Q2 2025 Seagate Technology Holdings PLC Earnings Call

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

Speaker Change: 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.

Speaker Change: Posted our earnings press release, and detailed supplemental information for our December quarter results on the investors section of our website.

Speaker Change: 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> cannot be re.

Speaker Change: Good afternoon, and welcome to the Seagate technology fiscal second quarter 2025 conference call all participants will be in listen only mode.

Speaker Change: Recently predicted therefore, a reconciliation to the corresponding GAAP measures is not available without unreasonable effort.

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

Speaker Change: 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.

Speaker Change: After today's presentation there'll 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.

Speaker Change: 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.

Speaker Change: Please note this event is being recorded.

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

Speaker Change: To learn more about the risks uncertainties and other factors that may impact 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 the supplemental information.

Speaker Change: 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 December quarter results on the investors section of our website.

Speaker Change: All of which may be found on the investors section of our website.

Speaker Change: During todays call well 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 don't reconcile certain non-GAAP outlook measures because material items that may impact. These measures are out of our control <unk> cannot be reached.

Speaker Change: Following our prepared remarks, we will open the call up for questions.

Speaker Change: 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 with that I'll now hand, the call over to you David.

Speaker Change: Simply predicted therefore, a reconciliation to the corresponding GAAP measures is not available without unreasonable effort.

David: Thank you <unk> and Hello, everyone.

David: <unk> closed out calendar 2024 on a strong note driving 7% sequential revenue growth in the December quarter.

Speaker Change: 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.

David: Our non-GAAP gross margin expanded by more than 200 basis points.

David: non-GAAP earnings per share exceeded $2 for the first time in 12 quarters.

Underscoring our continued focus on profitability.

Speaker Change: 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.

David: Our performance was supported by increased demand across nearly all markets. We serve with the most significant growth in the cloud sector.

Speaker Change: To learn more about the risks uncertainties and other factors that may impact 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 the supplemental information.

David: This broad based demand from global cloud customers, but to an almost doubling of near line product revenue in the December quarter on a year on year basis.

David: <unk> to 60% near line revenue growth for the entire calendar year.

David: We are experiencing strong momentum with our aerial density driven roadmap, which positions us well to offer compelling storage solutions to our customers and also supports our expectation for significant profitable revenue growth for.

Of which may be found on the investors section of our website.

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

David: For fiscal 2025 and beyond.

David: We continue to advance our product roadmap.

David: And have achieved several key milestones related to our hammer based mosaiq platform in the December quarter.

Dave Mosley: Thank you Shannon and Hello, everyone. So you get closed out calendar 2024 on a strong note driving 7% sequential revenue growth in the December quarter.

David: We completed qualification that started to ramp camera based products to our initial CSP customer.

David: Earlier today, we also announced sampling of Mosaiq drives with capacities of up to 36 terabytes.

Our non-GAAP gross margin expanded by more than 200 basis points.

Dave Mosley: And non-GAAP earnings per share exceeded $2 for the first time in 12 quarters.

David: Overall, Seagate is an outstanding competitive and technology position in a strengthening demand environment.

Dave Mosley: Underscoring our continued focus on profitability.

Dave Mosley: Our performance was supported by increased demand across nearly all markets. We serve with the most significant growth in the cloud sector.

David: Prior to discussing the end market environment I'll briefly address the production issue that we disclosed last month, which has led to supply constraints for the March quarter.

This broad based demand from global cloud customers, but to an almost doubling of near line product revenue in the December quarter on a year on year basis, and close to 60% near line revenue growth for the entire calendar year.

David: Gianluca will provide details on our fiscal Q3 outlook. However, I can confirm that this issue has been resolved we are able to meet our built to order commitments to major customers and we expect the revenue impact to be limited to the March quarter.

Dave Mosley: We are experiencing strong momentum with our aerial density driven roadmap, which positions us well to offer compelling storage solutions to our customers and also supports our expectation for significant profitable revenue growth for.

David: Now turning to the mass capacity markets cloud remains the primary demand driver.

David: The surge in near line product demand that I referenced earlier alliance with a nearly 50% increase in cloud capital investments made by our customers in 2024.

Dave Mosley: For fiscal 2025 and beyond.

David: With their capex expected to continue growing in calendar 2025.

Dave Mosley: We continue to advance our product roadmap.

Dave Mosley: And have achieved several key milestones related to our hammer based mosaiq platform in the December quarter.

David: We believe hyperscale customers are continuing to manage their inventory levels, well, while making infrastructure investments to support growing demand for traditional services advertising and e-commerce as well as emerging Gen AI applications.

Dave Mosley: We completed qualification that started to ramp hammer based products to our initial CSP customer.

Dave Mosley: Earlier today, we also announced sampling of Mosaiq drives with capacities of up to 36 terabytes.

David: These applications will be prolific creators of data.

Dave Mosley: Overall Seagate is in an outstanding competitive and technology position in a strengthening demand environment.

David: And given that a substantial volume of the data will be stored on hdds, we expect gen AI to drive future mass capacity storage growth. This is particularly true of data rich imagery and video content created by Gen. AI models, which is projected to expand nearly 170 times from 2020.

Dave Mosley: Prior to discussing the end market environment I'll briefly address the production issue that we disclosed last month, which has led to supply constraints for the March quarter.

Dave Mosley: Gianluca will provide details on our fiscal Q3 outlook. However, I can confirm that this issue has been resolved we are able to meet our built to order commitments to major customers and we expect the revenue impact to be limited to the March quarter.

David: Sure.

David: Through 2028.

David: Today Hdds play a crucial role in housing the massive datasets required for training AI models, serving as central repositories. When these datasets are not actively being processed by Gpus. These.

Dave Mosley: Now turning to the mass capacity markets cloud remains the primary demand driver the surge in near line product demand that I referenced earlier aligns with a nearly 50% increase in cloud capital investments made by our customers in 2024.

David: These mass storage data lakes formed the backbone of trustworthy AI by storage checkpoints for snapshots of AI model datasets, ensuring that data is both routine and available in the future for continuous model refinement.

Dave Mosley: With their capex expected to continue growing in calendar 2025.

David: A recent survey of over 1000 business leaders and AI decision makers underscores the critical importance of data retention and checkpoints and enhancing the quality of AI outcomes.

Dave Mosley: We believe hyperscale customers are continuing to manage their inventory levels, well, while making infrastructure investments to support growing demand for traditional services advertising and e-commerce as well as emerging Gen AI applications.

David: These insights are not only applicable for the cloud, but also the edge where the vast majority of data is generated.

Dave Mosley: These applications.

Speaker Change: Patients will be prolific creators of data.

David: The enterprise markets fall under this edge umbrella, we expect enterprises to replicate in store more data locally at the edge as AI computing and inferencing moves closer to the source of data generation.

Speaker Change: And given that a substantial volume of the data will be stored on hdds, we expect gen AI to drive future mass capacity storage growth. This is particularly true of data rich imagery.

David: Via is another opportunity rich market at the edge for some time now we've spoken about the increased adoption of AI analytics within the VA markets, which helped form actionable insights from data for applications, such as smart cities and smart factories.

In video content created by Gen. AI models, which is projected to expand nearly 170 times from 2024 through 2028.

Speaker Change: Today Hdd's play a crucial role in housing the massive datasets required for training AI models, serving a central repository. When these datasets are not actively being processed by Gpus.

David: In the December quarter average drive capacities for via products set a record reflective of increasing use of video analytics as well as longer data retention periods.

These mass storage data lakes formed the backbone of trustworthy AI by story checkpoints for snapshots of AI model datasets, ensuring that data is both routine and available in the future for continuous model refinement.

David: Overall, we believe mass capacity storage remains both an enabler and a beneficiary of these emerging data trends.

<unk> is in a great position to address the resulting demand growth through our aerial density driven product roadmap.

Speaker Change: A recent survey of over 1000 business leaders and AI decision makers underscores the critical importance of data retention and checkpoints and enhancing the quality of AI outcomes.

David: Okay.

David: As we've shared in the past we are maintaining a disciplined approach in planning our production capacity.

David: We will leverage technology transitions to support exabyte growth, rather than adding new head and media unit capacity.

Speaker Change: These insights are not only applicable for the cloud, but also the edge where the vast majority of data is generated.

David: Looking at our long term road map.

David: Our music based technology provides seagate with a highly capital efficient means to satisfy growing exabyte demand.

Speaker Change: The enterprise markets fall under this edge umbrella, we expect enterprises to replicate in store more data locally at the edge as AI computing and inferencing moves closer to the source of data generation.

David: To deliver a strong <unk> value proposition for our customers and expand profitability over the long term for the company.

Speaker Change: Via is another opportunity rich market at the edge for some time now we've spoken about the increased adoption of AI analytics within the VA markets, which helped form actionable insights from data for applications, such as smart cities and smart factories.

David: Today, we have continued to ramp our 24 28 terabyte TMR platform.

David: Which has rapidly become our product platform in terms of both revenue and exabyte shipments.

David: At 30, terabytes or higher our mosaic camera technology delivers leading capacities and.

Speaker Change: In the December quarter average drive capacities for via products set a record reflective of increasing use of video analytics as well as longer data retention periods.

David: And is gaining momentum across our customer base.

David: There are no multiple customers qualified on this platform across each of the mass capacity end markets.

Speaker Change: Overall, we believe mass capacity storage remains both an enabler and a beneficiary of these emerging data trends.

David: Currently we are ramping volume to our lead CSP customer while progressing on our qualifications at additional cloud and Hyperscale customers.

Speaker Change: He gave you is in a great position to address the resulting demand growth through our aerial density driven product roadmap.

David: These qualifications will set the foundation for the next phase of our mosaic volume ramp starting in the second half of calendar 2025.

Speaker Change: As we've shared in the past we are maintaining a disciplined approach in planning our production capacity.

David: We are confident that our mosaic camera technology provides a strong and sustainable competitive advantage at scale for mass capacity storage and underpins a cost efficient roadmap to build on those advantages.

Speaker Change: We will leverage technology transitions to support exabyte growth, rather than adding new head and media unit capacity.

Speaker Change: Looking at our long term roadmap.

Speaker Change: Our music based technology provides seagate with a highly capital efficient means to satisfy growing exabyte demand.

David: Consistent with feedback we've received from many cloud customers AWS highlighted at the recent re invent conference that adopting the highest capacity hard disk drives allows their storage system architecture to lower costs.

Speaker Change: To deliver a strong <unk> value proposition for our customers and expand profitability over the long term for the company.

David: Sir floor space and reduce power consumption.

Speaker Change: Today, we have continued to ramp our 24 28 terabyte TMR platform.

David: Datacenter architects will continue to adopt both hard disk drive storage and compute oriented memory technologies, such as NAND flash.

Speaker Change: Which has rapidly become a product platform in terms of both revenue and exabyte shipments.

David: To support the breadth of their workloads.

David: NAND is best suited for high throughput low latency tasks, while hard disk drives remain the preferred storage solution for the bulk of data storage needed in the cloud.

Speaker Change: At 30, terabytes or higher our mosaic camera technology delivers leading capacities and.

Speaker Change: And is gaining momentum across our customer base.

Speaker Change: There are no multiple customers qualified on this platform across each of the mass capacity end markets.

David: We do not see these dynamics changing over the foreseeable future due to several advantages that hdds holdover NAND.

Speaker Change: Currently we are ramping volume through our lead CSP customer, while progressing our qualifications and additional cloud and Hyperscale customers.

HTS offer customers at least six times lower cost per terabyte of storage capacity.

Speaker Change: These qualifications will set the foundation for the next phase of our mosaic volume ramp starting in the second half of calendar 2025.

David: That's a significantly smaller embodied carbon footprint and provide manufacturing scale that is highly capital efficient.

Speaker Change: We are confident that our mosaic camera technology provides a strong and sustainable competitive advantage at scale for mass capacity storage and underpins a cost efficient roadmap to build on those advantages.

David: Wrapping up Seagate is in position to deliver further improvements in revenue and profitability in fiscal 2025.

David: Looking out further practice setup with seagate with our steadfast focus on supply discipline, and a favorable demand environment, our leading technology roadmap and the tailwind of AI is massive data storage requirements.

Speaker Change: Consistent with feedback we've received from many cloud customers AWS highlighted at the recent reinvent Congress that adopting the highest capacity hard disk drives allows their storage system architecture to lower costs.

I'll turn it over to John Luca now.

John Luca: Thank you David.

Speaker Change: So you get a strong December quarter that what I would ask you to buy 50% growth in revenue and a fourfold increase in non-GAAP operating income.

Sir floor space and reduce power consumption.

Speaker Change: Datacenter architects will continue to adopt both hard disk drive storage and compute oriented memory technologies, such as NAND flash.

On a year over year basis.

John Luca: We didn't even December quarter revenue of two to eight 3 billion up 7% sequentially.

Speaker Change: To support the breadth of their workloads.

Speaker Change: NAND is best suited for high throughput low latency tasks, while hard disk drives remain the preferred storage solution for the bulk of data storage needed in the cloud.

non-GAAP operating income, 22% sequentially to $538 million translating to a non-GAAP operating margin of 23, 1% of <unk>.

Speaker Change: We do not see these dynamics changing over the foreseeable future due to several advantages that hdds hold over night.

John Luca: And our non-GAAP EPS was $2 three at the high end of our guidance range.

Speaker Change: HTS offer customers at least six times lower cost per terabyte of storage capacity.

John Luca: <unk> strong adoption of our high capacity near line drives.

Speaker Change: <unk> is significantly smaller embodied carbon footprint and provide manufacturing scale that is highly capital efficient.

John Luca: Along with ongoing price adjustment and cost leasing thing.

Within our out of these type of business revenue increased 8% to $2 $2 billion with volume shipment of 151 exabyte.

Speaker Change: Wrapping up Seagate is in position to deliver further improvements in revenue and profitability in fiscal 2025.

Speaker Change: Looking out further practice setup seagate with our steadfast focus on supply discipline, and a favorable demand environment, our leading technology roadmap and the tailwind of AI is massive data storage requirements.

John Luca: Up from Atlanta in 38, Exabyte in the September quarter.

Speaker Change: Moscow by thinking revenue.

Speaker Change: Grew for the sixth consecutive quarter, reflecting continuous strength in near line cloud demand.

John Luca: I'll turn it over to John Luca now.

Speaker Change: Along with anticipated improvement in the enterprise and OEM markets.

John Luca: Thank you David.

Speaker Change: So he gets strong December quarter is that what I need to buy 50% growth in revenue and a fourfold increase in non-GAAP operating income.

Speaker Change: And seasonal uplift from the <unk> estimate.

Speaker Change: Moscow quality revenue and exited by human both increased 9% sequentially.

John Luca: On a year over year basis.

Speaker Change: And total $1 $9 billion and 140 <unk> respectively.

John Luca: We didn't even December quarter revenue of 2.83 billion, that's up 7% sequentially.

Speaker Change: Starting this quarter, we are including the airline extra byte shipped two via customers within our multi enlink and exited <unk>.

John Luca: non-GAAP operating income, 22% sequentially to $538 million.

John Luca: <unk> non-GAAP operating margin of 23, 1%.

Speaker Change: Mini-vac estimate.

Speaker Change: And adopting an airline that is consistent with the shift towards more cloud like solution that we had highlighted last quarter.

John Luca: And our non-GAAP EPS was $2 three things at the high end of our guidance range.

Speaker Change: Sequence Lee we believe this reporting change more accurately reflects our customers are utilizing the EBITDAX and aligns with industry reporting standards.

Creating a strong adoption of our high capacity near line drives along.

John Luca: How long is ongoing price adjustment and cost DCP.

John Luca: Within that what I had this type of business revenue increased 8%.

Speaker Change: With this change to all periods presented seagate thought that in the Avalanche human.

John Luca: $2 $2 billion with volume shipment of 151 exabyte.

Speaker Change: 102006, exabyte in the December quarter.

John Luca: Up from 138, exabyte indifferent to end up with it.

Speaker Change: From 140 next advice and a tighter period.

Speaker Change: Our pro forma.

John Luca: Moscow, but hitting revenue.

Speaker Change: Strong demand for our 2004 and 2000 <unk> amount of products.

John Luca: Grew for the sixth consecutive quarter, reflecting continuous strength near line cloud demand.

Speaker Change: Ernie among cloud customers as well as continued improvement in enterprise Microbiota Aykroyd high evidential to add capacity, while they say clinical in sync with each quarter.

John Luca: Along with anticipated improvement in the enterprise and OEM market.

John Luca: And see the uplift from the customer.

John Luca: Basketball is integrating and exited by human both increased 9% sequentially.

Speaker Change: <unk> at the end of what our highest oil content. So instead of a unit.

John Luca: Total $1 9 billion.

Sales of our legacy products totaled $275 million.

John Luca: And 140 exabyte, respectively.

Speaker Change: 2% sequentially.

John Luca: I think this quarter not including the airline extra buy cheap to via customers within our all the handling and exited by the reporting.

Speaker Change: Ported by higher seasonal demand in the consumer market.

Speaker Change: Finally for our other business.

Speaker Change: Which include the systems SSD and if at a base of the Ais revenue was $156 million down slightly from last quarter as lower SSD revenue was partially offset by improved system demand.

John Luca: Many of your customers are.

John Luca: Adopting an airline that is consistent with the shift or what more cloud like solution that we had highlighted last quarter.

Consequently, we believe this reporting change.

John Luca: This reflects our customers are utilizing these drives.

Speaker Change: Moving on to the rest of the income statement non-GAAP gross profit increased 14% sequentially in the December quarter.

John Luca: And aligns with industry reporting standards.

John Luca: With this change to all periods presented.

Speaker Change: $825 million.

Speaker Change: These increases reflect continued revenue growth of mass capacity products in.

Speaker Change: I thought that in the Avalanche human we're at a 126 exabyte in the December quarter up from 140 <unk> by the prior period.

Speaker Change: Increasing mix of new and high capacity drive.

Speaker Change: Ongoing price adjustment and cost efficiencies.

John Luca: Our pro forma.

Speaker Change: Our non-GAAP gross margin expanded by 120 basis points to 35, 5% at the company and Abi.

John Luca: Strong demand for our 24, and 28 that I would like to the amount of products.

John Luca: Equally among cloud customers as well as continued improvement in enterprise marked by record high appetite to add capacity for the second consecutive quarter.

Speaker Change: Marking our seventh consecutive quarter or sequential gross margin improvement.

Speaker Change: non-GAAP gross margin for the HDD business remains significantly higher than the corporate highbridge.

John Luca: Standing here today, and that's what our highest voltage content. So instead of a unit.

John Luca: And some of our legacy products totaled $175 million.

Speaker Change: non-GAAP operating expenses totaled $287 million, consistent with our finance and up 2% quarter over quarter.

John Luca: Up 2% sequentially.

John Luca: Supported by higher seasonal demand in the consumer market.

Speaker Change: Other income and expense was stable at $86 million and that expected to be relatively flat in the March quarter.

John Luca: Finally for our other business.

John Luca: Which includes systems SSD and if RBC eyes.

John Luca: Revenue was $156 million down slightly from last quarter as lower SSD revenue was partially offset by improved system demand.

Speaker Change: Adjusted EBITDA.

Speaker Change: 19% sequentially in the December quarter to $591 million.

Speaker Change: non-GAAP net income increased to $433 million.

John Luca: Moving onto the rest of the income statement non-GAAP gross profit increased 14% sequentially ease of December quarter.

Speaker Change: <unk> non-GAAP EPS of $2 <unk> per share.

Speaker Change: Based on the diluted share count of approximately 213 medium shifts.

John Luca: $825 million.

John Luca: This increase reflects continued revenue growth of mass capacity products and.

Speaker Change: Moving onto cash flow and the balance sheet.

John Luca: Increasing mix of new high capacity drive.

Speaker Change: We continue to focus on driving free cash flow generation, which increased to $150 million us into the December quarter, compared with $27 million.

Ongoing price adjustment and cost efficiencies.

John Luca: Our non-GAAP gross margin expanded by 120 basis points to 35, 5% at the company right.

Speaker Change: In the prior period.

Speaker Change: We continue to expect free cash flow generation to improve sequentially was that after the fiscal year.

John Luca: Marking our seventh consecutive quarter or sequential gross margin improvement.

Speaker Change: Capital expenditures for the quarter were $71 million for fiscal 2005, we maintained capital discipline and continue to expect capex to be at the low end of the long term target range of 4% to 6% of revenue.

John Luca: non-GAAP gross margin for the HDD business remains significantly higher than corporate average.

John Luca: non-GAAP operating expenses totaled $287 million, consistent with our plans and up 2% quarter over quarter.

Speaker Change: We returned $148 million to shareholders through our quarterly dividend.

John Luca: Other income and expense were stable at $86 million and that expected to be relatively flat you know they must support.

In closing December quarter was $2 7 billion in available liquidity.

Speaker Change: Including our Undrawn one of all of them okay.

Adjusted EBITDA.

John Luca: 19% sequentially in the December quarter to $591 million.

Speaker Change: Inventory increased slightly to $1 5 billion, primarily to support the ramp of new high capacity projects.

John Luca: non-GAAP net income increased to $433 million.

Speaker Change: Our debt balance was $5 <unk> at the end of December quarter, consistent with our intent to reduce debt. We retired approximately $479 million ourselves nodes as they matured in early January.

John Luca: non-GAAP EPS of $2.03 per share.

John Luca: Based on a diluted share count of approximately 213 medium shifts.

John Luca: Moving onto cash flow and the balance sheet.

Speaker Change: We have no debt obligations until late fiscal 2020 is happening.

John Luca: We continue to focus on driving free cash flow generation, which increased to $150 million in the December quarter, compared with $27 million.

Speaker Change: We exited the December quarter with a net leverage ratio of two five times.

Speaker Change: <unk> adoption in the coming quarters.

John Luca: In the prior period.

John Luca: Continuing to expand free cash flow generation to improve sequentially. So is that after that if he has got ya.

Speaker Change: Turning now to our March quarter outlook.

Speaker Change: We expect ongoing demand strength from cloud customers to partially offset the seasonal decline in the EMEA and legacy market.

Speaker Change: Capital expenditures for the quarter were $71 million for fiscal 2005, we will maintain capital discipline and continue to expect capex to be at the low end of the long term target range of 4% to 6% of David.

Speaker Change: Along with the supply constraints that we have.

Speaker Change: He discussed.

Speaker Change: We still expect to meet our mid towards the commitment, but our ability to respond to in quarter volume upside opportunity we've been immediate.

John Luca: We returned $148 million to shareholders through the quarterly dividend.

Speaker Change: Consequently embedded in our guidance is approximately $200 million of revenue impact from these supply constraints.

John Luca: Closed the December quarter was $2 7 billion in available liquidity.

John Luca: Including our Undrawn revolving credit facility.

Speaker Change: With that as a context.

John Luca: Inventory increased slightly to $1 $5 billion, primarily to support the ramp of new high capacity projects.

Speaker Change: First quarter revenue is expected to be net <unk> of $2 $1 billion.

Speaker Change: I sort of minus $150 million.

John Luca: Our debt balance was $5 $7 billion last night at the end of December quarter, consistent with our intent to reduce debt. We retired approximately $479 million ourselves nodes as they matured in early January.

Speaker Change: At the midpoint this reflects more than 25% year over year improvement.

Speaker Change: Despite supply limitation in the March quarter ongoing demand for our latest generation of near line products, including more bank.

John Luca: We have no debt obligations until late fiscal 2020 is happening.

Speaker Change: Also as a potential for sequential improvement in gross margin performance.

John Luca: We exited the December quarter with a net leverage ratio of two five times.

Speaker Change: We expect non-GAAP operating expenses to be in that angel with $190 million.

John Luca: And expect to see five day reduction in the coming quarters.

Speaker Change: And at the midpoint of our revenue guidance, we expect non-GAAP operating margin to remain in the low 20% range.

John Luca: Turning now to our March quarter outlook.

John Luca: We expect ongoing demand strength from cloud customers to partially offset the seasonal decline in the EMEA and legacy market.

Speaker Change: We expect non-GAAP EPS.

Speaker Change: Would be $1 70, plus.

Speaker Change: So that's sort of minus 20.

John Luca: Along with the supply constraints that we have already discussed.

Speaker Change: Based on a diluted share count of approximately 214 million shares.

John Luca: We still expect to meet our built to order commitment, but our ability to respond to in quarter volume upside opportunities will be limited.

Speaker Change: And non-GAAP tax expense of <unk> $20 million.

Speaker Change: In summary.

John Luca: Consequently embedded in our guidance is approximately $200 million of revenue impact from these supply constraints.

Speaker Change: Seagate's strong December quarter financial performance underscores our continued focus on enhancing profitability optimizing cash in aviation and driving growth.

John Luca: With that as a context.

First quarter revenue is expected to be net age of $2 $1 billion, plus or minus $150 million.

Speaker Change: As we focus on capturing the significant opportunities ahead, we will remain diligent in supporting a healthy supply and demand environment.

John Luca: As the midpoint, which reflects.

John Luca: It reflects more than 25% year over year improvement.

Speaker Change: Which we believe positions <unk> to deliver further improvements in revenue and enhanced profitability this fiscal year and beyond.

John Luca: Despite supply limitation in the March quarter.

John Luca: Demand for our latest generation near line products, including more bank.

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

John Luca: Also as a potential for sequential improvement in gross margin performance.

Speaker Change: Thanks, Joe Lucas as.

Speaker Change: That is data value continues to increase so too does the strategic relevance of mass capacity storage, particularly in the era of AI.

John Luca: Yes.

John Luca: non-GAAP operating expenses to be in that angel with $190 million.

Speaker Change: Against this backdrop Seagate is executing a strong product and technology roadmap to deliver a compelling value proposition for our customers.

John Luca: And at the midpoint of our revenue guidance, we expect non-GAAP operating margin to remain in the low 20% range.

Speaker Change: In short we are responding with technology to sort of the world's data.

John Luca: We expect non-GAAP EPS.

Speaker Change: We crossed an exciting inflection point with our mosaic hammer platform now ramping volume to address customer demand at exabyte scale. The Mosaiq platform provides a capital efficient solution for seagate to sustain aerial density leadership and effectively address the growing demand for mass storage.

John Luca: It will be $1 70, plus.

John Luca: So that's sort of minus 20 things.

John Luca: On a diluted share count of approximately 114 million shares and.

And non-GAAP tax expense of larceny $20 million.

John Luca: Yeah.

John Luca: In summary.

John Luca: So he gets strong December quarter financial performance underscores our continued focus on enhancing profitability optimizing cash generation and driving growth.

Speaker Change: This paves the way for Seagate to offer significant economic advantages both to our customers and the company.

Speaker Change: These achievements are only possible through the hard work of Seagate global team I extend my thanks to them as well as recognize our suppliers customers and shareholders for their ongoing support.

John Luca: As we focus on capturing the significant opportunity that we will remain diligent in supporting a healthy supply and demand environment.

Speaker Change: Operator, let's now open up the call for questions.

John Luca: Which we believe positions <unk> to deliver further improvement in revenue and enhanced profitability this fiscal year and beyond.

Speaker Change: 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.

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

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

Dave Mosley: Thanks, John Luca.

Dave Mosley: It is data value continues to increase so too does the strategic relevance of mass capacity storage, particularly in the era of AI.

To withdraw your question. Please press Star then two.

Speaker Change: In the interest of time, we ask that you limit yourself to one question.

Dave Mosley: Against this backdrop Seagate is executing a strong product and technology roadmap to deliver a compelling value proposition for our customers in short we are responding with technology to sort of the world's data.

Speaker Change: If you have further questions you may re enter the queue.

Speaker Change: Once again that was star then one to ask a question.

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

Dave Mosley: We crossed an exciting inflection point with our mosaic camera platform now ramping volume to address customer demand at exabyte scale. The Mosaiq platform provides a capital efficient solution for seagate to sustain aerial density leadership and effectively address the growing demand for mass storage.

Erik Woodring: Hey, guys. Thanks, so much for taking my question.

Erik Woodring: Dave maybe just to start if I looked at the past June quarters, I know, we're getting ahead of ourselves here, but we've seen some sequential growth historically and in.

Dave Mosley: This paves the way for Seagate to offer significant economic advantages both to our customers and the company.

Erik Woodring: In light of your positive demand comments, and the fact that March quarter supply issues would be transitory.

Dave Mosley: These achievements are only possible through the hard work of Seagate's global team I extend my thanks to them as well as recognize our suppliers customers and shareholders for their ongoing support.

Erik Woodring: How do you think about that incremental $200 million of shortfall in the March quarter, what exactly happens there does it get pushed to June does it get pushed to multiple quarters in the future can you just help us understand kind of the magnitude and timing of when you expect to claw that back. Thank you so much.

Speaker Change: Operator, let's now open up the call for questions.

Speaker Change: We will now begin the question and answer session.

Erik Woodring: Yes, Thanks, Eric as you know, we've tried really hard to get predictable in the last couple of years, especially with the downturn and so as we come out of it we've really values that predictability.

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

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

Erik Woodring: This temporary issue that we're dealing with limited to this quarter only I think as we look out further and further especially through some of the product transitions that are coming.

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

Speaker Change: In the interest of time, we ask that you limit yourself to one question.

Speaker Change: If you have further questions you may re enter the queue.

Erik Woodring: We have confidence in the predictability and so at some point youre going to continue to grow the band is going to continue to grow.

Speaker Change: Once again that was star then one to ask a question.

Erik Woodring: And that and we'll get through those product transitions as well, which allows us to grow our margin profile as well. So I do think this is a very temporary issue.

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

Hey, guys. Thanks, so much for taking my question.

Speaker Change: Dave maybe just to start if I looked at the past June quarters, I know, we're getting ahead of ourselves here, but we've seen sequential growth historically and in.

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

Speaker Change: Yes. Thank you I just wanted to clarify the comment about.

Speaker Change: In light of your positive demand comments, and the fact that March quarter supply issues would be transitory.

Speaker Change: The transitory nature of this $200 million. So if it is transitory should we think that.

Speaker Change: How do you think about that incremental $200 million of shortfall in the March quarter, what what exactly happens there does it get pushed to June does it get pushed to multiple quarters in the future can you just help us understand kind of the magnitude and timing of when you expect to claw that back. Thank you so much.

Speaker Change: The true baseline for March was $2 3 billion and then June should be sequentially up from that that's just a clarification. If you could clarify that and my main question is really around the.

Speaker Change: The fact that <unk> seen six quarters of really strong the airline in mass capacity exabyte shipment increases historically these have been one and a half to two year cycles and it does appear to have a pause can you, perhaps maybe Dave share your view on where we are in the cycle and anything that you see that could cause the cycle to turn in 2025. Thank you so much.

Speaker Change: Yes, Thanks, Eric as you know, we've tried really hard to get predictable in the last couple of years, especially with the downturn and so as we come out of it we've really values that predictability.

Speaker Change: This temporary issue that we're dealing with limited to this quarter only I think as we look out further and further especially through some of the product transitions that are coming we have confidence in the predictability and so I think it's about youre going to continue to grow the band is going to continue to grow.

Dave Mosley: Yeah, <unk> I think we're still pretty early in calling the cycle because the the overbuild at the start of the pandemic was probably substantial and then the last two years. The exabyte shipments has been really low so.

Speaker Change: Confident in that and we'll get through those product transitions as well, which allows us to grow our margin profile as well. So I do think this is a very temporary tissue.

Dave Mosley: It's a very profound cycle compared to those previous ones that we had seen before that said these build to order the build to order just discipline that we have is is giving us good predictability and people continue to ask for with that predictability more certainty of the build outs if theyre doing the <unk>.

Speaker Change: The next question is from <unk> Mohan with Bank of America. Please go ahead.

Mohan: Yes. Thank you I just wanted to clarify the comment about about the transitory nature of this 200 million. So if it is transitory should we think that the true baseline for March was $2 3 billion and then June should be sequentially up from that that's just a clarification if you could clarify that.

Dave Mosley: The centers that they built need population.

Dave Mosley: The refreshes that theyre doing of old gear wholesale replace entire datacenters to uplift their capacity.

Dave Mosley: I think the whole.

Dave Mosley: Industry and supply chain is getting more predictable quite happy about that.

Speaker Change: My main question is really around the.

Speaker Change: The fact that you've seen six quarters of really strong airline in mass capacity exabyte shipment increases historically these have been one and a half to two year cycles and then there's a period of a pause can you, perhaps maybe Dave share your view on where we are in the cycle and anything that you see that could cause the cycle to turn in 2025. Thank you so much.

Dave Mosley: So that gives us confidence through this calendar year.

Dave Mosley: Relative to kind of like Eric's question same symbol in U S relative to this.

Dave Mosley: Issue that we have this quarter, it's really hard to tell.

Dave Mosley: In that.

Dave Mosley: Victor Bowl behavior that we're doing for say.

Dave Mosley: Say, a year and a build to order or visibility of this even going beyond a year, whether or not this quarter effect is a pull in or the pushout, that's really hard but.

Speaker Change: Yeah, Yeah, well honestly I think we're still pretty early in calling the cycle because the the overbuild at the start of the pandemic was probably substantial and then the last two years. The exabyte shipments has been really low so.

Dave Mosley: I am confident in the financial.

Dave Mosley: Expectations that we have and I'm also confident in these product transitions that we have the best building value for our customers and we're going to be able to execute them. So that's that's how I think about it's only because you want to add something.

Speaker Change: It's a very profound cycle compared to those previous ones that we had seen before that said these build to order the build to order just discipline that we have is is giving us good predictability and people continue to ask for with that predictability more certainty of the build outs that theyre doing the <unk>.

Dave Mosley: So that part of the question on the impact was it last quarter.

Dave Mosley: Short answer is yes, we could have been higher now demand is there. Unfortunately for the short term, we don't have the volume to satisfy that demand. So we pulled that out of course that achieve a higher level of revenue.

Speaker Change: The centers that they built need population.

Speaker Change: The refreshes that they're doing of old gear wholesale replace entire datacenters to uplift their capacity.

Dave Mosley: But as Dave said, we see further improvement towards that calendar year. So it is not going to impact our overall results.

Speaker Change: I think the whole.

Speaker Change: Industry and supply chain is getting more predictable and quite happy about that.

Dave Mosley: Yeah.

Speaker Change: Thank you so much.

Speaker Change: So that gives us confidence through this calendar year.

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

Speaker Change: Relative to kind of like Eric's question same symbol in U S relative to this.

Krish Shankar: Yeah, Hi, Thanks for taking my question John look at when I look at your guidance. It seems like your March quarter gross margin is about 36% give or take.

Speaker Change: Issue that we have this quarter, it's really hard to tell in that.

Krish Shankar: And you said half of it is obviously going to be accretive to the numbers and both you and Dave seem pretty optimistic on the Atlanta. The rest of the year. So is it true that view of the knee.

Speaker Change: The bowl behavior that we're doing for say.

Say, a year and a build to order or visibility of this even going beyond a year, whether or not this quarter effect is a pull in or the pushout, that's really hard but.

Krish Shankar: Your line grows the gross margin should improve quarter over quarter through the rest of calendar 'twenty five off of the 36% based on mid March. Thank you.

Speaker Change: I am confident in the financial.

Speaker Change: Expectations that we have and I'm also confident in these product transitions that we have but that's building value for our customers and we're going to be able to execute them. So that's our that's how I think about it Jonathan do you want to add something to that part of the question on the impact we said last quarter that was yeah. The short answer is yes, we could have been higher.

Krish Shankar: Yes, we see good opportunity to continue the advanced desktop like six quarters ago.

Krish Shankar: To improve our gross margin sequentially five teams makes of course, now moving more and more into the AI capacity, but I'd give us opportunity to improve gross margin.

Jonathan: These are unfortunately for that now show up there and we don't have as their volume to satisfy that demand. So we pulled that out of course that achieve a higher level of revenue.

Krish Shankar: And of course, the money is always a lot of strategy in Panama.

Krish Shankar: Stable consistent.

Jonathan: But as Dave said, we see further improvement towards that calendar year. So it is not going to impact our overall results.

Krish Shankar: But I think things are quarter after quarter of course that TSMC matter, we'd add pause, especially in the second part of it got him down and yet when we campaign much higher volume.

Jonathan: Yeah.

Jonathan: Thank you so much.

Krish Shankar: So right now we have now we are very confident that our profitability, we're continuing to improve.

The next question excuse me. The next question is from Krish Shankar with TD Cowen. Please go ahead.

Speaker Change: Yeah, Hi, Thanks for taking my question John look at when I look at your guidance. It seems like your March quarter gross margin is about 36% give or take.

Krish Shankar: Thank you.

The next question is from Amit <unk> with Evercore. Please go ahead.

Speaker Change: You said half of it is obviously going to be accretive to the numbers and both you and Dave seem pretty optimistic on the Atlanta, the rest of the Oh, So is it fair to view.

Speaker Change: Thanks for taking my question I.

Krish Shankar: I guess.

Krish Shankar: I was hoping you just talk a little bit about you know there's always a sphere. When you hear about HDD companies, adding capacity what does that really mean for the industry. So can you just talk about are you really adding net new capacity, you're trying to get back to some baseline level and what do you think sort of seagate's total.

Speaker Change: Airline grows the gross margin should improve quarter over quarter through the rest of calendar 'twenty five off of this 36 plus in baseband in March. Thank you.

Krish Shankar: So bite capacity could be once these additions that would be just touching back part and then maybe along that team.

Speaker Change: Yeah.

Speaker Change: Yeah, we see good opportunity to continue the advanced desktop like six quarters ago.

Speaker Change: Somewhat surprised that your gross margins are expected to grow up in March despite revenues coming down and despite the capacity additions. So just talk about what's going well and what's offsetting what I think are headwind sequentially in March quarter that maybe gross margin Scott. Thank you.

Speaker Change: To improve our gross margins sequentially.

Speaker Change: These mix of course, now moving more and more into the high capacity drive advisory opportunity to improve gross margin and of course that he is always a lot of strategy in Panama.

Speaker Change: Thanks, Amit.

If it if it helps you think back three quarters or four quarters ago when things were.

Speaker Change: Stable consistent.

Speaker Change: I think things are quarter after quarter of cost efficiency and matter, we'd add pause, especially in the second part of it got him down and yet when we can't buy them much higher volume.

Demand was a lot lower we were on older product generations, and we had buffers of those product generations because demand has picked up those are blown through largely.

Speaker Change: And then we had this issue this production issue on some of the new product generations, but it's really the answer to your question is all about mix, so as we mix to higher and higher capacity points, we believe that.

Speaker Change: So right now we have Oh, we have a very confident that our profitability will continue to improve.

Speaker Change: Thank you.

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

Speaker Change: It is a compelling value proposition for our customers. We also believe that we are giving predictable economics for them and for ourselves as well and that's what's building the the margin structure is.

Amit: Thanks for taking my question.

Dave I was hoping you just talk a little bit about you know there's always a sphere. When you hear about HDD companies, adding capacity what does that really mean for the industry. So can you just talk about you know are you really adding net new capacity, you're trying to get back to some baseline level and what do you think sort of seagate's total exabyte capacity could be once these additions that would be just touch on that part.

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

Speaker Change: Hi, Thanks, I just wanted to ask about this $200 million effective June again, because I'm not sure I understand but the messages I think Dave in the in the remarks, you said that the impact will be completely limited to the March quarter. So it.

Amit: Along that team.

Speaker Change: I'm somewhat surprised that your gross margins are expected to go up in March despite revenues coming down and despite the capacity additions. So just talk about what's going well and what's offsetting what I think are a headwind sequentially in March quarter, that's enabling gross margin. Thank you.

Speaker Change: <unk> do you think that June you get the entire 200 back, but you seem like you're not really willing to clarify that so can you clarify exactly what you meant by that.

Amit: Thanks, Amit.

Speaker Change: The entirety of the impact is being felt in March.

Amit: If it if it helps you think back three quarters or four quarters ago, when things were a little.

Yes, I remember this is hey, thanks, Tim this is a.

Speaker Change: Supply issue not a demand issue so from our perspective, we're communicating this when we started after the conference in December there. We started communicating to the customer is exactly what's going on we can maintain all of the build to order commitments that we have this quarter next quarter next quarter. We are recovering from the issue is as quickly as we can but again, it's not a demand.

Amit: When demand was a lot lower we were on older product generations, and we had buffers of those product generations because demand has picked up those are blowing through largely.

Amit: And then we had this issue this production issue on some of the new product generations, but it's really the answer to your question is all about mix. So as we mix to higher and higher capacity points. We believe that that's a compelling value proposition for our customers. We also believe that we are giving predictable economics for them and for ourselves as well and that's what's building the.

Speaker Change: Compression, it's only our ability to hit the supply Gianluca do you want to add some asphalt team basically.

Speaker Change: As we explain in Indias amber.

Speaker Change: We lost that.

Amit: The margin structure is.

Speaker Change: In that <unk> period of time.

Amit: Yeah.

Amit: Yeah.

Speaker Change: Because we didn't put back the equipment rental they are necessary to produce material. So we don't have.

Amit: Yeah.

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

Speaker Change: That level of supply but.

Timothy Arcuri: Hi, Thanks, I just wanted to ask about this $200 million effective June again, because I'm I'm I'm not sure I understand but the messages I think Dave in the remarks, you said that the impact will be completely limited to the March quarter. So it sounds like you think that June you get the entire 200 back, but you seem like youre not really.

Speaker Change: Who would have been necessary to match demand in the March quarter.

Speaker Change: That's $11 million that is not something that is.

Speaker Change: Not able to start and so we missed that opportunity in that in the March quarter and then we go back to June we have the right level of supply that will match the June demand, but of course, they want to maintain the mat.

Timothy Arcuri: Willing to clarify that so can you clarify exactly what you meant by that.

Speaker Change: I would have gone away.

Timothy Arcuri: The entirety of the impact is being felt in March.

Speaker Change: And as we discussed in December this is yet another reason you see the long lead times that we have in some of these wafer equipment, which is why we need to build the order predictability for our customers and our pend for ourself.

Speaker Change: Yes, I remember this is hey, thanks, Tim this is a.

Speaker Change: Supply issue not a demand issue so from our perspective, we're communicating this when we started after the conference in December there. We started communicating to the customer is exactly what's going on we can maintain all of the build to order commitments that we have this quarter next quarter next quarter.

Speaker Change: Problems started manifesting itself late summer and then we realized that we had it in late November.

Speaker Change: But and its still flowing through the system, we're going to try our best to recover as much as we can but we know that and so.

Speaker Change: Recovering from the issue is as quickly as we can but again, it's not a demand compression thats only our ability to hit the supply Gianluca do you want to add some asphalt team basically as we explained in the Andas Amber.

Speaker Change: Against the backdrop of a very steep ramp so it's not like a whole that goes away. Its a ramp that we're on that's very steep.

Speaker Change: Just.

Speaker Change: There is an impact this quarter as these parts don't flow through that we wanted to at the level and then we fixed the problem now. So we are convinced that we can get back in and satisfy demand next quarter and beyond.

Speaker Change: We did not add in that mature.

Speaker Change: <unk>, having a set period of time, because we didn't put back the equipment necessary to produce very material. So we don't have that.

Speaker Change: That level of supply but.

Speaker Change: Who would have been necessary to match demand in the March quarter. So that's one of the million dollars that is not coming back.

Assia merchant: The next question is from Assia merchant with Citi. Please go ahead.

Speaker Change: Okay.

Assia merchant: Great. Thank you for taking my question.

Speaker Change: I'm not able to start and so we missed that opportunity in that in the March quarter and then we go back to June we have the right level of supply that will match the June demand, but of course, they wanted to AT&T much it's probably gone away.

Speaker Change: Yeah.

Speaker Change: Did you sound very confident about a lot more upside to gross margins, especially as Tamara ramps here and Youre shifting your mix, even these high capacity drives.

Speaker Change: Maybe if you can shed some light on what do you think about the appropriate margin.

Speaker Change: And as we discussed in December this is yet another reason you see the long lead times that we have in some of these wafer equipment, which is why we need to build the order predictability for our customers and our pen for ourselves.

Speaker Change: For Seagate as you go forward, given you're executing well.

Speaker Change: Well above your target range at this point thank you.

Speaker Change: Yes, I think that depends largely on the demand picture. We think the demand picture is strengthening and we think we have a good portfolio against that people will buy the new drives.

Speaker Change: There's problems started manifesting itself late summer and then we realized that we had this in late November and.

Speaker Change: But it's still flowing through the system, we're going to try our best to recover as much as we can but we know that.

Speaker Change: Higher and higher capacities, because they they're going to run these in data centers for a long time and they see a great value proposition for those and to the extent that we can be more predictable at these build to order.

Speaker Change: Against the backdrop of a very steep ramp so it's not like a whole that goes away. Its a ramp that we're on that's very steep.

Speaker Change: Negotiations that we know what we're building anyway. So we can go out and.

Speaker Change: It's just.

Speaker Change: There is an impact this quarter as these parts don't flow through that we wanted to at the level of it and then we fixed the problem now. So we are convinced that we can get back in and satisfy demand next quarter and beyond.

Speaker Change: Have those negotiations and say we will build it for you. If we all agree to this and so I think thats serve the industry really well served our supplier our supply base really well, helping us recover from the situation that we're in a year or two ago.

Speaker Change: Okay.

Assia merchant: The next question is from Assia merchant with Citi. Please go ahead.

Speaker Change: And that target range.

Speaker Change: And if adding tool.

Speaker Change: Okay.

Assia merchant: Great. Thank you for taking my question.

Speaker Change: We gave that target.

Speaker Change: Yeah.

Speaker Change: And we clearly said this is not including Emma so of course in future.

Did you sound very confident about a lot more upside to gross margins, especially as camera ramps here and you're shifting your mix even these high capacity drives.

Speaker Change: <unk> taken a higher profitability and with Amp hammer in not just two or three quarters from now.

Speaker Change: Maybe if you can shed some light on what do you think about the appropriate margin.

Speaker Change: We will discuss may be more.

Speaker Change: First <unk> date as you go forward, given you're executing well.

Speaker Change: At our analyst day in the future what will be our.

Speaker Change: Well above your target range at this point thank you.

Speaker Change: Next model, but I will say I would not focus on that.

Speaker Change: Yeah, I think that depends largely on the demand picture. We think the demand picture is strengthening and we think we have a good portfolio against that people will buy the new drives.

Speaker Change: Gross margin range between.

Speaker Change: Discussing in the past.

Speaker Change: Yeah, one other thing I'd say about margins gross margins and operating margins as that.

Speaker Change: Higher and higher capacities, because they they they're going to run these in data centers for a long time and they see a great value proposition for those and to the extent that we can be more predictable at these build to order.

Speaker Change: Even though the revenue levels that we're at right now we have to continue to fund the <unk>.

Speaker Change: R&D.

Speaker Change: In order to keep driving the roadmap forward four terabytes five terabytes, we have to fund capex, so on and so forth and and from my perspective.

Speaker Change: Negotiations that we know what we're building anyway. So we can go out and.

Speaker Change: Have those negotiations and say we will build it for you. If we all agree to this and so I think thats serve the industry really well served our supplier our supply base really well, helping us recover from the situation that we're in a year or two ago.

Speaker Change: This provides such a compelling value proposition to our end customers they want us to as well so.

Speaker Change: We're going to need the right combination of margin and revenue to be able to continue to continue to drive the roadmap for the end user value propositions I think everyone's kind of understood that is even though the these undulations in supply and demand that we went through the pandemic, we're so painful but I think.

Speaker Change: Yeah, and best target range.

Speaker Change: And if adding tool.

Speaker Change: We gave that target.

And we clearly said this is not including Emma so of course in future.

Speaker Change: We are starting to come out of it and people understand the financial impacts of those a lot more and allows us to be a lot more predictable.

Speaker Change: What Andy is they're taking a higher profitability and with an amount of in no doubt that two or three quarters from now.

Speaker Change: We will discuss maybe more.

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

Speaker Change: I thought what analyst day in the future what will be a winner.

Speaker Change: Next model, but I will say I would not focus on that or.

Speaker Change: Hey, good afternoon, everyone I'm, Dave I was just wondering as we think about the longer term impact of transitioning to hammer.

Speaker Change: Gross margin range between.

Speaker Change: Discussing in the past.

Speaker Change: <unk> versus <unk>.

Yeah, one other thing I'd say about margins gross margins and operating margins as that.

Speaker Change: Through the initial ramps of new technology does the customer mix or how you ramp become faster slower more broad.

Speaker Change: Even though the revenue levels that we're at right now we have to continue to fund the R&D.

Speaker Change: Like you mentioned like going from one cloud guy to having our second and third but as you go towards 36 terabytes, what changes and how how this technology hits the market.

Speaker Change: In order to keep driving the roadmap forward four terabytes five terabytes, we have to fund capex, so on and so forth and and from my perspective.

Speaker Change: This provides such a compelling value proposition to our end customers they want us to as well so.

Speaker Change: I'd say, our first ramp.

Speaker Change: Was tougher than we expected even right up against it we had great results out of labs and the first experiments and then we ran into some problems and product position, we don't exactly see any of those problems problems in the future product position. So it should shorten the cycle.

Speaker Change: We're going to need the right combination of margin and revenue to be able to continue to continue to drive the roadmap for the end user value propositions I think everyone's kind of understood that is even though the these undulations in supply and demand that we went through the pandemic, we're so painful but I think.

Speaker Change: The strain on all the other sub systems not just the recording so system with all the other sub systems as we go from 30 terabytes of 40 terabytes of 50 terabytes is still great.

Speaker Change: We are starting to come out of it and people understand the.

Speaker Change: Financial impacts of those a lot more and allows us to be a lot more predictable.

Speaker Change: But we have confidence in.

Speaker Change: We've told people that based on what we see right now.

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

Speaker Change: We should we're going to drive as aggressively as we can through all those transitions and that's why the announcement of drives shipping drives already up to 36 terabytes, that's already happened by the way.

Steven Fox: Hey, good afternoon, everyone I'm, Dave I was just wondering as we think about the longer term impact of transitioning to Hans Hammer.

Speaker Change: So.

Speaker Change: From my perspective onward and upward.

Speaker Change: <unk> versus <unk>.

Speaker Change: Through the initial ramps of new technology does the customer mix or how how you ramp become faster slower more broad.

Speaker Change: Industry gets paid for as they're able to unseat us so we bring value of the world and that's what we continue to drive.

Speaker Change: Great. That's helpful. Thank you.

Speaker Change: Okay.

Speaker Change: Like I'm, just you mentioned like going from one cloud guy to having our second and third but as you go towards 36 terabytes, what changes and how how this technology hits the market.

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

Speaker Change: Hey, guys. Thanks for taking my question I, just wanted to get a better picture for your mix of business I think you'd like to talk about so bites that are moving towards hammer.

Speaker Change: I'd say, our first ramp.

Speaker Change: You guys had originally talked about a unit forecast you've adjusted that over time, but maybe as we look out into the calendar year 'twenty five you could talk about how much of your business in terms of mix as hammer today, and maybe how much you think exiting the year. Obviously you had enough to impact gross margins in the near term. So maybe if you could size that for us that'd be really helpful.

Speaker Change: Was tougher than we expected even right up against it we had great results out of labs and the first experiments and then we ran into some problems and product position, we don't exactly see any of those problems problems in future product position. So it should shorten the cycle.

Speaker Change: Okay. Thanks, Tom.

Speaker Change: Sure.

Speaker Change: The strain on all the other sub systems not just the reporting system with all the other sub systems as we go from 30 terabytes of 40 terabytes of 50 terabytes is still great.

Speaker Change: We did talk about the success of the $20 28 platform. So that's growing at.

Speaker Change: Very very fast ramp very high volume, there's a lot of common parts with that and hammer. So we can ramp hamra quickly as well and we're focused on doing that getting through the qualifications and ramping.

But we have confidence in.

Speaker Change: We've told people that based on what we see right now.

Speaker Change: We should we're going to drive as aggressively as we can through all those transitions and that's why as the announcement of drives shipping drives already up to 36 terabytes, that's already happened by the way.

Speaker Change: Last year, we were pushing through these transitions as hard as we could just to inject some margin back in the in the business. This year. The demand picture is quite different and the response of people and what are the where they are in qualifications is very different so we're going to be a little bit more careful remember hammer still accretive to.

Speaker Change: So.

Speaker Change: From my perspective onward and upward.

Speaker Change: Industry gets paid for as they're able to unseat us. So we can bring value in the world and that's what we're continuing to drive.

Speaker Change: Margins and we still want to drive it and we still have parts that are coming.

Speaker Change: Great. That's helpful. Thank you.

Speaker Change: Okay.

Speaker Change: But it will just be a little bit more cautious and make sure we work with customers on exactly what they need.

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

Hey, guys. Thanks for taking my question I, just wanted to get a better picture for your mix of business I think you'd like to talk about so bites that are moving towards hammer.

Speaker Change: I think as we get to higher and higher capacity points is such a good compelling value proposition for our end customers that they are pulling very hard so.

Speaker Change: You guys had originally talked about a unit forecast you've adjusted that over time, but maybe as we look out into the calendar year 'twenty five you could talk about how much of your business in terms of mix as hammer today, and maybe how much you think exiting the year. Obviously you had enough to impact gross margins in the near term. So maybe if you could size that for us that'd be really helpful.

Speaker Change: Yes, maybe even to some of the earlier questions.

Speaker Change: I do think that theres going to be an acceleration based on the fact that we are already up the curve product position wise.

Speaker Change: We have all of those learnings so the other person doesn't have learned those same lessons and theres this compelling value proposition.

Speaker Change: Okay. Thanks, Tom.

Speaker Change: Sure.

Speaker Change: We did talk about the success of the $20 28 platform. So that's growing at.

Speaker Change: People know about.

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

Speaker Change: Very very fast ramp very high volume, there's a lot of common parts without and hammer. So we can ramp Tamara quickly as well and we're focused on doing that getting through the qualifications and ramping.

Aaron Rakers: Yes, thanks for taking the question I'm going to stick with the gross margin narrative here a little bit.

Aaron Rakers: Do you look at if I try and make some adjustments for your non HDD gross margin I guess, what I'd love to think about is that your hard disk drive gross margins, probably in the 37% plus or minus range.

Speaker Change: Last year, we were pushing through these transitions as hard as we could just to inject some margin back in the in the business. This year. The demand picture is quite different and the response of people and what are the where they are in qualifications is very different so we're gonna be a little bit more careful remember hammer still accretive to.

Aaron Rakers: I guess the question is is that would you would you say even today as your initially ramping hammer that Youre hammer gross emergent is accretive to the hard disk drive only gross margin.

Speaker Change: Our margins and we still want to drive it and we still have parts that are coming.

Speaker Change: But it will just be a little bit more cautious and make sure we work with customers on exactly what they need.

Aaron Rakers: Is there anything structurally that keeps you from thinking hey, gross margin could have a four in front of it just structurally as we look forward in pricing.

Speaker Change: I think as we get to higher and higher capacity points is such a good compelling value proposition for our end customers that they are pulling very hard so.

Aaron Rakers: <unk> to progress et cetera, et cetera, just curious of what your thoughts are.

Speaker Change: Yeah, Eric Thanks.

Speaker Change: Yes, maybe even to some of the earlier questions.

Speaker Change: I would say that and you know our history really well I'm pretty happy where we are right now so as we're looking out into the future we're signing up for business.

Speaker Change: I do think that theres going to be an acceleration based on the fact that we are already up the curve product position wise.

Speaker Change: Good business and higher capacity points through these transitions so.

Speaker Change: We have all of those learnings so the other person doesn't have learned in those same lessons and there's this compelling value proposition.

Speaker Change: That's what allows me to build confidence is there a theoretical maximum I think a lot of that depends on the demand picture that ultimately comes.

Speaker Change: People know about.

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

Speaker Change: And we will keep you informed of that up as time goes on but I think we've done a really good job.

Aaron Rakers: Yes, thanks for taking the question I'm going to stick with the gross margin narrative here a little bit.

Speaker Change: Getting the margin structure back into the industry or even in some cases to all time highs revenue is still not back in the output is still not back frankly, I mean, we.

Aaron Rakers: Do you look at if I try and make some adjustments for your non HDD gross margin I guess, what I'd love to think about is that your hard disk drive gross margins, probably in the 37% plus or minus range.

Speaker Change: We could do some more output.

Speaker Change: So, but we wanted to do it in a very predictable way and defend what we've had to rebuild we still have some supply chain issues that we have to take care of as well and that's going to be going on for the next few quarters. So we're kind of in that transition period to future model versus continues is just execute is as hard as we can to rebid.

Aaron Rakers: I guess the question is is that would you would you say even today as your initially ramping hammer that Youre Hammer gross margin is accretive to the hard disk drive only gross margin.

Aaron Rakers: And is there anything structurally that keeps you from thinking hey, gross margin could have a four in front of it just structurally as we look forward and pricing continues to progress et cetera et cetera, just curious of what your thoughts are.

Speaker Change: We're quite happy with the progress.

Speaker Change: And then he can help hospitals a confidence we have in that improving gross margin even in the March quarter, where as you know the revenues lower east coming from the increased volume of Emma.

Eric: Yeah, Eric Thanks.

Speaker Change: I would say that and you know our history really well I'm pretty happy where we are right now so as we're looking out into the future we're signing up for business.

Speaker Change: So in general the de <unk>.

Speaker Change: Good business and higher capacity points through these transitions so.

Speaker Change: Moving to Erika <unk> drive as all of this to help us to improve margins and Murdo will increase a lot the capacity per unit. So they could continue to improve investment.

Speaker Change: That's what allows me to build confidence is there a theoretical maximum I think a lot of that depends on the demand picture that ultimately comes.

Speaker Change: Thank you.

Speaker Change: And we will keep you informed on that as time goes on but I think we've done a really good job.

Speaker Change: Thanks.

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

Speaker Change: Getting the margin structure back into the industry or even in some cases to all time highs revenue is still not back in the output is still not back frankly, I mean, we could do some more output.

Speaker Change: Yes. Thank you.

Speaker Change: As we think about the sustainability of the cycle are your near line and Hyperscale customers, giving you more visibility today, which which I think was six months or longer last quarter.

Speaker Change: But we wanted to do it in a very predictable way and defend what we've had to rebuild we still have some supply chain issues that we have to take care of as well and that's going to be going on for the next few quarters. So.

Speaker Change: Since you have experienced production capacity constraints.

Speaker Change: And for my clarification question does the production capacity address we hammer drives or were these tools used for conventional near line drops as well. Thank you.

Speaker Change: We're kind of in that transition area period to.

Speaker Change: Future model versus continue to just execute as as hard as we can to rebuild and we are quite happy with the progress.

Speaker Change: Thanks, Karl Yes.

Speaker Change: The second question first.

Speaker Change: Production capacity issue affected non hammer drives not not the hemorrhage right. So it was the ramp up of the 2428.

Speaker Change: And then ignore past Jose confidence, we have in that improving gross margin even in the March quarter, where as you know the revenues lower <unk> coming from the increased volume of Emma.

Speaker Change: This way, we actually quantified that package, even though some would programs, but the non hammer product.

Speaker Change: Be unaffected.

Speaker Change: So.

Speaker Change: So in general, it's a mix moving to Erika <unk> drive.

Speaker Change: Stepping out a little bit more into the future I think that the hammer transition is actually we're going to drive it more and more aggressively just because we get the extra capacity points like Gianluca was talking about.

Speaker Change: I'll pass to improve margins and Murdo will increase a lot the capacity per unit. So it is a good contributor to improve investments.

Speaker Change: Higher capacity points and then we can also refresh lower capacity points as well. So that's what helps to build the margin.

Speaker Change: Thank you.

Speaker Change: Thanks.

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

Speaker Change: The entire portfolio not just the highest capacity points.

Karl Ackerman: Yes. Thank you.

Karl Ackerman: As we think about the sustainability of the cycle are your near line and Hyperscale customers, giving you more visibility today, which which I think was six months or longer last quarter.

Speaker Change: Yes. Thank you.

Speaker Change: I was hoping you could talk about the visibility you are receiving from hyperscale customers today.

Speaker Change: Since dose okay.

Speaker Change: Capacity constraints.

Speaker Change: Oh, yes, so the built to order or models that were coming up with have given us good visibility maybe as we get through the supply constraint issue that we have this quarter.

Speaker Change: Since you have experienced production capacity constraints and for my clarification question does the production capacity address.

Karl Ackerman: Hammer drives or were these tools used for conventional.

Speaker Change: We said, we're protecting all of those build to order commitments that we have so on.

Speaker Change: And drops as well thank you.

Karl Ackerman: Thanks, Karl Yes.

Speaker Change: The second question first.

Speaker Change: On an account by account by account basis.

Speaker Change: Production capacity issue affected non hammer drives not not the hemorrhage right. So it was the ramp up of the 24 28.

Speaker Change: It's almost that particular issue is almost irrelevant for them right. So we're talking about Q4 as Q4 Q3 as Q3 Q1 next year as Q1 next year or so.

Speaker Change: This way, we actually quantified that package, even though some bold programs, but it's the non hambro product.

Speaker Change: Helping us with that visibility in this temporary issue is irrelevant.

Speaker Change: Be unaffected.

Speaker Change: So.

Speaker Change: Bto model.

Speaker Change: Stepping out a little bit more into the future I think that the hammer transition is actually we're going to drive it more and more aggressively just because we get the extra capacity points like Gianluca was talking about.

Speaker Change: The next question is from Vijay Rakesh with Mizuho. Please go ahead.

Vijay Rakesh: Yeah, Hi, there Tim look I'm, just looking at the hammer.

Speaker Change: Higher capacity points and then we can also refresh lower capacity points as well. So that's what helps to build the margin.

Okay Ken.

Vijay Rakesh: 150%.

Vijay Rakesh: Shipments on the <unk>.

Vijay Rakesh: The extra time to get to an extent occur any person on that mix.

Speaker Change: The entire portfolio not just the highest capacity points.

Vijay Rakesh: Like first half.

Speaker Change: Yes. Thank you.

Vijay Rakesh: And then the let's say three to six.

Speaker Change: I was hoping you could talk about the visibility you are receiving from hyperscale customers today.

Speaker Change: Well, we certainly expect to make it through rapid really hard yes.

Speaker Change: Since dose okay.

Speaker Change: We're not going to say a specific number we're in a very different space than we were a year ago, but we're not going to stay at a very specific number but we expect it to ramp very hard.

Speaker Change: Capacity constraints.

Speaker Change: Oh, yes, so the built to order or models that were coming up with have given us good visibility maybe as we get through the supply constraint issue that we have this quarter.

Speaker Change: Customers are pulling out of hard because of.

Speaker Change: The value proposition that they see so.

Speaker Change: It has to be accretive as well.

Speaker Change: We said, we're protecting all the build to order commitments that we have so on.

Speaker Change: For some quarters now.

Speaker Change: On an account by account by account basis then.

Speaker Change: But we're confident that it is so.

Speaker Change: We're going to we're going to drive it hard and drive.

Speaker Change: It's almost that particular issue is almost irrelevant for them right. So we're talking about Q4 as Q4 Q3 as Q3 Q1 next year as Q1 next year or so.

Speaker Change: The volumes very soon.

Speaker Change: P J.

Speaker Change: We will have improvement every quarter of course that will have to follow they qualifications with the different customers and as we said that we expect multiple qualifications Athene December last year and made up kind of in that 25. So we expect the majority of tells that aim.

Speaker Change: Helping us with that visibility in this temporary issue is irrelevant.

Speaker Change: Bto model.

Speaker Change: The next question is from Vijay Rakesh with Mizuho. Please go ahead.

Vijay Rakesh: Yeah, Hi, there Tim look I'm, just looking at the hammer.

Speaker Change: We have been in the second part of that and that's 75.

Speaker Change: And then that would be an.

Speaker Change: Okay Ken.

Speaker Change: 150%.

Improvement for our business and our performance.

Speaker Change: Shipments on the 26th.

Speaker Change: Just a few quarters from now.

Speaker Change: The extra time to get to an extent occur any person on that mix.

Speaker Change: Alright, Thanks, and then in terms of capacity.

Speaker Change: Like first half.

Speaker Change: And then the let's say three to six.

Speaker Change: How much do you expect.

Speaker Change: Well, we certainly expect to make it to ramp it really hard yes.

Speaker Change: To add more capacity in the back half or how do you see there.

Speaker Change: Available capacity.

Speaker Change: We're not going to say a specific number we're in a very different space than we were a year ago right, but we're not going to stay at a very specific number but we expect it to ramp very hard.

Speaker Change: Thanks.

Speaker Change: Most of the tools that almost all of the tools that we're using for our non hammer products are convertible to the hammer products. So theres really no added tools that we need to bring on we planned this transition for quite some time.

Speaker Change: Customers are pulling out of hard because of.

Speaker Change: The value proposition that they see so.

Speaker Change: It has to be accretive as well.

Speaker Change: For for some quarters now.

Speaker Change: And we've said in the prepared remarks, we would not add head and media unit capacity. The capacity adds that we did or by virtue of driving areal density. So we can go to customers and say hey, instead of shipping of 24 Terabyte drive I'll ship you have 32 terabyte drive hopefully someday, we'll ship you have 40 terabyte drive and those that gives us more.

Speaker Change: But we're confident that it is so.

Speaker Change: We're going to we're going to drive it hard and drive.

Speaker Change: The volumes very soon.

Speaker Change: We've been at.

Speaker Change: We will have improvement every quarter of course that will have to follow they qualifications with the different customers and as we said that we expect multiple.

Speaker Change: Exabyte capacity and more.

Speaker Change: Vacationers in December last year, and made up kind of in that 25, So I know.

Speaker Change: More relative power more PTO, a proposition for them benefits to their for.

Speaker Change: For their value and more power.

Speaker Change: The majority of tells that aim to open in the second part of that and that's 75 <unk>.

Speaker Change: Power for Us to go increase our margin picture of that plan is working.

Speaker Change: And then that would be an improvement for our business and our performance in just a few quarters from now.

Speaker Change: Okay.

Speaker Change: The next question is from C. J Muse with Cantor Fitzgerald. Please go ahead.

Speaker Change: Hi, Good afternoon. Thank you for taking the question I guess first question clarification on the 200 million for March is that completely traded away.

Speaker Change: Alright, Thanks, and then in terms of capacity.

Speaker Change: How much do you expect you need to add more capacity in the back half or how do you see that.

Speaker Change: Or are you expecting partial.

Speaker Change: Available capacity under that.

Speaker Change: And I love it.

Speaker Change: That business in the June quarter, and then for my math.

Speaker Change: No most of the tools that almost all of the tools that we're using for our non hammer products are convertible to the hammer products. So theres really no added tools that we need to bring on we planned this transition for quite some time.

Speaker Change: In your prepared remarks, you talked about increasing focus on imagery in video as part of generative AI and I'm curious if you've done any work in terms of sizing what that might mean, it looks like med is really the big driver today, but curious.

Speaker Change: And we've said in the prepared remarks, we would not add head and media unit capacity. The capacity adds that we did or by virtue of driving areal density. So we can go to customers and say hey, instead of shipping of 24 Terabyte drive I'll ship you have 32 terabyte drive hopefully someday, we'll ship you have 40 terabyte drive and those that gives us more exabyte.

<unk> size or at all and how you think about the incremental demand to your overall business. Thank you.

Speaker Change: Yes so.

Speaker Change: So the 200 million I think we answered this a little bit earlier C. J. So.

Speaker Change: The way I think about it is to build the orders are all those commitments to be amazed. So if there was this stuff on top of the transact. This quarter next quarter I mean, we will get will get into that but as.

Speaker Change: <unk>.

Speaker Change: More more relative power more PTO, a proposition for them benefits to their.

Speaker Change: As far as the major accounts that are participating in build to order, it's really not not an impact.

Speaker Change: Or their value and more power.

For us to go increase our margin picture of that plan is working.

Speaker Change: The.

Speaker Change: Okay.

Speaker Change: Supply whole remember, it's not a demand pool.

Speaker Change: Okay.

Speaker Change: The next question is from C. J Muse with Cantor Fitzgerald. Please go ahead.

Speaker Change: The demand is still fairly strong.

Speaker Change: Hmm.

Speaker Change: When we talk about video and imaging, we're usually talking about what's going on at the edge Smart cities Smart factories.

C.J. Muse: Hi, Good afternoon. Thank you for taking the question I guess first question clarification on the 200 million for March is that completely traded away.

Speaker Change: Hum.

Speaker Change: The date of this has actually been created at the edge and finally, making it to the cloud, but there are video applications as well that are raging in the cloud.

C.J. Muse: Or are you expecting partial part of that business in the June quarter, and then for my main question.

Speaker Change: Some of that.

Speaker Change: The use of video on some of the major media properties and things are to grow the videos themselves are growing and link.

C.J. Muse: Prepared remarks, you talked about increasing focus on imagery in video as part of generative AI and I'm curious if you've done any work in terms of sizing.

Speaker Change: Number in.

C.J. Muse: What that might mean, it looks like med is really the big driver today, but curious.

Speaker Change: The long tail is getting huge is where our long documentaries and then create.

C.J. Muse: If you've sized that at all and how you think about the incremental demand to your overall business. Thank you.

Speaker Change: Creation tools with AI are coming that allows people to create video much.

C.J. Muse: Yeah. So.

C.J. Muse: So the 200 million I think we answered this a little bit earlier C. J. So.

Speaker Change: Be more inventive on this so.

Speaker Change: The creative professionals that are out there creating.

C.J. Muse: The way I think about it is to build the orders are all of those commitments are being made so if there was this stuff on top of the transact. This quarter next quarter I mean, we will get we will get into that but.

Speaker Change: Creating content.

Speaker Change: So.

Speaker Change: All of those trends are very beneficial for us and yes. Some of the first movers that we saw in this resurgence as demand is starting to coming back where are those people who are servicing those those models.

C.J. Muse: As far as the major accounts that are participating in build to order, it's really not not an impact.

C.J. Muse: The.

Speaker Change: Video is creating a lot of demand in the cloud yes.

C.J. Muse: So supply whole remember, it's not a demand pool so.

Speaker Change: Okay.

C.J. Muse: The demand is still fairly strong.

Speaker Change: The next question is from an out of Peru with loop capital. Please go ahead.

C.J. Muse: When we talk about video and imaging, we're usually talking about what's going on at the edge Smart cities Smart factories.

Speaker Change: Yeah, Thanks, guys for taking the question.

Speaker Change: So maybe I'd love to hear maybe from both of you guys. This is just sort of hammer transition question. So.

C.J. Muse: Hum.

C.J. Muse: The data that is actually being created at the edge and finally, making it to the cloud, but there are video applications as well that are raising in the cloud I mean some of the.

Speaker Change: I might have missed this but.

Luke: Yes Luke.

Luke: Are you communicating that the hammer margin.

C.J. Muse: The use of video on some of the major media properties and things to grow the videos themselves are growing and link.

At what point are the hammer margins accretive and then Dave I guess for you in that question I was going to ask.

C.J. Muse: Number in.

Luke: Like how to think about the pacing.

C.J. Muse: The long tail is getting users, where our long documentaries and thing the creation tools with AI are coming that allows people to create video much mud.

Luke: <unk>.

Luke: Our volume.

Luke: Of hammer given given the richness of the legacy Tech margins right now and I guess I was thinking you might be more more selective with rolling them out given the margin, but you also just made a comment about.

Be more inventive on this.

C.J. Muse: The creative professionals that are out there.

Creating content.

C.J. Muse: So.

Luke: Driving driving hammer into the market with synergies so I.

C.J. Muse: All of those trends are very beneficial for us and yes. Some of the first movers that we saw in this resurgence as demand has started to coming back where are those people who are servicing those those models.

Luke: I guess, just sort of that there isn't really the questions I appreciate it. Thanks.

Luke: Yes no.

Luke: As I capacity right.

C.J. Muse: Video is creating a lot of demand in the cloud yes.

Luke: And that <unk> had anything.

C.J. Muse: Okay.

Luke: They've got all of that gross margin and then of course <unk>.

Speaker Change: The next question is from an out of Peru with loop capital. Please go ahead.

Luke: And as I said before will be more available.

Speaker Change: Yeah, Thanks, guys for taking the question.

Luke: Doing as it kind of note here when we can aim for more volume.

Speaker Change: So maybe I'd love to hear maybe from both of you guys. This is just sort of hammer transition question.

Luke: And now we would like to have more volume today, but.

Luke: We need to go through a certain number of quarter before we can be in the ramp up in a much higher quantity, but.

Speaker Change: Uh huh.

Speaker Change: I might have missed this but yes.

Speaker Change: Okay.

Luke: Is that.

Speaker Change: A weaker are you communicating that the hammer margin.

Luke: As always AIG capacity.

Luke: We expect that they think would there.

Speaker Change: At what point are they handle margins accretive and then Dave I guess for you in that question I was going to ask.

Luke: <unk> been eating from film based cloud based technology.

Luke: Right and then does this helps you go back a year ago. When our gross margins were considerably lower of course, we are saying the hammer is accretive to the gross margin. Other gross margins are considerably higher on some of the legacy products like you've talked about some of the 2428 PMI platform Bmr's EMR platforms.

Speaker Change: Like how to think about the pacing.

Speaker Change: <unk>.

Speaker Change: Our volume.

Speaker Change: Of hammer given given the richness of the legacy Tech margins right now and I guess I was thinking you might be more more selective with rolling them out given the margin, but you also just made a comment about driving driving hammer into the market with <unk>. So.

Luke: The hammer is still accretive and the more we can drive through these transitions that we're talking about not only do we increase the <unk>.

Luke: Top line capacity, if you will which provide such a compelling value proposition that we can actually get paid for it but also we can start to refresh some of the lower platform.

I guess just sort of that's those are really good questions I appreciate it. Thanks.

Speaker Change: Yes, no I'm not is I capacity right.

Speaker Change: And that <unk> had anything.

Luke: Drive lower capacity points with fewer components inside and therefore, you get margin uplift that way. So we're still driving the hammer transition if that helps.

They've got all of that gross margin then of course <unk> and.

Speaker Change: As I said before will be more available later doing as they kind of note here when we can aim for more volume.

Luke: I got it yeah, that's great so youre going to ship as much as we can and it's going as quickly as you can and it's going to be accretive although yes, we can.

Speaker Change: And now we would like to have more volume today, but.

Luke: I just have to get the qualifications done and then we'll make the right decision based on the specifics of what the customers want at the time.

Speaker Change: We need to go towards that that number of quarters before we can be in the ramp up in a in a much higher quantity, but yeah.

Speaker Change: Is that as always AIG capacity that we.

Luke: Thank you appreciate it.

Speaker Change: Yes, Pat that they take with.

With that I picked up.

Luke: The next question is a follow up from <unk> Mohan with Bank of America. Please go ahead.

Speaker Change: Anything from a phone based product and this technology.

Speaker Change: And then does this helps you go back a year ago. When our gross margins were considerably lower of course, we are saying the hammer is accretive to the gross margin. Other gross margins are considerably higher on some of the legacy products like you've talked about some of the 2428 PMI platform <unk> platforms.

Speaker Change: Yes, thanks for taking the follow up I guess, a quick question on hammer the sampling of the 36 terabyte drives that you announced is that with the same leading CSP that you've qualified.

Speaker Change: The earlier hammer drives and any color that you could share on hammer units. Originally your expectation was shipping $1 million in the first half of last year.

Speaker Change: Hammer is still accretive and the more we can drive through these transitions that we're talking about not only do we increase the <unk>.

Speaker Change: Clearly now with this ramp being much more significantly underway would you say that.

Speaker Change: Top line capacity, if you will which.

Speaker Change: It should be orders of magnitude higher than that in the second half of this year. Thank you so much.

Speaker Change: Such a compelling value proposition that we can actually get paid for it but also we can start to refresh some of the lower platform.

Speaker Change: Yeah. Thanks, <unk>. So it's much more broad base, we're shipping sample units to not to more than one person, let me say it that way.

Speaker Change: <unk> lower capacity points with fewer fewer components inside and therefore as you get margin uplift that way. So we're still driving the hammer transition if that helps.

Speaker Change: Not to just one.

Speaker Change: Comment specifically on any one customer of course, but.

Speaker Change: I got it yeah, that's great so youre going to ship as much as we can and it's going as quickly as you can it's going to be accretive although yes.

Speaker Change: And then relative to the size of the ramp yes, we've got customers that are latched pretty well right now on the $20 to 28 product.

Speaker Change: I'll have to get the qualifications done and then we'll make the right decision based on the specifics of what the customers want at the time.

Speaker Change: We talked about the factories being full and the ramp being really high we will supplant some of that product with hammer product, we'll do it.

Thank you appreciate it.

Speaker Change: The next question is a follow up from <unk> Mohan with Bank of America. Please go ahead.

Speaker Change: Measured way based on when the qualifications complete with those customers exactly one some of them. Yes, you always have to keep in mind, they have to get their systems ready facilities.

Speaker Change: Yes, thanks for taking the follow up I guess, a quick question on hammer.

Speaker Change: Handling of the 36 terabyte drives that you announced is that with the same leading CSP that you're qualified.

Speaker Change: Some of the transitions that they're going through was silicon transition of software capability for fulfilling their fleet management features they'll say I'll do that on the next generation product. So there's a lot of it is not as easy as us just ramping hammer and then shipping more hammer wed have to go through those qualification cycles, but that's ongoing and we're going to drive as hard as we can because we think it's.

Speaker Change: The earlier hammer drives and.

Speaker Change: Any color that you could share on hammer units. Originally your expectation was shipping a million in the first half of last year.

Speaker Change: Now with this ramp being much more significantly underway would you say that.

Speaker Change: So accretive.

Speaker Change: Thank you.

Speaker Change: It should be orders of magnitude higher than that in the second half of this year. Thank you so much.

Speaker Change: Thanks.

Speaker Change: And the next question is a follow up from Chris <unk> with TD Cowen. Please go ahead.

Speaker Change: Yeah. Thanks, <unk>. So it's much more broad base, we're shipping sample units to not to more than one person, let me say it that way.

Speaker Change: Yeah, Hi, Thanks for taking my follow up John a quick question of the 126 Exabyte near line. They shipped in December then to surveillance you started to do a comparison because you did 109 in September but then also on the tradition of the airline definition. So I'm just trying to figure out sort of one six which is still billions as.

Speaker Change: Not to just one.

Speaker Change: Well comment specifically on any one customer of course, but.

Speaker Change: And then relative to the size of the ramp yes, we've got customers that are latched pretty well right now on the 2028 product and we talked about factories being full and the ramp being really high we will supplant some of that product with hammer product, we'll do it.

Speaker Change: Traditionally in the airline.

Speaker Change: In general and in different quarters about four to five exabyte.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: Our supplemental will show.

Speaker Change: Measured way based on when the qualifications complete with those customers exactly one some of them yes.

Speaker Change: The history for the last five quarters, so that you have.

Speaker Change: Always have to keep in mind, they have to get their systems ready facilities.

Speaker Change: Like for like over the prior year period.

Speaker Change: Function.

Speaker Change: Some of the transitions that they're going through was silicon transition of software capability for fulfilling their fleet management features they'll say I'll do that on the next generation product. So there's a lot of it's not as easy as us just ramping hammer and then shipping more hammer we'd have to go through those qualification cycles, but that's ongoing and we're going to drive as hard as we can because we think.

Speaker Change: Okay.

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

Speaker Change: Thanks, everyone and wish everyone, a happy new year happy lunar new year really appreciate all the efforts of our employees and our suppliers and help helping the recovery was still ongoing and looking forward to talking to everyone. This quarter or next quarter's call take care.

Speaker Change: So accretive.

Speaker Change: Thank you.

Speaker Change: Okay.

And the next question is a follow up from Krishna Shankar with TD Cowen. Please go ahead.

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

Krishna Shankar: Yeah, Hi, Thanks for taking my follow up John a quick question of the 126 exabyte nearby and it shipped in December then to surveillance, you're starting to do a comparison because you did 109 in September but that as long as the tradition of the airline definition. So I'm just trying to figure out sort of one six which is still billions is.

Speaker Change: Traditionally the airlines.

Speaker Change: In general that in different quarters about four or five exabyte.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Our supplemental will show.

Speaker Change: The history for the last five quarters, so that you have.

Speaker Change: Like for like over the prior year period.

Speaker Change: Function.

Speaker Change: Okay.

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

Speaker Change: Thanks, everyone wish everyone, a happy new year happy lunar new year really appreciate all the efforts of our employees and our suppliers and help helping the recovery was still ongoing and looking forward to talking to everyone. This quarter or next quarter's call take care.

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

Speaker Change: Yeah.

Speaker Change: [music].