Seagate Technology Holdings PLC

Good afternoon, everyone, and welcome to the Seagate Technology fourth quarter and fiscal year 2022 conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one using a telephone keypad. To withdraw your questions, you may press star and two. We also note today's event is being recorded, and at this time, I'd like to turn the conference call over to Shani Hudson, Senior Vice President, Investor Relations and Treasury. Ma'am, please go ahead.

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 June quarter and fiscal year 2022 results on the Investors section of our website. During today's call, we'll refer to GAAP and non-GAAP financial measures. Non-GAAP figures are reconciled to GAAP figures in the earnings press release posted on our website and included on our Form 8K that was filed with the SEC. We've not reconciled certain non-GAAP outlook measures because the 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 effort. Before we begin, I'd like to remind you that today's call contains forward-looking statements that reflect management's current views and assumptions based on information available to us as of today. and should not be relied upon as of any subsequent date. Actual results may differ materially from those contained in or implied by these forward-looking statements as they're subject to risks and uncertainties associated with our business. To learn more about the risks, uncertainties, and other factors that may affect our future business results, Please refer to the press release issued today and our SEC filings, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q, as well as the supplemental information, all of which may be found on the Investors section of our website. As always, following our prepared remarks, we'll open the call for questions. Now I'll hand the call over to Dave for opening remarks.

Thank you, Shani, and welcome to those of you joining us on today's call. Our June quarter financial results reflected near record data center demand, contrasted with impacts from a confluence of macro headwinds in other end markets, particularly in the consumer-facing legacy markets. We believe the secular data trends driving long-term demand growth for mass capacity storage and infrastructure remain intact, as I will discuss a bit later. However, the impacts from COVID lockdowns in Asia, non-HDD component shortages, and global inflationary pressures intensified late in the quarter. Our resulting June quarter revenue and non-GAAP EPS declined quarter on quarter to $2.63 billion and $1.59 respectively. While macro events are weighing on our near-term performance, Seagate's financial achievements for fiscal 2022 were noteworthy. We grew revenue by 9% year over year, fueled by 24% growth in our mass capacity products. We expanded profitability even faster than revenue, leading the fiscal year non-GAAP gross margin above 30% and non-GAAP operating margin above 18%. And we achieved record non-GAAP EPS of $8.18. In fiscal 2022, we generated $1.3 billion in free cash flow, our highest level in four years, and maintained our commitment to returning cash to our shareholders. funding $610 million in dividends and repurchasing 9% of our shares outstanding. We are also demonstrating technology leadership and executing our product roadmap to support the growing demand for data. We attained our fastest ever ramp with the 20 plus terabyte Nearline platform, handily beating the projections that we made at the start of the quarter. We are on track to achieve volume and revenue crossover with the 18 terabyte drives in the current quarter. The 20-plus terabyte product family is based on our highly successful common platform design, which has enabled us to scale and ramp to yield quickly, as evidenced by the results I just shared. We have the flexibility to extend into the mid to upper 20 terabyte capacity points with minimal changes to our design, which allows us to meet customers' timing, readiness, and offers an attractive cost profile for both customers and for Seagate. We have worked tirelessly over the last three to four years, improving the resilience of our supply chain, aligning our mass capacity product portfolio to our customers' needs, and strengthening our financial foundation. Our operational execution, combined with structural changes that have taken place in the industry, namely the transition to mass capacity products and increased supply discipline, support our view that the company is fundamentally stronger today and better positioned for the future. Let us now turn to the current market environment. Despite the ongoing impacts of COVID lockdowns and supply challenges, mass capacity revenue was flat quarter over quarter, due in part to strong cloud customer adoption of our 20 plus terabyte nearline drives. U.S. cloud data center demand remains strong. However, persistent non-HDD component shortages have led to inventory imbalances precluding new data center build-outs from being completed. These, along with other supply disruptions, have led to a buildup in inventory levels across a broad spectrum of customers, a trend that continued through the end of the quarter. As macro uncertainties and inflationary pressures intensify, we expect customers will increasingly focus on reducing their inventory levels while maintaining the ability to address in-market demand. At the same time, Our Asia-based cloud customers are dealing with the impacts of COVID restrictive measures, which have had far-reaching effects across all of the end markets that we serve in the region. In the VIA markets, recall that many of the major projects driving demand are in the Asia region, particularly in China, where lockdowns are impacting our near-term revenue. While the situation remains fluid, we are confident that mass capacity demand growth will resume once lockdowns ease and inventory levels normalize. Within the legacy markets, demand rapidly deteriorated at the end of the quarter as lockdowns and surging inflation severely impacted consumer spending for PCs and external drives. Exiting the June quarter, the legacy business represented only 20% of our HDD revenue, which is a historic low. In response to the current business conditions, Seagate is taking actions to maintain strong supply discipline and a favorable pricing environment. We are reducing our manufacturing production plans while continuing to focus on driving efficiencies in the factory and across supply chains. We're maintaining prudent cost controls across the business and executing our product roadmap, which also helps to support our customers' TCO objectives. While the current environment is challenging, the multiple secular drivers fueling long-term demand for mass capacity storage have not changed. and in fact, continue to expand. Digital transformation is still in the early innings according to leading cloud service providers who have estimated that only 10% of corporate IT has moved to the cloud. New AI applications continue to emerge with AI engines requiring a massive amount of new data for training. Data that must be captured, analyzed, stored, and moved across a more distributed multi-cloud network. As the digital and physical worlds begin to converge, enterprises are employing data-intensive digital twins to enhance decision-making and overall business efficiencies. These trends dovetail into a view that businesses will need technology investment strategies to remain competitive in a data-driven world, which includes the need for mass capacity storage and infrastructure. Seagate is poised to benefit with a broad product portfolio of cloud and edge infrastructure solutions from mass capacity HDDs to enterprise systems to our live cloud and mobile service offerings. We are executing our development plans for the 30 terabyte plus product family based on our innovative hammer technology, which enables capacity points of 30, 40, 50 terabytes and beyond to support future data demand growth. Seagate's innovation extends beyond our HDD technology leadership. We're garnering recognition for our systems portfolio, capturing the coveted product of the year award for hardware infrastructure at this year's NAB show for our Core Vault storage system. Core Vault has also gained customer attention with its unique autonomous drive regeneration technology, which combines our device and systems expertise to enable self-healing capabilities. These systems provide enterprise CIOs with peace of mind that their data will be protected while offering a strong TCO value proposition. Additionally, technologies such as self-healing, distributed data protection, and secure arrays play a critical role in reducing the environmental impact of our products. Drives with these technologies can be repaired, reused, or recycled rather than just discarded, thus helping to preserve the Earth's precious resources. These efforts are critically important to Seagate and a key pillar of our product circularity strategy. We are also receiving very positive feedback from customers on a global basis for our work in this area. In closing, Seagate has broad exposure to the strong secular tailwinds driving demand for mass capacity storage. These trends remain intact, which lends confidence that growth will resume as supply constraints and COVID lockdown impacts ease. Seagate is fundamentally a stronger company today and is exceptionally well positioned to endure the current market environment. We have the right product portfolio, deep customer relationships, and operational agility to optimize profits and fuel growth. I'll now hand the call over to Gianluca to discuss the financial results.