter. will revenue compared dropping grow that Those later. My that you cycles to talked follow-up for then see market and the this to drawdown back inventory Are time? a is, three quarters, usually out be in by XXXX, playing customers' comparable at this you the XXXX. quarters that, about you to suggesting you quarter follow-up two do to will think cycle

Dave Mosley

was a double I of think XXXX dip. kind

was I don't a that's going to odd ball. it So expect here. real happen

it than out have. what do I sooner and and see more of we'll confluence people other have between of some be issues is transitions we architectural macroeconomics supply of like rather we up a some people phasing start to come think chain a about, later talked factors people that think conservative. I still may

we're through that necessary So it's build carefully too watching it's early to to the we when cash and but market use absolutely only our to be exactly going sure for that what's happen, to call making very it period. then going

Sidney Ho

you. Thank

Operator

with And Loop Ananda our next question will come Please from go Baruah Capital. ahead.

Ananda Baruah

and Hey, then taking two, thanks, the Yes, the on plan. one I'll quick. Thanks morning. gross question. restructuring Good One ask on margin real for guys.

of you at gross right and just the are is the Or sort you sort forward? is quick going to -- of your that absorbing pickup -- I guess, have it the I guys adjusting I are all sort production-related you is that margin, margin capacity -- And pat Thanks. follow-on now? guys follow-up. so question On are that all? is production suggesting guess holding would restructuring charges And the a gross then in any of

Gianluca Romano

the this Well, of the our I before, course, but the level on majority also impact the gross margin restructuring. said in future, have production the of of will

significant is benefit some part We A restructuring of the this some in This benefit manufacturing. a are in financial company. actually restructuring of will restructuring, future. us part the this and give

will level it was back improve. before, and our up to production So when line where top to goes start

to As was margin better. before, expect go we and it to I where back said even gross

Ananda Baruah

Got it.

that? you program So the also I Gianluca? think the production? could as how between it sense involves capacity production of give us to guess, any split of restructuring Is about restructuring well, it the

Dave Mosley

have. many I think, different of Ananda, know, as that types we there's you factories

running are some dramatically bring experiments we're can the sure relatively keep on So underutilized. that going us out are Others up transitions heavy this doing do the yields make products of get we product period. that will because to and to

well. And some as way those of products are more efficient

use the toward making an OpEx that investments can from we're need only footprint we manufacturing period. of So our perspective ourselves not to guide but that this do we what to through restructuring

they in So I go think hand glove.

Gianluca Romano

our Ananda, longer longer But also the we term, benefit term, technology. new will of have

our expect So margin. products to that on based that to technology, future XX-terabyte be a we with HAMR and also accretive gross

that So longer term. you many need there to are to you start when model consider things

Ananda Baruah

you're the is program, you like do think at rate? restructuring OpEx when the run do you And Gianluca, run portion of rate think for the what

Gianluca Romano

Yes.

would full we as I will in So if the the March November, execute we benefit. quarter planned restructuring, say had include the

Ananda Baruah

guys. it. All it. Appreciate right. Got Thanks,

Operator

Barclays. Please come from go with And next our O'Malley Thomas ahead. will question

Thomas O'Malley

just of how right kind customers, give a your but you're negotiations this and guiding picture for you recovery overarching Hey, guys. recovery there's may substantially limited through how ask an down you're us now. deep long December. here. could wanted Clearly, with the help of visibility I Obviously, last. to pretty new question just working on Obviously,

the obviously, As recovery quarter, at acting starting think revenue Or customers to again? would a expect down you the you total do March year? the look you company see you be calendar but into that of are differently, beginning the could

Gianluca Romano

in carry it's our the what tell quarter I to we to internal little in and the surprised been but Well, in March an bit of see future, difficult course, plan, can predict December. have we compared improvement a you we recently,

Dave Mosley

some our and right now moving, certainly said intend -- reduce start mean entire going properly we're we watching think gets then climbing is on the I our on We the also we we're to the But to has. make well. that as adjusted. do quarter again. to planning bills point, in mass market so sure Tom, inventory capacity inventory at last And that that what building

make there sure just bills. the and we want we with to to So control get right products the

Gianluca Romano

the in to if situation months. benefit That in be last start been our to the a China will improve what Especially has will major business. compared six to

Thomas O'Malley

growth Got term. my capacity it. right And on the then long for the is mass rate just one second exabyte

most below, the conversations long kind But U.S. in fact hyperscalers these term that comfortable capacity have do rate? are how Obviously, you that them that with coming that still about think, of taking you with conversations higher mass running They time? what of talked ordering been capacity really high normalized be look with So be all a down or you like the with from Dave, cloud than growth these given range. little of slower like bit like LTAs is guys coming nearline right only mass XXs rate it coming upper get agreement has a previously. to pulling this rate XXs in out But above the I at at period guys these below of growth shouldn't these above that now, you're XX to lower was. that. that, the Like were that

Dave Mosley

Yeah, that's good.

So it XX%. far or the where made snap back I question here calendar it 'XX, this year down, will earlier I to so think like does call was be the that is, reference it in

pull. to the why for expect to can exactly blunt, are the demands this those our so be don't I is to on and we we are the go of what the need on but give pricing going then sales understand number so predictability environment customers predictability, LTAs, and and factories, they exabytes work give that So that, just the our exactly predictability people

conversations still with seriously we having so very everyone. are And those

the think us. was happening all architectural of what's changed are summer affecting business, And this were we these that got the about they macroeconomic I what through phase-up fall. that fact course of different us were going on that the transitions telling this

Thomas O'Malley

Thank you.

Operator

Toshiya go ahead. Hari next Goldman question with come Our Sachs. Please will from

Toshiya Hari

you've Hi. question. these Thanks if so late, apologies already so addressed much the for I joined questions. taking

mass pricing on on a per-exabyte business. for your capacity one basis First

think I down in a teens kind year-over-year. that low basis, down digits of quarter, the mid-single number sequential was on of kind

mid-'XX pricing digits. from minus. a stretch or I think it 'XX, exabyte down where the XX%, per through month single early in was there plus XX Pre-COVID, was down was

your we expect to should So phase? of last year you Or low business kind kind in should of And out we down you exabyte benign basis capacity pricing as this on pricing one will? of mass improve if the an digestion to be mid-teens conditions come inventory to time, forward? going expect were

Gianluca Romano

No, the will I think price improve.

lot XX of our the also important. quarter, Of September We is course, shifted very terabyte. mix a in the

the to at So it's difficult price look just in total.

you you really for What before need get on price not I product. at were maybe, to said look the that no, because didn't here. the like-for-like same the You

On business, part the pricing some have we pressure. the of legacy

On the some mass on but capacity, reduction, stable. capacity, mid capacity is is the there very the high pricing drives, the

Toshiya Hari

levers flow? you cash on digestion revenue, two lower a for with That's next side couple we flow on time. happened you flow, brace stay and guys Thank that's free the Gianluca, don't Or helpful. to And Got the of do levels very, free of quarters? of you. very think cash as inventory a you working or in capital cash this phase it. go have think positive you for negative quarter should enough long free I through then,

Gianluca Romano

that high said inventory We fairly a we reducing. have before, I are also think we'll level stay we positive. of

this So free flow. help with will also our cash

we So so expect of quarter flow. don't far any free negative cash

Toshiya Hari

much. so Thanks

Gianluca Romano

you. Thank

Operator

will this remarks. to any management question-and-answer conclude And conference turn over back closing our the I'd session. for to like

Dave Mosley

Thanks, Cole.

further solutions we for to meet conditions well innovation Seagate all Thanks look customers' these As difficult be position their through future. stronger always, the months. us for I'd few next cost-effective navigate like shareholders and into forward and for to confident our engaging our of storage support. needs will ongoing joining stakeholders today, to in over with for our the and near-term thank I'm a

Operator

now for today's is Thank concluded. The conference attending presentation. you

at lines may this You disconnection your now time.

Seagate Technology (STX) 28 Oct 222023 Q1 Earnings call transcript