Seagate Technology Holdings PLC

Good day and welcome to the Seagate Technologies fourth quarter and fiscal year 2023 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 then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Shanie Hudson, Senior Vice President, Investor Relations. 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 2023 results on the Investors section of our website. During today's call, we'll refer to GAAP and non-GAAP measures. Non-GAAP figures are reconciled to GAAP figures in the earnings press release posted on our website and included in our 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 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. I'll now hand the call over to Dave for opening remarks.

Thank you, Shanie, and hello, everyone. We appreciate you being here with us on today's call. Amid a tough business environment, Seagate delivered fourth quarter revenue of $1.6 billion while holding non-GAAP operating margin at 3.5% to narrow our non-GAAP loss per share to 18 cents. These results demonstrate financial leverage and our focus on returning to profitability. Importantly, we continue to generate positive free cash flow achieving $168 million for the quarter and $626 million for the fiscal year, reinforcing Seagate's solid operational and financial execution amid the business backdrop we have seen in fiscal 2023. This past fiscal year has been shaped by macro and end market conditions that have tested our resilience in addition to our financial performance. I'm proud of our team's perseverance and execution. As a result of our proactive actions, we've lowered our cost structure by more than $350 million on an annualized basis. We've enhanced balance sheet flexibility, taking out nearly $800 million of debt funded largely by monetizing non-manufacturing facility assets. We reduced production output by approximately 25% compared with peak volume in order to drive better supply-demand dynamics and enhance profitability as the markets recover. And all of these accomplishments were made while delivering on our 30 plus terabyte hammer product development and qualification milestones with volume ramp on track to begin in early calendar 2024. Looking ahead, we expect the macro and in market conditions that we have flagged throughout fiscal 2023 to continue weighing on demand through at least December. Consistent with our track record of managing what is within our control, we are taking additional measures to weather the near-term business environment. First, we are adjusting pricing, which we believe will help to ensure a healthy industry supply chain for our customers over the long term. And second, we are carefully managing our manufacturing capacity through a build-to-order approach for certain areas of the business to align our future production output with customer qualification and demand plans. It will take time to bring production capacity and associated support resources back online. Therefore, it is crucial that we balance lead times for mass capacity products with our ability to re-ramp production. We expect these efforts will enable Seagate to efficiently manage supply for our customers as demand improves. I'll now share some perspectives on near-term demand factors, in particular in the mass capacity markets, starting with our business in China. As expected, sales in China improved sequentially off of the March quarter lows, driven by increased demand in the VIA markets and certain regional cloud and enterprise OEM customers. While these trends are pointing in the right direction, sales are still well below historical levels. Since the strict COVID protocols were eased last December, the pace of economic recovery in China has been uneven. For now, we are forecasting sales into China to remain relatively stable for the balance of the calendar year. We are encouraged to see Chinese authorities begin to inject more stimulus to re-accelerate economic growth. Based on customer input, economic improvement is expected to catalyze e-commerce, drive cloud-related ad revenue, and spur new smart city projects. eGates Via and Nearline products are positioned to benefit from these anticipated improvements in the end market demand. Outside of China, near-line demand from enterprise OEM customers has remained soft. CIOs continue to operate under tighter budgets in response to near-term macroeconomic uncertainties. Ongoing efforts to optimize existing workloads both on-prem and in the cloud are helping enterprise customers defer mass storage deployments. These trends have slowed the pace of inventory absorption among most of our U.S. cloud customers. We have significantly reduced shipments to several large cloud customers in order to accelerate inventory absorption and protect our financial returns. We project it will take another couple of quarters for inventory levels to normalize. We also believe the timing for demand recovery could be affected by spending priorities focused on accelerating the build-out of compute-intensive AI infrastructure. While AI and ML have been around for quite some time, generative AI has quickly emerged as the next megatrend. This megatrend makes us as excited as ever about the long-term growth drivers for Seagate. In addition to the ongoing migration of workloads to the cloud, which we believe is far from over, GenAI is expected to be a catalyst for data creation, underpinning future demand for mass capacity storage. In today's earliest stages of gen AI development, you're seeing the necessary first steps of building and training of AI models. These efforts require significant investment in computer architectures, and we're seeing that investment ramp today. The next stage of development will yield enterprise-specific use cases that leverage trained AI models to convert data into value-enhancing applications. As this phase plays out, cost-effective mass storage will be critical, and we see HDD as a long-term beneficiary. We are already seeing examples of content creators generating high-definition images from text, which is growing in use, as evidenced by four of the top services tallying 20 million images each day. Development is well underway to create data-intensive videos and animations simply from voice commands. The adoption of AI-generated video bodes well for mass capacity storage. For context, today nearly 4 million videos are uploaded daily to YouTube, and their file sizes can be thousands of times larger than a single image. Additionally, we believe that predictive AI will lead to advances in many fields, including science and healthcare. For example, predictive AI can be used to analyze large collections of medical images, many created by GenAI. to provide insight for early detection, prevent disease progressions, and develop patient-specific treatments. Mass capacity data storage will remain both an enabler and beneficiary of these trends, working in harmony with flash and DRAM memories to bring AI applications to bear. While flash will continue to feed high-performance compute engines, mass capacity HDDs will remain the most cost-efficient storage media to house the enormous volumes of data being generated and used for predictive analytics. Even in today's unsustainably low NAND pricing environment, HDDs are still roughly five times more cost-efficient than comparable flash solutions on a per-bit basis, and we do not project that gap to close in the next decade. This level of conviction is due in large part to our leading technology roadmap. Seagate is leveraging magnetic recording technology innovations, such as HAMR, across our mature 10-disc HDD platform, positioning us very well to meet increasing demand, including from data-intensive AI applications. Given the current business climate, Seagate is focused on product development execution and helping our customers qualify next-generation drive capacities. We are executing well on both fronts. We continue to deliver aerial density and TCO advancements through our conventional PMR hard disk drive products. Development efforts on what may be our last PMR product are nearing completion and will extend drive capacities into the mid to upper 20 terabyte range. As mentioned earlier, our 30 plus terabyte product launch plan is fully intact and initial customer qualifications are progressing well. We are on track to begin volume ramp in early calendar 2024. We are also preparing qualifications with a broader number of customers, including testing for lower capacity drives targeting VIA and enterprise OEM workloads. While there's always work to do, I am pleased with the progress the product development teams have made during fiscal year 2023. Overall, Seagate has consistently demonstrated the ability to quickly adjust and execute at a high level on every factor within our control. We remain diligent in managing through near-term business conditions. At the same time, I'm excited by the tremendous long-term opportunities ahead brought about by existing and emerging megatrends underpinned by data. Cost-effective mass capacity storage is a critical enabler, and Seagate is poised to deliver with strong technology roadmaps and improving financial leverage. I'll stop there and hand it over to John Luca.