Q3 2024 Seagate Technology PLC Earnings Call

Operator: Welcome to the Seagate Technology fiscal third quarter 2024 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now like to turn the conference over to Shanye Hudson, Senior Vice President, Investor Relations. Please go ahead.

Welcome to the Seagate technology fiscal third quarter, 'twenty 'twenty four conference call.

All participants will be in listen only mode.

Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad.

To withdraw your question. Please press Star then two please.

Please note this event is being recorded.

I would now like to turn the conference over to Shane Hudson Senior Vice President Investor Relations. Please go ahead.

Shanye Hudson: Thank you. Hello everyone, and welcome to today's call. Joining me are Dave Mosley, Seagate's Chief Executive Officer, and Gianluca Romano, our Chief Financial Officer. We've posted our earnings press release and the detailed supplemental information for our March quarter results on the Investors 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 and included in our Form 8K.

Shanye Hudson: Thank you Hello, everyone and welcome to today's call. Joining me are Dave Mosley, Seagate's, Chief Executive Officer, and Gianluca Romano, Our Chief Financial Officer, We've posted our earnings press release and detailed supplemental information for our March quarter results on the investors 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 and included in our form 8-K, we've not reconciled certain non-GAAP outlook measures because material items that may impact. These measures are out of our control <unk>.

Shanye Hudson: 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. Therefore, reconciliation to the corresponding GAAP measures is not available without unreasonable effort.

Shanye Hudson: <unk> cannot be reasonably predicted therefore, a reconciliation to the corresponding GAAP measures is not available without unreasonable effort.

Shanye Hudson: Before we begin, I'd like to remind you that today's call contains forward-looking statements that reflect management's current views and assumptions based on information available to us as of today and should not be relied upon as of any subsequent date. However, actual results may differ materially from those contained in or implied by these forward-looking statements as they are subject to risks and uncertainties associated with our business. To learn more about the risks, uncertainties, and other factors that may affect our future business results, please refer to the press release issued today and our SEC filings, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q, as well as supplemental information, all of which may be found on the Investor section of our website.

Shanye Hudson: Before we begin I'd like to remind you that today's call contains forward looking statements that reflect management's current views and assumptions based on information available to us as of today and should not be relied upon as of any subsequent date actual results may differ materially from those contained in or implied by these forward.

Looking statements as they are subject to risks and uncertainties associated with our business to learn more about the risks uncertainties and other factors that may affect our future business results. Please refer to the press release issued today and our SEC filings, including our most recent annual report on Form 10-K and <unk>.

Shanye Hudson: Orderly report on Form 10-Q, as well as the supplemental information all of which may be found on the investors section of our website.

Shanye Hudson: Following our prepared remarks, we'll open the call up for questions. In order to provide all analysts with the opportunity to participate, we thank you in advance for asking one primary question and then reentering the queue. I'll now hand the call over to you, Dave.

Shanye Hudson: Following our prepared remarks, well open the call up for questions in order to provide all analysts with the opportunity to participate we thank you in advance for asking one primary question and then re entering the queue.

I'll now hand, the call over to you Dave.

William David Mosley: Thank you, Shaney, and hello everyone. Seagate is delivering solid financial results in an improving demand environment. In the March quarter, we grew revenue 6%, expanded non-GAAP gross profit 18%, and more than doubled non-GAAP earnings per share compared with the prior quarter. Our performance is a function of both improving end-market demand and the decisive actions we implemented throughout the downturn to strengthen our financial profile heading into the recovery. Nearline cloud demand trends are increasingly positive across both US and Chinese customers.

Thank you, Jamie and Hello, everyone Seagate is delivering solid financial results and an improving demand environment.

William David Mosley: March quarter, we grew revenue 6%.

William David Mosley: Expanded non-GAAP gross profit 18%.

William David Mosley: And more than double non-GAAP earnings per share compared with the prior quarter.

Speaker Change: Our performance is a function of both improving end market demand.

Speaker Change: The decisive actions, we implemented throughout the downturn to strengthen our financial profile heading into the recovery.

Speaker Change: Your line cloud demand trends are increasingly positive.

Speaker Change: Ross, both U S and China customers.

William David Mosley: And we also saw sequential improvement in the enterprise OEM markets in the March quarter. On the execution side, the quarter-on-quarter margin expansion reflects our pricing initiatives taking hold, as well as favorable mix, resulting in revenue growth in the quarter outpacing XFI. The pricing strategy is just one key piece of our broader focus on profitability, which also includes maintaining a healthy supply-demand balance.

Speaker Change: And we also saw sequential improvement in the enterprise OEM markets in the March quarter.

Speaker Change: On the execution side the quarter on quarter margin expansion reflects our pricing initiatives, taking hold as well as favorable mix, resulting in revenue growth in the quarter outpacing exabyte growth.

Speaker Change: Pricing strategy is just one key piece of our broader focus on profitability, which also includes maintaining a healthy supply demand balance.

William David Mosley: Introducing new technologies to enhance value for our customers and maintaining tight expense controls with an emphasis on generating cash. Looking at the near-term end market dynamics, cloud computing continues to lead the demand recovery. For a second consecutive quarter, we realized strong double-digit revenue growth from sales to cloud customers, with improvement across both U.S. and global cloud. We believe the long-running cloud customer inventory correction is mostly complete, and their end demand is also improving.

Speaker Change: Introducing new technologies to enhance value for our customers and maintaining tight expense controls with an emphasis on generating cash.

Speaker Change: Looking at the near term end market dynamics cloud continues to lead the demand recovery.

Speaker Change: For a second consecutive quarter, we realized strong double digit revenue growth from sales to cloud customers.

Speaker Change: With improvement across both U S and global cloud mix.

Speaker Change: We believe the long running cloud customer inventory correction is mostly complete and their end demand is also improving.

William David Mosley: Based on our customer interactions, we currently expect healthy nearline demand growth to continue through the rest of calendar 2024 within the enterprise OEM market. Demand stabilized in the second half of calendar 2023, and we observed incremental improvement in the March quarter.

Speaker Change: Based on our customer interactions. We currently expect healthy near line demand growth to continue through the rest of calendar 2024.

Within the enterprise OEM markets demand stabilized in the second half of calendar 2023, and we observed incremental improvement in the March quarter.

William David Mosley: Historically, enterprise nearline demand has correlated well with traditional server growth, which is projected to modestly increase in calendar 2024. As a result, we expect enterprise OEM revenue to improve as server growth resumes. In the VIA markets, revenue was seasonally lower in the March quarter, and we expect demand to trend higher through the calendar year. Smart cities remain the largest in-market opportunity for VIA products. However, new applications continue to emerge that use AI analytics to form actionable insights from data at the edge, where an estimated 80% of data resides. One such use case centers on smart energy and utility management that aims to use imaging data to drive energy efficiency and conservation.

Speaker Change: Historically enterprise near line demand has correlated well with traditional server growth, which is projected to modestly increase in calendar 2024.

Speaker Change: As a result, we expect enterprise OEM revenue to improve as server growth resumes.

Speaker Change: In the VA markets revenue was seasonally lower in the March quarter, and we expect demand to trend higher through the calendar year.

Speaker Change: Smart cities remained the largest end market opportunity for via products. However, new applications continue to emerge that use AI analytics to form actionable insights from data at the edge.

Speaker Change: An estimated 80% of data resides.

Speaker Change: One such use case centers on smart energy and utility management that aims to use imaging data to drive energy efficiency and conservation.

William David Mosley: Analysts place this among the fastest growing sectors for VIA applications worldwide. Within China, the pace and magnitude of demand improvement in VF and other HDD markets will be shaped by economic recovery in the region. We continue to monitor the government's efforts to spur economic growth, including stimulus plans aimed at digital transformation and infrastructure spending. Recent economic indicators show signs of progress, but it will take time for the benefits of these programs to take hold.

Speaker Change: Analysts placed us among the fastest growing sectors for via applications worldwide.

Speaker Change: Within China, the pace and magnitude of demand improvement in via and other HDD markets will be shaped by economic recovery in the region.

Speaker Change: We continue to monitor the government's efforts to spur economic growth, including stimulus plans aimed at digital transformation infrastructure spend.

Speaker Change: Recent economic indicators show signs of progress. However, it will take time for the benefits of these programs to take hold.

William David Mosley: Overall, we believe these constructive market trends support steady revenue growth throughout the calendar year. Our ability to deliver that growth is enhanced by our Build It Order initiative that is now in place with a majority of large mass capacity customers. These plans afford Seagate better demand visibility and greater predictability for capacity planning, while our customers find value in the assurance of supply that meets their volume and timing needs. Importantly, the improving overall outlook for HCD demand is unfolding as we execute on our product and technology roadmap.

Speaker Change: Overall, we believe these constructive market trends support steady revenue growth throughout the calendar year, our ability to deliver that growth is enhanced by our build to order initiatives that is now in place with the majority of large mass capacity customers.

Speaker Change: These plans afford seek a better demand visibility and greater predictability for capacity planning, while our customers find value in the assurance of supply that meets their volume and timing needs.

Speaker Change: Importantly, the improving overall outlook for HDD demand is unfolding as we execute on our product and technology roadmap.

William David Mosley: Today, we are simultaneously driving qualification and rank plans for two high-capacity product packages, our last PMR product delivering up to 28 terabytes per drive, as well as our first HAMR-based mosaic product at 3 plus terabytes per disk. This is rare for our industry, and I want to acknowledge our product teams at Seagate, who are doing a phenomenal job supporting customers as we work together to advance our industry-leading products and technologies through various customer qualifications. These two product families share about 95% of the commonality in components and leverage the same assembly processes and test processes. This enables efficiencies across areas such as procurement, manufacturing, capital investments, and customer qualifications.

Speaker Change: Today, we are simultaneously driving qualification and ramp plans for two high capacity product families are last TMR product delivering up to 28 terabytes per drive.

As well as our first hammer base Mosaiq product on three plus terabytes per disc.

Speaker Change: This is rare for our industry and I want to acknowledge our product teams at <unk>, who are doing a phenomenal job supporting customers as we work together to advance our industry, leading products and technologies through the various customer qualifications.

Speaker Change: These two product families share about 95% commonality in components and leverage the same assembly processes and test processes.

Speaker Change: This enables efficiencies across areas, such as procurement manufacturing capital investments and customer qualifications.

William David Mosley: The 24-28 terabyte PMR drives are in qualification at most of our global cloud and enterprise customers. We have already completed qualification with one major enterprise customer, some global tier two customers, and with our enterprise systems. We currently expect to begin shipping significant volumes in the first half of fiscal 2025. Relative to HAMR technology, we continue to progress towards completing our first large CSP customer qualification, though we have experienced a temporary slowdown in recent weeks.

Speaker Change: The $24 28 terabyte TMR drives are in qualification at most of our global cloud and enterprise customers.

Speaker Change: We have already completed qualification with one major enterprise customer some global tier two customers.

Speaker Change: And with our enterprise systems business. We currently expect to begin shipping significant volumes in the first half of fiscal 2025.

Speaker Change: Relative to Hammer technology, we continue to progress towards completing our first large CSP customer qualification, though we experienced a temporary slowdown in recent weeks.

William David Mosley: We determined the mechanical component, unrelated to the HAMR recording subsystem, in some of our drives was not performing as expected. We identified and rapidly implemented the solution with full support from our customers. Verification tests are underway, and these tests should be completed in the June quarter. Every other aspect of the qualification process has gone as expected.

We determined the mechanical components unrelated to the hammer recording sub system and some of our drives was not performing as expected.

Speaker Change: We identified and rapidly implemented a solution with full support from our customer.

Speaker Change: Verification tests are underway and these tests should be completed in the June quarter.

Speaker Change: Every other aspect of the qualification process has gone as expected.

William David Mosley: With this shift in timing, we now expect to ship a few hundred thousand HAMR-based Mosaic drives in the June quarter and meet the remainder of our customers' Exabyte demand through other already qualified products. As we gradually ramp HAMR products with our lead hyperscale customer in the second half of the calendar year, we remain focused on broadening the number of customers qualified on Mosaic products. Customer feedback reaffirms strong interest in HAM

Speaker Change: With this shift in timing, we now expect to ship a few hundred thousand hammer based mosaic drives in the June quarter.

Speaker Change: And meet the remainder of our customers' exabyte demand through other already qualified products.

Speaker Change: As we gradually ramp hammer products with our lead hyperscale customer in the second half of the calendar year. We remained focus on broadening the number of customers qualified on mosaiq products cuts.

Speaker Change: Customer feedback reaffirms strong interest in hammer technology.

William David Mosley: And that is further reflected in the successful completion of our first qualification with a top non-cloud customer a few weeks ago. We've laid out a Mosaic roadmap with a clear path to at least 50 terabyte drives that offers customers TCO and sustainability benefits, including lower power consumption and less required floor space on a per terabyte basis. We are scaling drive capacity through aerial density gains rather than adding heads and discs.

And it is further reflected in the successful completion of our first qualification with a top non cloud customer a few weeks ago.

Speaker Change: We've laid out a mosaic roadmap with a clear path to at least 50 terabyte drives that offers customers tcl and sustainability benefits, including lower power consumption and less required floor space on a per terabyte basis.

Speaker Change: We are scaling drive capacity through areal density gains rather than adding heads and disks.

William David Mosley: As we execute on our product roadmap to 50 terabytes and beyond, we expect to incur minimal changes to our bill of material costs and maintain a low capital intensity of between 4% and 6% of revenue. As a result, we believe HAMR provides the path for achieving margin performance beyond our current target range as production scales and also positions Seagate well to continue capitalizing on megatrends like AI and machine learning, which drive long-term demand for cost efficient mass storage.

As we executed on our product roadmap to 50 terabytes and beyond we expect to incur minimal changes to our bill of material costs and maintained low capital intensity of between four and 6% of revenue.

Speaker Change: As a result, we believe hammer provides the path for achieving margin performance beyond our current target range as production scales and also position Seagate well to continue capitalizing on Mega trends like AI and machine learning, which drive long term demand for cost efficient mass storage.

William David Mosley: As we've discussed in the past, the initial phase of GenAI focused on building out the compute-intensive infrastructure required to develop and train large language models. As development shifts to the deployment phase, enterprises will begin to leverage these trained AI models to transform data into value-enhancing applications and generate data-rich content. Customers expect HCE demand to increase as this phase takes hold. Over the next several years, the volume of AI-generated content is expected to increase and also shift towards more imagery and videos, which can be up to 1,000 times larger than text.

Speaker Change: As we've discussed in the past the initial phases. Gen. AI is focused on building out the compute intensive infrastructure required to develop and train large language models.

Speaker Change: As development shifts to those deployment phase enterprises will begin to leverage these trained AI models to transform data with value enhancing applications and generate data rich content <unk>.

Speaker Change: Customers expect HDD demand to increase as this phase takes hold.

Speaker Change: Over the next several years the volume of AI generated content is expected to increase and also shift towards more imagery and videos, which can be up to 1000 times larger than text.

William David Mosley: These trends bode well for HDD demand over the long term, as HDDs remain the most cost-effective means to house and subsequently use mass capacity data. To summarize, the combination of more favorable demand trends, strong operating discipline, and product and technology leadership provide the foundation for driving further financial performance. This combination reinforces our confidence in returning to our long-term target margin ranges and potentially exceeding those ranges over time as HAMR-based products proliferate in the market. With that said, Gianluca will now cover our financial performance analysis.

Speaker Change: These trends bode well for HDD demand over the long term as hdds remain the most cost effective means to house and subsequently use mass capacity data.

Speaker Change: To summarize the combination of more favorable demand trends strong operating discipline and product and technology leadership provides the foundation for driving further financial performance gains.

Speaker Change: This combination reinforces our confidence in returning to our long term target margin ranges and potentially exceed those ranges over time as hammer based products proliferate in the marketplace.

Speaker Change: With that John Luca will now cover our financial performance and outlook.

Gianluca Romano: Thank you Dave.

Gianluca Romano: Seagate delivered solid financial performance in the March quarter, with sequential improvement across every key financial metric. Revenue was $1.66 billion, 6% quarter over quarter. Non-GAAP Operating Income was up 44% sequentially to $183 million, leading to a non-GAAP operating margin of 11% of revenue, expanding nearly 300 basis points quarter over quarter. And our non-GAAP EPS was $0.33, increasing $0.21 sequentially and above the midpoint of our guidance range. Reflecting Improving Demand Trends and Continued Cost Dissipation. Within our artist-led business, exabyte shipments grew 4% sequentially to 99 exabytes, while revenue increased 7% to $1.5 billion.

Gianluca Romano: Seagate delivered solid financial performance in the March quarter with sequential improvement across every key financial metric.

Gianluca Romano: Revenue was $166 billion.

Gianluca Romano: 6% quarter over quarter, non-GAAP operating income was up 44% sequentially to $183 million.

Leading to a non-GAAP operating managing.

Gianluca Romano: 7% Health Avenue.

Gianluca Romano: Spending nearly 300 basis points quarter over quarter and.

Gianluca Romano: And our non-GAAP EPS was <unk> 33 cents, and gaining 21 sequentially and above the midpoint of our guidance range.

Planting is improving demand trends and continued cost discipline.

Gianluca Romano: Within our R&D diabetes exabyte shipments grew 4% sequentially to 19 nine exit Mike why.

Gianluca Romano: <unk> revenue increased 7% to $1 $5 billion.

Gianluca Romano: Revenue performance was mainly driven by the expected improvement in the near-line cloud market, as well as favorable pricing actions within the mass capacity market. Revenue outpaced exabyte growth, increasing 11% sequentially to $1.2 billion, with Nearline Club demand more than offsetting the slight decline in the VMR, mass capacity shipment, totaling 89 exabytes, compared with 83 exabytes in the December quarter. Mass capacity achievement as a percentage of total HDD exabyte was 89%, reflecting the continual long-term secular growth of mass capacity demand.

Gianluca Romano: Revenue performance was mainly driven by the expected improvement in vignette online cloud market.

Gianluca Romano: As well as favorable pricing actions.

Gianluca Romano: With the NCI must capacity market revenue.

Gianluca Romano: Revenue outpaced exited by growth.

Gianluca Romano: Leasing, 11% sequentially to $1 $2 billion with near line cloud demand more than offsetting the slight decline in the VM market.

Gianluca Romano: Mass capacity shipment totaled 89 exabyte.

Gianluca Romano: Compared with 83 extra bite into December quarter.

Gianluca Romano: Masked by the shipment as a percentage.

Gianluca Romano: Of total HDD exabyte was 89%.

Gianluca Romano: Reflecting the continued long term secular growth for mass capacity demand.

Gianluca Romano: For near-line products, shipments of 72 exabytes were upped quarter-over-quarter from 65 exabytes. We believe that inventory, among most CSP customers, has decreased and anticipate continued near-line demand improvement in the June quarter and beyond. In the VIA market, we believe the March quarter will prove to be the low point of the calendar year, with demand returning to more typical seasonal patterns moving forward.

Pardon me airline products, she mental 72, exabyte were up quarter over quarter from 65 extra bytes.

Gianluca Romano: We believe that inventory.

Gianluca Romano: Most CSP customers as decreased and anticipate continued near line demand improvement in the June quarter and beyond.

Gianluca Romano: In the VM market, we believe the March quarter will prove to be the low point of the calendar here with demand returning to more typical seasonal partners moving forward.

Gianluca Romano: Legacy product revenue was $297 million, down from $324 million in the prior quarter, primarily driven by lower seasonal demand in the consumer market. Finally, revenue for our non-HDD business was $178 million, essentially flat quarter over quarter. We expect both the legacy and non-HDD market to remain at a similar level in the June quarter.

Gianluca Romano: Legacy product revenue was $297 million down from $324 million in the prior quarter, primarily driven by lower seasonal demand in the consumer market.

Gianluca Romano: Finally revenue from what I want them non HDD business was $178 million.

Gianluca Romano: Essentially flat quarter over quarter.

We expect both the legacy and non HDD market to remain at similar level in the June quarter.

Gianluca Romano: Moving on to the rest of the income statement, non-GAAP gross profit increased sequentially by $65 million in the March quarter to $432 million. Long-term gross margin improved for a fourth consecutive quarter to 26.1% and expanded approximately by 150 basis points compared to the previous quarter. Continuous pricing adjustment and favorable mixed shift toward mass capacity products offset margin headwinds from underutilization costs, which were about 43 million dollars. Non-GAAP gross margin for the HTD business expanded much faster than overall company gross margin.

Gianluca Romano: Moving on to the rest of the income statement non-GAAP gross profit increased sequentially by $65 million of asking in the March quarter to $432 million.

Gianluca Romano: non-GAAP gross margin improved for the fourth consecutive quarter to 26, 1% and expanded approximately 250 basis points compared to the previous quarter.

So I'm curious if pricing adjustment and favorable mix shift towards mass capacity products.

Gianluca Romano: Offset commodity ethylene from Underutilization cost, which were about $43 million.

Gianluca Romano: non-GAAP gross margin for the HDD business expanded much faster than overall company gross margin.

Gianluca Romano: Looking ahead, we expect underutilization costs to decrease in the June quarter and abate in the second half of the calendar year, as our overall build volume improves to support the incremental demand in the near-line market. We believe these factors, along with ongoing expense discipline and product execution, support the return to the 30% minimum margin benchmark in the current calendar year. Non-GAAP operating expenses total $249 million, up 4% quarter over quarter but slightly better than our guidance, reflecting the timing of certain R&D spending and continued cost control efforts. Adjusted EBITDA continues to improve and was up 29% sequentially in the March quarter to $278 million.

Gianluca Romano: Looking ahead, we expect underutilization cost to decrease in the June quarter, and abate in the second NASA or the calendar year.

Gianluca Romano: As our overall plate volume improved to support incremental demand is in the airline market.

Gianluca Romano: We believe these factors along with ongoing expense discipline and product execution support their return to the 30% minimum margin benchmark in the current calendar year.

Gianluca Romano: non-GAAP operating expenses totaled $149 million.

Gianluca Romano: At 4% quarter over quarter, but slightly better than our guidance, reflecting the timing of certain R&D spending and continued cost control efforts.

Gianluca Romano: Adjusted EBITDA continues to improve and it was up 29% sequentially in the March quarter to $178 million.

Gianluca Romano: Non-GAAP net income was $71 million, nearly tripling quarter over quarter, resulting in non-GAAP EPS of $0.33 per share based on diluted share count of approximately 212 million shares and a tax expense of $27 million. Moving on to cash flow and the balance sheet. In the March quarter, we increased free cash flow generation to $128 million, capital expenditures were down sequentially to $60 million, and the majority of planned capital expenditures were completed in the first half of fiscal 24.

Gianluca Romano: non-GAAP net income was 71 million.

Gianluca Romano: Nearly tripling quarter over quarter.

Gianluca Romano: That thing in non-GAAP EPS of <unk> 33 per share based on diluted share count of approximately 112 million shares and a tax expense of $27 million.

Gianluca Romano: Moving on to cash flow and the balance sheet and said last quarter, we increased free cash flow generation to $128 million.

Gianluca Romano: Expenditures were out of balance sequentially to $60 million.

Gianluca Romano: As the majority of planned capital expenditures were completed in the first half of fiscal 2004.

Gianluca Romano: We expect Fiscal 24 CAPEX to be at or below the low end of our long-term target range of 4-6% of revenues. We return $147 million to shareholders through the quarterly dividend, exiting the quarter with 210 million shares outstanding. We closed the March quarter with $2.3 billion in available liquidity, including our hand-drawn revolver trading facility. Today, we announce that Broadcom has acquired our ASIC assets, including development engineering and the related IP, for 600 million dollars in cash.

We expect fiscal 'twenty, four capex to be at or below the low end of our long term target range of 4% to 6% of that.

Okay.

We returned $147 million to shareholders through.

Gianluca Romano: Through the quarterly dividend.

Gianluca Romano: Sitting at the quarter, we still 110 million shares outstanding.

Gianluca Romano: We closed the March quarter with $2 3 billion.

Gianluca Romano: Available liquidity.

Gianluca Romano: Including our 101 level of our credit facility.

Gianluca Romano: Today, we announced that Broadcom as acquired our <unk> assets.

Including development engineering and it related IP.

Gianluca Romano: For $600 million in cash.

Gianluca Romano: The cash inlay will be reflected on our balance sheet in the June quarter, and Seagate expects to use a portion of the net proceeds to support our supply chain as we begin to ramp new product builds, as well as pay down debt over time. Additionally, we expect to realize annualized OPEX savings of approximately $40 million starting in fiscal 2025. There is no expected impact on railings.

Gianluca Romano: The cash <unk> will be reflected on our balance sheet in the June quarter, and Seagate expect to use a portion of the net proceeds to support our supply chain as we begin to ramp new products means.

Gianluca Romano: As well as pay down debt over time.

Gianluca Romano: Additionally, we expect to realize annualized opex savings of approximately $40 million starting in fiscal 2025.

Gianluca Romano: But he has no expected impact what Amy.

Gianluca Romano: Inventory increased to $1.2 billion as we staged material to support the continued mass capacity demand recovery, along with our concurrent RAMP of our last PMR-based product and the initial MOSAIC-based product RAMP. Our debt balance was $5.7 billion at the end of March 4, with more than 90% of our long-term debt obligation maturing beyond three years. Interest expense was $82 million, and we project interest expense to be between $83 and $85 million in the June quarter. Turning to our outlook,

Inventory increased to $1 2 billion.

Gianluca Romano: As we staged materials to support the continuous mass capacity demand that I call. It.

Gianluca Romano: Along with our.

Gianluca Romano: Concurrent time of our last PM auto based product and do they nisha Mosaiq advanced products.

Gianluca Romano: Our debt balance was $5 7 billion at the end of March.

With more than 90% of our long term debt obligation maturing beyond three years.

Gianluca Romano: Interest expense were $82 million.

Gianluca Romano: And we project interest expense to be between 83 and $85 million in.

Gianluca Romano: In the June quarter.

Speaker Change: Turning to our outlook.

Gianluca Romano: We expect continued improvement in our mass capacity market, led by Ongoing Demand for our Nearline Cloud products, as well as modest improvement in both the Nearline Enterprise and VIA Market. Legacy and non-HP revenue is expected to remain relatively flat sequentially, with VectorContext. June quarter revenue is expected to be in the range of 1.85 billion dollars plus or minus 150 million dollars, an increase of 12% sequentially and 16% year-on-year at the midpoint

Speaker Change: We expect continued improvement in our mass capacity markets.

Led by ongoing demand one hour on the online cloud products as well as modest improvement in both the near line enterprise and via market.

Speaker Change: Legacy and non HDD revenue.

Speaker Change: I'd expect it to remain relatively flat sequentially.

Speaker Change: With that as context Joe.

Speaker Change: <unk> quarter revenue is expected to be in a range of $185 billion.

Joe: Plus or minus $150 million.

Joe: An increase of 12% sequentially and 16% year on year SME.

Gianluca Romano: We are planning non-GAAP operating expenses of approximately $260 million. At the midpoint of our revenue guidance, we expect non-GAAP operating margin to improve into the low teens percentage range, including underutilization costs of approximately 20 million dollars. We expect our non-GAAP EPS to be $0.70 plus or minus $0.20, based on a diluted share count of approximately 212 million shares and a non-gap tax expense of $25 million. Our strong expense management and supply discipline are contributing to the year-over-year profitability expansion that you are seeing in our results and outcomes. Our balance sheet and healthy cash flow generation position us well to continue supporting our capital return commitment. I will now turn the call back to Dave for final comments.

We are planning non-GAAP operating expenses.

Joe: Approximately $160 million.

Joe: At the midpoint of our revenue guidance, we expect non-GAAP operating margin to improve.

Joe: Into the low teens percentage range.

Joe: Clothing, underutilization cost of approximately $20 million.

Joe: We expect our non-GAAP EPS to be 70.

Joe: That's sort of minus 20%.

Joe: Based on a diluted share count of approximately 112 million shares.

Joe: And our non-GAAP tax expense of $25 million.

Our strong expense management and supply discipline as contributing to the year over year from 2018 expansion that you are seeing in our results and outlook.

Joe: Our balance sheet and healthy cash flow generation position us well to continue supporting our capital return commitments.

Joe: I will now turn the call back to Dave for final comments.

William David Mosley: Thanks, John Luca.

William David Mosley: Seagate is demonstrating strong operational execution and supply discipline amid an improving demand environment, which sets us up well to grow revenue and further expand margins throughout calendar year 2024. Our product portfolio, anchored by industry-leading HAMR technology, offers compelling economics for our customers and for Seagate. As we proliferate these new products, we expect to drive further financial leverage over time. I'm confident that our product strategy offers customers the most compelling TCO proposition and positions Seagate will to capitalize on long-term demand for cost-effective mass capacity storage.

William David Mosley: Seagate is demonstrating strong operational execution and supply discipline amid an improving demand environment, which sets us up well to grow revenue and further expand margins throughout calendar year 2024.

William David Mosley: Our product portfolio anchored by industry, leading <unk> technology offers compelling economics for our customers and for Seagate.

William David Mosley: As we proliferate these new products, we expect to drive further financial leverage over time.

William David Mosley: I am confident that our product strategy offers customers. The most compelling tcl proposition and position Seagate will to capitalize on long term demand for cost effective mass capacity storage.

William David Mosley: We believe that the Mosaic platform delivers TCO advantages for data center operators and supports their increasing focus on conserving power and space. This week, Seagate published its 18th annual ESG report outlining the progress we've made towards our own sustainability goals, including our product circularity program. We are collaborating with customers and recovering drives from our own operations to extend these products' life cycles and conserve the planet's limited resources. Since launching this program in 2020, we've recovered and shipped nearly 4 million drives back into the market. Finally, I want to thank our global team members for their hard work and dedication and recognize our suppliers, customers, and shareholders for your ongoing support. Gary, we're ready to open up the call to questions.

William David Mosley: We believe that the Mosaiq platform delivers <unk> advantages for data center operators and supports their increasing focus on conserving power and space.

William David Mosley: This week Seagate published our 18th annual ESG report outlining the progress we've made towards our own sustainability goals, including our product Circularity program.

William David Mosley: We are collaborating with customers and recovering drives from our own operations to extend these products life cycles.

William David Mosley: And conserve the planet's limited resources since launching this program in 2020, we've recovered and shifts nearly 4 million drives back into the market.

William David Mosley: Finally, I want to thank our global team members for their hard work and dedication and recognize our suppliers customers and shareholders for your ongoing support for Seagate.

Speaker Change: Gary we're ready to open up the call for questions.

Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then 2. Our first question today is from Erik Woodring with Morgan Stanley. Please go ahead.

Gary: We will now begin the question and answer session.

Speaker Change: To ask a question you May press Star then one on your telephone keypad.

Speaker Change: If you are using a speakerphone please pick up your handset before pressing the keys.

Speaker Change: To withdraw your question. Please press Star then two.

Speaker Change: Our first question today is from Erik Woodring with Morgan Stanley. Please go ahead.

Erik William Richard Woodring: Great, thank you so much for taking my question. I'll combine this into a two-part question. Dave, I appreciate your comments on HAMR and the prepared remarks. I really just want to get clarification on two points, if I may.

Erik William Richard Woodring: Great. Thank you so much for taking my question I'll make it all combined to a two part question. So.

Erik William Richard Woodring: So Dave I I appreciate your comments on hammer in the prepared remarks really just wanted to get clarification on two points. If I may 1st is.

William David Mosley: You know, have you replaced the mechanical component that was giving you an issue and then, you know, proceeded to do testing such that you won't have any further delays on HAMR, and now you're just going through kind of the final testing phase with your lead CSP customer? And then second, I believe, you know, you've talked in the past about a goal of onboarding the remaining large CSPs by the end of calendar year 24. Does this hiccup impact that timing at all, or have you already started the qual process with these customers? Just any clarification on those two points would be super helpful.

Erik William Richard Woodring: Have you replace the mechanical component that was giving you an issue and then proceeded to do testing such that you won't have any further delays on hammer and now you're just going through kind of the final testing phase with your with your lead CSP.

<unk>.

Erik William Richard Woodring: And then second I believe you've talked in the past about our goal of Onboarding the remaining large CSP.

Speaker Change: By the end of calendar year 'twenty four does this hiccup impact that timing at all or have you started the call process with these customers just sent me clarification on those two points it would be super helpful and that's it for me. Thank you.

William David Mosley: And that's it for me. Thank you. Thanks, Erik.

Amit Daryanani: Thanks, Erik. Yeah, I appreciate the question. So, relative to the mechanical component in question, we do have other sources, and we had those other sources running in parallel, so we were able to, you know, segregate the material and then get the test beds back up with the right material, I'll say it that way, and repopulate all those test beds. And, you know, we recovered the schedule quite quickly because of that. So, we're not happy that we had this issue, but obviously, I think we can move on from here, and that's why we're expressing the confidence that we did in the script about it.

Speaker Change: Thanks, Eric.

Speaker Change: I appreciate the question so.

Relative to the mechanical component in question, but we do have other sources and we had those other sources running in parallel so we were able to segregate the material and then get.

Speaker Change: The test spreads back up with the right material I'll say it that way.

Speaker Change: And repopulate all those test beds and.

Speaker Change: We recovered the schedule quite quickly because of that so.

Speaker Change: We're not happy that we had this issue, but obviously I think we can move on from here and that's why we're expressing the competence that we did in the script about completing the qualification this quarter in shipping the units.

Amit Daryanani: Completing the qualification this quarter and shipping the units relative to the big picture of the program. I mean, these kinds of things happen when you start to integrate high volume from all your suppliers. Sometimes you see interactions that you didn't use in 4C. In the long term, this isn't going to slow us down at all, and it shouldn't impact the other qualifications either. We are, you know, to the second point of your question. We are always re-evaluating exactly where we are involved, but we want to also ramp up HAMR as fast as we possibly can and get not only to three terabytes per plotter but four terabytes per plotter as well. So I'm still very optimistic on that front.

Speaker Change: Relative to the big picture of the programming and these kinds of things happen when you start to.

Speaker Change: Integrate high volume from all your suppliers, sometimes you see interactions that you didn't foresee.

Speaker Change: Long term this isn't going to slow us down at all and it shouldnt impact the other qualifications either.

Speaker Change: We are.

Speaker Change: To the second part of your question.

Speaker Change: We are always reevaluating exactly where we are in <unk>, but we want to also.

Speaker Change: Ram camera as fast as we possibly can and get not only the three terabytes per platter, four terabytes from flutter as well so.

Speaker Change: Feel very optimistic on that front.

William David Mosley: The next question is from Amit Daryanani with Evercore ISI. Please go ahead.

Speaker Change: Great. Thank you so much.

Speaker Change: The next question is from Amit <unk> with Evercore ISI. Please go ahead.

William David Mosley: Good afternoon. Thanks for taking my question. I guess, Dave, I just want to focus on the cloud recovery part. In the past, I think you've talked about this being potentially a bit more gradual in nature, but certainly, looking at your March numbers and the June guide, it would suggest perhaps the recovery is a bit more steeper. So I'm hoping when you talk to customers, to get a sense of when you talk to these cloud customers, what do you think about the pace and the durability of demand recovery on the cloud side?

Amit: Yeah. Good afternoon, Thanks for taking my question.

Amit: Dave I just want to focus on the cloud recovery part in the past I think you've talked about this being potentially a bit more gradual in nature, but suddenly looking at your March numbers in the June guide it would suggest perhaps the recovery is a bit more steeper. So I'm, hoping when you talk to to get a sense of when you talk to these cloud customers. How do you think about the pace and the durability of demand recovery.

Amit: On the cloud side.

William David Mosley: And related to that, I think you shipped close to 100 exabytes of capacity this quarter. What is the total available capacity that you have right now, and what triggered the decision to potentially add more capacity down the road?

Amit: Related to that.

Amit: Ship closer 100 extra bytes of capacity this quarter what is the total available capacity that you have right now and what triggered the decision to potentially add more capacity down the road. Thank you.

William David Mosley: Yeah, thanks a minute.

William David Mosley: It's been a remarkable journey, I think, over the last year and a half, two years, because the demand was so low relative to the supply that we had, that the industry had, and we all took, I think, some supply offline. And we started this build-to-order in earnest, at least nine months ago, telling people that, hey, you know, in order for us to actually trigger the builds, we're going to, you know, we need some predictability out of the business. And we're quite happy with how that's proceeded.

Speaker Change: Yeah. Thanks, Amit.

Speaker Change: It's been a remarkable journey over the last year and a half two years because the demand was so low relative to the supply that we have the industry. Yet and then we also look I think some supply offline.

Speaker Change: We started this build to order.

Speaker Change: And Ernest at least nine months ago, telling people that pay.

Speaker Change: In order for us to actually trigger the builds we're going to.

Speaker Change: We need some predictability out of the business and we're quite happy with how Thats proceeding.

William David Mosley: What's different about the next 90, the last 90 days is that demand really is coming back. And so when we see the exabyte growth, last quarter, you know, being outstripped by revenue growth, and then we see even more exabyte growth now, then, you know, we're fairly optimistic about it. We are still not full, though, to your point. We still have our utilization charges, if you will, costs.

Speaker Change: What's different in the next nine earned in the last 90 days is that the demand really is coming back and so when we see the exabyte growth last quarter being.

Speaker Change: Being outstripped by the revenue growth and then we see even more exabyte growth now.

Speaker Change: We're fairly optimistic about it we are still not full though to your point.

Speaker Change: We saw better utilization.

Speaker Change: Charges, if you will costs and we also have <unk>.

William David Mosley: And we also have, you know, factory capacity that's not fully utilized yet. So we're going to stick to the plan. I think, you know, the main point for us is we don't want to overbuild or build products based on speculation. We really want predictability, long term, financial health, and so on. And we're happy with the improvements that have been made, but we're not quite there yet. And so we'll continue to work on this. Yeah, let me add in the underutilization charges.

Speaker Change: Factory capacity, that's not fully utilized yet so we're going to stick to the plan I think.

Speaker Change: The main point for US is we don't want to overbuild or build product based on speculation, we really want predictability.

Speaker Change: Long term <unk>.

Speaker Change: Financial health and so on and we're happy with the improvements that have been made but we're not quite there yet and so we'll continue to drive this.

Speaker Change: Let me add ons, a underutilization charges, we said in <unk> prepared remarks, we do not expect underutilization charges in fiscal year.

Gianluca Romano: Let me add on the underutilization charges. We said in the prepared remark that we do not expect underutilization charges in the fiscal year 2025. So fairly soon, we will not have that additional cost.

Speaker Change: 25, so fairly soon we would not have that additional cost.

Speaker Change: Thanks Ben.

Okay.

Aaron Christopher Rakers: The next question is from Aaron Rakers with Wells Fargo. Please go ahead.

Speaker Change: The next question is from Aaron Rakers with Wells Fargo. Please go ahead.

Aaron Christopher Rakers: Yeah, thanks for taking the question. You know, I know Gianluca, you just kind of highlighted the underutilization costs. But, you know, as we think about the model, and you think about the recovery that you're seeing, I'm curious, if we adjust for underutilization, it looks to me like you're guiding maybe a 70 basis point, again, X underutilization gross margin expansion this quarter at the midpoint of the guidance. How would you characterize the company's ability to, you know, price up in this environment, especially looking at the And how much more do you think pricing could turn favorably for the company? And really, what I'm getting at is the continued driver, you know, from pricing to gross margin. Yes, Aaron.

Aaron Christopher Rakers: Yes, thanks for taking the question I noticed in looking at your just kind of highlighted the underutilization cost.

Aaron Christopher Rakers: I guess as we think about the model and you think about the recovery that you're seeing I'm curious if we adjust for underutilization. It looks to me like you're guiding maybe a 70 basis point again excellent utilization gross margin expansion this quarter at the midpoint of the guidance how would you characterize the company's ability to.

Aaron Christopher Rakers: <unk> up in this environment, especially looking at the results. It looks like your mass capacity dollar per terabyte was up about 5% sequentially, where are you at in that journey and how much more do you think pricing could.

Aaron Christopher Rakers: Turning favorably for the company and really what I'm getting at.

Aaron Christopher Rakers: The continued driver for pricing to gross margin.

Aaron Christopher Rakers: Yes.

Gianluca Romano: Yes, well, I would say in the last several quarters we have had some success in improving our pricing, and we are continuing to do that.

Aaron Christopher Rakers: I would say in the last several quarters now we add some success in improving our pricing.

Aaron Christopher Rakers: And we are continuing to do that so part of it.

Gianluca Romano: So part of this increase in gross margin that you are estimating for the June quarter is, of course, coming from pricing. As you know, we are in the March quarter. We were very high in mix for mass capacity. Then, when we go through the rest of the calendar year, you have other parts of the business that will grow. So the mix will not be maybe as good as we had in March.

Aaron Christopher Rakers: In closing that in gross margin that you are estimating for the June quarter is of course coming from pricing.

Aaron Christopher Rakers: As you know we had a.

In the March quarter, we were at a very high mix for the mass capacity then when we go towards at asked Jose calendar here you have other parts of the business that will grow so it's.

Aaron Christopher Rakers: Is it mix will not be maybe as good as we had in March.

Gianluca Romano: But pricing is going up, and our cost, of course, is always trending in the right direction. Of course, we have a ramp of new products. But overall, we are very happy with the pricing action and where the mix is today. So we expect further improvement through the calendar year.

Aaron Christopher Rakers: But pricing is going up.

Aaron Christopher Rakers: And our cost of course as always.

Aaron Christopher Rakers: Trending in that direction of course, we have ample new products.

Aaron Christopher Rakers: But overall, we are very happy with our with our pricing action and whereas at Macy's today. So we see further improvement over the calendar year.

Wamsi Mohan: The next question is from Wamsi Mohan with Bank of America. Please go ahead.

Aaron Christopher Rakers: Okay.

Aaron Christopher Rakers: Sure.

Aaron Christopher Rakers: The next question is from <unk> Mohan with Bank of America. Please go ahead.

Wamsi Mohan: Yes, thank you so much. Deva, if I could just go back to the qualification. Any color you can share on the differences between these two qualifications at your CSP and non-CSP customer, and is there a meaningful difference in the product itself between the CSP and non-CSP customer? And if I could, for Gianluca, with this Broadcom deal that you also announced, how should we think about the OPEX trajectory, and will this impact your gross margins? So should we expect your gross margins to go down because of this slightly, and then OPEX also to go down, or what dynamics should we expect? Thank you.

Mohan: Yes. Thank you so much.

Wamsi Mohan: David If I could just go back to the qualification any color you can share on the differences between these two qualification at CSP and non CSP customer end.

Mohan: Is there a meaningful difference in the product itself between the CSB and non CSP customer.

And if I could.

Mohan: John Luca.

Speaker Change: With this broad com.

Deal that you also announced how should we think about both the opex trajectory and will this impact your gross margin. So should we expect your gross margins to go down because of the slightly and then Opex also to go down or will or the dynamics.

Speaker Change: What dynamics should we expect thank you.

William David Mosley: Thanks, Wamsi. To answer your first question, there's no significant difference in the hardware. The qualification for cloud versus non-cloud is not usually that much different. There can be some software features, depending on which cloud service provider you're talking about, that complicate the qualification, and especially different customers, whether it's cloud or non-cloud, might be going through other types of architectural transitions at the time, so we have to make sure we get that right, but by and large, it's the same graph. I think that was your question.

Speaker Change: Thanks, a lot.

Speaker Change: To your first question there is no significant difference in the the hardware the qualification for cloud versus non cloud its not usually that much different there.

Speaker Change: There can be some software features depending on which cloud service provider you are talking about.

That complicates, the the qualification and especially different customers, whether it's cloud or non cloud might be going through other types of architectural transitions at the times, we have to make sure we get that right but.

Speaker Change: But by and large it's the same growth I think that was your question.

Gianluca Romano: Right, yeah, so on the financial impact of the transaction with Broadcom, the major difference will be in OPEX, where we expect a decline of about $40 million for fiscal 25. We have a very good collaboration with our partner, so we don't expect basically any other change from the operation. So it's mainly a reduction in OPEX due to the transfer of assets and people to our partners.

Speaker Change: Right, Yes, so only say answer financially impactful.

Transaction with Broadcom the major of the finance would be in Opex, where do we expect a decline of about $40 million and for fiscal 'twenty five.

Speaker Change: We have a very good collaboration with our partner So we don't anticipate.

Speaker Change: Basically any other change from the from operation So it's mainly.

Speaker Change: Internationally in Opex deal tool, Tom set of assets and people to our partner.

Wamsi Mohan: Okay, I got it. Thank you so much.

Speaker Change: Okay got it thank you so much.

Krish Sankar: The next question is from Krish Sankar with TD Cowen. Please go ahead.

Speaker Change: Thanks Monte.

Speaker Change: The next question is from Krish Shankar with TD Cowen. Please go ahead.

Krish Sankar: Yeah, hi, thanks for taking my question. I had a question for Dave or Gianluca, a two-part HAMR question. Dave, you mentioned you might ship a few hundred thousand units of HAMR this quarter. I'm kind of curious how to think about HAMR unit shipment in the second half of this year or exiting 2024. How many units do you think you can ship? And as a follow-up to that, you mentioned the growth margin exceeding the range longer term. I'm kind of curious, as HAMR drives become more mainstream, say a couple of years from now, do you think your growth margin could be over 40 percent? Thank you.

Krish Sankar: Yeah, Hi, Thanks for taking my question I had a question for Dave or John.

Krish Sankar: Two part question.

Krish Sankar: Dave you mentioned it might ship a few hundred.

Krish Sankar: <unk> this quarter.

Krish Sankar: How to think about the hammer unit shipment in the second half of this year or exiting 2020, Paul how many units do you think you can chip in.

Krish Sankar: As a follow up to that you mentioned about the gross margin exceeding the range longer term I'm kind of curious I'm a drugs become more mainstream.

A couple of years from now do you think your gross margin can be over 40 person. Thank you.

William David Mosley: Yeah, thanks. We will continue to ship aggressively and go through the HAMR transition largely because we think it provides better value to our customers. Higher and higher capacity points, and then ultimately, over time, it allows us to get components out of the chain, which you know saves costs against these platforms as well. I mean, we're in an interesting position right now because, say, six months ago, I think supply was ahead of demand, and now supply is lagging demand. Some of that's just lead times on the product.

Paul: Yes, we will continue to ship aggressively and go through the hammer transition largely because we think it provides a better value to our customers higher higher capacity points and then ultimately over time it allows us to get components out of the chain, which.

Paul: Saves cost against these platforms as well.

Paul: We're in an interesting position right now because say.

Say six months ago, I think supply was.

Ahead of demand and now supply is lagging demand some of Thats just lead times on the products. So.

William David Mosley: So balancing all these things is very important, I think, in today's market, but we're still going to drive very aggressively through the transition. And we do believe that this is the way to get more margin into our business as well. So I won't go into specific numbers as we qualify customers, because right now, customers are seeking any kind of product that we can actually make, and we may actually turn over to some products that are already qualified versus prior plans we were driving.

Paul: Balancing all of these things is very important I think in todays market, but we're still going to drive very aggressively through the transition and we do believe that this is the way to get more margin into our business as well so.

Paul: So I won't go into specific numbers as we qualify customers because right now customers are seeking.

Paul: Seeking any kind of product that we can actually make which.

Paul: And we may actually churn or turnover to some products that are already qualified.

Paul: Versus prior plans, we are driving but I view that as a good thing because now we actually have demand thats, helping our factories is getting us focused and so.

William David Mosley: But I view that as a good thing, because now we actually have demand that's helping our factories, that's getting us focused. And so I'm very optimistic about that. But... But just so we're all very clear, we're going to continue to drive the transitions very aggressively.

Paul: So I'm very optimistic about that but.

Paul: So we all are very clear, we're going to continue to drive the transition very aggressively.

Gianluca Romano: On the gross margin trajectory, we said before, we expect to be at 30% or higher during this calendar year, and as you know, this is only a part of the ramp for HAMR, so for sure, when we move higher volumes of HAMR, we expect to be in the higher part of the range, or even higher, we will see at that point. Yes, even without HAMR, we can be in the 30-33% range that we discussed as our target in the past.

Paul: On the gross margin trajectory.

We said before we expect to be at 30% or higher during this calendar here and as you know, but he is.

Paul: On their part or is that ample amount so for sure when we move higher volume of <unk>.

Paul: We expect to be in the in the hypothesis at Angel and even high end, if we will see.

Paul: As a point.

Paul: In that point of sale, but.

Speaker Change: Yes, even without him and we can be to that 30% to 33% range that we discussed is our targeting of the past.

Steven Bryant Fox: The next question is from Steven Fox with Fox Advisors. Please go ahead.

Thank you.

Speaker Change: Okay.

The next question is from Steven Fox with Fox Advisors. Please go ahead.

William David Mosley: Hi Dave, I was wondering if there's any more color you can provide on your experience with talking to customers about build-to-order plans for, say, the next 12, 24 months. I mean, it sounds to me like you have, you know, accelerating demand on the cloud side, legacy and via sort of recovering on a seasonal type of basis, and then you have channel partners that are going to need inventory in order to, you know, help even things out.

Steven Bryant Fox: Hi, Good afternoon, Dave I was wondering if there's any more color you can provide on your experience with them.

Steven Bryant Fox: Talking to customers about build to order plans for say the next 12 to 24 months.

Steven Bryant Fox: Like you have accelerating demand on the cloud side.

Steven Bryant Fox: Legacy and Vms for recovering on a seasonal type of basis, and then you have channel partners that are going to need inventory in order to.

William David Mosley: So, how are you balancing all that? What is going to be different do you think that we should consider if we're looking at the next few quarters with how you're going to be doing business? Thanks. Yeah, Steven, I think it's a real challenge.

Steven Bryant Fox: Help even things out so how are you balancing all of that what is going to be different do you think that we should consider if we're looking out over the next few quarters with how youre going to be doing business.

William David Mosley: Yeah, Steven, I think it's a really good question because I think it goes back to what we've just been through, living through this downturn. One of the key lessons was just the sheer amount of supply chain inertia that we had that could create problems when demand stops so quickly. And so we need to be a lot more diligent. I mean, volume shipments, exabyte volume shipments that, you know, where the revenues are far under running the exabytes, you know, and and I think part of the part of what we can control is control the bills and make sure we don't overbill and make sure we're not trying to push stuff into the market, especially in the soft market.

Yes, Stephen I think it's a really good question because I think it goes back to what we've just been through living through this downturn one of the key lessons was just the sheer amount of supply chain inertia that we had can create problems when the demand stopped so quickly and so we need to be a lot more diligent I mean, we can't have a <unk>.

Steven Bryant Fox: <unk> shipments extra by volume shipments.

Steven Bryant Fox: The revenues for underwriting the experts.

Steven Bryant Fox: And I think part of the part of what we can control is control the builds.

Steven Bryant Fox: And make sure we don't overbuild and make sure we're not trying to push stuff into the market, especially in the market now that it's a little bit stronger exactly to your point, which is.

William David Mosley: Now that it's a little bit stronger, exactly to your point, which is a nice trend in the last 90 days that we're really encouraged about. Then we can go back and say, okay, which ones will we actually build more for? And we're having those conversations with the customers. But again, we want to come back to predictability being the, you know, overarching objective here. And, you know, we'll also reward customers who give us that predictability with the best financial outcome for themselves as well. So having those negotiations is giving us pretty good visibility into what's coming over the next, you know, three or four quarters, and I'm happy with it.

Steven Bryant Fox: Which is a nice trend in the last 90 days that were really <unk>.

Steven Bryant Fox: Encouraged about then we can go back and say, okay, which ones will be actually build more core and we're having those conversations with the customers, but again, we want to come back to predictability is the the.

Steven Bryant Fox: Overarching objective here and we will also reward customers, who give us effort predictability with the best financial outcome for themselves as well so having those negotiations is giving us pretty good visibility into what's coming over the next three or four quarters and I'm happy with that.

Speaker Change: That's helpful. Thank you.

Timothy Michael Arcuri: The next question is from Timothy Arcuri with UBS Securities. Please go ahead.

Speaker Change: The next question is from Timothy Arcuri with UBS Securities. Please go ahead.

Timothy Michael Arcuri: Thanks a lot. Um, I wanted to ask about this million HAMR unit that you had, you know, guided for the first half of the year, which was mostly going to be 30 key drives. So, you know, you're going to make up, it sounds like seven, 800,000 drives with, you know, other stuff beyond HAMR. But I had kind of two questions. One, you probably have to rework some of the, you know, HAMR whips. So that would be a negative, but it did seem like HAMR was going to be dilutive initially.

Timothy Michael Arcuri: Thanks, a lot.

Timothy Michael Arcuri: I wanted to ask about this million Hammer unit that you had guided for the first half of the year, mostly it was going to be 30 key drives.

Timothy Michael Arcuri: So youre going to bake up it sounds like seven to 800000 drives with.

Timothy Michael Arcuri: Other stuff beyond hammer, but I had kind of two questions one.

Timothy Michael Arcuri: You probably have to rework some of the hammer whips, so that would be a negative but it did seem like camera was going to be dilutive. Initially so is that all kind of a net positive for.

William David Mosley: So is that all kind of a net positive trade for June quarter post margin? And then, and then because you gave us this, sorry, go ahead. No, you go ahead and finish your question. Yeah, so I just was going to ask, since you gave us that million unit number, I'm curious if you can give us some indication of what you think units will be in the back half of the year.

Timothy Michael Arcuri: June quarter gross margin and then.

Timothy Michael Arcuri: And then because you gave us system sorry.

Speaker Change: Go ahead.

Speaker Change: No you go ahead finish your question.

Speaker Change: Yeah. So I just was going to ask since you gave us that million unit number.

Speaker Change: I'm curious if you can give us some.

Speaker Change: Indication of what you think units will be in the back half of the year for hammer.

William David Mosley: Yeah, there are two aspects of this. One is the completion of the timing of the qualification, and then the other is the total amount of material. And remember, we said we had other sources for the particular component, so we don't have to segregate the entire WIP. You know, there are parts of the WIP that are still moving, right? But I think the timing of the qualification is really the issue there. We're not going to get into how many we're forecasting for the back half of the year because a lot of that will depend on the specifics of demand from customers and when the rest of the qualifications time out.

Speaker Change: Yes.

Speaker Change: Two aspects to this one is the completion of the <unk> the timing of the qualification.

Speaker Change: And then the other is the total amount of material and remember we said we have other sources for that particular component. So we don't have to segregate the entire with.

Speaker Change: Parts of the lift that are still moving rate.

Speaker Change: But I think the timing of the qualification is really the issue there we're not going to get into how many we're forecasting for the back half of the year because a lot of that will depend on specifics of demand from customers and when the when the rest of the qualifications time out but.

William David Mosley: But, you know, from my perspective, once we get that material segregated, yeah, is there some rework or scrap to do? Yeah, but I think we can handle that. And keep in mind that all of these products are common with one another, so, you know, we have homes for other materials if we want to. It can be pivoted from the 24-28 family up to the Mosaic family as well, so I think we have a lot of flexibility there.

Speaker Change: From my perspective.

Speaker Change: Once we get that material segregated, yes is there some rework or scrap to do yet, but I think we can take that and keep in mind that all of these.

Speaker Change: Products are common with one another so.

Speaker Change: We have homes for other product other materials that we want to it's it can be pivoted from.

Speaker Change: The 2028 family up to the mosaic family as well. So I think we have a lot of flexibility there.

Gianluca Romano: And just a clarification, Tim, on the HAMR gross margin: we never said that HAMR was dilutive to gross margin. We said that HAMR gross margin would for sure improve in the second part of the ramp. Now, the first part of the ramp has, of course, a little bit more cost, but we never said it was dilutive to our overall gross margin.

Speaker Change: And just a clarification on team owns a I wont say Hamlin gross margin and we never said that.

Speaker Change: And there wasn't dilutive to gross margin, we said that in our.

Speaker Change: Gross margin waited for sure improve in the second part those at an <unk> type of that Amp is of course, a little data more cost, but we never said it was dilutive to our levels at all of those nights.

Timothy Michael Arcuri: Right, okay. Thank you, Gianluca.

Speaker Change: Right Okay.

Speaker Change: Okay.

Karl Ackerman: The next question is from Karl Ackerman with BNP Paribas. Please go ahead.

The next question is from Karl Ackerman with BNP Paribas. Please go ahead.

Karl Ackerman: Yes. Thank you.

William David Mosley: Thank you. I wanted to get a better understanding of the demand impact of both the ramp of 28 terabyte SMR and the simultaneous ramp of 32 terabyte HAMR, which might be 34, 35 terabyte SMR. I'm curious whether you see that as perhaps somewhat catalystic to your early deployments of HAMR. If you could just discuss that, that'd be great. Thank you. Yeah, thanks, Karl.

Karl Ackerman: I wanted to get a better understanding of the demand impact.

Karl Ackerman: Both the ramp of 28 terabyte ASMR.

Karl Ackerman: And the simultaneous.

Karl Ackerman: Simultaneous ramp of 32, terabyte hammer, which.

Karl Ackerman: Might be 34% 35, terabytes FMR I'm curious whether you see that.

Karl Ackerman: As perhaps somewhat cannibalistic to your early.

William David Mosley: Yeah, thanks, Karl. Different customers have different requirements and different feature sets, and how they use the drives, and so, you know, I don't think there's a one-to-one swap. I mean, the good news for us is we have a lot of commonality, and so we can react fairly quickly as to whether, you know, more people want one family or the other. But, you know, we're working with a lot of people on, as I said in the prepared remarks, two different qualifications at the same time, and, you know, as far as I'm concerned, the qualifications are going well.

Karl Ackerman: Along with a hammer.

If you could just discuss how that'd be great. Thank you.

Speaker Change: Yeah, Thanks, Carl different customers have different requirements in different feature sets how they use the drive and so I don't think there is.

Speaker Change: One one to one swap I mean, the good news for US is we have a lot of commonality in so we can react fairly quickly as to whether more people want one family or the other.

Speaker Change: But we're working with a lot of people on this as I said in the prepared remarks on two different qualifications at the same time and as far as I'm concerned the qualifications are going well super staying very communicative with the customers and against a dip.

William David Mosley: We're staying very communicative with customers, and it gives us a demand environment that's improving. You know, I think that's why they should value our predictability even more as we show them what we have and what we're willing to build.

Speaker Change: Demand environment, that's improving and I think that's.

Speaker Change: That's why they should value our predictability, even more as we as we show them, what we have and what we're willing to build.

Ananda Prosad Baruah: The next question is from Ananda Baruah with Loop Capital. Please go ahead.

Speaker Change: The next question is from Ananda Baruah with loop capital. Please go ahead.

Ananda Prosad Baruah: Yeah, yeah, good afternoon, guys. Thanks for taking the question. I guess just one on gross margin. In the past, when you've had dynamics similar to these demand RAM price increases. And then Dave, you know, supply and demand tightness. There's typically been a quarter or so where you can get pretty pronounced step-ups and gross margins, and I was just wondering if there is anything that will preclude this cycle at some point from having the same type of dynamics.

Yeah. Good afternoon, guys. Thanks for taking the question.

Ananda Prosad Baruah: I guess just.

One on gross margin.

Ananda Prosad Baruah: In the past when you've had.

Ananda Prosad Baruah: Dynamics similar to the demand ramp.

Ananda Prosad Baruah: Price increases and the days supply.

Ananda Prosad Baruah: Supply demand tightness.

Ananda Prosad Baruah: It's typically been a quarter or so where you can get pretty pronounced step ups in gross margin.

Ananda Prosad Baruah: And just wondering if there is anything that will preclude this cycle at some point from having having the same type of dynamics and then yes, just to sort of sneak one in there real quick gianluca any.

Ananda Prosad Baruah: And then just to sort of sneak one in there real quick, Gianluca, any updated metrics that you've given metrics in the past about revenue to gross margin, you know, kind of scale ratios, do those still hold the ones that you've been giving, or does the pricing dynamics here change at all? Thanks, guys.

Gianluca Romano: Any updated metrics, you've given the metrics in the past about revenue to gross margin.

Gianluca Romano: Kind of scale ratios yet.

Gianluca Romano: Do those still hold the ones that you've been given giving.

Gianluca Romano: The pricing dynamics here changed at all thanks, guys.

William David Mosley: Thanks, Ananda. I'll let Gianluca answer his part.

Speaker Change: Thanks Ananda.

Speaker Change: I'll, let gianluca answer his part, but I guess, what I'd say at a very high level is that.

Gianluca Romano: But I guess what I'd say at a very high level is that we're going to continue to push aggressively through product transitions because we think that's the best way to continue to add value to our customers and margin for ourselves. Some of the margin uplift that we're seeing right now is obviously because of the factories being. They're filling up, they're not completely full yet, but they're filling up. And that's a good sign.

Speaker Change: We're going to continue to push aggressively through product transitions, because we think thats the best way to continue to add value to our customers and margin for ourselves.

Gianluca Romano: Some of the margin uplift that we're seeing right now is obviously because of the factories.

Gianluca Romano: They are filling up theyre not completely full yet, but they are filling up and thats a good sign.

Gianluca Romano: On the.

Ananda Prosad Baruah: On the trajectory, especially of the gross margin, but for the business in general, every cycle is a bit different. We are saying today that we see a good recovery from the cloud part of the business. Of course, it's not all businesses increasing in the same way. So we still need to wait for other segments to start having the same kind of recovery before we can see a strong up cycle. But no, we are very positive.

Gianluca Romano: Trajectory, especially those that gross margin as a business and Janet every cycle is a bit different we are seeing today, we see a good recovery from the cloud part of the business of course.

Gianluca Romano: He is not a business increasing at the same way so we still need to wait for other segments to start having the same kind of recovery before we can see a strong upcycle, but no. We are very positive on what we said earlier, we see that gross margin improving quarter over quarter and to be.

Ananda Prosad Baruah: We said earlier that gross margin is improving quarter over quarter and will be in the target range during this calendar year. I would say every quarter we have a little bit better pricing, a little bit better cost. So the opportunity for us to achieve that target range at an even lower level of revenue is for sure a reality.

Gianluca Romano: In that target range during based calendar here.

Gianluca Romano: I will say every quarter, we have a little bit better pricing and it would be better cost so the opportunity for us to achieve that.

Gianluca Romano: Target range at even lower level of revenue is for Q&A.

Mehdi Hosseini: Cool, that's super helpful. Thanks guys. Thanks, everyone.

Speaker Change: Cool that's super helpful. Thanks, guys.

Mehdi Hosseini: The next question is from Mehdi Hosseini with SIG. Please go ahead.

Speaker Change: Thanks, Amit.

The next question is from Mehdi Hosseini with <unk>. Please go ahead.

William David Mosley: A couple of follow-ups from me. I was under the impression that for most of your components, you have gone in-source. So what is it with HAMR that has made you rely on external vendors and how are you changing these vendors? And one follow-up for Dave, what is your most updated Exabyte growth and outlook as the cycle gains momentum? Thank you.

Speaker Change: Yes.

A couple of follow ups for me I was under impression that for most of the components you have gone in source. So what is it with hammer that.

Speaker Change: Meet you rely on.

Mehdi Hosseini: External vendors and how are you switching these vendors and.

Mehdi Hosseini: And one follow up for Dave what is your most updated extra body.

Speaker Change: Overall exabyte growth looking forward as the cycle gains momentum. Thank you.

Gianluca Romano: Yeah, thanks Mehdi. For our critical components, we are largely in-source, but again, this is a mechanical part that, you know, it's not Something that we make ourselves. It's something that we source from the outside, and it's very common in all product families. So just for that clarification. And, you know, I'm going to give you a minute to take the second part.

Speaker Change: Yes, Thanks, Betty for our critical components, we are largely in source, but again this is a mechanical piece part that.

William David Mosley: It's not something that we make ourselves is something that we source from the outside and it's very common in all product families.

So just that for that clarification.

William David Mosley: No.

William David Mosley: Some of you might take the second one.

William David Mosley: I was just thinking about the components; there are many components that we source externally actually. The ads and media, of course, we produce internally; those are the most critical components, but there are many other components that we get from external suppliers. For that particular component, we have multiple sources, so we can switch from one to the other.

No I was just thinking about the components, but are mainly components that we source extending that he absolutely knows as a media of course, introducing 10 and then it goes out as the most critical component, but we're out of many other components that we get from that from external suppliers and.

William David Mosley: On vast particular component we have.

William David Mosley: Multiple sources. So we can switch from one to say does that yeah, and then on exabyte growth, maybe I think it's a good question.

William David Mosley: Yeah, and then on exabyte growth, Mehdi, I think it's a good question, because we've come out of the negative, and we know that that's not real. The negative was the first time in the history of the industry that we'd ever seen something like that.

William David Mosley: Because it will come out of negative and we know that thats not real is the negative was the first time in the history of the industry that we've never seen something like that so.

William David Mosley: So I do expect things to start expanding. And we get into this discussion about whether we like 35% or 25%; we back down to 25%. Maybe, near term, we're going to see something a little bit more expansive. It's still early in this demand cycle, but we're fairly encouraged by what we're seeing. And I think also our ability to answer that with these new products, which provide more exabytes, may actually drive growth, you know, even more exabyte expansion.

William David Mosley: I do expect things to start expanding.

William David Mosley: And.

William David Mosley: We get into this discussion about whether we like 35% or 25% be back down to 25% maybe near term, we're going to see something.

William David Mosley: More expensive it's still early in this demand cycle, but we're fairly encouraged by what we're seeing and I think also our ability to go out to answer that with these new products, which provide more expedites may actually drive.

William David Mosley: Even more exabyte expansion a key point right now is we want to make sure that we reestablished the financial predictability of our industry.

William David Mosley: A key point right now is that we want to make sure that we reestablish the financial predictability of our industry. Thank you. The next question is from CJ Mews with Cantor Fitzgerald. Please go ahead. Yeah, good afternoon. Thank you for taking the question.

William David Mosley: Because the industry has been so damaged of late I think as we grow back we have to make sure we're not giving the stuff away that we're doing it in a way that's very measured and the only way we can do that right now.

The only way that makes any financial sense to us to make sure we control supply very tightly.

CJ Mews: The next question is from CJ Mews with Cantor Fitzgerald. Please go ahead. Yeah, good afternoon. Thank you for taking the question.

Speaker Change: Thank you.

Speaker Change: The next question is from C. J Muse with Cantor Fitzgerald. Please go ahead, yeah. Good afternoon, and thank you for taking the question I know you've talked about the qualification just being a three month delay in qualifications elsewhere on track, but if things do push out a bit how do you I guess.

William David Mosley: Yeah, thanks, CJ. And the interesting thing is, as demand comes back, we have much more flexibility than we did, say, six months or a year ago, you know, we, we in this build the order process, we Basically told people what we're going to build and then they've said okay I understand the economics is as more demand comes we can we can now have a new discussion with them and say, You know, which product is qualified, which one do you want to hurry up and qualify, you know, and so I think we have a lot of options there.

Speaker Change: Expect to maybe <unk>.

Speaker Change: <unk> to your plant utilization elsewhere, your thoughts around pricing and mix and what kind of impact could that have I would think positively our gross margin in the back half would love your thoughts there.

Speaker Change: Yeah. Thanks C J.

Speaker Change: The interesting thing is as demand comes back we have much more flexibility than we did say six months or a year ago.

Speaker Change: In this build the order process.

Speaker Change: Basically told people, what we're going to build and then they've said, okay I understand the economics as more demand comes we can we can now have a new discussion with them and say.

Speaker Change: Which product is qualified which one do you want to hurry up and qualify.

Speaker Change: So I think we have a lot of options there.

William David Mosley: I mean, we've been focused on operating profit and free cash flow, and we're finally back in double digits on operating profit, and ROAC is finally turning back up. So all of this is just reinforcing the strategy to keep running the business for long-term predictability. So we're going to continue this bill to keep things working, and, you know, I think we're going to stay on it.

We've been focused on operating profit and free cash flow and finally back in double digits on operating profit and ROE Acs finally, turning back up so all of this is just reinforcing the strategy to keep running the business for long term predictability of this build orders things working and I think we're going to stay on it.

Toshiya Hari: The next question is from Toshiya Hari of Goldman Sachs. Please go ahead.

Speaker Change: Thank you.

Speaker Change: The next question is from Toshi Hari with Goldman Sachs. Please go ahead.

William David Mosley: Hi Dave, thanks for taking the question. Dave, in your prepared remarks, you talked a little bit about AI. I realize you don't have perfect visibility into what's driving customer demand, but I'm curious, based on your conversations with your customers, to what extent is AI having an impact on your business? I know it's nascent, but if you could comment on that, that would be great. And then related to that, I was hoping you could comment on your ability and the broader HDD industry's ability to compete with flash and AI.

Toshiya Hari: Hi, Thanks for taking the question.

Toshiya Hari: Dave in your prepared remarks, you talked a little bit about AI.

Toshiya Hari: I realize you don't have perfect visibility into what's driving customer demand, but I'm curious based on your conversations with your customers to what extent is having impact on your business I know, it's Nathan but if you can comment on that that would be that would be great and then related to that I was hoping you could opine on your.

<unk> and the broader ACD industry's ability to compete with flash NII I think based on recent conversations some of the concerns that investors seem to have.

William David Mosley: I think, based on recent conversations, some of the concerns that investors seem to have are that, you know, hard disk drives are very cost competitive, but when you take into consideration things like, you know, read-write capability, space, and power consumption, they might be a little bit more competitive vis-a-vis, you know, what you're shipping today. So, so curious if you can, if you can.

Toshiya Hari: Hard disk drives your very cost competitive, but when you take into consideration things like read rate capability.

Toshiya Hari: Space and power consumption, it might be a little bit more competitive vis vis what you're shipping today. So curious if you can if you can opine on that thank you.

Toshiya Hari: Thanks, Toshiya. So, yeah, AI is a big question, and I know it's confusing for a lot of people because there's so much marketing around it. Cloud service providers, even the enterprise OEM customers that we have, they have many different types of applications, and some of those application spaces continue to grow. Some of those applications are being dramatically transformed right now by the new compute capabilities that people have and so on. And what I would say in general is that there are applications that are definitely, call them cold storage, colder storage, or big data applications that are coming, video applications, for example, that we are very encouraged by.

Speaker Change: Thanks, Chris Yes, so AI is a big question that I know, it's confusing for a lot of people because there is so much marketing around it.

Do think that.

Speaker Change: Cloud service providers, even the enterprise OEM customers that we have they have many different types of applications and in some of those application spaces continue to grow.

Speaker Change: Some of those applications.

Speaker Change: Our being.

Dramatically transformed right now by the new compute capabilities that people have and so on.

Speaker Change: And what I would say in general is that there are applications that are definitely I'll call it cold storage colder storage or big.

Speaker Change: Big data applications that are coming video applications. For example that we are very encouraged by and we are seeing purchase orders now from cloud service providers and so on that actually say AI on them, which is it wasn't through six months ago, but given given all the.

Toshiya Hari: And we are seeing purchase orders now from cloud service providers and so on that actually say AI on them, which, you know, wasn't true six months ago, but, you know, given all the creativity in this application space, I'm really excited about it. I think there's a lot of opportunity there for us. Relative to our ability to, you know, kind of pivot for where we need to go, I think we're going to keep driving mass capacity, for sure. We are working a little bit on performance in our tiers.

Speaker Change: Creativity in this application space I'm really excited about it I think theres a lot of opportunity there therefore us.

Speaker Change: Relative to.

Speaker Change: Our ability to kind.

Kind of pivot for.

Speaker Change: For where we need to go I think we're going to keep driving mass capacity for sure. We are working a little bit on performance in our tiers, and then flash I'm going to say.

William David Mosley: And then Flash, I'm going to say, I usually don't comment on this very much, but I don't have very much bad to say about Flash. I think it's a great technology. I think it's going to be critical for Flash to execute in its layers to enable their applications. But some of those applications may have nothing to do with mass capacity. But this idea of mass capacity being in conflict with flash, I don't think is right.

Speaker Change: I, usually don't opine on this very much but I don't have very much bad to say about flash I think it's a great technology I think it's going to be critical for flash to execute in their layers to enable their application some of those applications. They have nothing to do with mass capacity.

Speaker Change: This idea of mass capacity being in conflict with Flash I don't think is is right I don't think that's the way architects think about it in data centers I don't think thats that.

William David Mosley: I don't think that's the way architects think about it in data centers. I don't think that, economically, it makes sense. And even when you get into things like power and space, I think hard drives are going to stay very, very competitive on the workloads that they offer. So, from my perspective, the new application space is exploding is a good, good thing, and it should benefit a lot of hardware providers over time.

Speaker Change: Economically it makes sense.

Speaker Change: And even when you get into things like power.

Speaker Change: In space I think our drugs are going to stay very very competitive on the workloads that they.

Speaker Change: They offer so.

Speaker Change: From my perspective.

Speaker Change: The new application spaces exploding as a good good thing and it should benefit a lot of hardware providers.

William David Mosley: We've all been through a pretty rough patch of late, and we've got to make sure that we, you know, watch our supply closely because we can't tolerate another, you know, dramatic downturn like we just saw. So we've got to be very careful.

Speaker Change: Over time, we've all been through a pretty rough patch of late and we've got to make sure that we watch our supply into it because we can't tolerate another <unk>.

Speaker Change: Dramatic downturn like we just saw so we've got to be very careful.

Thomas O'malley: The next question is from Thomas O'Malley with Barclays. Please go ahead.

Speaker Change: Thank you.

Speaker Change: The next question is from Thomas O'malley with Barclays. Please go ahead.

Thomas O'malley: Hey guys, thanks for taking my question. I just want to understand the ramp with your largest customer in HAMR. You talked about this sub-component, and you were replacing that sub-component. Is that you're saying multiple vendors are getting qualified at the same time? So if you look at what a setback traditionally takes in terms of having a customer qualify a product, is that several weeks, is that several months? I guess, what gives you the confidence that, with this effect, you'll be able to not only qualify but then ship these drives within the quarter? Thank you.

Thomas O'malley: Hey, guys. Thanks for taking my question I, just wanted to understand the ramp with your largest customer and hammer you talked about this the sub component and you are replacing that some component is that you are seeing multiple vendors are getting qualified at the same time. So if you look at.

Thomas O'malley: What a setback traditionally takes in terms of having a customer qualify our product is is that several weeks is that several months I guess, what gives you the confidence that with this the fact that you'll be able to not only qualified within ship. These these drugs within the quarter.

William David Mosley: Yeah, Tom, we already said that there were multiple sources for this, and so we segregate the parts that were affected, and then we, you know, push the other ones on their merry way. We've already repopulated those test beds that are running well, so that's why we have...

Speaker Change: Thank you.

Speaker Change: Yes, so Tom we already said that.

Speaker Change: There is multiple sources for this and so we segregate the parts that were affected and then we.

Speaker Change: What's the other ones on on their Merry way, we've already re populate those test beds that are running well. So that's why we have confidence.

William David Mosley: Okay, so in the future, you will just not use that supplier anymore, or would you just rely more heavily on the others? Yeah. Oh, no, no, no, I wouldn't, I wouldn't say it like that.

Tom: Okay. So in the future you will just not use that supplier anymore or you would just rely more heavily on the others.

Tom: Oh, no no no I wouldn't I wouldn't say it like that I mean, we'll go work with everybody everybody's got a tough challenge they have issues with and we'll work with them.

William David Mosley: Oh, no, no, no. I wouldn't say that like that.

William David Mosley: I mean, we'll go work with everybody. Everybody's got a tough challenge. They have issues, and we'll go work with them.

Speaker Change: Helpful. Thank you.

Operator: This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.

William David Mosley: Thanks, Gary. As you heard today, Seagate's well-positioned to drive improved financial performance in a recovering demand environment through ongoing operating discipline, a keen focus on the supply-demand balance, which is a big deal, and ramping up our latest CMR, SMR, and HAMR-based products. I'm confident in our product strategy, I think it's serving us well, and in our HAMR technology, which positions Seagate well to capitalize on long-term demand for cost-effective mass capacity storage. I just close by thanking our stakeholders for their ongoing support. Thanks for joining us today, and we look forward to speaking with you during the quarter. The conference is now concluded. Thank you.

Thanks, Gary as you heard today Seagate is well positioned to drive improved financial performance in a recovering demand environment through ongoing operating discipline team focus on supply demand balance, which is a big deal and ramping our latest <unk> and hammer based products I'm confident in our product strategy.

Speaker Change: I think it's serving us well and in our hammer technology, which position seagate well to capitalize on long term demand for cost effective mass capacity storage I'd, just close by thanking our stakeholders for their ongoing support thanks for joining us today and we look forward to speaking with you during the quarter.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: We look forward to speaking with you during the course of the day.

Speaker Change: We look forward to speaking with you during the quarter.