Q3 2025 Earnings Summary
- Robust Demand & Predictability: The build‐to‐order model has enabled strong demand visibility despite previous supply constraints, with customers maintaining steady orders and predictable build-to-order engagements that support sequential revenue growth.
- Advanced Technology Transition: Rapidly ramping HAMR and high‐capacity 24/28 terabyte PMR platforms are driving increased exabyte shipments and margin expansion, positioning the company for sustained competitive advantage.
- Resilient Market Dynamics: Decoupled supply chains and consistent cloud and data center investments, bolstered by emerging AI and Gen AI applications, underscore a favorable long‐term storage demand environment.
- Supply Rebound Uncertainty: The company experienced a $200 million shortfall due to supply constraints, and management indicated uncertainty over how much of that lost demand will be recovered in future quarters ( ).
- Tariff Risk Potential: While current guidance assumes minimal impact from tariffs, management cautioned that if tariffs extend or change in future quarters, there could be an initial negative effect on margins before costs can be passed on ( ).
- HAMR Qualification Concerns: The reliance on smooth progress in HAMR product qualifications presents a risk—any delays or qualification setbacks may hinder the expected volume growth and margin improvements ( ).
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | Increased to $2,160 million (approximately +39% vs. prior Q2 FY24’s ~$1.56B) | Revenue growth reflects strong demand recovery in nearline cloud and enterprise markets, building on prior period gains, which helped boost total revenues significantly. |
Operating Income | Rose to $431 million (operating margin ~20% vs. Q2 FY24’s negative operating income) | Improved operational performance from better cost discipline and pricing execution led to a positive operating income in Q3 FY25 compared to near break-even results in Q2 FY24. |
Cost of Revenue | Represents 65% of revenue at $1,400 million | High production costs remain a challenge as cost of revenue consumed 65% of total revenue, suggesting persistent cost pressures despite top-line improvement. |
Net Loss | Worsened from a $19 million loss in Q2 FY24 to $340 million loss (over 1,700% decline) | Deterioration in bottom-line profitability is driven by significant non-operating charges or exceptional items that offset the improved operating income, marking an extreme decline compared to the previous period. |
Net Loss per Share | Widened from $(0.09) in Q2 FY24 to $1.60 in Q3 FY25 | Per-share performance was heavily impacted by the dramatic increase in net loss, indicating that non-recurring or non-operational factors have severely affected earnings on a per-share basis compared to the previous period. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q4 2025 | $2.1 billion, plus or minus $150 million | $2.4 billion, plus or minus $150 million | raised |
Non-GAAP Operating Expenses | Q4 2025 | $290 million | Approximately $285 million | lowered |
Non-GAAP Operating Margin | Q4 2025 | 20% range | Expected to expand into the mid‑20s percentage range | raised |
Non-GAAP EPS | Q4 2025 | $1.70, plus or minus $0.20 | $2.40, plus or minus $0.20 | raised |
Non-GAAP Tax Expense | Q4 2025 | Roughly $20 million | Roughly $10 million | lowered |
Gross Margin | Q3 2025 | Expected to improve sequentially | no current guidance | no current guidance |
Supply Constraints Impact | Q3 2025 | Embedded guidance of approximately $200 million of revenue impact | no current guidance | no current guidance |
Impact of Tariffs | Q4 2025 | no prior guidance | Minimal direct impact expected from tariff policies in the June quarter | no prior guidance |
Free Cash Flow | Q4 2025 | no prior guidance | Expected to improve sequentially through the rest of the calendar year | no prior guidance |
Additional Notes | Q4 2025 | no prior guidance | Starting in fiscal 2026, the company estimates a tax rate in the mid‑teens due to Pillar 2 global minimum tax | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | Q3 2025 | $2.1 billion ± $150 million | $2,160 million | Met |
Non-GAAP Operating Margin | Q3 2025 | ~20% | 20% (431 ÷ 2,160) | Met |
Non-GAAP EPS | Q3 2025 | $1.70 ± $0.20 | $1.60 (basic) | Met |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Build-to-Order | Consistently noted for delivering strong demand visibility and predictability across Q4 2024, Q1 2025, and Q2 2025, with emphasis on aligning production with customer commitments ( ). | In Q3 2025, executives highlighted extended visibility into demand well into 2026 and robust customer pre-bookings, emphasizing an even clearer long‐term outlook ( ). | Enhanced clarity and longer-term predictability – the message remains consistent but now underlines extended visibility and stronger long-term agreements. |
HAMR Technology | Previous calls (Q4 2024, Q1 and Q2 2025) stressed early qualification challenges, extensive testing, and initial ramp-ups with cautious optimism ( ). | Q3 2025 discussions show accelerated volume ramp and nearing completion of major CSP qualifications, with continued focus on qualification challenges and production readiness ( ). | Progress with accelerated ramp – ongoing challenges remain, but the technology is maturing with improved customer adoption. |
Transition to High-Capacity Drives | Across Q4 2024, Q1 and Q2 2025, there was strong emphasis on the performance of PMR products and initial adoption of advanced drives, noting a blend of PMR and emerging HAMR platforms ( ). | Q3 2025 highlights robust demand for both high-capacity PMR drives and a growing ramp of HAMR-based products, with a strategy to blend both technologies in fulfilling build-to-order commitments ( ). | Consistent momentum with improved customer adoption – strong demand continues, with a well-articulated transition strategy leveraging both PMR and HAMR technologies. |
Margin Expansion & Cost Efficiency | Earlier periods (Q4 2024, Q1 and Q2 2025) emphasized sequential gross margin improvements, improved pricing, cost discipline, and targeted capex, with several quarters of margin gains ( ). | In Q3 2025, margins expanded further (non-GAAP gross margin up by 70 basis points to 36.2%) and robust cost controls were noted, supported by strong product mix and operational improvements ( ). | Increasing operational efficiency and margin growth – consistent focus with incremental improvements bolstering profitability. |
Supply Chain Constraints & Demand Recovery | Q4 2024, Q1 and Q2 2025 discussions pointed to temporary supply issues, long lead times, and cautious working capital normalization, yet maintained a build-to-order approach that kept demand predictable ( ). | Q3 2025 highlighted that previous operational issues were resolved; while temporary constraints were noted in the March quarter, demand remains strong with forecasted improvements in subsequent quarters ( ). | Improved supply resolution with continued cautious optimism – challenges are being addressed, supporting a steady recovery in demand fulfillment. |
Cyclical HDD Market Trends & Demand Slowdowns | Previous periods (notably Q1 and Q2 2025, and Q4 2024) discussed inherent cyclicality in HDD demand, adjustments after pandemic anomalies, and seasonal slowdowns with efforts to manage inventory levels ( ). | In Q3 2025, while cyclical trends and seasonal dips were noted, nearline exabyte demand remains strong due to robust cloud and edge data center investments ( ). | Stable with consistent cyclical adjustments – sentiment remains cautious yet positive, with clear visibility into evolving market cycles. |
Emerging AI-Driven Data Storage Demand | Across Q4 2024, Q1 and Q2 2025, AI was increasingly mentioned as a catalyst for mass capacity storage, with early emphasis on generative AI, video applications, and significant future data growth ( ). | Q3 2025 further emphasizes AI’s role in driving storage demand, citing its material impact on long-term TAM and deep integration with high-capacity solutions ( ). | Growing excitement and strategic focus – discussion of AI has become more prominent, highlighting it as a key future growth driver. |
Tariff and Regulatory Trade Risks | Not discussed in Q4 2024, Q1 or Q2 2025. | Q3 2025 introduced discussion on potential tariff impacts and regulatory trade risks, with an operational strategy to mitigate these risks through geographic shifts and pricing adjustments ( ). | Newly emerged risk factor – a new qualitative topic in the current period requiring ongoing monitoring due to potential cost and supply chain implications. |
Financial Health & Debt Reduction | Q4 2024, Q1 and Q2 2025 consistently documented efforts in reducing debt, improving free cash flow, liquidity improvements, and maintaining capital discipline ( ). | In Q3 2025, robust debt reduction (over $500 million reduced) and strong liquidity with further debt lowering priorities were emphasized, along with plans for eventual share buybacks ( ). | Continued financial improvement – steady progress in reducing debt and enhancing cash flow strengthens the company's financial foundation. |
Capacity Constraints & Oversupply Risks | Prior periods, notably Q4 2024, Q1 and Q2 2025, highlighted capacity constraints through production issues and long lead times, while emphasizing a build-to-order model and product transitions to avoid oversupply ( ). | Q3 2025 revealed that while temporary capacity constraints affected the March quarter, operational fixes and a healthy supply-demand balance have been achieved, with ongoing reliance on technology transitions to mitigate risks ( ). | Consistent management with a focus on technology transitions – although capacity constraints persist intermittently, supply discipline remains in place to prevent oversupply risks. |
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Margin Outlook
Q: What’s driving margin expansion?
A: Management pointed out that gross margins grew by 70 bps to 36.2% in March, mainly due to a richer nearline product mix and favorable pricing actions—with expectations for the trend to continue into the next quarter. -
Revenue Recovery
Q: Has lost demand been recovered?
A: They explained that the build-to-order model smooths demand shifts; while it’s hard to directly reassign the $200 million loss, customers have not double ordered, and demand remains strong moving forward. -
Capital Allocation
Q: What are your capital priorities?
A: The focus remains on reducing debt—having retired over $500 million—with plans to eventually resume share buybacks and uphold dividends, emphasizing disciplined capital management. -
HAMR Progress
Q: How is HAMR impacting results?
A: Management noted rapid qualification progress with key hyperscale customers; HAMR products are increasingly contributing to revenue as supply constraints shift in their favor. -
Tariff Impact
Q: What if tariffs extend into September?
A: They indicated that while current tariffs have minimal effects, any future tariff costs would be managed through operational adjustments rather than immediate price hikes, keeping pass-through as a last resort. -
Pricing & Visibility
Q: Is pricing more predictable now?
A: The build-to-order process is providing enhanced visibility into future demand and pricing, ensuring a stable environment despite occasional market fluctuations. -
Capacity Planning
Q: Will you increase CapEx for capacity?
A: Current capital investments in advanced HAMR and PMR production are deemed sufficient; additional capacity spending will be considered only if demand significantly outpaces forecasts. -
AI Impact
Q: How will AI alter storage demand?
A: Management observed that while AI inference storage is in its infancy, emerging applications are set to boost overall demand, with early efforts hinting at modest yet promising contributions.