Seagate Technology Holdings - Earnings Call - Q4 2025
July 29, 2025
Executive Summary
- Seagate delivered a strong Q4 FY2025: revenue $2.44B, non-GAAP EPS $2.59, and record non-GAAP gross margin 37.9%; both revenue and EPS were modest beats versus consensus, helped by cloud-led nearline demand and favorable mix including PMR 24–28TB and ramping HAMR.
- Guidance for Q1 FY2026 points to continued expansion: revenue $2.50B ±$150M and non-GAAP EPS $2.30 ±$0.20, inclusive of Pillar Two global minimum tax effects and expected dilution from 2028 exchangeable notes; management expects mid-to-wide 20s operating margins and ~16% tax rate.
- Operational highlights: mass capacity shipments reached 151EB; nearline shipments were 137EB (91% of mass capacity EB); adjusted EBITDA rose to $697M; free cash flow was $425M; debt reduced to ~$5.0B and quarterly dividend held at $0.72 per share.
- Narrative catalysts: HAMR Mozaic qualifications progressing (three major CSPs qualified), shipments expanding in September quarter; 4TB-per-disk platform qualification started with volume ramp expected in 1H CY2026; visibility “largely spoken for” through mid-2026 via build-to-order contracts.
What Went Well and What Went Wrong
What Went Well
- Record profitability: non-GAAP gross margin 37.9% (+170bps q/q) and non-GAAP operating margin 26.2% (+270bps q/q); CFO: “record gross margin levels” and EPS at high end of guidance.
- Cloud demand and product mix: mass capacity revenue >$2.0B (+15% q/q; +40% y/y) with nearline shipments 137EB (+14% q/q; +52% y/y); CEO: “strong global cloud demand... record quarterly sales” for 24/28TB PMR; HAMR ramp accretive to margins.
- Strategy execution: build-to-order visibility “spoken for through mid next calendar year” and qualifications “progressing exceedingly well”; intent to resume share repurchases reflects confidence.
What Went Wrong
- Receivables/DSO: accounts receivable rose substantially y/y (from $429M to $959M) and q/q from $622M, but management cited no factoring this quarter (free cash flow strong) and no unusual business drivers.
- Capacity allocation: some supply dedicated to HAMR customer qualifications, modestly constraining sellable volume despite strong demand; demand remains above supply.
- Tax/dilution headwind ahead: Pillar Two global minimum tax impacts both GAAP and non-GAAP (mid-teens tax rate); expected dilution from convertible notes and equity comp (VWAP >~$108 triggers dilution).
Transcript
Speaker 2
Please note that this event is being recorded. I would now like to turn the conference over to Chaney Hudson, Senior Vice President, Investor Relations.
Speaker 3
Please go ahead, ma'am.
Speaker 1
Am.
Speaker 3
Thank you.
Speaker 0
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 and fiscal year end 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, a 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.
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 re-entering the queue. With that, I'll hand the call over to you, Dave.
Speaker 3
Thanks, Jeannie and hello everyone. Seagate closed out fiscal 2025, delivering strong financial results for the June quarter marked by 30% year-over-year revenue growth and record gross margins, which improved for a ninth consecutive quarter, a trend that is set to continue as HAMR adoption gains momentum. We achieved non-GAAP earnings per share near historic highs and generated strong free cash flow. For the fiscal year, revenue increased 39%, non-GAAP gross profit dollars nearly doubled, and operating profit more than tripled, demonstrating our focus on supply-demand alignment and ongoing cost discipline. Our execution resulted in one of the most profitable fiscal years in the company's long, storied history. The structural changes in our business model and strong product pipeline make Seagate well positioned to deliver improving profitability and cash generation in fiscal 2026. Reflecting our confidence, we expect to resume share repurchases later this quarter, enhancing capital returns to shareholders.
Operationally, in fiscal 2025, we started the high-volume ramp of two new nearline platforms, including the industry's first heat-assisted magnetic recording hard drive, an engineering feat more than a decade in the making. These new cost-effective and energy-efficient platforms align well with data growth driven by traditional compute workloads and increasingly from AI-supported applications. Looking at the current end market dynamics, we see a continuation of strong global cloud demand for our nearline products. The visibility afforded by our build-to-order strategy indicates our nearline exabyte production capacity is largely spoken for through the middle of next calendar year, with visibility building into the second half. We believe BTO contracts are also beneficial for our customers by providing predictable assurance of supply. With installed data center capacity expected to more than double by 2029 on a gigawatt basis, these contracts support the CSP's efforts to keep pace with end user demand.
Within cloud data centers, we see an evolving diversity of workloads and applications addressed through a combination of storage media optimized across a multitude of factors including performance, cost, floor space, and energy efficiency. The diverse solutions that emerge are shaped by how these factors are prioritized and the scale that is required. For instance, one of the world's largest cloud service providers recently developed a tiered storage solution to support an application for a widely used social media platform, leveraging hard drives for both mass data storage in addition to a caching layer to enable fast repeatable data access. This customer was able to realize significant cost savings and efficiency gains compared with alternative storage solutions. In today's data driven world, the growing need for mass capacity storage extends beyond the cloud to edge data centers. There are multiple trends that underpin this view.
First, as more data is created at the edge, it will be replicated and retained across multiple locations to capture actionable insights through AI models. To preserve the integrity of these models, large volumes of data are being retained longer to support checkpoints and inferencing. Additionally, today roughly 50% of the world's data centers are concentrated in just four countries. As data sovereignty regulations evolve and proliferate around the globe, we expect a growing demand for localized data storage. In this context, mass capacity hard drives will be critical from a footprint efficiency and TCO perspective, ensuring data is safe, secure and compliant. For data centers at the edge, we expect enterprise storage demand will mirror the trends we've seen in the cloud where upfront AI infrastructure investments led to increased demand for mass data storage over time.
Supporting this point of view, a leading enterprise IT infrastructure provider is introducing new tiered storage system solutions later this year for AI applications designed to optimize their end customers' TCO and data utilization requirements by integrating high capacity hard drives based on HAMR technology. While momentum for our high capacity HAMR drives builds, we also have continued to increase exabyte shipments of our PMR 24-28 terabyte platform to address demand. In fact, in the June quarter we achieved record quarterly sales and volume shipments for any nearline product with this platform. Leveraging the commonality across our PMR and HAMR platforms, we are executing the volume ramp of Mosaic 3 products. We are tracking the plan with shipments expanding to additional CSPs in the September quarter.
Across the board, qualifications are progressing exceedingly well and we continue to expect the key global CSP customers to be qualified by mid calendar 2026. Our progress in bringing HAMR-based Mozaic drives to market at scale strongly positions Seagate to address the significant opportunities we foresee in the cloud and at the edge. The top priority during fiscal 2026 is executing our 4+ terabyte per disk qualification and volume ramp. This product will support cloud workloads with capacities of up to 44 terabytes and also supports lower capacity drives ideal for edge workloads. As planned, we recently started qualification with a global CSP on the 4 terabyte per disk platform and expect to begin volume ramp in the first half of calendar 2026. This timeline is consistent with our target for exabyte shipment crossover on HAMR-based nearline drives in the second half of calendar 2026.
Ongoing investments in innovations such as granular iron-platinum media and breakthrough photonics technology are critical to delivering our area density roadmap. We continue to make steady progress with 5 terabytes per disk technology, aligning to our goal of introducing it into the market in early calendar 2028, a timeframe when we also expect to demonstrate double that capacity, 10 terabytes per disk, in the lab. To close, I believe this is one of the most exciting periods in Seagate's history. Recall at our Investor and Analyst Day in May, we discussed how Seagate is in the right markets with the right technology and the right execution to enhance shareholder value. Demand for mass data storage is expected to grow as our cloud and edge IoT customers continue investing in AI-driven strategic imperatives to unlock and protect data value.
Amid this strong demand backdrop, we are mindful of the evolving trade policy landscape. Based on our current outlook, we expect minimal tariff-related impacts to the business. We will continue to closely track developments and stand ready to deploy mitigation strategies that minimize potential future impact to Seagate and our customers over the long term. In this dynamic environment, our HAMR-based technology roadmap makes us uniquely positioned to capture these growth opportunities in the cloud and at the edge as we push forward area density gains to efficiently expand exabyte output while enabling our customers to benefit from the improving total cost of ownership. As a result, we are confident in our ability to produce compelling growth in revenue, profitability, and cash generation in fiscal 2026 and beyond.
I'd like to thank our global teams, supply partners and customers for your contributions to a strong fiscal year and to Seagate's ongoing success. Let me now turn the call over to Gianluca.
Speaker 1
Thank you Dave. We capped fiscal 2025 delivering strong double-digit top and bottom line growth and achieving record gross margin levels. June quarter revenue came in at $2.44 billion, up 13% sequentially and up 30% year over year. We expanded non-GAAP gross margin by 170 basis points sequentially to 37.9% and we increased non-GAAP operating margin by 270 basis points to 26.2%. Our resulting non-GAAP EPS was $2.59 at the high end of our guided range. For fiscal 2025 we grew revenue by nearly 40% to $9.1 billion. We achieved non-GAAP operating profit of $2.1 billion, marking one of our strongest annual performances and recorded non-GAAP EPS of $8.10. These results underscore our solid operational execution and the ongoing momentum for data center demand, particularly among global cloud customers.
Trend from nearline cloud sales along with seasonal improvement in the VIA markets led to a 14% sequential increase in hard drive revenue reaching $2.3 billion. Volume shipments increased to 163 exabytes from 144 exabytes in the March quarter. Mass capacity revenue topped the $2 billion mark, up 15% sequentially and 40% year on year. Mass capacity shipments were 151 exabytes compared to 133 exabytes in the prior quarter. Nearline shipments into cloud and edge data center made up the vast majority of mass capacity volume in the June quarter. Nearline represented 91% of mass capacity exabytes with shipment of 137 exabytes, up 14% sequentially and 52% year on year. Our 24 and 28 terabyte PMR products have been widely adopted by global cloud and enterprise data centers to support their massive data workloads.
At the same time, we are ramping our HAMR-based Mozaic products and continue to build customer momentum. Three major cloud service providers are qualified on our Mozaic products with additional qualifications proceeding extremely well. On top of strong demand growth from cloud customers, the nearline sales into the enterprise OEM market showed a modest sequential improvement in the quarter and we expect stable demand over the next few quarters. The remaining 8% of revenue came from legacy and other product lines. Sales from the legacy market totaled $270 million, up 6% sequentially, while revenue from our other product lines increased 3% sequentially to $163 million. Starting in the September quarter we plan to adjust how we discuss our end markets. We will focus on two main areas: data center and edge IoT.
The data center market accounted for about 75% of our fiscal 2025 revenue and include nearline products and systems sold into cloud and enterprise customers as well as cloud based via application. Edge IoT includes consumer and client centric markets along with network attached storage. We believe this new framework is better aligned with industry practice and reflects the AI driven market we serve today. Moving on to the rest of the income statement, non-GAAP gross profit increased to $926 million, up 19% quarter over quarter and 59% compared with the prior year period. Our resulting non-GAAP gross margin expanded to 37.9%. We continue to benefit from a favorable mix including increased adoption of our latest generation products and ongoing pricing adjustment. These factors combined with a strong demand environment for data center products supported non-GAAP gross margin for the hard drive business above the corporate average.
Non-GAAP operating expenses totaled $286 million, up 4% quarter over quarter and in line with our expectations. Other income and expenses decreased 9% sequentially to $73 million due in part to lower net interest expense during the quarter. Adjusted EBITDA was $697 million, up 24% quarter over quarter and up 73% year on year. Non-GAAP net income was $556 million resulting in non-GAAP EPS of $2.59 per share based on a diluted share count of approximately 215 million shares. Turning now to cash flow and the balance sheet, we invested $83 million in capital expenditures for the June quarter and $265 million for fiscal 2025, which equates to 3% of revenue. Looking ahead to fiscal 2026 we anticipate capital expenditure to be inside our target range of 4%-6% of revenue while we continue maintaining capital discipline.
Free cash flow nearly doubled in the June quarter to $425 million, up from $216 million in the prior period. Based on our current outlook, we expect free cash flow generation to expand further in the second half of calendar year 2025 compared to the first half, which is even accounting for a substantial variable compensation payout in the September quarter, which is consistent with our strong performance in the June quarter. We returned $153 million to shareholders through the quarterly dividend and we returned nearly 75% of free cash flow to shareholders for the fiscal year, demonstrating a strong commitment to our capital return strategy. Cash and cash equivalents increased 9% sequentially to close the June quarter with ample liquidity of $2.2 billion including our Androna revolving credit facility of $1.3 billion.
We reduced our debt balance by approximately $150 million during the quarter, including retiring $505 million through a new $400 million note issuance and cash on hand. We exited the quarter with gross debt of approximately $5 billion. The combination of lower debt and strong profitability resulted in net leverage ratio of 1.8 times with further reduction anticipated in the coming quarters as profit expand. Turning now to September quarter outlook. From a demand perspective, the visibility gained through our BTO strategy instills confidence in sustained demand strength for our high-capacity nearline drives and supports both revenue and margin expansion in the September quarter. As previously communicated, starting in fiscal 2026 we will be subject to a global minimum tax rate in the mid-teens.
Accounting for these factors and for the 14-week period, we expect September quarter revenue to be in a range of $2.5 billion plus or minus $150 million at the midpoint. This reflects a 15% improvement year over year. Non-GAAP operating expenses are expected to be approximately $290 million reflecting the 14-week period, partially offset by lower variable compensation as we reset the annual plan for fiscal 2026 based on the midpoint of our revenue guidance. Non-GAAP operating margin is expected to expand into the mid to wide 20s percentage range and non-GAAP EPS is expected to be $2.30 plus or minus $0.20 based on a 16% tax rate and non-GAAP related share count of 221 million shares. Our EPS guidance reflects estimated dilution from our 2028 convertible notes and equity compensation.
Dilution to non-GAAP earnings from the convertible notes occurs when the volume weighted average price of Seagate stock trades above approximately $108 during the period. We target to partially offset the dilutive impact of the convertible notes through share repurchases, which we expect to resume in the current quarter. To close, Seagate's strong June quarter performance underscores our continued focus on driving growth, enhancing profitability and optimizing cash generation. We are executing our strategic objectives, underpinned by a structurally changed business model and leading technology roadmap to deliver on our financial target and enhance value for both customers and shareholders. Operator, let's open the call up for questions.
Speaker 2
We will now begin the question and answer session. To ask a question, you may press Star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press Star then two. In the interest of time, we ask that you limit yourself to one question. If you have further questions, you may re-enter the question queue. Once again, that was Star one to ask a question. At this time, we will pause momentarily.
Speaker 3
To assemble our roster.
Speaker 2
Your first question of the day will come from Eric Woodring with Morgan Stanley. Please go ahead. Super.
Speaker 3
Good afternoon. Thank you very much for taking my question. Gianluca, I just want to kind of ask you about maybe implied gross margin guidance for the September quarter. Over the last eight quarters you have expanded gross margins by over 200 basis points sequentially on average. I believe at the midpoint of your guide, depending on the interpretation, mid to high 20% operating margins, you are guiding to something like 20 basis points of sequential margin expansion. Can you maybe one, just confirm kind of that math and then two, just help us understand the puts and takes and maybe why we are not seeing that gross margin, implied gross margin expansion in September despite the confidence that we are hearing from you guys about getting to 40% gross margins in a few quarters. Thanks so much.
Speaker 1
Thank you, Eric. I would say your estimate is a bit low, actually. I say it is significantly lower than what is implied in the guidance. We have just achieved a new record high in our history in terms of gross margin and having a very high operating margin. We are guiding up revenue. We are guiding up gross margin and operating margin. I would say significantly more than what you are modeling right now. Our path to achieve the milestone, or the fourth milestone that we discussed at our Investor Day just a few weeks ago, is intact. We are going exactly in that direction. I think we can be there fairly soon.
Speaker 2
Your next question today will come from Asiya Merchant with Citigroup. Please go ahead.
Speaker 1
Great.
Speaker 0
Thank you for taking my question.
Speaker 1
If you can delve a little bit.
Speaker 0
On the AI inference, edge demand.
Speaker 3
Both.
Speaker 0
On the cloud side, maybe also on the edge side. What are you seeing perhaps in the customer commentaries that you're having that would suggest that, you know, there is an uplift here from AI and sort of what's kind of your, as you look ahead into the next few quarters, what are you implying or what are you seeing in terms of the exabyte demand, just specifically from inferencing and workloads that are sort of baking, you know, workloads that you're expecting for your guidance? Thank you.
Speaker 3
Thanks, Asiya. It's a fairly complex space, a lot of different things being called AI. What I would say, generally speaking in the cloud, it's about video properties. We've seen this for many quarters in a row now, where video is actually stored in the cloud and the diversity of video that's actually coming in from all parts of the world that gets stored in the cloud, those are tremendously rich data sets for us to ultimately store on hard drives. As far as edge goes, you're starting to see all kinds of different applications, whether they're video applications themselves, factory safety, factory efficiency, hospitals. There's a lot of big data sets that exist, especially video data sets that exist at the edge. Some of those applications are taking off, so call them inferencing, but they need a lot of data to be fed with at the edge.
There's also just the normal growth of, I'll call it data and that analytics text, data analytics still. Interestingly at the edge, starting to cross over from a point where you maybe treated data as something that you had to sort through and then delete. Now it's just snapshot, snapshot, snapshot, just keeps saving lots of snapshots at the edge because you might want to go back and look through it. Those are actually driving some of the edge growth that we've made reference to as well.
Speaker 0
If I may, just how does that affect kind of what you guys shared at the analyst event in terms of exabyte CAGR, as you kind of look ahead? Thank you.
Speaker 3
Yeah, I think the biggest wild card in that we're still sticking to the same exabyte keggers that we talked about mid-20s, that we're comfortable with that. We are watching some of these new applications, the ones that people talk about, viral applications that happen to be very data dependent are very interesting to us. Most of those are edge applications because there's a lot of data at the edge that ultimately gets just thrown away. If it could be processed or stored longer, it's more interesting to us. I think the cloud knows how to deal with the data that actually ultimately resides on the cloud very well.
Speaker 0
Great.
Speaker 3
Especially sovereign data weight data sets.
Speaker 1
Sorry.
Speaker 3
Especially sovereign data sets where people are wanting to keep the data locally. Like we made reference to in the prepared remarks. I mean, those are interesting as well.
Speaker 0
Thank you.
Speaker 2
Your next question today will come from Jim Schneider with Goldman Sachs. Please go ahead.
Speaker 3
Good afternoon. Thanks for taking my question. Maybe if you could talk a little bit about the HAMR contribution you saw in terms of revenue in this quarter and whether you expect how much you would expect that to increase, if at all, in the September quarter. Then maybe following on to that, any kind of impact you expect that would have on gross margins, either positive or negative in the out quarter. Thanks, Jim. So HAMR is growing steadily and we're very happy. As we get more people qualified like we talked about, then we'll continue to ramp. What we're very focused on in the company right now is getting to the 4 terabyte per platter platform, and we're in some sense winding up for that, which we'll expect that ramp early in calendar 2026.
Like we said in the prepared remarks, as far as gross margin, the current product sets are still accretive to gross margin. As we get higher and higher, we expect it to be more accretive. But Gianluca, do you want to give some more color on that?
Speaker 1
Yeah. No, we are ramping HAMR higher quarter over quarter. We have already three major cloud customers that are qualified on Mozaic 3. We have started Mozaic 4 terabytes per disk. We are executing our roadmaps, the one that we recently discussed at our Investor Day. We expect Q1 to be another step higher in terms of volume and, of course, in terms of revenue. As we discussed, because HAMR is higher capacity drive and lower cost per terabyte, we expect a positive increase impact to our gross margin. Thank you.
Speaker 2
Your next question today will come from Wamsi Mohan with Bank of America. Please go ahead. Yes, thank you.
Speaker 3
You had a strong quarter, clearly, but you guided revenue slightly below consensus for the September quarter, and your DSO also jumped up. I was wondering if you could clarify if there was anything that you would point out in linearity in the quarter. I guess the question is, how well is your HAMR capacity ramp aligned with qualifications and demand, like are you tracking better on production versus demand because of qualification, which could maybe potentially drive some catch up in the December quarter. Thank you so much. Yeah, I'll let Gianluca jump in here, but relative to the HAMR ramp. Sorry, let me just talk about this quarter versus last quarter. Last quarter, obviously the planning for these quarters is six months, nine months ago with build-to-order or more in some cases. We have to look at what is qualified exactly to your point.
Then what's going to be qualified in six months or nine months. We're leaning into the product transitions that happen along the way. If anything, if we could make more product of any kind, we would make it. We're also trying to incentivize these product transitions to 3+ and then 4+ as well. We're consuming a lot of our operational efficiency that way. Maybe there was a little bit of overpull to your question about last quarter and that's indicative of strong demand. I mean, the demand may be stronger as we get out to the back half of the year. We certainly see fairly strong demand right now. We're trying to balance our manufacturing capability and that planning that we've done long term, what we had promised people nine months ago. We're trying to balance all that together, but also prioritizing the product transitions.
Speaker 1
Yes. No, once you said, we had a very strong June quarter, we now achieved better results than also what we were estimating at the beginning of the quarter. We are guiding a better quarter in September. Demand is strong, is above supply. Our guidance is mainly based on what we think we are ready to supply during the quarter and that volume of exabytes, they will be fully sold. We also need to dedicate a little bit of our production to qualifications. Some of our volume is dedicated to qual. As you know, we are qualifying a big number of customers on HAMR. Now of course we are slightly impacted in the volume that we sell because we need to keep some volume for customer qual.
We are going in the direction that we recently discussed, it is another step further into our improvement in not only revenue, but even more importantly in profitability. When you look at our guidance, you need to remember that starting this quarter we will be subject to the global minimum tax. When you look at EPS, there is an impact from the tax expense and there is also an impact from a higher number of shares outstanding because of the convertible and equity compensation. When you model all those things correctly, you will see actually a fairly good improvement in both gross margin and operating margin.
Speaker 3
Thanks, Gianluca. Just to clarify that one last point you made around the capacity ramp and some of the capacity being tucked away sort of for these quals, would you say that that's something that just continues to roll forward as you're qualifying more customers, or do you have a potential for, you know, really meaningful step up once you get into December? Because now you've got these CSPs called on Mosaic 3. Thank you so much.
Speaker 1
We do not guide December, but as I said before, we are going into the direction of continuing to improve revenue and profitability. Of course, part of this revenue now is coming from having a little bit more supply available. We are executing our plans now. We do not see any major constraint right now in achieving what we said recently. We are very, very confident.
Speaker 2
Your next question today will come from Thomas O'Malley with Barclays. Please go ahead.
Speaker 3
Hi guys. Thanks for taking my question. On the HAMR side. I'll ask a different way. I don't think you guys want to give out the exact percentage of revenue over the next couple of quarters.
Speaker 2
I think you did a good job.
Speaker 3
At the analyst day of showing where the crossover point was in the first half of fiscal year 2027. Maybe from a customer perspective, like a large part of the ramp thus far has been with a single customer. You're talking about multiple, multiple customers qualified at this point. Are customers two, three, et cetera, outside of customer one making up a significant portion of the ramp, like 10% or more, let's say? I just am trying to get an understanding of the adoption outside of the first guy.
Speaker 2
Thank you.
Speaker 3
Thanks, Tom. Yes, simple answer to your question is yes, the other customers are starting to ramp as well and the pool is pretty strong. Also, depending on who's qualed, where they may ask for more of the last generation product or may want to wait till the 4 terabyte per platter. Everybody has pretty good visibility and we have multiple customers pulling hard and that's indicative of the exabyte demand. Maybe to the earlier question that Wamsi was asking. You know, we add exabyte capacity by getting through these transitions. That's been our move. We're not really trying to add gross capacity of number of drives. We're trying to get through these transitions as fast as we can to be much more efficient with the exabytes, helpful in terms of that transition.
I think you guys had previously said on the mass capacity side, like where you kind of ran into a wall in terms of where you were willing to produce was like 160 exabytes on the mass capacity side. Is that still the right way to think about where things are stopping before you get just the growth from the technology side, or are you looking at it in any different way now? I just wanted to see if there was an update there. With continued ramp of Mosaic 3+ platforms, we could continue to grow, but 4+ allows significant growth above that. Yeah, it's not a wall so much anymore. It really was when we were stuck in the middle of 2 terabytes per platter product. We're way past that now.
Speaker 2
Super helpful, thank you. Your next question today will come from Amit Daryanani with Evercore. Please go ahead.
Speaker 3
Thanks a lot. Good afternoon, everyone. Dave, as you think about the LTAs that are giving you visibility, it sounds like into early 2026 right now. Can you just touch on what pricing assumptions are you seeing embedded on an exabyte basis in these contracts? Really, as you think about the HAMR product starting to ramp up over the next 12 months, you end up in a pretty good cost advantage, I think, on a per exabyte basis. On HAMR exabyte, do you think these.
Speaker 1
LPAs will enable you to keep those.
Speaker 3
Cost savings for Seagate, or would we see a bigger drop in price per?
Speaker 1
Exabyte that you have to engage with your customers with at that point?
Speaker 3
Yes. No, we do not have to. It is a good question. We do not have to incentivize the transition. I mean, there is a significant TCO benefit of running these new products in your data center. If you think about 40 terabyte versus a 30 terabyte, for example, and you are going to run that for six or seven years, that is a huge TCO benefit. There is an incentive baked in right there. You know, we know what our costs are going to be and we know what pricing we want to incentivize and we know what margin that we need to be able to go back and refeed our R&D and our supply chain and everything else. We are balancing all these things in the planning that we are doing. John, Lou, do you want to talk about pricing?
Speaker 1
Yeah. We are not changing our pricing strategy that we have started more than two years ago. So our like-for-like pricing will continue to slightly increase every time we negotiate a new build-to-order. Of course, the mix is going into more higher capacity drives. There is also that part of the set. Again, everything is aligned to how we are executing our plan that we presented just a few weeks ago.
Speaker 2
Perfect.
Speaker 3
Thank you.
Speaker 1
Thanks.
Speaker 2
Your next question today will come from Aaron Rakers with Wells Fargo. Please go ahead.
Speaker 3
Yeah, thanks for taking the question. I want to ask a little bit about free cash flow generation and how we should think about share repurchase. I think in the prepared comments you pointed out that you should be in your CapEx revenue or CapEx spend range of 4-6%. I guess the first part of this is that that would seem to imply a fairly healthy uptick in the CapEx spend year over year for fiscal 2026 versus fiscal 2025. I guess why would that be? The second question is kind of tied to that, is that as we see the generation of free cash flow, you've hit the sub $5 billion gross debt level. How do we think about the right level of cash operationally you're willing to hold? Or how maybe in the opposite way we should think about excess cash being built and capacity for share repurchase.
Any thoughts around that would be helpful. Thank you. Thanks, Aaron. I'll hand it over to Gianluca in just a second. Just to handle from an operations perspective, I mean, obviously given what we've been through in the last few years, we were pretty tight on CapEx. I'm not sure that looking at a year ago or two years ago baseline is a great way to think about it. Some of our gear needs to be replaced. There's a small pickup for that. There's also us looking forward into fiscal 2027 and fiscal 2028 and saying how do we make sure we stage for 4 terabytes of platter and 5 terabytes of platter, make sure we have the right gear for that. That may drive CapEx a little bit. We'll still be well within our range though. John, look on the.
Speaker 1
Yes, Aaron. So free cash flow is improving a lot now. You have seen already in the June quarter, a major step up. This will continue, as we said, during the second part of calendar 2025 and will also continue for the second part of our fiscal 2026. We have reduced our debt, as you said, at the target level we were targeting since more than a year at this point. Dave just announced that we are restarting share buyback. Again we are executing our plan. I think now this is a good time to restart the share buyback. In terms of liquidity, you were asking and excess cash flow or excess cash. We do not have excess cash right now.
I think we can maybe still increase a little bit our cash position, but the vast majority of our free cash flow, of course, will go back to our shareholders through the dividend and through the share payback.
Speaker 3
Thank you.
Speaker 1
Thank you.
Speaker 2
Your next question today will come from Ananda Baruah with Loop Capital. Please go ahead.
Speaker 1
Thanks, Scott, for taking the question. Dave, just going back to your prior remarks about the AI drivers that you're seeing in your business, and this would be sort of not at the end, the data center remarks, and did you actually make mention that you're seeing multiple types of AI video drivers? And if you are, could you. Do you mind just sort of speaking to those again?
Speaker 3
I just wanted to get clear on those.
Speaker 1
Thanks.
Speaker 3
I would say, Ananda, there's the video properties that I call them, the things that are storing a lot of video on the cloud and then sharing that video across many, many users around the world. Right. We all are familiar with those and use those every day. There's also just unstructured data that's coming into the cloud for processing to be video content as well. Then there's video generation from some of the new AI applications also that some of those are starting to go viral as well. That's a small trend so far. The video processing, the unstructured data processing is big. The video properties, as I call them, is just huge creating because humans are creating all kinds of diverse content and then storing them through these applications.
Speaker 1
Are you seeing from the autonomous sector anything starting to happen with generative AI, any visibility into that? That's it for me.
Speaker 3
Thanks. That's an interesting question. We do have some partnerships with people that are making autonomous vehicles. Typically so far the data is actually gathered in the field and then processed in a local cloud and it's fairly data rich. So far there hasn't really been a generation of data at the extreme edge and then monetization somewhere else besides just teaching the car how to drive better, should that ever happen, so that the cars themselves become units that are actually picking up a lot of data and then sharing it some other way. That could be a huge opportunity. So far we haven't seen that. It's more about training and inferencing just to make sure the vehicles are driving right and staying safe.
Speaker 1
Got it.
Speaker 3
Thanks a lot.
Speaker 2
Your next question today will come from C.J. Muse with Cantor Fitzgerald. Please go ahead.
Speaker 3
Yeah, good afternoon. Thank you for taking the question. So I was hoping to better understand your ability to drive revenue growth both short term and longer term. For the September quarter you're guiding up 2%, you have an extra week but you talked about select HAMR bits going to qualification. I would have thought perhaps with the extra week maybe you could have had more output. Is there something else going on there? Is there a mix issue? Would love to have help there. For fiscal 2026, you know, at your analyst day you talked about longer term growth of low to mid teens, top line. I'm just curious at what point in the HAMR ramp do you think you'll have the capacity to support that type of growth? Thanks so much. I'll let John look at the longer term period.
Obviously as I said before, the quarter on quarter stuff was, a lot of the supply perspective on these quarters was dictated six months ago or nine months ago under build-to-order. I don't think our customers look at it as 14 week or an extra week or whatever. If there happens to be a little bit more demand at the end of the quarter, maybe it'll come our way. There's maybe some evidence that it did last quarter, but I don't really get into what happened in one week period. From our perspective, the way we put more exabytes online is to go through the product transitions, not necessarily buy capital to try to build more for demand because that would be a long, long lead time anyway. We're actually very focused on getting the new products in qualified, up the ramp, so on and so forth.
That will help build our margins.
Speaker 1
Yes, the mix is going in the right direction. We are increasing both Mosaic, so the HAMR product, and the last generation of PMR products. You will see the increase in exabytes that are implied in our guidance and also what we have done in the most recent quarter. We are increasing exabytes, we are not increasing units. This is all technology transition. The more and more we move customers to HAMR, the more and more we have the opportunity to increase exabytes. Of course, that will result in higher revenue in terms of what we said at our analyst day in terms of revenue growth. The low to mid-teens we guided next quarter, $2.5 billion. If you look where we were a year ago, I think it is probably 15% higher.
I do not see anything different compared to what we were saying a few weeks ago and what we are executing. Of course, every quarter is different. As I said before, we guide based on what we think we are producing in the quarter. If we will produce a little bit more, we will be able to generate a little bit more revenue. Right now this is the visibility.
Speaker 3
Very helpful. Thank you. Thank you. Thanks Vijay.
Speaker 2
Your next question today will come from Krish Sankar with TD Cowen. Please go ahead.
Speaker 3
Hey guys, this is Addie for Krish. Just a question on the guide, it.
Speaker 1
Seems that your guidance implies incremental gross margins about like 50% even though we.
Speaker 3
Are still below the $2.6 billion revenue baseline you outlined on the analyst day. I wonder as you go from the.
Speaker 1
$2.5 billion in September to $2.6 billion.
Speaker 3
Above, why would your incremental gross.
Speaker 1
Margin not be better than the 50%.
Speaker 3
Number you guided at the end of this day?
Speaker 1
Are there some headwinds in the near term?
Speaker 3
It's just a little bit puzzling, especially given that the HAMR ramp is still.
Speaker 1
In very early stages.
Speaker 3
Someone should expect revenue gross margin accretion be above the 50% you guided. Any color on that regard would be helpful.
Speaker 1
Yeah, guys, I think you need to look at your model a little bit deeper because the implied gross margin in the guidance is way higher than what you are saying. Again, look at your model. Look at the impact of the increase in the share outstanding, the increase in the tax. The gross margin in our guidance is much higher than 50 basis points sequentially. Sorry, Gianluca, I meant 50% incremental gross margin, not 15 basis points. Okay, perfect. No, I would say that now every quarter will be a little bit different depending exactly on the mix that we change quarter over quarter. I would say our first goal is to achieve the $2.6 billion in revenue and the 40% gross margin. I think we are trending well in that direction.
After that, our goal is to continue to increase revenue in the low to mid teens as we discussed at the analyst day and increase our profitability for an incremental 50% gross margin. I would say nothing changed in the last eight weeks. I think the plan is ongoing and we are executing well.
Speaker 2
Got it.
Speaker 3
Thank you. Thank you.
Speaker 2
Your next question today will come from Timothy Arcuri with UBS. Please go ahead.
Speaker 1
Thanks a lot.
Speaker 3
Dave, you made a comment that I haven't heard you make before. You said the capacity is booked out to mid 2026 and visibility is extended into the back half.
Speaker 1
What does that mean?
Speaker 3
Because build-to-order, I mean the lead time to build the drive is a year. If you place an order now, you're not going to get the drive until this time next year anyway. Sort of, by definition, you have a year worth of visibility. Are you changing how you book that capacity? I guess part of that is what does that really give you? Do you know exactly what's going to ship in December? I know you don't want to give us guidance, but can customers push out? If you wanted to guide December, could you tell us what you're going to ship in December? I'm just wondering if something changed for you to give that comment. Thanks. Nothing's really changed. You're somewhat right.
Remember, we're leaning through these product transitions, so we have customers who are driving us to not only start the ramp of Mosaic 3+, but start the ramp of Mosaic 4+ and so on. They're working with us on qualifications. That's some of the stuff that we talk about, visibility. They generally want exabytes. They don't want specific boxes, but they want the most efficient boxes they can get. Do we have pretty good visibility into that? Yes. We have long lead times for some of the components. We have to make sure we start those components right now, if that helps your comments in.
Speaker 2
Yeah, I guess I'm just trying to.
Speaker 3
Figure out, like, do you know exactly what you're going to ship? And I know you don't want to give guidance, but I mean, could December be down potentially, or do you have enough visibility to say, look, we know exactly what we're going to ship in December, and, you know, we don't want to tell you, but we at least know what it's going to be. Right. I would say we know what the customers want and, you know, demand is very strong. So we made, you know, as far as what else might happen in the world, I don't know what else might happen in the world, but, you know, from our perspective, demand is still strong, probably stronger than what we have capacity for. And even though we're building capacity as we get through some of these transitions via exabyte capacity via the transition.
Speaker 1
Tim, we said previously also in prior calls, we expect calendar 2025 to sequentially increase revenue and profitability. We continue in that direction. December will be higher revenue and higher profitability.
Speaker 3
Thank you.
Speaker 2
Your next question today will come from Steven Fox with Fox Advisors. Please go ahead.
Speaker 3
Hi, good afternoon. I was just curious if there's any seasonality we have to think about as we figure out the full fiscal year quarters. It seems like there's a lot of positive quarter on quarter tailwinds as you go through the year.
Speaker 1
What kind of seasonal warnings? What do you throw up, Gianluca?
Speaker 3
The seasonality, Steve, is starting to really diminish in our business. You know, if the legacy and other businesses still have some seasonality and then VIA is interesting because as time marches on, VIA, some of the VIA workloads are moving to the cloud as well. We are seeing not the typical seasonality that we would have seen in the VIA markets. It is actually more muted now. I think the bulk of our business, there really is not any seasonality anymore. Thanks.
Speaker 1
Just real quick, sorry. In total I would say March quarter is usually our lower quarter in terms of revenue, but as Dave said, that seasonality impact every year becomes a little bit smaller. Thank you.
Speaker 3
Just real quick, if I could squeeze one in.
Speaker 1
I know someone asked you about receivables.
Speaker 3
I'm not clear on the answer in terms of why the receivables were up so much in the quarter.
Speaker 1
Thanks. Oh, there is nothing strange as you know in the past we did also some factoring and we did not do any factoring this quarter because our free cash flow was really strong already. Nothing unusual I would say in the business that drive receivable higher.
Speaker 3
Yeah, I'd say we're back to running the business the way we want to and you know, we've got the supply chain moving the way we want to. So we're very pleased with the progress in FY25.
Speaker 1
Great, thank you.
Speaker 2
Your next question today will come from Tristan Garra with Barrett.
Speaker 3
Please go ahead.
Speaker 1
Hi, good afternoon. High level question. It looks like NAND hasn't been cannibalistic.
Speaker 3
To HDD demand for some time. Each storage type has their own respective.
Speaker 1
End market and there's been so much in terms of capacity cuts in NAND recently that has precluded any production cost down. As eventually NAND capacity normalizes and.
Speaker 3
Production costs return to a normal curve.
Speaker 1
Should we view this as a potential?
Speaker 3
Pressure on HDD demand in certain end.
Speaker 1
Market or are the dynamics such that notably with HAMR your density versus production costs maintain the gap with NAND?
Speaker 3
Yes, it's a complex question, but I would say that your last point is the way we think about it. We're continuing to increase the capacity point per drive and also keep our costs in line. We have a great value proposition for customers, and therefore in the markets that are really material to us, like the cloud markets, the interface between NAND and HDD is not really changing that much. When I say interface, keep in mind there's a lot of NAND in the cloud. Right. There's a lot of front end memory in these application spaces, and in some cases some are very memory dependent. When it comes to mass data storage, the interface between all the NAND that's being used and all the hard drive bits that are being used is not changing that much.
Because of the economics that you talked about, like we talked about in the analyst day, the total amount of capital that would be required to replace the bytes that are HDD with NAND. NAND's a great technology. It's got a lot of interesting applications on the edge. They need to manage the business. That may be what's resulting in some of the behaviors that you made reference to. In the bulk of mass storage applications, certainly in the cloud, the architectures are not changing. Great, thank you very much.
Speaker 2
Your next question today will come from Vijay Rakesh with Mizuho. Please go ahead.
Speaker 1
Yeah, hi Dave and Gianluca, just first question on the gross margin side, assuming.
Speaker 3
Your margins, you know, go to like.
Speaker 1
38, 7, 38, 8, 38.8% in the September quarter. Is that pickup coming from pricing, utilization.
Speaker 3
The HAMR mix?
Speaker 1
Can you give us some attribution, like.
Speaker 3
What percent goes to from the pricing improvement versus utilization versus the HAMR mix?
Speaker 1
I'll follow up. You're talking about the September quarter or the June quarter?
Speaker 3
Yes, September quarter.
Speaker 1
Sorry, yes, yes, I would say all those factors that you mentioned. Mr. Volume will be higher and this is of course a good help to our gross margin. The pricing strategy, as we said before, is not changing. For the few contracts that we will have renewed in the September quarter, we will have a little bit better pricing and we are selling all our production. Of course, also on the cost side, we are getting fairly good cost per terabyte decline. I would say not differently from the last few quarters, we are trending in the same direction and we are continuing with sequential improvement.
Speaker 3
Got it.
Speaker 1
Dave, I think you mentioned three customers on HAMR now, and I think.
Speaker 3
You guys have said five customers by the end of fiscal 2026.
Speaker 1
Can you talk to how the other two are going and how you expect the number two and number three ramps to progress?
Speaker 3
I guess.
Speaker 1
Thanks.
Speaker 3
Yeah, earlier I talked about the fact that there were more people ramping the product. Relative to the three customer comment, we have not really said five yet, but we have said major customers will be qualified by early 2026. That is what was said in the prepared remarks. We actually talk about that at Analyst Day as well. We are still on exactly that path here. Question about how are the quals going? They are going very well. I think as customers need more bytes, they see that as they get through the qualification, they see that as an option and then they are creating that demand. Obviously, with the build-to-order, we have to be very prescriptive of it, so we know exactly what we are going to be able to build.
We know which wafers are flowing and we know what heads of media capabilities we are going to have to hit those things. We will be as predictable as we can for them. The progress on the qualifications is going quite well.
Speaker 1
Right, thank you.
Speaker 2
Your next question today will come from Mark Miller with the Benchmark Company. Please go ahead.
Speaker 3
Yeah, I'm trying to get my arms around the impact of this global minimum tax which kicks in in fiscal 2026. I believe you said the non-GAAP tax rate will be 16%. Can you, can you give any insight what the GAAP tax rate will be with this global minimum tax?
Speaker 1
Yeah, it will be very similar. The global minimum tax is impacting us on both GAAP and non-GAAP.
Speaker 3
Okay, thank you. Thanks, Mark.
Speaker 2
This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.
Speaker 3
Thanks, Nick. Thanks everyone for joining us today. Fiscal 2025 was an incredible year for Seagate and I'm really proud of our team's execution. We're operating in a strong demand environment, driven in part by advancements in gen AI and the march towards all these agentic models. These breakthroughs have solidified data as one of the world's most critical resources. Hard drives are a key component in empowering businesses to harness the full value of their data. Seagate's leading technology roadmap makes us uniquely positioned to capture value from those growing opportunities. We appreciate the ongoing support of our customers, our suppliers, our employees, and the shareholders. We look forward to sharing our progress in the quarters ahead. Thank you.
Speaker 2
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.