Seagate Technology Holdings PLC

Good afternoon and welcome to the Seagate Technology Fiscal Second Quarter 2025 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 Shanie Hudson, Senior Vice President, 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've posted our earnings press release and detailed supplemental information for our December quarter 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 8-K. 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 impact 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. Following our prepared remarks, we'll open the call up for questions. In order to provide all analysts with the opportunity to participate, we thank you in advance for asking one primary question and then reentering the queue. With that, I'll now hand the call over to you, Dave.

Thank you, Shanie, and hello, everyone. Seagate closed out calendar 2024 on a strong note, driving 7% sequential revenue growth in the December quarter. Our non-GAAP gross margin expanded by more than 200 basis points, and non-GAAP earnings per share exceeded $2 for the first time in 12 quarters, underscoring our continued focus on profitability. Our performance was supported by increased demand across nearly all markets we serve, with the most significant growth in the cloud sector. This broad-based demand from global cloud customers led to an almost doubling of near-line product revenue in the December quarter on a year-on-year basis and close to 60% near-line revenue growth for the entire calendar year. We are experiencing strong momentum with our aerial density-driven roadmap, which positions us well to offer compelling storage solutions to our customers and also supports our expectation for significant profitable revenue growth for fiscal 2025 and beyond. We continue to advance our product roadmap and have achieved several key milestones related to our Hammer-based Mosaic platform in the December quarter. We completed qualification and started to ramp Hammer-based products to our initial CSP customer. Earlier today, we also announced sampling of Mosaic drives with capacities of up to 36 terabytes. Overall, Seagate is in an outstanding competitive and technology position in a strengthening demand environment. Prior to discussing the end market environment, I'll briefly address the production issue that we disclosed last month, which has led to supply constraints for the March quarter. John Luca will provide details on our fiscal Q3 outlook. However, I can confirm that this issue has been resolved. We are able to meet our bill to order commitments to major customers, and we expect the revenue impact to be limited to the March quarter. Now turning to the mass capacity markets, cloud remains the primary demand driver. The surge in near-line product demand that I referenced earlier aligns with a nearly 50% increase in cloud capital investments made by our customers in 2024, with their CapEx expected to continue growing in calendar 2025. We believe hyperscale customers are continuing to manage their inventory levels well, while making infrastructure investments to support growing demand for traditional services, advertising, and e-commerce, as well as emerging Gen AI applications. These applications will be prolific creators of data. And given that a substantial volume of the data will be stored on HDDs, we expect Gen AI to drive future mass capacity storage growth. This is particularly true of data-rich imagery, and video content created by GenAI models, which is projected to expand nearly 170 times from 2024 through 2028. Today, HDDs play a crucial role in housing the massive datasets required for training AI models, serving as central repositories when these datasets are not actively being processed by GPUs. These mass storage data lakes form the backbone of trustworthy AI by storing checkpoints or snapshots of AI model data sets, ensuring that data is both retained and available in the future for continuous model refinement. A recent survey of over 1,000 business leaders and AI decision makers underscores the critical importance of data retention and checkpoints in enhancing the quality of AI outcomes. These insights are not only applicable for the cloud, but also the edge where the vast majority of data is generated. The enterprise markets fall under this edge umbrella. We expect enterprises to replicate and store more data locally at the edge as AI computing and inferencing moves closer to the source of data generation. VIA is another opportunity rich market at the edge. For some time now, we've spoken about the increased adoption of AI analytics within the VIA markets, which help form actionable insights from data for applications such as smart cities and smart factories. In the December quarter, average drive capacities for VIA products set a record, reflective of increasing use of video analytics, as well as longer data retention periods. Overall, we believe mass capacity storage remains both an enabler and a beneficiary of these emerging data trends. Seagate is in a great position to address the resulting demand growth through our aerial density-driven product roadmap. As we've shared in the past, we are maintaining a disciplined approach in planning our production capacity. We will leverage technology transitions to support Exabyte growth, rather than adding new head and media unit capacity. Looking at our long-term roadmap, our Mosaic-based technology provides Seagate with a highly capital-efficient means to satisfy growing Exabyte demand, to deliver a strong TCO value proposition for our customers, and expand profitability over the long term for the company. Today, we have continued to ramp our 2428 terabyte PMR platform, which has rapidly become our top product platform in terms of both revenue and Exabyte shipments. At 30 terabytes or higher, our Mosaic Hammer technology delivers leading capacities and is gaining momentum across our customer base. There are now multiple customers qualified on this platform across each of the mass capacity end markets. Currently, we are ramping volume to our lead CSP customer while progressing on qualifications at additional cloud and hyperscale customers. These qualifications will set the foundation for the next phase of our Mosaic volume ramp starting in the second half of calendar 2025. We are confident that our Mosaic Hammer technology provides a strong and sustainable competitive advantage at scale for mass capacity storage and underpins a cost-efficient roadmap to build on those advantages. Consistent with feedback we've received from many cloud customers, AWS highlighted at their recent reInvent conference that adopting the highest capacity hard disk drives allows their storage system architecture to lower costs, conserve floor space, and reduce power consumption. Data center architects will continue to adopt both hard disk drive storage and compute-oriented memory technologies, such as NAND Flash, to support the breadth of their workloads. NAND is best suited for high throughput, low latency tasks, while hard disk drives remain the preferred storage solution for the bulk of data storage needed in the cloud. We do not see these dynamics changing over the foreseeable future due to several advantages that HDDs hold over NAND. HDDs offer customers at least six times lower cost per terabyte of storage capacity. They possess a significantly smaller embodied carbon footprint and provide manufacturing scale that is highly capital efficient. Wrapping up, Seagate is in position to deliver further improvements in revenue and profitability in fiscal 2025. Looking out further to the practice setup for Seagate with our steadfast focus on supply discipline in a favorable demand environment, a leading technology roadmap, and the tailwind of AI's massive data storage requirements. I'll turn it over to John Luca now.