Seagate Technology Holdings PLC

Good morning, and welcome to the Seagate Technology Fiscal Second Quarter 2020 Financial Results Conference Call. My name is Josh, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question-and-answer session. As a reminder, this conference is being recorded for replay purposes. At this time, I would like to turn the call over to Shani Hudson, Vice President, Investment Relations. Please proceed, Shani. Thank you.

Thank you. Good afternoon, everyone, and welcome to today's call. Joining me are Dave Mosley, Seagate's Chief Executive Officer, and Gianluca Romano, our Chief Financial Officer. We've posted our earnings press release and detailed supplemental information for our December 2019 quarter on the Investors section of our website. During today's call, we will refer to GAAP and non-GAAP measures. Non-GAAP figures are reconciled to GAAP figures in the earnings press release posted on our website in Form 8K that was filed with the SEC. We've not reconciled certain non-GAAP outlook measures because material items that may impact these measures are out of our control and or cannot be reasonably predicted. Therefore, reconciliation to the corresponding GAAP measures is not available without unreasonable efforts. As a reminder, this call contains forward-looking statements, including our March quarter financial outlook and expectations about our financial performance, market demand, industry growth trends, planned product introductions, ability to ramp production, future growth opportunities, and general market conditions. These statements are based on management's current views and assumptions and should not be relied upon as of any subsequent date. Actual results may vary materially from today's statements. The information concerning our risks, uncertainties, and other factors that could cause results to differ from these forward-looking statements are contained in our most recent Form 10-K filed with the SEC and the supplemental information posted on the Investors section of our website. Following our prepared remarks, we'll open the call for questions. And with that, I'll turn the call over to you, Dave.

Thanks, Janie. Good afternoon, everyone, and thanks for joining us. I'll begin today's call by highlighting a few key accomplishments for the December quarter, and then I'll share some perspectives on the market trends and their relevance to Seagate. Afterwards, I'll turn the call over to Gianluca to elaborate on our December quarter financial performance and present our March quarter outlook. Following the prepared remarks, we will open up the call for questions. In the December quarter, we grew revenue to $2.7 billion. and drove strong double-digit profit growth on a sequential basis, with both non-GAAP operating margin and non-GAAP EPS coming in at the upper end of our guided ranges. Importantly, we have generated nearly $1.2 billion in free cash flow over the past 12 months, underscoring our consistent operational execution. In addition to delivering solid financial results, we achieved record exabyte shipments in the December quarter, supported by strong demand for mass capacity storage and the continued successful ramp of our 16 terabyte products. Consistent with our expectations, we shipped 1,000,016 terabyte drives during the quarter to support strong customer demand. We also strengthened our product portfolio, announcing Seagate LiveDrive Mobile System, a series of seamlessly integrated storage solutions to address the burgeoning need to move data between endpoints, edge, and core cloud environments in an efficient, secure, and cost-effective way. LiveDrive was one of many products we showcased during the Consumer Electronics Show this past January, which I'll discuss shortly. First, let me comment on some of the trends we're seeing in the market. Our December quarter results highlight the increasing demand for mass capacity storage, which includes nearline, video and image applications, and network-attached storage, or NAS. Revenue from mass capacity storage increased 9% quarter over quarter, and 25% year-over-year, driven by growth across each of these markets. This positive trajectory reflects both ongoing demand recovery as well as secular growth for mass capacity storage. In Nearline, we are leading the industry's transition to 16 terabytes, which is the largest capacity drive available in mass volume today, offering the best total cost of ownership opportunity for our customers. In the December quarter, these products represented the highest revenue and highest exabyte shipments of any of our drives. We achieved these results while still at the very early stages of this industry transition. The airline demand has been on a positive trajectory that we expect will continue through at least the rest of the fiscal year. We are well positioned to address this growing demand as we continue to ramp our 16 terabyte production and launch our 18-terabyte drives, which are based on the same platform, simplifying the manufacturing and qualification processes. The 18-terabyte launch is progressing to plan, and we remain on track to begin shipments in the first half of the calendar year 2020. We expect to align our production to meet customers' demand. In video and image applications, we achieved record revenue in the December quarter driven by strong demand for surveillance drives. As we've shared for multiple quarters now, global uncertainty has created some disruption in typical customer buying patterns within certain markets, including surveillance. However, the underlying demand drivers remain intact and inventory levels appear to be relatively healthy, supporting our positive view of demand over the long term. Security surveillance is just one of a growing number of applications adopting high definition video and image processing, which require mass capacity storage at the edge and in the cloud. A few weeks ago at CES, we demonstrated how video and imaging sensors are being deployed in smart cities and smart factories to collect and analyze massive amounts of data used to improve traffic flow, hasten emergency response times, lower production costs, and improve worker safety. These are real-world use cases spawned by the emergence of IT 4.0, which illustrate how organizations are unlocking value from the data being created by sensors, cameras, and other endpoint devices. The transition to IT 4.0 and trend towards a multi-cloud world create meaningful opportunities for Seagate. We project a typical smart factory can create 5 petabytes of video per day, and a smart city could generate 200 petabytes each day. Fully realize the data potential, compute and storage must move closer to the source of creation, closer to the edge. At CES, we also showcase how Seagate's storage solutions are enabling IT 4.0 and hybrid cloud environments by leveraging our innovative technologies and expertise in systems architectures. We featured our high-density scalable systems, which offer enterprise customers a cost-effective petabyte solution ideal for data-rich cloud applications. The unit we displayed at CES was configured with 106 HDDs, including multiple hammer drives working in real time. We are on track to release the industry's first commercially available hammer drives in late calendar 2020 at the 20 terabyte capacity point. Thank you.