Earnings call transcript Q2 2023

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Operator

Good day, and welcome to the Seagate Technology Fiscal Second Quarter 2023 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 Investors Mosley, section supplemental We on website. fiscal Executive Officer; Seagate's Chief information detailed Romano, and our of press me second the earnings quarter XXXX are posted release our our our Chief Financial

reconciled because measures not GAAP out material that our may GAAP a cannot was to our certain control easily earnings Therefore, corresponding our the press the with is posted are on measures During refer non-GAAP We've not items Non-GAAP reconciliation non-GAAP in GAAP today's outlook to call, that figures predicted. figures measures. be available and Form included measures the impact without SEC. in website of and/or and filed efforts. we'll are X-K reconciled to release these unreasonable

not as be us you Before today's from forward-looking with information subsequent business. current these date. those us to to by upon and that assumptions reflect should call differ statements any contains results to our of may Actual we are like on management's and uncertainties materially subject begin, statements that views as risks associated I'd based as today and they relied remind forward-looking of available

provide be as resolution. on questions moving regulations. matter cooperating additional note has the with with U.S. charging Industry regarding it control BIS the Seagate all and won't we'll Regarding with of the matter relevant appropriate raised call, by been Department's complied seek and in engaging Commerce BIS, laws that proposed We've addressing updates but maintains forward. today's Bureau Please to letter from and or export Security, discussions that we BIS a this

section as press our affect on annual and may and our issued of all the well other recent release the most including XX-Q which refer website. about our Investors today report the on to risks, Form may XX-K be quarterly on more learn business report our supplemental and filings, results, information, of found To SEC please future as that the factors uncertainties Form

remarks, As our up call for prepared always, the following we'll questions. open

Dave, Let call me now opening to the remarks. for over turn you,

Dave Mosley

Thanks, out what increased in environment. quarter, came and the accomplishments of business do everyone, in our joining EPS the delivered set by and more our range than we XX% guidance free afternoon, Shayne. amid us generation thanks this on above to I'm Seagate non-GAAP cash December today. Revenue Good proud for flow quarter-over-quarter. slightly midpoint of team's and and tough

still development XX% is adjusted call. portion the our in production and on while savings balance actions more discipline expected our lowered supply more strengthening reduced on our capital accelerating recovers. support efforts. of realizing by restructuring schedules We million than the strong a our from than mass outlined expenditures meaningful factory new products, output in are managing as the control our capacity well sequentially launch for and debt, executed sheet. demand what by We costs and we we to October We We operational retired $XXX

nearline been customers global China, technology HDD in footing factors several disruptions and a our and make Relative more term. the meet impacting primarily work solid markets. industry market the demand environment enterprise on to among to economic These dynamics past three to the Seagate actions, impacting we weather primary consumer-facing conditions, while over long investments evolving over believe, customers' slowdown cloud business continuing the macro-related thrive COVID-related and our put The under U.S. external near-term needs our to months. the cautious inventories of down have

mass and in weighed mass sequential capacity the capacity heavily on in play at resulting during decline a revenue. remained These markets, quarter the factors December XX%

recovery outlook indicators. through XXXX for a show are Within that, improving and of already said China's government are restrictions aimed economic COVID the major steps conditions of policies some encouraging following raised reversal the toward being including zero GDP. we we faster-than-expected their implemented first confidence seeing Having policy China, banks at several believe shift

take through COVID disruptions work reopen. for We will to consumers and and fully expect pivot the businesses time policy to it to the economy for related

and regional our calendar the on as subdued conversations, sales unfolds. the Based customer VIA nearline March the remain we in markets year anticipate and into to improve quarter gradually

New We Year demand expect to better the following gain signals will and monitor celebrations. to continue a picture Lunar

inventory and some recent Turning created enterprise in non-HDD focused that the inventory to been availability. non-HDD by during supported HDD We component component months pandemic markets. built as Customers cloud on has levels believe progress working the have the were in an imbalances. U.S. shortages down up made improvement

and event, near-term to customer-by-customer drives. are the adjustments inventory nearline more macro improve ongoing led slightly particularly uncertainties will expect buying in quarter, sales have decisions, While we for high-capacity current our cautious

to supported products, these of XX% or adopted ongoing enhancing the base, SMR depending our deep quarter are on and performance-oriented our December needs. current individual relationships our unique a broad to the wider shipments spanning traditional configurations drives customer is their which application products PMR the view we dual expected to and trend our and Relative portfolio, specific products, is technology equipped Seagate recording Our nearline to architectures, terabyte and of well to workloads exabyte by across customer variety actuator points nearline requirements perpendicular even to technology. adoption in capacity data family being of seeing center XX-plus is quarter. technology close higher address in with represented TCO of nearline

petabyte business offers addition enterprise scalable Seagate's for cloud and solutions both customers. In to our portfolio, device Systems cost-efficient,

we XXXX. down that a systems features which sales new offers products. drive September wins captured seeing a in number to self-healing, very of waste. as customer reducing CORVAULT move across increases quarter, electronic of The business autonomous our supports with while higher strong CORVAULT off momentum While record we're such productivity the were sequentially revenue regeneration, system fiscal

the we're technology advancements by bringing underpinned to is pipeline product strong market. Our

density technology and heads than additional through We disks. drive leadership rather gains leveraging our are to aerial capacities scale

we As deliver trademark a opportunities customers to our with TCO margin advantages attractive can for Seagate. result,

to have on capacities. the based X.X is platform started XX-plus product capacities XX-terabyte traditional XX terabyte Our The terabyte disk deployed of we ramp PMR X features per terabyte on products technology. and volume disk terabyte per

And an slightly technology drives. shipments additional enable feature some SMR capacity exabyte customers are SMR the as December certain XX% about that choosing as the quarter, drives increases our to In nearline for were deployed applications. of

for plans another this upper to gain disk XX We drives deliver platform terabyte are the PMR in mid- executing in per offer to range. capacity XX% to

first byte And per HAMR results lab to have today, our X disk ago of of the four However, capacities our nearly to recording X reduced technology. we've was physics environment, I'm the taking demonstrating we of demonstrated advantage labs. on terabytes cycles excited capacity. accelerate most In learning years market utilization It HAMR our factory been our that made I day shared around productization. per in disc current

meeting are in metrics, all milestones coming exceeding We units be weeks. or and key will cloud and development reliability customers we prequalification the product to shipping

customer result ramp progress, the June we on qualification XX-plus volume to of of factors, including yields and this of of a The product our HAMR initial now the launch terabyte will expect time lines. As depend schedule. speed a ahead number quarter, platform slightly in

to to pace and we learning our quicken business systems of plan time However, use yield. the to

team, Our execute. thank work hard to efforts. possible I global only my These through and innovations and reinforces of the were would in their for tremendous ability progress our like confidence dedication many them products and our HAMR to

long-term on measured believe and Our development is capabilities. density focus HAMR will drives. our cost-efficient We as facets advantage of multi-decade all and drive our capacities the believe HAMR highest we midrange to our innovations customers target range. a and beyond R&D resulted capacity possibly in profile consistent drive higher the deliver technology at that we're back these cost across products strong by enable and driving our of foundation in on innovation expand excited and future into production with The have collaborations margin refreshes aerial years, reductions serve the

is speed believe return balance product portfolio maps. to We've mass our improvements time. Seagate emerge advancing as could market year, road and through the the we challenges. financial signs industry-leading conditions made to through while structure macro positioned steadily our and near-term executing with up, With Wrapping technology our sheet over and meaningful agility long-term starting to we an cost capacity the Seagate well calendar model that that supports improve progress with is

the over Gianluca. now call to turn and I'll Thanks,

Gianluca Romano

the you, Thank earnings December macroeconomic the navigating through is guidance midpoint the of We billion quarter. bottom above share. cross-currents line near-term non-GAAP Dave. and plan to came Seagate and our ranges, of $X.XX of slightly and in in top results per $X.XX that delivered revenue executed

to declining $X.X capacity by inventory to of X% HDD exabytes own were flow Seagate legacy extend including among actions capacity to with outcomes, Multiple market. business, correction the enterprise balance the revenue led disk long-term positive improve mass including to drive sequentially generation, in cash sacrificing reduce China sales technology investment customers, the without in down and expected production. and were an disruption decline necessary a profitability cloud continuation the action December XXX free Total the factors costs, billion. improvement and in COVID-related reduce Mass quarter-over-quarter, leadership. X% Our in slight shipments offset quarter, strengthen seasonal sheet have hard desired our yielded to a

XX and from sequentially exabytes, inventory total, mass Of to customers. have down X% high. progress X% their taken derived aided into were XX and our totaled XX% quickly our in shipments production recent have to shifting to of capacity OEM quarter-over-quarter. exabytes adjust We were believe start making enterprise down cloud this Nearline output we actions down of XX% Shipment roughly the markets roughly products, levels. working nearline customers

that and to of normalized macroeconomic to VIA would described On more take well customer across demand sequentially lower expect base. were a basis, few just down current revenue billion, as we progress sales XX% a from the more level will capacity vary trend it market. in degree nearline the to months the I customer reflecting The inventory mass uncertainties, customer reach the $X.X notwithstanding as

to in we December economic during impact products, in As continued we of VIA quarter. did typical the slowdown the and sales not seasonal the pickup our expected, prolonged sales China see

these these indicators. earlier, is emerging And taking rapid Dave Chinese while including boost time still effect. support the economy, take COVID early, for mentioned of action the reversal government to changes dialogue to restriction. As leading will encouraging the customer policy take It country

gradually to couple conditions we As over anticipate quarters. improve a the of result, next

the sequentially, although consumer market, Within prior to a million, level seasonal uptick $XXX subdued primarily compared revenue legacy year. more X% a driven up by in demand, was

our for the our Finally, system branded XX% in very $XXX business, channel making are sequentially, revenue a million, CORVAULT following strides business growing self-healing great strong our we non-HDD with decline business expected products Overall, of customer momentum system down and sales September the quarter. our enterprise in increasing was reflecting building technology.

lingering supply improve the of system navigate to non-HDD through remainder expect continuing the we constraint for revenue are to year. a we While couple components, of fiscal

somewhat $XX costs, quarter $XXX non-GAAP the XX.X%, had associated to Non-GAAP are both higher quarter margin figure that operational gross in Underutilization projected and of underutilization was own as of from basis the our XXX lowering inventory translated production gross performance. in our Accounting costs a output point million sheet. with profit were than and in December to of reduction, customer quarter. on down risk at margin million. the December Moving Embedded prior support a the was headwind. balance into costs XX.X% onset we the for

with Year. Based Cost in expected the for benefit the lower largely are sometime quarter, planning to and begin offset and ramping the production outlook, New quarter. production associated the output on after March current March ramping of of costs efficiencies underutilization are to we Lunar restarting our

both non-GAAP the to reduced expect higher. we our with associated recovers as and However, profit $XXX demand move $XX We operating gross quarters, gross restructuring million, expense quarter-over-quarter in management. proactive due to down plans significantly margin expenses and million to savings coming

million remain balance to $XXX level fiscal through the OpEx non-GAAP of the quarterly expect year We the XXXX. around

the Based EPS diluted million share December the was non-GAAP on of approximately quarter shares, XXX count for $X.XX.

a liquidity the significant believe flat effort reflecting We to balance down and $X.X the sufficient ended planning work sheet the We facilities, to support term. to quarter a strengthen approximately the $X.X Moving executed on with our and level our action credit in inventory billion, meet finished prior reduction drove these the over revolving of balance near million sheet approximately inventory quarter. are from flow. strategic cash including our $XXX our with billion, December and prior plans to down to customer levels quarter, strategic goods. We demand. We

level inventory to to chain aligning prevailing remain environment. the but of We good the we'll level around demand next this expect to continue focus quarters, over finished our and couple supply on

CapEx total quarter-over-quarter. revenue. the XX% half X% to year XX% up down of generation expenditure a million, million $XX expenditure of with long-term Free target through $XX X% improvement the capital in expected lower to sequentially is fiscal expenditures to million, capital working reduced capital. flow We range below fiscal lower was second the trend cash $XXX and year of with

We and our expect XXXX free year more than dividend program. cash flow support throughout to calendar sufficient positive to remain

We program, shares million dividend. exiting communicated, XXX the as outstanding. repurchase we $XXX share for with And paused million our used quarterly the quarter previously

macro are program financial planning flow will We of share for model, year, the our not shareholders on capital focus depending Returning important XXXX, through optimizing and any currently in to fiscal an environment. repurchase consistent of the on conditions. resuming the to with our cash current balance fiscal our remains near-term assess aspect business we

a exchange, largely outlay. million, $XXX approximately minimal requiring by debt overall lowered cash through We debt

covenants Xx. increase debt temporarily our to renegotiated ratio successfully we the to leverage Additional,

exiting $X debt Our billion, debt in XX months the resulting $X.X quarter last and ratio of for the gross a billion, totaled balance EBITDA was X.Xx. adjusted leverage

December expense higher is and debt. associated the interest was Interest $XX rate in quarter, new with to March $XX the for be expected reflecting the quarter million million approximately

to options continue structure reducing expense. related and debt We evaluate to interest

and outlook March our quarter. shape to The the impact business geopolitical and the uncertainties continue to broader environment macroeconomic Turning of for recovery.

indicated inventory lower. are earlier, actions condition by levels enterprise with and in as early economic are customer Asia taken being encouraged to However, the improve the cloud indication we and trending

our at of cloud guidance, minus $X.XX, system or to the resuming $X As inefficiencies $XXX of offset project non-GAAP expect higher about legacy the be market. upper customers a incremental mass from non-GAAP up decline to and business which quarter-over-quarter the costs be March both enterprise we in in capacity quarter and billion, we to includes We to revenue range, the X% And mid- plus operating midpoint and margin expect with expect or plus the in the the production range midpoint. revenue in range million, result, improvement of single-digit seasonally minus sales we associated At EPS output. underutilization to be the $X.XX. in

turn will back final the to comments. now Dave I call for

Dave Mosley

continues of Thanks, in demonstrate most Gianluca. resilience times. Seagate the dynamic to

positive product our generating free are our is executing what on flow within map. We control, cash road and advancing

As supports we the Longer term, these in demand indicated expect year, excited of I stronger revenue we future as market for and mass profitability and through capabilities capacity conditions to by back gradually driving secular calendar the storage, earlier, remain growth which capacity progress mass XXXX. Seagate half improve trends unique opportunities. the capture we to

density disk, the leadership storage. are for solutions capacity mass We aerial we enables per our to increase believe product which cost-efficient leveraging capacity most

equity are our read The X-plus we in a the published more Seagate months, in our I to annual this team. We I'm disk support. principles than how available long-term Seagate's outlined on will is and and shipping from our employees. work coming foundational drive inclusion I in and innovations fourth technology products ongoing comparable industry aims this will our support begin the and its success. and on build by macro your website. highlights full report for global our conclude shareholders diversity, XX% thanking which Amid suppliers, and terabyte week, today. you encourage report, the to hard per to report which capacities up Earlier challenging to of customers proud capacities based incredibly backdrop, partnerships

best creation. Our objective position remains steps value Seagate the decisive to taking for long-term

take I and now questions. Gianluca will your

Operator

[Operator will Instructions] from first Barclays. Thomas O'Malley our today with And come question

Thomas O'Malley

question first is market. just nearline on My the

what unit going seeing sequentially clearly, seeing then December that could capacity side? saw the are just numbers you a exabytes. that's the gave. to about And robustly you But quarters the on first? may you recovery to inflecting. what that mass quarter, you in In can other that, the March clarify you that you quarter, confidence you pretty perspective on you're the slight March talk nearline there gives guess what I be a gives And accelerate You're the talking the June based confidence about higher? you refer from and are

Dave Mosley

Yes. Thanks, Tom.

flow -- talk off of back right? terabytes there's fairly turned the exabytes. XX won't exabyte points so biased last towards think, and particularly be higher a that about the older capacity ourselves I generation units, the we factories going So where tricky programs, summer, on, coming and through really we're off things of revenue. we'll we're and actually that I it's the our talk biased and more about there think is is of down, but math, against to will going growth We into some So

we customers we time seeing fairly a now, need. and are exactly but historically, are of with they what still having low It's traction, right discussions about course,

the workloads models different CSPs. across way I think and very the even the is And inventory, within think CSPs it there's spaces I'd way. there's I therefore, about and say different application CSP, each business that

fairly tricky. it's that much and products. of building not So the really towards products new to too biasing really make the do want But what we're we old sure is

the that to what good towards of I the half the actually extent stuff the second confidence that are have into calendar building that's we us then gets through CSPs recovery the a think year. visibility the in

Thomas O'Malley

Gianluca. my And is then one for second

New comedown me kind just costs? the slightly and underutilization puts Would little with cost better I'm kind up, ramping talked so revenue, takes described, the walk costs the -- underutilization When where costs You of of Lunar implication? factory would you the there, Just guidance up midpoint, I you post the maybe Year. gross but you know associated think, December in Can through you talk those about leverage. some margin understand $XX offset I with look in million quarter. at the getting more I a expect of gross is, a margins

Gianluca Romano

a with Tom. bit quarter because After production. will of the But manufacturing, so for start that That the has generate ramping of complicated quarter standpoint we Yes, of we January is level are a and from we is production, a cost the month March that, you, starting some ramping production fairly little underutilization bit who maybe will for also a good low cost they is familiar news. know February. inefficiencies. a with Thank

some you Now yield. you equipment, to recover the additional those need line, lower restart have scrap, to you need

costs So first a has weeks for of the some reramp few associated.

additional when terms margin, we and level So from onetime we right what The coming little now, fairly improving similar of gross put December. assuming two is course, costs the to VIA better together, of cost come of we the out the are had in bit a in of production. revenue

Operator

question come from with And our next Sankar Cowen. will Krish

Unidentified Analyst

is This Congrats is Eddie for short-term. the Krish. strong more on [Indiscernible] results.

down you your were deals growth of expect do this…? shipments and At First, above structural QX HDD what on the well growth point below rate year-over-year exabyte XX%. year-over-year

Dave Mosley

Sorry, you repeat try? a Eddie, up bit. little breaking Could your give you're question, just another

Unidentified Analyst

expect you Your exabyte year-over-year point and QX. rate to what shipments were nearly do growth positive turn that down year-over-year? At XX%

Dave Mosley

I The -- are build we're go relative my didn’t think old much we'll of are to turning we here. of I'll the to From underutilization the that intentionally our the things stuff. perspective, from I hurting factories going say, understood, took sure that. like to the and charges that us and ones factories most, make down too

still XX people And on focused like the consuming that terabytes a it's on XXs talked the that so and terabytes we back then about XXs forth, XX up XXs in so XXs and are and factory. and we're fills script. more and So and or where

answer. the that's think I So

out exabytes it's get return and better a as well. financial You more

I question. think your that answers

Unidentified Analyst

average? reasonable? color second to guys to Is we And manufacturing HAMR any expect when Yes. of do should yields 'XX half corporate calendar become have close you on

Dave Mosley

working. on the oven. well, speculate or the that we'll high-volume we the question is And ramped as HAMR got now whether perspective, viable, from focused is team Yes. of say we possibly on is we're out this parts the a I'll that, a of exactly what and longer everybody in fast right is than we're No it, on now has really there technology problem not get can. as well as it that's production. I our won't that are and the other We've position do that which

Operator

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

Erik Woodring

for getting environment HAMR to prospective that often. the Dave, in just the customers. you're I'd a term macro know confidence to you, spend of love like what heard we've feedback from great more cautious is in more optimizing see just the June Clearly, we're launch. cloud kind

the they're question. is that and could And timing seeing technology just size pushing launch? market? the you that the would love now unpackage if are that this for so slowdown we're in Or other there capacity a despite a driving the I of really factors

Dave Mosley

like us. we Yes. to decision I I get of terabytes. capability it. up think onus question that a a Xx want transition center Eddy's can for them get have over the would say the build data Xx long great that exactly yields control the of to sure a drive on ours Erik. somebody It's the much rather make about instead with really the out would to that And is proposition to we such a a production to Thanks, making drive TCO where that's terabytes because haul. and

deep customer showing have front. our is to a labs that obviously, a in are we're either. on not them. relationships, surprise not We surprise This results The this

us So well with connected it. they're very on

year huge. is best secular issues And us for they've us say, the the they're that we're make we that demand spending CSPs and of data shared of in mass are profile be that the absolute themselves. the those capacity value because this Where first for want for think half with I we all tough there. be going some might through, sure do in still the of to and centers when and their problems muted, to get those staging proposition going

drive. go to ours really it's So

Erik Woodring

it or impact and then of the HAMR exactly just as the again, that about think platform should think And Can remind you XX we not launching me. And margin sure. helpful. about, for how us next really Dave Gianluca, just that's That's I'm ramping Super. months? we potential

Dave Mosley

XXs come highest scrap. a really be this if at points does Yes. down to to most mean, we and although it the Thanks, with can platforms yields already we're over will, our into the customers. I get capacity that work or back take do have in to Eric. we existing how Gianluca to if then system. we go of the capacity That's teens, we'll disks and but through are in it. in qualifications heads targeting pass opportunities And points, you margin there out going oxygen, it lower second, of I'll go

And so go yields, our ability inside scrap, the to our those cycles factory, the are parameters. through relevant that of

Gianluca Romano

and more new Yes, products.

we point different the very go years. therefore, be So But say several now bit results to ova good a in what And in have to little have the very Dave in Seagate difficult from we exactly the need PMR, bit we at of very last as something said, we good the learning curve, certain right done is now. manufacturing. are results, but to can a when that similar confident will it's operation,

the are And than So ago. we but said, launching quarter, for months were we is expecting. we actually little three before as are product But faster bit in we are what were we just discussing Dave step. growing going step what June ready the by a

Dave Mosley

drive. cost that pile of the that that's the little for and think out things like would complicated causes there's we a drives go HAMR say do good, Even all we tectonic a And garden-variety been There's a in We've or some -- The I themselves, something while what shift that. features to data is We've Yes, long of other that there's have or we are really major other data added really can stage comments this to PMR of things no these this. things labs resets bit. well. coming really PMR just planning time. work, over over we're worked I off stave transitions, coming -- kinds technology out versus fairly to a and drive time encouraging. there's on make sure to

Operator

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

Karl Ackerman

Yes. may. Two questions, I if

because As usually in the a at few March down I see guess, that, it about great But March of is seasonal guide, improvement within time. revenue spoke nothing quarter it point in relates this relates points. to improvement is course, an it's nearline. in you seasonality to as to But

that. cloud you questions are customers I would look uplift HAMR, the beginning how or increasing LTA cloud say, of anticipation for launch? And procure signposts HAMR guess, you because see customers so LTAs are two-part of then into second, And regarding I'm orders new today demand baseline also to March? to orders in existing going for curious your or

Dave Mosley

It's interesting a really question, Karl.

Let me this way. challenges. you're of demand it challenges, got obviously, considerably, supply then I this, try discussions. our when case behind But challenges. is customers we've the Even LTA have suppliers Usually, got in think having our have

what But So we I having now. low the discussions think supply. LTA we The financial think may plenty chain together. that we're still. supply are of of There's want. right it's what very I the really Indeed, levels reinvestment factories and supply. is and the of there -- that right keeping we've needs getting co-plan mindful out in were of the demand to And an employed, we're entire all we reminiscent actually our need demand predictability right so outcomes times. LTAs for not above to our with right products those the keep mindful cash be and people of that they is paid I But you think keep costs had when to the running,

no this then answer of that we're but would becomes -- is at and is customer, question, there ramp volume this we point, Specifically not part at this to the say the could your is say the where HAMR HAMR LTA, we but get of think HAMR soon yet. I I there

Gianluca Romano

call, then we LTAs. through customers start will discussing after the the eventually and call. doing volumes We about And to have go with

Karl Ackerman

-- you're XX% ask may I were is If SMR today, close you. impression, Thank Understood. impressive. which your your mix, more. mix drives closer it's suggesting one of your to one XX% was of I the of quite to

discuss this mass you whether hoping area within So capacity? you've SMR economics quarter you of drives improvement what better could this in seeing seen sequential I'm and are

Dave Mosley

thanks. Yes,

since SMR let on think I the the cloud. in of I confusion this. think try lot this, there's space shipping so been me into a XXXX, We've

millions side. also We drives of shipped hundreds SMR the client have on of

is technology SMR a add. So great

for can very be can you applications, it specific If it cloud adopt complex. quite

to drives, becomes or try for And inertia it. if not there's from some limited people places, so application to example, that. Redeployment around you do choose do of it lot a of

years solutions. we if years If go for been So working years. great SMR customers we'll and and applications desire, on for and their this ask have them. there then We've

or I And any sometimes just application portfolio. the to so something this of react a customer I there's look application, business SMR as don't that, we think that's it. out say, for, big towards by ask Seagate really a And at by unit customer, specific shift more like and

think there more let’s so over that's, We as the may are at customers I'll being time, the the just deliberately problem be pushed it's look that front. for you that about. of our something part on But say, trend SMR, talked I solve it the for customer. are reason who, not adopting more

Gianluca Romano

quarterly on say on the I Yes, basis, based would a percentage mix our change of customers. the

the SMR. fairly be both can easy But bit we way another one, in which depending us, as have have is actually less. we can than customer an a more higher SMR for one us bit said, to quarter, convert a PMR So into a for or Dave

a where is in the specific quarter. just matter So of the demand

Operator

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

Aaron Rakers

a you're Yes, level what I two if peak was mentioned, or you as well. can XX% obviously, year about in the the below shipping question, seen so the first numbers ago. I that guess

to made an could there we rationalizing your looks that forward? have the you've capacity, move What's way utilization trying ship you on think any to to that production exabyte number capacity to now? gross think gauge we trajectory margin? the of on about of we relative footprint basis that kind think is fully how normalized about on like kind about what As efforts the based as Just guys

Dave Mosley

Yes. still Hi, Aaron, a perspective, answers I equipment equipment question. that think of an couple the all Obviously, there. from different there's to is

generally But to equipment, speaking, as factories, time time, go not that scale our a have people, directly of that to In X.X some we will to our more transitions painful bit that's up we per As capacity for in out lot to that a efficient or people for scale take did the we people. your -- a and process goes current matter. tremendously terawatt in in chain current penalties that lot supply a per say, disk, the X.X disk It's with our little we footprint get the us customers out back up. because matter about the terabyte our parts time through for content. X of a question terabyte of and a answer been to of fact, accessible state, to same back people have disk of per the for just the and

on So time, our capacity once dime I there all We upon with get for technology as would fairly say also we go that but we exabytes. a could go theoretical high still to XXX as plan to beyond. the react we get it. And a can't We it is, is need back can did there. transitions,

Aaron Rakers

a then And as follow-up. Yes, yes. quick That's helpful.

about we talked the effect in to had realizing fiscal of you do effort, annualized getting think reduction headcount the current How million on in expense it the this about with was net a about quarter quarter? that of I basis current think last starting $XXX quarter. this savings think I

Gianluca Romano

starting our that beginning big actually the saving quarter, we were of of already Yes. a at beginning November. We the as part The majority December November. of realized restructuring discussing in of happened

impact this now basically still that of are we quarter the three out always $XXX So take months we million. quarter. of full two there to expect the the the where the I OpEx, even had the script, of quarter in around items few cost we next and benefit cost be reduction. the could In And said other

Operator

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

Jason Park

couple for on I questions. UBS. have a from Tim of Jason is This

So question on December the quarter. is first

of I quarters but us that a of similar purchase missed, weak? I couple also, million if Could demand really item if December quarter. in have Sorry possibility see in help cancellation line there's $XXX would this remains there guys a is? be And what about fees that I understand follow-up. you magnitude order next any And repeating

Gianluca Romano

Yes. in our reduction really That is production. through

with commitment some some had our that, course, want with. we to suppliers course, of Of of comply we

cases, our on on need, reducing inventory our decided So on to products that didn't not stay on take for and to inventory. top we focus customer own take-or-pay based reducing of those we we had

into liabilities the those all taken have December we think I quarter.

quarter. this expect in March liabilities So I come don't back at point to this the those

Jason Park

and question debt level. Yes. it. on schedule your is My second Got paydown cash

exchange, So cash guys debt forward? operating new guys recent on about you level we you light in can under the and about thinking the your comfortable pace think of the that, how back the are down in And how are debt pay going magnitude of few next of quarters?

Gianluca Romano

quarter be the we are strong I flow. Yes, In cash we a still quarter, $XXX that. generated million, this think will than generating higher free fairly December

that June We that mature note at $XXX repay beginning we refinance, the have of will not want million. and we about is to will that

So we will cash. our use

optimize and our amount But now, between actions those to now reducing June. on cash focus the and notes. have full our going is of I say, actually debt would the right We on reducing

Operator

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

Sidney Ho

couple a of drives? you crossover but expect dual you of you Congrats for in And early, I questions HAMR the on to I HAMR then it's know of a year do track you it or Or exabyte drives. planning -- are clear, it do Is the and unit PMR pulling lastly, when question. to just this on 'XX? -- half in And in range? more subject, is the into of thinking XX-terabyte with HAMR follow-up few products on the have be expect drives about customers A schedule are adoption focused launch broad-based? the back How here.

Dave Mosley

not the momentum years here able for be, And to lot I a about is of possibly work the and deserve confidence to exactly can. on. accolades the be be outside of we're time. of positive but last right that to to on appreciate of there's sit schedule great that's going going company going is inside our believed company It like got world making -- all the that I we where based we that over XX a on. so talking double going our think and and now. in this points it's nasty I've what lot technology We're things it people really as aggressive as

early capacity yes, think maybe are in seen would -- has that It's some we channels, adopters the drives highest using are never to that of because talked couple want first before. so I control prepared the they the go be what out the I then point, at business And will can a some your these to different customers integration say trickiest about big our Specifically world probably like systems always question, understand things remarks. into the take. to the technology and the we've

To answer whatever disks to XX the or extent make we capacity and have heads are and be can That's that points turn us happen that. and great because we we'll in as well, fewer they get cheaper them. XX around a like midrange for working or on

we'll on think out get to over we years. I for I going very, next and find able very once So we're don't the homes the be few and them, the heads disks, think to be the ramp aggressive

Sidney Ho

follow-up Okay. Maybe question. a

channel given this the but high pricing cost still if terms and December in forward, you think okay? in behavior in the production customers level your you're do any and You competitors less inventory rational of Curious be of of cycle. the quite going importantly, in the more pricing the down in quarter, both terms in will environment have seeing

Dave Mosley

do -- way I don't that of you're sure in out like that any at I'm I your production not market much on point, pushing and make the front. the I the trends the outcome, long-term way encouraged control behaving as don't time. the Yes, to see best industry the long-term is think individual look is and point stuff. share things deals your to this at actually to wrong to cut too

And can the especially think so the proposition, value do and industry over ability it's speak, haul, lower go think I more the for I add Seagate, that on just a and having what I our costs better long to have. does so discipline forth.

to use we margin that into about range we beyond. how or think think back our I do get

Operator

from Vijay next question our will Mizuho. And come with Rakesh

Vijay Rakesh

Gianluca. Hi, control Great a and the quarter Dave, on inventory good side. and

quick you inventories Like are broadly? question a and see U.S. hyperscale, at you any look the broad channel. where if on thoughts on in how Just inventories enterprise China

Dave Mosley

Yes.

inventories up directions, and our from it. -- quicker. like were we that said went we ramp generally like we our vantage the at by point, we'd think it to factories or see hyperscalers the back to mean, obviously, because faster encouraged I we'd right I down

that's out, especially not inventory, I our anything would think the I'll to we as course, help do well. not the capacity anything putting encouraging nearline say, space, we're owned the it were legacy out of us. by else And what then, points, able market in into putting

hand, on. a high Europe, reality. it how that and could that, think now that super on be is so the we inventory baseline of macroeconomic do know certain started it's high, historically. And not super X think you're it on not or I weeks as distribution from based a macroeconomic but I to of XX absolute depending measuring recovery has The this weeks kind value geos, that all become high. think Asia you in And it's I baseline. some weeks, see on really

I not that. a to hand. there, it's And think so could of on again, react weeks lot And we whole

about So the I'm worried inventory not super there.

Vijay Rakesh

be year, on would exit ramping units? thoughts Good see to Great. mix of what And or of capacity nearline here. HAMR that at that. mass you revenues any mentioned the A your

Dave Mosley

Yes.

talked We haven't really about it.

relatively think heads all And year, we scrap I the get the and this faster can low. can be down then will that media yields it then faster costs be and we probably the will the still in the on control accelerating.

stuff And with all broadly be but also calendar are to highest how year can successful will calendar 'XX market. we that The accelerate. think happen points capacity will just capacity we continue addressed, those midrange I different in how all will we'll these determine that and year penetrate points. 'XX individual

Operator

with And Loop come from our Barua Capital. next Ananda will question

Ananda Baruah

could. I if ones, quick Two

utilization. to back Aaron's and Gianluca the going Just on question, Dave

of you're capacity. has more XX% actually Is of really kind same gross And peak up your guess margins it that back drives said below that Or of sort is a are takes peak. sort pricing simple? from because up the then higher cap ramp I you been that Dave, stable? coincidence So down XX%

just ramp back that. have on the sort a of slope like sort I as of And follow-up ship, the up bit same as is more capacity it mix? on really of the little a after given is up, so a And indexing quick simple

Gianluca Romano

quarter, the is bit the that that the considering low-capacity some of see December. a drive. discussing we a price quarter cycle. general, the margin fairly we underutilization the I gross Well, Last from lower were decline strong majority for seen down of of especially coming would say, a have. pressure the level little in production in about in we we bit But so But it sure, have charges,

-- as positive. production year expect as revenue we even and stability, ago, we the into the level are level we same are better. a this of be pricing of same level will we as of soon margin back same terms And in at think We see a we or our gross had

Ananda Baruah

can of less increases we be the Gianluca, more to calibrated forward? with kind -- it capacity margin or see is gross where model going we

Gianluca Romano

course. of mix, I would say capacity

Ananda Baruah

OpEx how takes? past want million then to you through about puts and June Okay. quarter, follow-up. a real And just us Cool. do the quick $XXX out that, the modeling think

Gianluca Romano

say the OpEx discuss the fiscal part from year, that is low are about year. next of is would coming But fiscal lower the current in very but staring compensation we to variable I

will in So to you the think adding about for some have 'XX. cost variable compensation fiscal

Dave Mosley

Yes.

early demand what's trajectory, economics like course times comes and can. very the is the of of saw to reacted, normal on come. I going from throughout and of an you year, questions if the be things perspective same some the And normal, when footprint back, we'll asking address factory kinds new those that we're this we some where When Ananda, cycle world we this obviously, it. the the think of when think I new

Operator

Bank next of our with Wamsi America. from come will question Mohan And

Wamsi Mohan

It's answered. been growth. already jumping little over as given all that apologize slowdown place calendar be been great? calibrate see talk if of bit a and 'XX, But the wondering trajectory could with I'm pieces that little as could well so this the many I would a in calls you about exabyte both maybe for inventory demand kind has moving you across if bit if you

Dave Mosley

reset you Yes. if where you also, depends to. It

too that's way think -- we've a then we taken growth. I talk a think that. do exabyte I forth, fact we're big the don't and to XX to growth step going help But I of terabytes and course, the think early out and back the we it's tell on so XX% putting could terabytes that little substantially. so XX on down, and by that

percent we from I think a couple XX-some of at ago, were drive. nearline years

but high do that There's from data maybe applications reflective of investing there. think XX% not also only of still is point, at So the that was demand the people to the time. for lot great bump proposition say, value are machine I another, a point a in capacity new learning, capacity coming. fact X AI, of lot that side

I there and our go of think kind are. value is something profiles better put what to them then we're exabyte in out front out they'll investment going perspective their a them figure just from of that. underneath to getting legs are proposition their through And incentivize job an temporary that's fairly where people

a So early the half better what maybe this is. -- an number year from don't we of the do exabyte gets I exactly think perspective. to little tell back

Wamsi Mohan

mind, be might that do the if there you you're that is go but abnormal? in. wouldn't maybe in environment, anything think when need pricing would that you that have covered there when normalize? address competitive abnormal within And if seeing you're then could the you if anything we to is channel, if already if I it, especially you this, But something within wondering you don't covered there's seeing was And

Dave Mosley

is At preserving People that into similarly, things environment. the going think making seeing they're they're demand sure of fairly a are about building the reacting not market. cash, macro their out same everybody I no, level, uncertainty

I super on think I again, don't see our that. I And big of very so three, course. the very, the think last see and four, and a of stuff of understand our But people has much But good be I customers customers, industry for little get market. I wrong It's building months don't the actually at painful back -- I But that. may level, pockets. way macro over and capacity. don't relevant. think a our done said scaling our suppliers, job that's the pretty too into five ourselves earlier, There this picture, trying to production

Operator

And our come from Kurt with next will ISI. Swartz Evercore question

Unidentified Analyst

believe the longer for headwinds TAM the you I within macro and curious term, recent first, just in outlook restrictions China, the share market but near export you color and intact, longer-term market, just curious on those if I'm Maybe both the context term your which can remains previously said -- VIA in dynamics? you any if have of on assumptions

Dave Mosley

I'll and let Gianluca I'll as well. speak Yes, start

about lot market I a applications years bit A few globally. There's have of changing quite think the talked VIA would a ago, is surveillance. we

lot management. about A are and people there's applications of inventory a behavior worried consumer inventory. Now about of lot

using in are creative all edge new, applications a people say, very the -- smart so way. these And

it's globally, exciting So an market.

and think I year, time the recovery particular, that's been in for hasn't come. last a the kind just And in very China, over of we drivers muted think were the waiting for recovery. I

it think I but new in think going around world be And there's will opportunities the well various as to recover, I it's happening. slow. geos

Gianluca Romano

and short from seasonality. always we because very we from some in possibly VIA quarter, the of also. legacy markets decline term, mainly where have quarter the the March In revenue March the is of a lower the see

important in our segment for margin. a an segment gross that we very short a the in So also generating improvement. sequential And the of good lot not should the rest VIA a see is year, of calendar increase term. And view, generally But in is us.

Unidentified Analyst

helpful. maybe very And That's then just a Great. follow-up.

margin is the to on this you longer-term assuming the levers context maybe walk OpEx for intensity range XX% and can that XX%, the still framework, year, within through just you growth reaching of the and line or the that thoughts last that us Within outlined operating of to target context? right medium- time some

Dave Mosley

Yes.

to demand, assessing long-term find we're still that. the I kind of think

to fast So I things on. Obviously, get But management won't it reductions. unfortunately, team's working is that cost cut we're we back that as goal We've in be models operational I will by And that. we've, had made -- driver to fundamental I yet. demand as some just this say possibly won't predict those the can. improvements to

because products than as the driver. bit reason that one we can demand oxygen at off a have back more best internal metrics and into our a then thing. of fundamentally, comes is the But trying little we there I we with we but suggest So intercept be going get is to and proposition transition to is time, we're still as aggressively think go better that a operational we faster, cost the and will also as own that demand And work this value us the helps to reasons had we we that well. think it

Operator

question come with Ellis from Suisse. And our next Credit will Ashley

Ashley Ellis

discuss thinking capital of levels. took the number? working you that But still down should follow-up. substantially. you're is second came anything ago how you they're then down. consider year a about inventory And year? you could for the Obviously, I above Our launch the HAMR, And production as pretty we have days half Gianluca, if within then there

Gianluca Romano

$XX million. positive by inventory about was our capital we to but lot our working a suppliers. our decreased quarter, December the by In We lot, Yes. also a paid

for think the will after at actually March stable quarter. positive that . part of least a couple fairly quarters. So I of that, that And the capital is probably is working impact

Ashley Ellis

question, from wondering lineup? just your help kind Dave, weeks. not much data that common but a is your for topic in customer conversations? And then, of you the last become on? Okay. but Is this they're opportunity, how on that about asking touched And coming in up few something in product this it creation, AI I'm a And more has thinks Seagate prior

Dave Mosley

Yes. Thanks, Ashley.

for what's all but of not it big the in is at data this edge. it we see, X cloud, because trends we're what's watching the happening only the demand that So affects the affects it's that of also growth going underneath I on think

think that so -- bullish do long very And that this. the on over I haul, we're

and are like or have moment. about big it, very the goes as data things decisions in If sets. I real to to sets time needed that But you that, AI relevant early be big access time think data of days to make think models that training on,

the a behavior to like lot inventory, for to at are they at good because before, have you sometimes coming. of applications on I new video make about that And be example, need edge or decisions consumer these the all edge talked kept data,

are customers about excited quite our So it.

online a of news, of have unsure a and innovation contribute into condition, The on been they it, front a that see the look aren't these forward come footing and really to it's the I data couple lot applications this people macro good years days the happening I of the lot because for really but going lot that saying growth. that's is are to I've think the leaning last I to of that that people because in

Operator

And our Baird. next Gerra Tristan from question come will with

Tristan Gerra

some utilization looking decline up a understand to share target. how on gross a possibility back you undertaking production is NAND questions on impacting react that I for of pricing that? is the Just and toward rates that net do recently to the currently? that given seen in of Or But of is get over there following the we've way pricing. HDDs? And your time demand to at shift some is controlling price that margin the you're pricing basically

Dave Mosley

through the markets, really. think big some both consumer The markets think went running I and the well. really proposition technologies. technologies small. a some of one use that of relatively mean the I as capacity they Tristan, capacity the There We consumer may back the other. transitions markets still a pretty value good because mass that I the people this. both small. making versus mass the not is either rigs be understand They're they trade-off not in in In markets have legacy impact day that's in relatively happening

all can over we there. business that is NAND, think the tough I see

we layers term. is need and and capacity think I do mass in, their tough affects the part their guys they're feel that the of needs I sure they to because think well it I I in everybody technology technology, shape don't relevant some as but long their make those think for world

Operator

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

Dave Mosley

Thanks, Cole.

executing with acting and to positioned a map agility to is financial same Seagate product us today, At heard environment. joining market for Seagate's I'd of just and us near-term capacity you speed enhance value that makes the tough by support, our strong through ongoing stakeholders thanks As customers' mass road we're thanking our like today. well to close performance. time, manage for and their all

Operator

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

You may now disconnect.

Seagate Technology (STX) 25 Jan 232023 Q2 Earnings call transcript