Q2 2025 Earnings Summary
- Strong Demand with Temporary Supply Constraints: Seagate reports robust demand, particularly from cloud customers, with exabyte shipments expected to continue growing. The supply constraints affecting approximately $200 million in revenue for the March quarter are considered temporary and limited to that quarter, and the company anticipates further improvement throughout the calendar year.
- Ramping of HAMR Technology to Improve Margins: The company is confident that the ramp-up of its HAMR (Heat-Assisted Magnetic Recording) technology will be accretive to margins. Higher-capacity drives enabled by HAMR are anticipated to contribute to improved gross margins and overall profitability, with significant improvements expected in the second half of calendar 2025.
- Increasing Data Storage Demand Driven by AI and Video Applications: Seagate observes that growth in data storage needs, especially from video and imaging content created by Generative AI, is beneficial for its business. This trend is expected to drive future mass capacity storage growth, leading to increased demand for Seagate's solutions.
- Seagate expects approximately $200 million revenue impact in the March quarter due to supply constraints, leading to uncertainty about when or if this revenue will be recovered, which could signal potential ongoing operational challenges.
- After six consecutive quarters of strong nearline exabyte shipment increases, there is concern that Seagate may experience a cyclical slowdown in HDD demand in 2025, potentially leading to lower revenues.
- Seagate's addition of new capacity might create oversupply in the HDD market, potentially leading to downward pressure on prices and margins, which could negatively affect profitability.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +50% (from ~$1.55B to $2.325B) | Stronger uptake of mass capacity nearline drives and an improved pricing environment drove revenue higher compared to the previous year. Company-specific cost discipline and a rebound from legacy market weakness in the prior period further supported growth. These factors suggest potential for sustained demand ahead. |
OEM Revenue | +61% (to $1.841B) | Robust cloud and enterprise demand led to higher OEM shipments, particularly for high-capacity products. This contrasts with the prior year’s softer demand in legacy product segments. Ongoing new product qualifications also contributed to sequential and YoY growth, with further expansion expected. |
Distributors Revenue | +27% (to $278M) | An overall market recovery and solid channel inventory management compared to the previous year boosted distributor sales. In contrast to the last period’s market uncertainties, moderate improvements in consumer and small business demand contributed to the YoY increase. |
Operating Income (EBIT) | Up from $124M to $488M | The jump in EBIT stems from stronger revenue, better gross margin, and cost efficiencies, reversing the previous year’s lower profitability tied to underutilization and pricing pressure. The improved mix of higher-capacity drives also elevated margins, hinting at continued operational leverage. |
Net Income | Up from -$19M to $336M | Moving from a net loss to a substantial profit reflects the revenue and margin gains plus cost-out actions that mitigated prior headwinds. This turnaround demonstrates the effectiveness of restructuring efforts and improved demand, supporting a more positive outlook for earnings stability. |
EPS (Diluted) | Up from -$0.09 to $1.54 | Enhanced profitability and lower operating expenses relative to revenue drove a marked improvement in per-share earnings compared with the prior year’s negative EPS. With macroeconomic stability and continued demand for high-capacity drives, EPS growth may remain robust in upcoming quarters. |
Capital Expenditures | From -$21M to $207M | After a prior period of net proceeds (negative CapEx), the company expanded investments to ramp production, fund new product development, and address anticipated higher demand. This shift indicates focus on capacity expansion and strategic initiatives, aiming to support further growth. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q3 2025 | no prior guidance | $2.1B ± $150M, >25% YoY improvement | no prior guidance |
Gross Margin | Q3 2025 | no prior guidance | Expected sequential improvement | no prior guidance |
Non-GAAP Operating Expenses | Q3 2025 | no prior guidance | $290M | no prior guidance |
Non-GAAP Operating Margin | Q3 2025 | no prior guidance | 20% range | no prior guidance |
Non-GAAP EPS | Q3 2025 | no prior guidance | $1.70 ± $0.20 | no prior guidance |
Non-GAAP Tax Expense | Q3 2025 | no prior guidance | $20M | no prior guidance |
Supply Constraints Impact | Q3 2025 | no prior guidance | ~$200M revenue impact | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | Q2 2025 | $2.3 billion, plus or minus $150 million | $2,325 million | Met |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Supply constraints | Previously emphasized capacity/offline management and BTO model to handle supply constraints. | Resolved a temporary production issue for non-HAMR drives, causing a one-quarter revenue shortfall of ~$200M. Emphasized demand remained strong. | Short-lived problem now resolved; approach remains tight supply control and clear demand visibility. |
Capacity constraints | Managed via product transitions (e.g., 24TB→30TB) rather than large physical additions. Emphasized cautious expansion and avoiding overbuilding. | No additional tools needed; focusing on aerial density rather than expanding head/media capacity. No long-term impact expected. | Consistent approach: disciplined usage of existing capacity and higher-capacity products. |
Cloud demand and exabyte growth | Demand rebounded across cloud customers; nearline exabyte shipments systematically increased each quarter (e.g., 84→109→114 exabytes). | Reported strong cloud momentum with nearline exabytes reaching 126, citing nearly doubling nearline revenue year-on-year. | Steady growth continues, positioning cloud as main driver of exabyte demand. |
Demand from AI, video, generative AI | Consistently mentioned AI/video as catalysts for data creation. Early-stage demand for AI storage, seen as a future growth engine. | Highlighted AI-driven data creation, especially long-form video and imagery. Generative AI significantly increases mass capacity needs. | Growing optimism around AI data explosion; increasingly cited as a key growth vector. |
Ramping of HAMR technology | Repeatedly emphasized lower cost/TB vs. PMR; overcame earlier mechanical issues; ramp timeline shifted to mid-2025. | Aggressive ramp planned in 2H 2025; HAMR drives seen as margin-accretive. Broad sampling with multiple customers, focusing on aerial density gains. | Steady progress with broader qualifications; still central to future capacity expansions. |
Delays in HAMR product qualification | Previously cited mechanical or supplier issues causing slower-than-planned HAMR rollouts. | Acknowledged customer readiness issues (software/silicon transitions) can delay adoption. Still expect main volume ramp in late 2025. | Continued caution; slower ramp than initially forecast, but no major new setbacks. |
Pricing environment and pricing power | Pricing was steadily improving across mass capacity segments, helping gross margin gains. | Maintained consistent price increases quarter-on-quarter; higher-capacity drives bolster margin. | Ongoing stability; premium on high-capacity products supports further margin upside. |
Margin expansion and gross margin | Gross margin steadily improved quarter-over-quarter, supported by cost discipline, product mix, and pricing actions. | Achieved seventh consecutive quarter of sequential gross margin improvement (~35.5%). Higher-capacity mix, HAMR ramp, and pricing contributed. | Consistent expansion expected to continue with more HAMR volume. |
Potential cyclical slowdown in HDD | Discussed cyclical nature historically but emphasized stable near-term outlook given careful supply management. Not always directly mentioned in Q4/Q3 calls. | CEO remains confident due to prior underbuild/overbuild cycles; build-to-order discipline cited as mitigating volatility. | No major concern; sentiment remains that BTO model offers predictability. |
Potential oversupply in HDD market | Addressed concerns in Q1 2025 by emphasizing long lead times and technology transitions instead of unit expansion. In Q4/Q3 calls, took a cautious approach to capacity additions. | No mention in Q2 2025. | Remains carefully managed; topic not raised in current period. |
On-premise enterprise demand | Some improvement was noted, particularly in enterprise OEM markets and traditional server growth. | Viewed as part of the edge segment, where data is replicated locally for AI-driven workloads. No major new comments. | Stable mentions; overshadowed by stronger cloud demand. |
Transition to higher-capacity drives | Previously credited for cost efficiency (20→28→30→40TB transitions). Lower capital intensity and easier expansions. | Emphasized moving to 32TB+ via HAMR, with existing PMR lines still in demand; higher densities drive margins. | Continues accelerating; central to Seagate’s long-term strategy. |
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$200 Million Shortfall Recovery
Q: Will the $200 million March shortfall be recouped in June?
A: No, the $200 million shortfall in March is due to supply constraints and won't be recovered in June; the opportunity in March is likely lost. -
Gross Margin Outlook
Q: Will gross margins keep improving after March?
A: Yes, gross margins are expected to continue improving sequentially beyond the current 36% baseline in March, driven by a shift to higher-capacity drives and the ramp of HAMR technology. -
HAMR Ramp and Impact
Q: How aggressively will you ramp HAMR?
A: We plan to ramp HAMR aggressively as it is accretive to margins; we'll ship as much HAMR as we can, as quickly as possible, based on customer qualifications and demand. -
Nearline Demand Sustainability
Q: Is nearline demand cycle turning in 2025?
A: We believe we are early in the cycle; despite previous 1.5 to 2-year cycles, current nearline demand is strong, and we have confidence through calendar year 2025. -
Supply Constraints Impact
Q: Do capacity constraints affect only non-HAMR drives?
A: Yes, the production capacity issue affects non-HAMR drives; HAMR production is not impacted, and we're meeting build-to-order commitments. -
Future Gross Margin Potential
Q: Can gross margins reach 40% or more?
A: While we're pleased with current margins and expect further improvements as HAMR ramps up, any higher margins depend on demand; we're not specifying a maximum at this time. -
Customer Visibility and BTO Model
Q: Has customer visibility improved with constraints?
A: Yes, build-to-order models provide good visibility, and we're working closely with customers to ensure predictability despite temporary supply issues. -
HAMR Mix Expectations
Q: Will HAMR reach 10-20% mix by H1 2026?
A: We expect to ramp HAMR significantly, with improvements each quarter, but we're not providing specific mix percentages; the majority of the ramp will occur in the second half of calendar 2025. -
Capacity Expansion Needs
Q: Do you need more capacity for HAMR ramp?
A: No, most tools used for non-HAMR drives are convertible to HAMR; we don't need to add new capacity and have planned the transition using existing resources. -
AI and Video Demand Impact
Q: How does AI and video growth affect demand?
A: Increasing data from video and imaging, especially at the edge, is boosting cloud demand; advancements in AI and content creation tools further enhance this growth, benefiting our business. -
HAMR Margins vs. Legacy Products
Q: Are HAMR margins higher than legacy products?
A: Yes, HAMR drives offer higher capacity and generate higher gross margins; even though legacy product margins have improved, HAMR remains accretive to margins. -
Nearline Exabyte Details
Q: How much nearline exabytes went to surveillance?
A: Typically, about 4 to 5 exabytes per quarter are for surveillance; detailed historical data is provided in our supplemental materials. -
Sampling of 36TB HAMR Drives
Q: Are 36TB HAMR drives sampled to multiple customers?
A: Yes, we're shipping sample units to more than one customer, expanding beyond the initial CSP; the ramp size will be measured based on qualifications and customer needs. -
Mix Shift to Higher Capacities
Q: Will shifting to higher capacities boost margins?
A: Yes, moving to higher-capacity drives like HAMR increases margins due to better cost efficiency and compelling value propositions for customers. -
Capacity Expansion Plans
Q: Are you adding new capacity or returning to baseline?
A: We're not adding new capacity; we're using existing tools convertible to HAMR, focusing on increasing aerial density to meet demand without significant capital expenditure.