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Seagate Technology Holdings plc (STX)·Q1 2026 Earnings Summary

Executive Summary

  • Seagate delivered a strong start to FY26: revenue $2.63B (+21% Y/Y, +8% Q/Q), record non-GAAP gross margin 40.1% and non-GAAP EPS $2.61, all ahead of guidance; data center mix rose to 80% of revenue ($2.1B) on hyperscale demand for high-capacity nearline HDDs .
  • Results beat S&P Global consensus: revenue $2.63B vs $2.55B* and EPS $2.61 vs $2.40*; December-quarter (FQ2) guidance of $2.70B (+/–$0.10B) and $2.75 EPS (+/–$0.20) is roughly in line with consensus $2.73B* and $2.79* .
  • HAMR execution advancing: five global CSPs are qualified on Mozaic 3+ TB-per-disk (up to 36TB), >1M Mozaic drives shipped in the quarter; qualification for Mozaic 4+ TB-per-disk (to 44TB) underway with a second major CSP; 50% exabyte crossover on nearline HAMR expected in 2H CY26 .
  • Cash generation and capital returns improved: CFO guided FQ2 free cash flow higher Q/Q; dividend raised ~3% to $0.74/share; net leverage at 1.5x, with S&P upgrade noted and leverage expected to trend lower .
  • Stock reaction catalysts: record margins, tightening nearline supply vs. strong AI/video-driven demand, clearer multi-year visibility (build-to-order largely committed through CY26; visibility through CY27), and ongoing HAMR qualifications and mix-up .

Note: Consensus values denoted with an asterisk (*) are from S&P Global.

What Went Well and What Went Wrong

What Went Well

  • Record profitability: non-GAAP gross margin hit 40.1% (company record) and operating margin reached 29.0%, with non-GAAP EPS $2.61 above the high end of guidance . CEO: “non-GAAP EPS exceeding the high end of our guided range… robust customer demand for our high-capacity storage products” .
  • Hyperscale-led demand and mix-up: Data center revenue was 80% of total ($2.1B), with 182 exabytes shipped (+32% Y/Y) and 159 exabytes to data center; nearly 80% of nearline volume at ≥24TB; average nearline capacity +26% Y/Y .
  • HAMR momentum and customer validation: five top CSPs qualified on Mozaic 3+; >1M Mozaic drives shipped; qual started for Mozaic 4+ (to 44TB). CEO: “AI is transforming how content is being consumed and generated… Seagate is well positioned for continued profitable growth” .

What Went Wrong

  • Edge IoT softness: Edge IoT revenue fell sequentially, comprising 20% ($515M); company expects some seasonal improvement in December quarter but mix remains hyperscale-heavy .
  • $/TB pricing optics: Despite consistent like-for-like price increases on renegotiations, rapid mix-up to higher-capacity drives produces a slight decline in average $/TB, which can mask underlying price/margin strength .
  • Supply constraints/lead times and yield ramp risk: Management emphasized industry tightness, long cycle times, and a step-up in lead times with HAMR process content; parity yields on newer platforms (e.g., 4 TB-per-platter) still ramping .

Financial Results

Summary vs prior year and prior quarter

MetricQ1 2025Q4 2025Q1 2026
Revenue ($B)$2.17 $2.44 $2.63
GAAP Gross Margin (%)32.9% 37.4% 39.4%
Non-GAAP Gross Margin (%)33.3% 37.9% 40.1%
GAAP Operating Margin (%)18.6% 23.2% 26.4%
Non-GAAP Operating Margin (%)20.4% 26.2% 29.0%
GAAP Diluted EPS ($)$1.41 $2.24 $2.43
Non-GAAP Diluted EPS ($)$1.58 $2.59 $2.61
Cash from Operations ($M)$95 $508 $532
Free Cash Flow ($M)$27 $425 $427

Actuals vs S&P Global Consensus and Guidance

MetricQ4 2025 ActualQ4 2025 S&P Cons*Q1 2026 ActualQ1 2026 S&P Cons*Q2 2026 Guidance (mid)Q2 2026 S&P Cons*
Revenue ($B)$2.44 $2.42*$2.63 $2.55*$2.70 $2.73*
EPS ($)$2.59 (non-GAAP) $2.44*$2.61 (non-GAAP) $2.40*$2.75 (non-GAAP) $2.79*

Values marked with * are from S&P Global.

Segment and Mix (Q1 2026)

Segment / KPIQ1 2026
Data Center Revenue ($B)$2.10 (80% of total)
Edge IoT Revenue ($M)$515 (20% of total)
Total Exabytes Shipped182 EB
Exabytes to Data Center159 EB
Nearline Mix ≥24TB~80% of nearline volume
Avg Nearline Capacity YoY+26%

Non-GAAP Adjustments (Q1 2026, selected)

  • Key items include share-based compensation ($52M), restructuring and other ($13M), net loss from debt transactions ($6M), income tax adjustments (–$41M), among others .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFQ2 2026n/a$2.70B ± $0.10B New
Non-GAAP EPSFQ2 2026n/a$2.75 ± $0.20 New
Non-GAAP OpExFQ2 2026n/a~$290M New
Non-GAAP Operating Margin (implied)FQ2 2026n/a~30% at midpoint New
OI&EFQ2 2026n/a“Essentially flat” vs $74M in Q1 New
Tax Rate (non-GAAP)FQ2 2026n/a~16% New
Non-GAAP Diluted Share CountFQ2 2026n/a~227M (incl. ~10M from 2028 converts) New
Free Cash FlowFQ2 2026n/aExpected to expand Q/Q New
Dividend per ShareNext payable Jan 9, 2026$0.72 $0.74 (raised ~3%) Raised

Context: Guidance includes impacts from Pillar Two global minimum tax, exchangeable notes dilution, and minimal impact from announced tariffs .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q1 2026)Trend
AI/inferencing demandContinued profitability and margin expansion; focus on HAMR ramp ; Record gross margin in Q4 and HAMR qual/ramp plans Management cites rapid AI inferencing adoption; one hyperscaler saw 50× increase in monthly token consumption; video generation growth (e.g., 275M videos on a platform) boosts unstructured data storage demand Accelerating
HAMR roadmap/qualificationsEmphasis on executing HAMR ramp ; HAMR qualifications and ramp plans 5 CSPs qualified on Mozaic 3+ (to 36TB); >1M Mozaic drives shipped; Mozaic 4+ (to 44TB) qual underway; 50% nearline HAMR exabyte crossover expected 2H CY26 Strengthening
Supply/demand and capacityStructural enhancements, demand strength in high-capacity drives Tight supply; build-to-order largely committed through CY26 and visibility to CY27; step-up in lead times with HAMR process content Supply tightness persists
Pricing and $/TBNot specifically detailedLike-for-like price increases on renegotiations; average $/TB trends slightly down due to mix-up to higher capacities Mixed optics, positive for margins
Segment mixNot detailedData center 80% ($2.1B), edge IoT 20% ($515M); enterprise OEM improved sequentially Mix tilts to hyperscale
Capital allocation/leverageFY25 FCF $818M; dividend $0.72 FQ2 FCF expected to expand; dividend raised to $0.74; net leverage ~1.5x; S&P upgrade; leverage to trend lower Improving balance sheet

Management Commentary

  • CEO (prepared): “Revenue grew 21% year over year, non-GAAP gross margins set a new company record at 40.1%, and non-GAAP operating margin climbed to 29%… non-GAAP EPS exceeded the high end of our guidance range” .
  • CEO (technology/AI): “We now have five global CSPs qualified on Mozaic 3+TB per disk… up to 36TB per drive… shipped over 1 million Mozaic drives… on pace to achieve 50% exabyte crossover on nearline HAMR drives in the second half of calendar 2026” .
  • CFO (mix/profitability): “Data center revenue represented 80%… at $2.1 billion… shipped 182 exabytes, up 32% year over year… nearly 80% of nearline volume on drive capacities at or above 24 terabytes” .
  • CFO (FQ2 outlook): “Revenue… $2.7 billion ±$100 million… non-GAAP operating margin… around 30%… non-GAAP EPS… $2.75 ±$0.20… tax rate ~16%… non-GAAP diluted shares 227 million” .

Q&A Highlights

  • Capacity additions vs exabyte growth: Seagate is not adding unit capacity materially; strategy is to add exabyte capacity via product transitions (higher capacities), with yields ramping on new platforms (e.g., 4 TB-per-platter) .
  • Incremental margins: Recent incremental margins at 60–70% reflect mix/pricing; may vary quarter to quarter; management suggests near-term above the 50% model but long-term model remains intact .
  • Cost downs: Blended cost/terabyte improvements primarily from mix-up to higher-capacity/HAMR; two customers qualifying 40TB should aid cost/terabyte in CY26 .
  • Pricing dynamics: Like-for-like increases on renegotiations; average $/TB declines due to customer transitions to higher-capacity drives; profitability benefits from pricing plus lower cost/terabyte .
  • Lead times and supply: Tight supply and longer cycle times; step-up in lead times with HAMR process content, expected to normalize as subsequent HAMR generations ramp; build-to-order largely committed through CY26 .

Estimates Context

  • Beat vs consensus (S&P Global): Q1 revenue $2.63B vs $2.55B* and non-GAAP EPS $2.61 vs $2.40*; prior quarter Q4 also modestly ahead ($2.44B vs $2.42B*, $2.59 vs $2.44*) .
  • Guidance vs consensus: FQ2 revenue midpoint $2.70B vs $2.73B* and EPS midpoint $2.75 vs $2.79*—roughly in line; margin commentary implies potential upside if mix/pricing trends persist .
  • Implication: Expect modest estimate revisions upward on margins/EBITDA as HAMR mix rises and pricing discipline holds, even if top-line guidance is near-consensus.

Values marked with * are from S&P Global.

Key Takeaways for Investors

  • Mix-driven margin expansion is the story: record 40.1% non-GAAP gross margin and 29.0% operating margin underscore pricing discipline and rapid mix-up to ≥24TB nearline; this is the key driver of EPS leverage .
  • HAMR execution de-risks the multi-year thesis: five CSPs qualified on Mozaic 3+, >1M units shipped, 4+ qual started, and 50% exabyte crossover targeted for 2H CY26—supporting sustained exabyte growth and TCO leadership .
  • Demand visibility and supply tightness support pricing: build-to-order largely committed through CY26 with visibility to CY27; tight industry supply plus long cycle times could keep the pricing environment constructive .
  • Near-term setup: FQ2 guide is in line, but margin momentum (implied ~30% operating margin) and expected FCF expansion are attractive for both fundamental and cash return narratives .
  • Watch the yield ramp on 4 TB-per-platter: cost/terabyte and supply cadence hinge on yield improvements; any slippage could temper near-term exabyte additions, while upside could accelerate mix and margins .
  • Edge IoT a swing factor but secondary: sequential softness is manageable as resources prioritize hyperscale demand; some seasonal improvement expected in December quarter .
  • Capital returns improving: dividend raised to $0.74; opportunistic buybacks continue; leverage at ~1.5x with trajectory to improve alongside EBITDA growth .

Supplementary Financials and Reconciliations: See the FQ1’26 press release/8‑K for GAAP to non‑GAAP reconciliations, cash flow and balance sheet details - -.