• Revenue: $2.33 billion, up 7% sequentially.
• Non-GAAP Gross Margin: Expanded by 220 basis points to 35.5%.
• Non-GAAP Operating Income: $538 million, up 22% sequentially.
• Non-GAAP Operating Margin: 23.1% of revenue.
• Non-GAAP Earnings Per Share (EPS): $2.03, at the high end of guidance range.
• Hard Disk Drive Revenue: $2.2 billion, with volume shipments of 151 exabytes.
• Mass Capacity Revenue: $1.9 billion, with exabyte shipments of 140 exabytes, both up 9% sequentially.
• Legacy Products Revenue: $275 million, up 2% sequentially.
• Other Business Revenue: $156 million, down slightly from last quarter.
• Adjusted EBITDA: $591 million, up 19% sequentially.
• Free Cash Flow: $150 million, up from $27 million in the prior period.
• Capital Expenditures: $71 million for the quarter.
• Available Liquidity: $2.7 billion, including undrawn revolving credit facility.
• Debt Balance: $5.7 billion at the end of December quarter.
• Net Leverage Ratio: 2.5 times, with further reduction expected.
• March Quarter Revenue Outlook: Expected to be $2.1 billion, plus or minus $150 million.
• March Quarter Non-GAAP EPS Outlook: Expected to be $1.70, plus or minus $0.20.

• Warning! GuruFocus has detected 6 Warning Signs with STX.

Release Date: January 21, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Seagate Technology Holdings PLC (NASDAQ:STX) reported a 7% sequential revenue growth in the December quarter, driven by increased demand across nearly all markets.
• Non-GAAP gross margin expanded by more than 200 basis points, and non-GAAP earnings per share exceeded $2 for the first time in 12 quarters.
• The company experienced significant growth in the cloud sector, with nearline product revenue almost doubling year-on-year.
• Seagate's areal density-driven roadmap positions the company well for significant profitable revenue growth in fiscal 2025 and beyond.
• The company has resolved a production issue that led to supply constraints, ensuring limited revenue impact to the March quarter.

Negative Points

• Seagate Technology Holdings PLC (NASDAQ:STX) faced supply constraints due to a production issue, impacting revenue by approximately $200 million in the March quarter.
• The company anticipates a seasonal decline in the VIA and legacy markets, which may affect overall performance.
• Despite resolving the production issue, Seagate's ability to respond to in-quarter volume upside opportunities will be limited.
• The company has a debt balance of $5.7 billion, although it has retired approximately $479 million of notes recently.
• Seagate's inventory increased slightly to $1.5 billion, primarily to support the ramp of new high-capacity products, which could indicate potential overstocking risks.

Q & A Highlights

Q: Can you clarify the impact of the $200 million shortfall in the March quarter due to supply issues? Will it be recovered in the June quarter? A: The $200 million shortfall is due to a supply issue, not a demand issue. We are maintaining all build-to-order commitments, and while we aim to recover as much as possible, the shortfall is expected to impact only the March quarter. We anticipate returning to normal supply levels by the June quarter. William Mosley, CEO

Q: Given the strong nearline and mass capacity exabyte shipment increases, where do you see the current cycle, and could it turn in 2025? A: We are still early in the cycle, as the overbuild at the pandemic's start was substantial, and exabyte shipments have been low in recent years. The build-to-order discipline provides predictability, and we are confident in the demand through this calendar year. William Mosley, CEO

Q: With the March quarter gross margin guidance around 36%, do you expect margins to improve as nearline grows throughout the year? A: Yes, we see opportunities to continue improving gross margins sequentially, driven by a mix shift to higher capacity drives and ongoing cost efficiencies. HAMR technology will further contribute to margin improvement, especially in the latter half of the calendar year. Gianluca Romano, CFO

Q: Are you adding new capacity with the HAMR ramp, and how does this affect gross margins? A: We are not adding new capacity; instead, we are converting existing tools for HAMR production. The mix shift to higher capacity points is enhancing our margin structure, and we expect this trend to continue. William Mosley, CEO

Q: How does the transition to HAMR technology affect customer mix and ramp speed? A: The initial HAMR ramp was challenging, but we have learned from it. Future transitions should be smoother, and we are confident in driving aggressive capacity increases. The 36-terabyte drives are already shipping, and we expect continued momentum. William Mosley, CEO

For the complete transcript of the earnings call, please refer to the full earnings call transcript.