Q4 2021 Seagate Technology Holdings PLC Earnings Call
And this product introductions ability to ramp production future growth opportunities possible effects of the economic conditions worldwide, resulting from the COVID-19, pandemic and general market conditions. These.
These statements are based on management's current views and assumptions and information available to us as of today should not be relied upon as of any subsequent date.
Actual results may vary materially from today's statements information concerning our 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, and 10 Qs filed with the SEC our form 8-K filed with the SEC today.
The supplemental information posted on the investors section of our website at volume following our prepared remarks, we will open the call for questions.
I'll now turn the call over to you Dave.
Thank you for trading and a warm welcome to everyone joining us today.
Fiscal 2021 on a strong note.
On the June quarter performance since fiscal year revenue exceeded expectations.
These results reflect broad based demand across the mass capacity markets and incredible execution by our global team.
Which together by the faster than anticipated progress toward our long term financial targets.
For the June quarter revenue cost for $3 billion Mark for the first time in 6 years.
And we delivered non-GAAP EPS of $2 for sure.
Which was the top most and of the upwardly revised guidance range that we provided in early June.
Additionally, we expanded non-GAAP gross margin to 29, 6%.
And expect to be inside our long term target range of 30% to 33% ahead of schedule.
The demand strength and favorable mix has accelerated the timeframe to achieve better supply demand equilibrium, which is supporting firmer pricing conditions.
We are reporting these exceptional results at the time of optimism in parts of the world as vaccinations progress on economies begin to reopen and.
In fact, we are hosting today's call from Dublin for the first time in 6 quarters.
While the pandemic remains a difficult reality for many parts of the world and we remain vigilant and continue to manage the business through this period.
Has cleared a macro level that recovery is underway on the markets that we serve.
Teekay is entering this recovery period on a very strong position.
By the fact that we executed incredibly well throughout the crisis.
For fiscal year 'twenty, 1 we generated nearly 2% year over year revenue growth exceeding our expectations.
We grew operating profits faster than sales and achieved operating margin of 15, 4% for the year showing the leverage on the business and.
We've returned substantial amounts of capital to shareholders.
Moving to $7 billion for dividends and share repurchases retired more than 13% of our outstanding shares in fiscal 2021.
In addition to recording strong financial results for our innovation engine has not slowed down.
We extended our HDD technology leadership as evidenced by Seagate being the first company to commercialize <unk> technology.
And the first to deliver dual actuator performance drives which are now shipping in high volume to support multiple customers.
We leveraged our aerial density gains to streamline our product roadmap, making us better able to meet changing customer demand requirements, while maintaining an attractive cost profile.
We also leveraged the strength of our common mass capacity platform to execute our 18 terabyte brand plans to meet customer demand.
We expect to begin shipping 20, terabyte <unk> drives in the second half for this calendar year.
Finally, we expanded our product and service offerings with the launch of <unk> edge to cloud platforms.
And remain on track with the Buildout of our for live club Metro locations by calendar year end.
A year ago, when the business challenges posed by the pandemic, we're very acute.
On major statements at Seagate would emerge from the crisis stronger than ever.
With the financial performance and innovation that I've, just highlighted I believe that our team has delivered on that claim.
<unk> is stronger than ever we are continuing to focus on unlocking more value for our customers and shareholders.
For example, last month, we introduced cortisol toward family of cost efficient high density storage systems.
<unk> combines seagate internally designed storage systems basics.
With our intelligent self healing software and data security technology, which results in a high reliability storage solution at petabyte scale.
Neil for private cloud and macro edge data centers.
We are also working directly with customers to unlock value many of our hyperscale customers already employ AI and machine learning to reduce the amount of human intervention necessary to maintain and repair their large fleets towards <unk>.
We recently teamed with Google cloud to take data intelligence 1 step for.
Together, we developed models that help predict drive failures before they occur.
These models promise to lower operational costs and prevent potential problems to their end users a clear win win.
Let's turn it on to the current market environment, starting with an area that has garnered significant interest in recent weeks.
Stuart's Patrick blockchain, such associated by 5 point for decentralized storage applications for Chia crypto currency, which is considered an environmentally friendly alternative to other blockchain that utilize energy intensive competition on power to validate transactions have significant interest.
During the June quarter, we saw a meaningful increase in HDD demand due in part to the initial build out of the <unk> in that space, which is comprised of both new and repurposed HDD.
By our estimation do chia demand represented most of mid single digit percentage of total industry exabyte shipments during the quarter primarily into the distribution channel.
This incremental demand serve to tightened HDD supply dynamics, and an increasingly robust demand environment.
While the future growth outlook in this space remains unclear. We are excited by the potential applications associated with innovations and decentralized file storage.
For Seagate strong growth on the traditional mass capacity market remains the primary driver of HDD demand.
In the June quarter mass capacity represented close to 70% of Seagate's HDD revenue.
Supported by broad based demand for our near line drive and the third consecutive quarter of sales growth and to both cloud and enterprise customers.
Cloud data center demand has remained healthy and steady for the last 18 months.
Current indicators suggest that that trend will continue.
While it is clear that the pandemic played a big role in accelerating the digital transformation Hyperscale industry leaders expected digital adoption curve to continue accelerating even as COVID-19 receipts.
At the same time businesses are preparing for employees to return to the workplace, which is reinvigorating on prem infrastructure investments and supporting ongoing recovery in the enterprise markets.
We also experienced stronger than anticipated recovery on the feeder markets during the quarter.
Due in part to tighter supply conditions, we currently foresee relatively stable demand through the second half for the calendar year.
Looking at <unk>.
Secular demand for mass capacity data combined with signs of macro recovery represent significant opportunities for Seagate and set the stage for continued strong financial performance and cash flow generation.
These factors.
Combined with our broad product portfolio underpinned are forecast to grow revenue in the high single digit percentage range or more in fiscal 2022.
Which is well above our long term financial model range.
Now I'll hand, the call over to Gianluca to cover the financial results.
Thank you David.
Hey, David executed extremely well in the June quarter, and even in very strong top and bottom line acrylic megawatts by anything demand in the mask capacity market and.
Moving on China.
Revenue was <unk> $301 billion.
10% sequentially and 20%.
Non-GAAP operating margin expanded to $18.1 tank in the outlet and of our long term target paint.
<unk> completed the percent operating.
And non-GAAP EPS was $2 for sure.
25% sequentially and 67%.
Okay.
Ongoing demand moment income on our mass capacity product supported at Goldcorp segregated quarter opening economy as these dry capacity based on generic, but adding 152 anchor bank up 9% sequentially and 30% year on year.
Okay.
More than 80% of total exabyte, when I stepped into the mass capacity market.
Which includes nearly a year.
GAAP and cash products.
Mass capacity shipment.
123, exabyte in the June quarter.
For the 11th financing banks heavy and don't get the express tank ready yet.
We are continuing to enhance our manufacturing agility and drive operational efficiencies to meet our customers' timing.
Goodbye for now and for those.
70% of thoughts on ASP.
And I think.
But on their demand for our handling guidance.
Prominent globally in the beer market.
On April Masker Basket Avenue, a $1.90 billion.
Our 16% sequentially and up 29% compared with the prior year period.
They also are on gambling products video strongly quarter on a reported.
The things that I've been uptick in demand on.
Startups pancake blockchain.
At the net unit on the Tahoe additive that Patrick as demand.
And improving enterprise OEM customers hand.
As we get Scott last quarter.
We attribute the incremental sales.
Of our need to add capacity in the online product and distribution channel to achieve farmers.
While our client and OEM customers on.
On assumed and non geography on our high capacity from client.
Including our 18 terabyte drive.
Which are shaping a non volume.
Moving to the airline shipment units to 1 on net 1 extra day up 6% sequentially and 28% year on year on many fronts on Eva.
In each of the comparable quarter.
Stronger than expected demand in the beer market net toy shops to maintain good Dave.
Revenue.
And in total on net.
So I'll hand, it weighs in cash.
Debt to support and future demand.
Looking ahead, we have Ed.
Dave will demand into the second half of the accounting on hand.
And I guess the market.
And GAAP wind in the June quarter with revenue of $854 million.
Compared with a comment on 64 million on board with annual quota and hip Guy on the FDA.
Thanks have ICU heavy maintenance expense quarter over quarter at capacity <unk> back.
Ongoing demand for what our niche analytic on drive and better than expected.
From our consumer product sales.
The anticipated decline for PC back.
We expect stable demand for both mission critical and consumer guidance over the next couple of quarters.
Looking at balance in more moderate.
And decline for.
For example on legacy market.
Finally, turning to our non HDD business on.
Revenue per day, and 16% sequentially and 42% yet of any yet.
On April to $176 million.
We can cancel Dave momentum in our system business.
A simple and I won't pick up based on Russia.
That's it for enterprise and private cloud customers.
In the June quarter, non-GAAP gross profit increased to $892 million compared with $714 million in the March quarter and $686 million in the Iot end of period.
We incurred $32 million of Covid related costs during the quarter.
Calendar year to date, the vast majority of these costs are attributed to innovative challenges, which.
Which we expect to proceed through fiscal 2022.
However, <unk> zone, FMT and on when or if these costs will abate.
Starting in fiscal Q1, we plan to start for calling them out.
Our resulting non-GAAP gross margin expanded by 219, David declined to 29, 6%.
Including slightly more than 1% headwind from <unk>.
Along with the related costs.
Thoughts on HDD margin on our A&D inside our target range of 30% to 33% and we now expect total company non-GAAP gross margin to be at the low end of debt aimed in the September quarter.
Adding better alignment of supply and demand and the transition to mass capacity product that has taken place.
Non-GAAP operating expenses came in at for the entire $46 million.
Up 5% sequentially.
That being high and variable compensation associated with the strong performance.
We are actively managing expansion and expect to maintain opex at approximately the same neighborhood for the next few quarters.
The combination of higher sales and margin expansion, resulting in non-GAAP operating income of $546 million.
30% sequentially and up by 46% year over year.
Non-GAAP operating margin was $18.1 for Frank.
Up to 174 basis points sequentially and financing in Turkey basis volume you had already here.
And sorry for me inside our long term targeted range of 15% to 20% on what I think.
Based on the diluted share count of approximately 1% target for the medium share non-GAAP EPS for the June quarter.
To BARDA for sure.
The highest level since Q2 net.
Capital expenditure were went on in $2000.40 million in the June quarter, and Jeff on that 500 million policies earlier.
Which refinanced for 7% of online gaming.
With our long term target for range.
From our strong expense discipline and efforts to improve manufacturing efficiency.
Use of Capex by about 15% in fiscal 2021.
Getting a day, yet with better supply demand balance.
You May study was 1.2 billion bounced expense ethic match any day.
<unk> had outstanding declining for the third consecutive quarter to 51 day.
Our teams have done an outstanding job on working with our suppliers and partners to manage the basic inventory method and mitigate supply chain disruption.
Including debt isn't causing related innovation in Asia, which we continue to closely monitor.
In the June for better we increased free cash flow to $354 million.
Up 29% both quarter over quarter and year over year.
Our focus on optimizing profitability and cash generation provides flexibility to reinvest incipient net and return capital to our channel.
We used 154 million.
<unk> quarterly dividend and $210 million to repurchase 2.6 million ordinary shares.
<unk> in the quarter with 227 million shares outstanding.
And approximately $4.2 billion remaining.
Remaining in our authorization.
We had 34 million shares during fiscal year 2021, and.
And our return on total $2.7 billion for dividend and share repurchases.
Based on our guidance outlook, we expect to maintain a robust capital return program in fiscal 2022, while maintaining a strong balance sheet and liquidity profile.
Cash and cash equivalents, a day maintenance activities day, 1 at $1.2 billion in total liquidity was approximately $3 billion.
Moving now on evolving standard facility.
This level on a more than adequate to support our operations and BFS needs.
As we enter our fiscal 2022, the demand environment remained in Colombia, and we continued to execute our product and technology roadmap to deliver on a on a cosmetic line on thrive.
Driving value for Seagate.
Looking ahead to our outlook for the September quarter net debt.
Revenue for beans at age of $3.1 billion.
Last 1 minus $150 million on that.
Non-GAAP operating profit to grow faster than sales as housing and non-GAAP operating margin at the half debt end of our long term range of 50% to 20% on what Anthony.
And we expect non-GAAP EPS to be in that age of $2 <unk> per share plus or -15%.
Entering a sequential growth of 10% at mid Pike.
In summary, we continue to achieve outstanding and this has supported by our unwavering focus on operational execution and the strength of our product and technology portfolio.
We had on any of them on safety performance consistent with our financial target and then for fiscal 2000 to well position for top and bottom line growth.
I'll now turn the call back to Dave for final comments.
Thanks on Luka.
<unk> is executing well and delivering financial performance at or above our commitments, maintaining a relentless focus on total customer experience and.
On deploying capital to enhance value for all stakeholders, we capped fiscal 'twenty, 1 with our strongest performance for the year and we expect that positive momentum to continue moving forward.
We've demonstrated the strong leverage on our business model to grow operating profit faster than revenue.
And in turn drive free cash flow generation.
Our ability to consistently generate free cash flow provides the flexibility to fund future growth and employ a robust shareholder return program as well.
Based on the current outlook, we expect to grow free cash flow appreciably in fiscal 2022.
Our employees have been crucial to Seagate current success and key to driving our future.
Over our 40 year history Seagate.
As transitioned many times to address the evolving storage industry landscape. For example, we've recently pivoted, our factories and technology to deliver massive capacity solutions and on the merged a leader now.
Now we are focused on addressing the next math, David challenge with our live product platform.
To keep pace with these changes we are investing to reskill and redeploy seagate employees as needed to support our future growth and respond to changing demands for the business.
For example, we launched a tool called career discovery earlier, this year, which is already don't seagate to established networking and mentor connections as well as redeployment opportunities for hundreds of employees.
<unk> has a broad bench of talent with decades of hardware and software experience formidable supply chain management manufacturing skills deep knowledge chip design and the data analytics.
For this expertise and strong customer relationships allow seagate to understand the global mass capacity ecosystem and its architecture is better than anyone.
Tools, such as career discovery, helping us deploy our diverse resources to support our future needs, while enabling seagate to maintain opex efficiency.
We are confident that this focus on people will put us on a firm footing.
For continued growth and success.
As we closed on want to thank both seagate's employees and those on our supply chain effort to enable our ongoing leadership investigative solutions, our customers and our shareholders are equally deserving of banks for their ongoing interest and support and Seagate.
Gianluca and I are now happy to take your questions.
I'll ask a question from.
Star 1 on your telephone keypad.
Our first question comes from the line of Karl Ackerman with Cowen and company.
Your line is open.
Hi.
Okay.
My first question. This is <unk> on for Paul.
2 questions.
My first question, what sort of feedback have you received.
That's helpful.
Finally, our total Tam from Laurel Road.
Thank you for indicator.
Laura This is bill.
Critical function.
The total for <unk>.
Right.
When can we expect 20 terabyte hammer to reach the cost on that.
Is that something that could occur in fiscal <unk>.
Yes, so thanks David.
But I don't think we ever said the 20 terabyte it would be a crossover point for <unk> to your point. So we have a number of different 20 terabyte platforms coming <unk> Hamburg, there's a lot of different flavors of them.
And they are targeted at a different customer so different qualification schedules for each.
Aggressive.
With the 20 terabyte qualification because.
The heads and media for the PMO our version that we referenced in the prepared remarks is already on the high volume manufacturing for 18 terabyte capacity points below is about <unk> and so on so we're very confident.
We're ramping aggressively with customers, giving them samples going through qualifications and.
Fairly optimistic about that for the back half of the year.
Do you have approval for help.
Yes.
Thank you and just 1 more for it from a law.
On demand outlook.
Brian Thank you Bob Udell for them for Hudson.
Relative to Europe.
22 outlet.
<unk> capital.
Paul I'd say surprise shortage net <unk>.
Capacity charge for data center.
The Jedi contract Brian.
Thanks for the capital.
That's for the next day.
Hoping you bad debt.
Yes.
Yes.
Within the within the head factory for example, which is the longest lead to on import.
<unk>.
Well over $100 million heads per quarter going out. So we have the ability to mix to change the mix as we see fit so some of the.
Demand changes that we saw fairly easy with inside of our portfolio, which has been really trimmed down made very efficient, especially for common platform. We have the ability to change from 1 of the other we are always bringing on more capacity by putting new tools online because the new technology nodes that debt.
Within our Capex envelope, all the time and we will just continue to watch this but I think we can continue to grow more extra by supply with technology transitions more extra bytes with aerial density so to speak.
And we'll continue to watch and be nimble in within the markets as well as 1 would be on it. So yes. We are discussing on the last few quarters about debt they need to re aligning supply and demand and we are getting closer and closer every day broadband for.
For the overall on Capex for fiscal 'twenty tool. We think we will have the same targets for fiscal 'twenty, 1 between $4 to express and Bill revenue. So we will add capacity being back to where it would also be bill can get they're not keeping the alignment between supply and demand.
Okay.
Your next question comes from the line of Keith Ken Hubert with Morgan Stanley.
Yes. Thank you as you walk through the various segments near line. The mission critical consumer you talked about stable trends across the board yet the full year revenue growth guidance assumes that there will be a revenue run rate reduction from the $3.1 billion September guide can you just talk about what will drive.
Lower revenue as you as you move through the year and maybe what sort of the first half versus second half looks like.
Thanks, Kate I think we are we are chasing the demand right now obviously and so we think the front half was a little stronger in the back half there will be a more muted seasonality than we were on.
Normally accustomed.
We do.
There is also 3 quarters away there may be some some.
Variability there. So we do have good relationships with all of our customers across all these product sets now and they give us pretty good.
Strong sales of what their demand profile is going to be through the year. So.
I'd characterize as muted seasonality for now.
Significantly up we said at least high single digits and.
<unk> revenue growth year over year, so, it's still significantly up and we're still chasing it.
Now we think we will have a very strong debt take on part of the current bill. Thank you Juan.
Last quarter, I think with bad debt.
<unk> expense increased year over year right now we think it would be at least 15%. So of course you on another couple of quarters based on and then you'll get a guidance, we are and our grandson seasonality for the legacy market.
And some of the market, but I think of that from a maintenance but.
It will be the event that we have seen that we have seen last year for them I think the other thing is we are running for the earlier question. We are running in the high volume.
That has a media that we already need to make more eighteens or <unk> or whatever so for.
From the cloud markets were to take off above our plan, we could we could stretch there I think in the back half of the year as well.
Okay, and then the pricing environment as you said has firmed up faster than you expected.
We'll determine whether those prices can hold on.
Assuming for.
Price change in net full year guidance for high single digit growth.
Across the whole portfolio, it's really the balance of supply and demand. So it's not just about.
The extra bytes.
The highest capacity points there is strong demand in the VA market. There is strong demand for a terabyte families. This quarter.
Strong demand for even some of the high end desktop products.
So I think.
We're trying to balance all these things for the customers that are giving us predictability they need predictability on the time of disrupted supply chain everybody is trying to get the complete kit.
For the attack all these market opportunities that they have so thats really whats firming it up I'll, let gianluca.
Quantify it through the course of the fiscal year.
Yes.
Now for the time being US day, then we have a fairly strong pricing environment and it's basically for the mass capacity their legacy it David.
But it will take on any of it COVID-19, but in Canada.
Discussing before it will depend from the alignment between supply and demand right. Now is that I think Oh do we want to David Atlanta.
Thank you congrats on the quarter.
Thank you.
Your next question comes from the line of Sidney Ho with Deutsche Bank.
Great. Thanks, and thanks for taking my question.
My first question is on the near line drives given how strong near line exabyte shipments have been in the past 2 quarters. I think you said, 40% of the past 2 quarters. I know Q2 is a factor, but you also mentioned cloud as chairman as well are you concerned debt, we will see an inventory digestion phase 2 maybe slightly differently do you have a sense of.
How much inventories built in the channel and your customers, especially in cloud and enterprise guidance.
Yes.
I don't think there's too much inventory out there by any stretch of imagination.
A little bit different if you look at the enterprise channels.
The relatively lower inventory.
And we did see growth in the enterprise for quite a bit quarter over quarter as.
As far as the cloud is goes worldwide.
It's fairly healthy demand, it's fairly well distributed.
Distributed this is what we've been talking about for the last couple of years, we've we've always wanted to.
A lot of different customers pulling that these levels on we've seen that.
So we're fairly happy with the demand outlook.
What we've got in the build plan right now for the next couple of quarters because of the lead time for so long as we as we've said before that's really.
What builds our confidence is these great conversations, we're having with customers worldwide.
Great maybe a follow up question on on the gross margin side, you talked about gross margin to be within the long term target range of 30% to 33% in the September quarter curious if you have it on.
<unk> gross margin guidance what are the some of the key components for this margin uplift what is like the light pricing product mix yield improvements and whatnot and how should we think about those factors playing out for the beyond the September quarter.
Thanks, and I'll, let I'll, let gianluca chime in here too. The first thing I would say is that there were a lot of swaps during the quarter from maybe some of the things we have planned into things that we're actually moving faster and like I said when you have demand everywhere swaps.
Actually reflect a better supply demand balance than we had forecast and thats probably the biggest the biggest thing inventories came down our factories are very full but heads and media factories of course are being staged for the next couple of quarters as well so all of that benefits us financially.
There is there is a mix up as well and we're going to more cost off the most drives on the next few quarters as well. So we've started into the family of <unk> that we've talked about we like the cost on.
Lower capacity near line drives thats actually mixing it in as well.
We've launched so those are all the positives there still are headwinds from freight for.
Logistics around the world, it's still not it's still there it's still an overhang.
Theres, obviously component prices and various sectors that are that are happening because of shortages worldwide that are that are affecting us a little bit.
It isn't.
Yes, we had a very good quarter net.
Q4, and whether any guidance ex Q1 at higher levels.
I will say 1 of the <unk> on the ESP pricing environment that Dave.
It is improving.
He is on the knee that gives shifting more and more to the market classically E&P EBITDA Q for expanded 80% of debt aiming it was already on non capacity and we expect debt to continue to increase.
Bad debt.
Major regions on <unk> throughout the fiscal year.
'twenty 2.
<unk> of our.
On cost optimized for that.
Based on 2 apparel.
And then with Dave.
With that said for the fourth quarter bandwidth on the antibody and get improvement globally on the Rosemont.
Thank you.
Your next question comes from the line of <unk> Mohan with Bank of America.
Yes. Thank you.
Dave You said mid single digit percent of HDD exabyte demand from.
In the June quarter for the industry.
So if I might have thought to seagate it looks like channel contributed maybe 60% of the incremental sequential.
<unk>. So if you see this demand flatten out how comfortable are you that supply demand will continue to be tight enough to keep pricing favorable and that will flow.
Yeah. Thanks, So 1 day, it's really hard to forecast.
Exactly what's going on in <unk>.
Not just because of chia itself, because they are fairly transparent with their numbers, but because of the entire space that's developing.
We did say that on the growth for the net space that we've seen 2 day theres, probably a fair amount of refurbished drives our drive for that have been purchased 1 or 2 quarters ago.
It's a relatively small contribution as of yet to Seagate overall revenue and even even in the exabyte growth perspective, I don't think its.
It's very big So we said maybe mid single digits.
Like you referenced.
I think the <unk>.
A space to watch we love it because it's very innovative not just.
And those applications, but also in the <unk> applications that we talked about last quarter.
The big takeaway is if it continues to grow and fast it will have to grow with more newbuild.
So that's something for us to watch, but we're not really forecasting very much of that into our guide right now because it's we're going to wait and see a little bit on will react.
On to customers who.
We.
We're trying to drive more demand in the channel as it happens mass capacity is still our business I mean, that's what I would take away.
That's how we plan our <unk>. So thats, all we have our customer relationships across the breadth of our portfolio.
So.
I don't think tier was was that impactful from that respect in the last quarter and looking forward, we're not we're not really bill.
Forecasting is very much we'll just reactive.
Okay. That's helpful and then.
As a follow up.
<unk> added gross margins for the next quarter or within your long term range.
What would need to happen for you to fall out of that range. As you go through the course of the year.
Yes, I think that it would be all about cost and maybe some kind of disruption to the overall supply demand picture that we've been working on if you go back.
6 quarters 8 quarters, when we decided to make some of the investments that we did for the mass capacity platform on 16th and transitioning data feeds on everything else, we put on capacity for that we pivoted our lines for that.
That's when the when the pandemic hit.
On the supply chain was so disruptive that's the thing that really hurt us.
US decline back into the model is the exabyte demand has grown.
I think we'd be a lot more resilient. This time at this higher level, but it's still debt.
Moving to watch item, we don't forecast that by the way, we think for the exabyte curve is still going up and.
Over the next few years you know our thesis is going to grow very big and so you know were still fairly bullish on exabyte growth without this thing.
You can get back backseat.
Your turn.
But.
In these environments, where obviously everybody's careful so that's to characterize.
Characterize it.
Okay. Thank you so much.
Your next question comes from the line of Thomas O'malley with Barclays.
Hey, guys. Thanks for taking my question I just wanted to follow up on the cadence earlier question talking about the seasonality for the year. So I think I believe you said that the second half from the calendar year will be very strong and I think you mentioned, 15% year over year that would imply.
Down December can you talk about what you're seeing.
The December quarter that weakening or can you clarify that 15% year over year comment.
Yes.
It's 15% so I don't think is implying AVN.
Dave because it depends on.
No.
On a fairly close.
I would say David.
Debt is a 90 day event is expected to get more into the March and June Boston.
And it was the case and collapsed debt.
Yes.
In fiscal 'twenty 1.
We think in general because.
Mixed mass capacity has continued to improve.
This is on IV will be no more muted.
In the future on maybe beating guidance on EBITDA, but is it and it will be less visibility for us when we go into the market from book.
That's helpful. And then my follow up is around near line.
I know that you guys don't like to talk about share, but clearly you've been really nice leadership position here can you talk about that leadership position. How you feel like you are maintaining that leading for the remainder of the year do you think debt.
From a competitive perspective, youre going to see any change in that market. Thank you.
We actually well, we don't manage for market share we've been talking about that for quite some time.
We're very happy with this platform 16 is going to <unk> going to <unk> the need to go beyond as well.
And obviously, that's allowed us to be very flexible and so when people come in for a few more units they want to swap.
And their plan and they wanted to get on upside we can actually get it done out of the factories and Thats probably the biggest reason for why we've done really well and I think back on the 16th we had that leadership just.
Total capacity available.
As far as I'm concerned we're on.
Executing the plan so I was talking to customers, we tell them.
What do you need we plan that way in advance we talked about this last quarter that.
If you want on 18 in December you better tell me now because I'm starting on the units for now.
That debt is I think really resonating with customers right now we can be predictable like this so that's the way we're planning the business and for fairly happy with the portfolio.
Not driving really for market share or anything like that.
I think thats, how our customers are managing us as well, which you'll be predictable for me.
Bill.
These are massive investments that they have to make as well so they need to know that the products coming.
Thank you.
Your next question comes from the line of Steven Fox with Fox from Pfizer LLC.
Thanks, Good morning, just to follow up on those last comments, Dave can you maybe talk about with now basically supply demand balance how you engage differently with some of those customers what would be the.
Sort of Incrementals that get you to add capacity going forward and then I have a follow up.
Yes.
Bill you.
<unk>.
Kind of more of the same really because if you think about it if you were buying sixteens before and now you want to ramp to $18 <unk>, which still having the same discussion it's just with the <unk>.
The different drive.
We are confident on our yields and throughput and our ability to go hit those high volumes.
There is not much legacy business to take heads and media out of any more to your point.
But theyre still on I said, well over $100 million heads per quarter to be able to do some swaps.
On the issue is just lead time, so if the swaps are in the last 2 or 3 weeks for the quarter Theres No way right. So that's that's what's changing I think in the market.
I don't think we'll go back into a point, where we put overcapacity and for that I think we just we get into it.
Net.
Stay inside of our financial model will invest in the Capex that we see.
We see for the demand and then maybe if the demand goes even bigger than we can up our investment we can do that 1 tool at a time, we don't need to do it.
Massive swings living.
That's helpful. And then just secondly on the <unk> platform it sounds like Youre getting some more technology validation or at least for.
For seating you expected is it changing any of your thinking for 'twenty 2 in terms of the non HDD business. Thanks.
No I don't think so.
The non HDD business did grow as we talked about in the prepared remarks, so we're fairly happy with the breadth of our portfolio on how it's growing.
Relative to the live business.
The market is clearly out there there are people who are struggling with the data that they have on the edge being able to move that into the cloud.
Find those temporary resting spots like we've talked about a lot with <unk>.
Such that they can move into its final destination on some cloud service provider in multiple cloud service providers.
Instances. So we are I'm really encouraged by all the customer engagements that we have we have to learn to serve this market really well and then it will grow so.
I'm really pleased with what I see.
To share that at some point in the future.
Great. Thanks, so much.
Your next question comes from the line of Ananda Baruah with loop capital.
Hey, good morning, guys or good afternoon to you guys.
Thanks for taking the question.
Hey, Dave how would you.
Describe your thoughts around the length of this hyperscale cycle at this point.
And I guess, what sort of the personality on it as well.
And I have a quick follow through.
Thanks Amanda.
It's interesting because I think the front end of this cycle. If you will does not really about adding too much mass capacity. It was more about all.
All of the digital transformation that was going on during the pandemic servers networking and compute.
Was making sure the applications can run with much much heavier workloads and bill.
Certainly designed for or they were costs that were contemplated.
6 months earlier.
Tremendous stress on people.
It's been our thesis that the storage back into that will come and it will come bigger.
And I would say that even the signal that we've seen that's fairly steady growth.
Of the cloud.
I still think it's going to grow even bigger so it's a very different cycle to your point, it's not a matter of putting on excess capacity and then learning some kind of way to use on capacity better out of the market I think it's a matter of making sure you focus all your investment dollars on.
Those applications satisfying everyone.
On the front end, usually from a performance perspective, and then the data will grow in the back of the cloud is clearly going to grow from here and so we're very.
Very excited about that and making sure we have our portfolio is clean as we can by the time that the big really big numbers scope.
And how do you want us to think about that as you gotten can you get.
On March <unk> June quarter, typically the breakthrough would come off a little bolt on.
Our debt the appropriate laid out I would think about it this time.
Yes, we've said that there would be a more muted seasonality than the.
Normal right so.
Because we're not in the PC business or the legacy business anymore now that the cloud is a lot more studies.
We'll let you know I mean, if we start to see.
More recovery around the world in the cycle when the next cycle will be pulled in exactly to your point right.
Got it that's helpful. And then just real quick on on the capacity you guys are saying supply demand and Gianluca feel free jump in here as well as supply demand balance debt.
Are you for capacity right now I mean, what's the right way and sort of traditional <unk>.
<unk> for them to think about where you guys are.
Paul and Paul.
Yes. Thanks.
Much more full than we were but less last year was painful in July of course, but I would say no. We're not full on we can still do more and we could certainly still do more extra bytes.
The more we have to do the more predictable we needed to be in this last quarter. We were actually challenged operationally make a lot of these swaps because we saw upsides in many markets and we were moving materials from 1 market.
Markets on another.
Over the long haul we can do more expedites right now, but it has to be even long term more long term predictability I think in order to GPS, but so we're excited about it we're.
Telling everyone. That's the way, we're thinking about guidance last quarter.
Quarter to reshape their April above whenever if you take away for bank. So we are still growing so it means we have capacity. Some capacity is still available based on our guidance for you can you finished better than at any day of the next day back in.
Q1.
And then we get the cash before we have been planning to add some cash.
Capex for some capacity utilization.
And as we ramp for Atms in the Twenty's and things like that will get more expedites out obviously.
The existing had media footprint that we have some.
That's helpful. Thanks, great. Thanks, a lot. Thanks.
Thanks.
Your next question comes from the line of Mehdi Hosseini with SRT.
Medical use.
Andy Your line is on Hey, it's.
It's Tyler on for Mehdi on that question was answered thank you.
Thanks Bill.
Your next question comes from the line of Kevin Cassidy with Rosenblatt Securities.
Yes. Thanks for taking my question just around your discussions with your customers.
On your long term agreements being extended or are you, adding more long term agreements maybe just can you give us an idea of.
What visibility are your customers, giving.
Yes, I think the discussion around how things are going to go 6 months 9 months out or just our continuing in <unk>.
Really good.
I think everybody wants them.
Certain amount of predictability right now, we certainly do because we've got factories to run parts to bring online and things like that a lot of supply chains are tight.
And so if people wanted to make sure that if they're going to invest in those supply chains that are going to have the full kit together. So I think the entire industry is.
Behaving quite well for for this perspective, right now, it's helping us quite a bit plan our business Ken.
Okay, Great and maybe just as a comparison the hyperscale to enterprise is enterprise coming back.
<unk> or maybe just relative to hyperscale.
How is it performing.
We debate that a lot and I would say, it's 50.50, it's always been kind of a toss up sometimes 1 races ahead of the other.
Right now as we said on the prepared remarks. There is there is clearly still growth on the cloud and then as people are coming back on Prem, they're realizing the investments they want to make that perhaps they haven't made 6 or 9 months ago. So they're continuing those investments and so.
I would say this growth of both.
And on.
Not enough the backing off a 50.50 split.
Thank you.
Your next question comes from the line of Anne Rakers with Wells Fargo.
Yes, thanks, thanks for taking the questions.
Congratulations on the quarter as well I'm, just curious kind of a first of all kind of a pointed question do you still think that you are near line capacity shift.
Underpinning your fiscal 'twenty, 2 expectations, it's still going to grow in that 30% to 35% annual range.
Yes, we do.
Just a day answered Kevin's question.
Its.
2 years ago was at 90% So 35 right now.
Last year was a little less but we think 35 for good model right now.
The wildcard on the upside of courses is.
If we get a little bit more cloud 6 months 9 months from now.
The latency, we have capacity for it but.
That would be.
We actually are going to build the parts I think anyways for that so.
I think.
There is 35% is a good number to model this year.
And then on to ask this question if the seismic cycle was actually pulled in a little bit then it would grow pretty fast because we have 18 for 'twenty is come in for those are going to go.
Again, it was really based on the next 2 quarters.
Dave.
For now I'll give you exactly the growth for the entirety of the bit difficult but.
As a model for the long term, we think that 35% CAGR is very valuable.
And it's always cutting ties on media part I guess is the point.
So.
We can be flexible.
Right, Great and then the follow up question is.
Jian Luka when you when you talk about the model and we now talk about 30% to 33% gross margin and confidence around that I'm curious of how youre thinking about operating expense investments you talked about opex remaining kind of at similar levels. These next couple of quarters, but if we start on should we start thinking about that you'd let that drop for above debt.
Driving the above 20% operating margin or would you start to reinvest that recap op margin at that long term high end of the target model.
For the Opex, we think that level of F Q4.
We can maintain the vet lab for the fiscal 2000 tool.
We had announced that fab anymore, but on them.
More on a little bit more of that marketing expenses.
The performance is very good so on pet into might be play on it yet and we also have is a bit higher but our compensation.
Thanks Bill.
Lever that we can we can keep it going on between $340.345 million per quarter, and we can do it.
But if we were to outstrip I think Aaron the top end of the range then we'd look at investments because we have a number of different <unk>.
<unk> that are growing well right now so we'd look at blood vessels, we have to make I think.
We've said as we said this in the script actually we have a lot of flexibility inside of $340.350 million range.
<unk>.
That's the first thing we would do is redeploy people inside of that but then we can still tolerate a little bit more investment if we grew up.
North of the top end of the range operating milestones already 18% right now so when you model things easing revenue on lease level of Opex and gross margin you were mentioning before you would see a very good at about <unk> 10, a mile over.
18 months.
Alright, Thank you very much.
Thanks, Dave.
Your next question comes from the line of Patrick Ho with Stifel.
Yes.
Thank you very much and congrats on the nice quarter, Dave maybe first off in terms of the <unk>.
Amp of your 18 terabyte drives but can you just give a little color on what you expect to see the crossover from 8 from 16 to 18, where you are.
Shipping more.
Expedites from the 18 terabyte ramp.
I don't think we've formally looked at it that way or at least I don't have an answer but I think it's pretty soon.
On the next few quarters.
From my perspective, it's the same product family.
That hasnt meteor already on the pipeline and some customers are asking for <unk>. Some customers are asking for <unk>, but I think it's very soon.
And then the same has immediate will take us to 20 terabytes on that DMR platform that we've talked about so we may actually.
Spend some of those heads and disks on 8 on <unk> as well for it.
But I do think we're going significantly far north of 16 very very soon.
Great that's helpful and maybe as a follow up for Luca or yourself, Dave in terms of the life platform. Obviously, we've seen now the rollout of several product iterations from that family.
As it relates to Opex is a lot of that R&D spending done or are you continuing to invest in life, where we will see future product introductions is that part of the I guess helped in terms of maintaining opex net cash.
Current levels.
Yes, it's part of the Opex guidance, we discussed before and we are investing more in live and on.
We think this David <unk> 5 for our future business that we have made a positive on the on the positive outcome from that business, but we will reinvest back.
Good day that we will stay around that level of Opex net day disguise mature.
Great. Thank you.
And our last question will come from the line of Shannon Cross with Cross research.
Alright. Thank you very much I was just wondering can you talk about the materiality of the dual actuator drives.
It looks like you've expanded.
Access for certain other customers recently and I'm just wondering how we should think about it in terms of ASP benefit as we look for.
And then for follow ups. Thank you.
Thanks, Shannon, it's growing quite nicely actually growing volume in the factories.
It is not a small volume product anymore.
Becoming a large volume product, we'll be talking about it more and more over the quarters. It is a 14 terabyte drive right now so people are making trades for 18 terabytes, we may want to go with a single actuated, but.
Very specific to a few applications out in the cloud world people need the dual actuator already remember fundamentally we believe that both on do you get the 30% or 40 terabytes you can have all that behind 1 actuator you would need to have dual actuator at least that we have to solve all the power problems at all the interface problems with our customers and things like that to make that up.
Awesome.
So we're quite excited about getting learning on the technology. The fact that we have the platform continuing development.
Parallel drives that.
As we launched our new high capacity drive we have the same capacity points on dual actuator.
Okay. Thanks, and thank you for.
A clarification I think during the script you mentioned strength in high on desktop, but I'm not sure. If you mentioned it that include gaming, but I'm wondering are you seeing benefit from customers coming back to the office and needing to refresh desktop that perhaps there 18 months old now at this point in time. Thank you, yes, yes, I don't I Wouldnt say its desktop PC.
Any more there is there is gaming that's happening, but I would say more of a distribution channel around things like crypto applications and things like that there are people who are looking just for the absolute lowest cost per terabyte. So if they can find and so that's 1 of the reasons why the average drive capacity is mixing up.
Going to from.
2 terabytes for turbines less last quarter, where over 5 terabytes and I expect that trend will continue so.
Sure.
Happening certainly in consumer channels on things like that.
Okay, great. Thanks for the clarification.
Thanks, Kevin.
At this time I will turn the call back over to management for closing remarks.
Okay. Thanks.
Seagate delivering strong performance demonstrating financial results consistent with our long term targets and executing our product and technology roadmap to capture long term secular growth opportunities for massive infrastructure I'll close by expressing my appreciation for our customers suppliers, our employees and our shareholders for your ongoing support.
Of Seagate, Thanks, again for joining us today.
Thank you, ladies and gentlemen that today's conference call you may now disconnect.
Sure.
Thank you.
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