Seagate Technology Holdings PLC

Good afternoon and welcome to the Seagate Technology fourth quarter and fiscal year 2024 conference call. All participants will be in 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 your telephone keypad. 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 Shani Hudson, Investor Relations. Please go ahead.

Thank you. Hello, 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 posted our earnings press release and detailed supplemental information for our June quarter results on the investor 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. 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 gap 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 in 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. Following our prepared remarks, we'll open the call for questions. In order to provide all analysts with the opportunity to participate, we thank you in advance for asking just one primary question and then reentering the queue. I'll now hand the call over to you, Dave.

Thank you, Shanie, and hello, everyone. Seagate in fiscal 2024 on a high note reflecting strong operational execution and more favorable supply-demand dynamics. Fourth quarter revenue increased 18% year-on-year, supported by strengthening global cloud demand. We achieved non-GAAP gross margin of nearly 31% at the company level, supported by HDV gross margin that were above that level and at the top end of our long-term target range. These results, along with ongoing expense discipline, led to non-GAAP EPS of $1.05, far exceeding the high end of our guidance range. At the start of the fiscal year, we highlighted three financial priorities, namely to increase profitability, drive cash generation, and strengthen our balance sheet. Reflecting on our full year performance, we delivered on all three. Our results were due in part to the build to order or BTO strategy that we put in place to provide greater supply demand predictability and optimize our cash resources. For fiscal 24, we expanded non-GAAP operating profit by 64%, grew free cash flow sequentially every quarter of the fiscal year, and maintained healthy liquidity levels. As we enter the new fiscal year with operating and financial momentum in an improving demand environment, Executing our mass capacity product roadmap is a top priority. In the September quarter, we expect to complete the Hammer-based Mosaic 3 Plus product qualification with our lead CSP partner. We've also started to ramp our 28-terabyte PMR-SMR product platform drives in high volume. These two product advancements align well with the strengthening near-line demand environment. I'll share further details around our product execution momentarily, but first, I'll briefly review the current market trends. As I highlighted a moment ago, we are seeing strong near-line cloud demand growth from customers globally. Fourth quarter near-line cloud revenue more than doubled from the year-ago period, and we expect growth to continue in fiscal 2025. We attribute the underlying demand drivers to an increase from both traditional cloud computing workloads as well as new AI-related deployments. We believe this demand rebound follows a period of deferred HDD storage investments by cloud providers as they prioritize spending towards compute-intensive infrastructure. While cloud service providers are continuing to build out that infrastructure, they increasingly focus on developing, deploying, and monetizing AI applications. This involves both training of large language models and expanding the entire hardware stack to support future generative AI content-driven growth. While HDD demand pull-through related to AI is still relatively small, we believe HDDs will play a crucial role in enabling both of these phases of the AI adoption curve. By offering cost-efficient scalable storage solutions HTDs are ideal for maintaining the integrity of AI training data sets, as well as preserving the valuable content that AI engines are projected to generate in the future. In the enterprise OEM markets, we observed a gradual improvement in demand for the second consecutive quarter and continue to project stronger growth in the second half of the calendar year, driven by both modest improvement in traditional server unit demand and increased exabyte content. We've also started to see incremental demand for higher density storage specific solutions due in part to enterprises putting storage capacity in place either on-prem or in private clouds as they prepare for future AI applications. Finally, turning to the VIA markets. Sales of our VIA products came in better than we expected in the June quarter while customer inventory remains at healthy levels. We expect VF sales will likely fluctuate a bit in the second half of the calendar year off of this higher base. Global demand indications for smart city projects remain strong, but near-term budget visibility for these projects is mixed in many markets amid the current global macro uncertainty. Overall, the end market demand trends are solidly pointing to long-term growth opportunities for mass capacity storage. Demand recovery for our high-capacity nearline drives has been faster than anticipated, which has extended product lead times and led to tighter overall supply conditions. Based on our current outlook, our nearline Exabyte supply is committed through the end of the calendar year. These trends underscore the relevance of our BTO strategy, which is intended to provide greater demand predictability for Seagate and supply assurance for our customers. In this environment, we are working with our customers to obtain better demand visibility and address their Exabyte growth needs through product transitions while maintaining a strong focus on profitability and supply discipline. As noted last quarter, we are executing the qualification and ramp of two new high-capacity drives. Transitioning to these higher capacity products enables Seagate to profitably expand Exabyte's shipment volume with our existing head and disk production capacity, while also supporting our customers' growing data demand and TCO needs. Customer acceptance of our new PMR product continues to gain momentum. These drives, which offer capacities of up to 28 terabytes, have demonstrated solid yield, quality, and performance to date. With numerous customers now qualified, spanning the cloud, enterprise, and VM markets, and several more planned to complete in the coming months, Volume ramp is already underway. In the June quarter, we shipped a small volume of Hammer-based Mosaic drives for revenue to non-cloud customers. Consistent with our recent public commentary, our lead CSP customer is validating drives built with the improved process controls and new firmware optimized for their specific workloads. Testing on these drives is progressing to plan, and we expect a complete qualification to begin shipping them revenue units later in the September quarter. Based on our confidence in the technology and experience on this product platform, we are proceeding to launch new Hammer qualifications with the expectation to have multiple U.S. and China cloud customers' quals underway this quarter. We estimate these qualifications will take around three quarters on average to complete, which points to a broader volume ramp toward mid-calendar 2025. We are leveraging all of our learnings and pushing the pace of development on our next generation of hammer drives, the Mosaic 4 Plus. Mosaic 4 Plus offers 33% more capacity compared with the hammer drives that we're shipping today with minimal changes to the bill of materials. This illustrates the central value proposition of the Mosaic platform, namely the technology's ability to scale drive capacity through aerial density gains rather than adding heads and disks. This capability is enabling Seagate to deliver significant cost benefits to our customers, as well as offer power and space advantages that are particularly valuable for data center operators as they expand cloud and AI infrastructure. For example, each data center slot loaded with one of our Mosaic 3 Plus drives offers three times the storage capacity relative to the average capacity of Nearline drives in our install base. and consumes about 70% less power per terabyte. These represent tremendous savings opportunities for data centers at exabyte scale. We are hearing from customers directly, including CSPs, that HCDs already play a crucial role in extracting value from data in the early stages of AI application deployment. As GenAI engines mature, customers expect an acceleration in content creation that will lead to significant demand for mass capacity storage. We recognize that GenAI is still in its early stages of adoption. However, this customer feedback, combined with our early engagements with Nearline Cloud and OEM customers, reinforces our view that mass capacity storage will be a beneficiary in both the cloud and at the edge as the adoption of these new, exciting applications take hold. I'll stop there and pass the call over to Gianluca.