Q2 2020 Earnings Call

There will be a question and answer session. As a reminder, this conference is being recorded for replay purposes. At this time it would like to turn the call over Shany Hudson Vice President Investor Relations. Please proceed Jamie.

[music]. Thank you good afternoon, everyone and welcome to todays call.

Joining me are Dave Mosley, Seagate's, Chief Executive Officer in Gianluca Romano, our Chief Financial Officer.

We posted our earnings press release and detailed supplemental information for December 2019 quarter on the Investor section of our website.

During today's call, we will refer to GAAP and non-GAAP measures non-GAAP figures are reconciled to GAAP figures in the earnings press release posted on our website in form 8-K that was filed with the FCC.

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 there for a reconciliation to the corresponding GAAP measures is not available without unreasonable effort. As a reminder, this call contains forward looking statements, including our March quarter Finance.

The outlook in expectations about our financial performance market demand industry growth trends planned product introductions ability to ramp production future growth opportunities in general market conditions.

These statements are based on management's current views and assumptions and should not be relied upon as an any subsequent date.

Actual results may vary materially from today's statements information concerning or risks uncertainties and other factors that could cause results to differ from these forward looking statements are contained in our most recent form 10-K filed with the FCC and the supplemental information posted on the investors section of our website.

Following our prepared remarks, well open the call for questions.

And with that I'll turn the call Liberty you Dave.

Thanks Cheney good afternoon, everyone and thanks for joining us I'll begin today's call by highlighting a few key accomplishments for the December quarter, and then I'll share some perspectives on the market trends and their relevance to seagate.

Afterwards, I'll turn the call over to Gianluca to elaborate on or December quarter financial performance and present, our March quarter outlook.

Following the prepared remarks, we will open up the call for questions.

In the December quarter, we grew revenue to $2.7 billion and drove strong double digit profit growth on a sequential basis, both non-GAAP operating margin and non-GAAP EPS coming in at the upper end of our guided ranges importantly, we have generated nearly $1.2 billion in free cash flow.

So over the past 12 months underscoring our consistent operational execution. In addition to delivering solid financial results. We achieved record exabyte shipments in the December quarter supported by strong demand for mass capacity storage and the continued successful ramp of our 16 terabyte products.

Consistent with our expectations, we shipped 1 million 16 terabyte drives during the quarter to support strong customer demand.

We also strengthened our product portfolio announcing seagate life dried mobile system.

Series of seamlessly integrated storage solutions to address the burgeoning need to move data between endpoints edge and poor cloud environments in an efficient secure and cost effective way.

Loved drive was one of many products we showcased during the consumer electronics show this past January which I'll discuss shortly.

Let me comment on some of the trends we're seeing in the market.

At December quarter results highlight the increasing demand for mass capacity storage, which includes nearline video and image applications and network attached storage or NAS.

Revenue from mass capacity storage increased 9% quarter over quarter, and 25% year over year driven by growth across each of these markets.

This positive trajectory reflects both ongoing demand recovery as well as secular growth formats capacity storage.

In near line, we're leading the industry's transition to 16 terabyte, which is the largest capacity drive available in mass volume today offering the best total cost of ownership opportunity for our customers in the December quarter. These products represented the highest revenue and highest exabyte shipments of any of our drive.

We achieved these results while still with the very early stages of this industry transition.

Airline demand has been on a positive trajectory that we expect will continue through at least the rest of the fiscal year.

We are well positioned to address this growing demand as we continue to ramp our 16 terabyte production and launch or 18 terabyte drives which are based on the same platform simplifying the manufacturing and qualification processes.

The 18 terabyte launch is progressing to plan.

And we remain on track to begin shipments in the first half of the calendar year 2020.

We expect to align our production to meet customers' demand.

And video and image applications, we achieved record revenue in the December quarter, driven by strong demand for surveillance drives.

As we've shared for multiple quarters now global uncertainty has created some disruption in typical customer buying patterns within certain markets, including surveillance.

However, the underlying demand drivers remain intact and inventory levels appear to be relatively healthy.

Supporting our positive view of demand over the long term.

Security surveillance is just one of a growing number of applications adopting high definition video and image processing, which require mask capacity storage at the edge and in the cloud.

Two weeks ago at CES, we demonstrated how video and imaging sensors are being deployed in smart cities and smart factories to collect and analyze massive amounts of data used to improve traffic flow hasten emergency response times lower production cost and improve worker safety.

These are real world use cases spawned by the emergence of ITC Ford auto, which illustrate how organizations are unlocking value from the data being created by sensors cameras and other endpoint devices.

The transition to IP Ford auto and trend towards a multi cloud world create meaningful opportunities for Seagate, We project the typical smart factory.