STX - Seagate Technology Holdings plc

Operator: Welcome to the Seagate Technology Fiscal Fourth Quarter and Fiscal Year 2025 Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Shanye Hudson, Senior Vice President, Investor Relations. Please go ahead, ma'am. Shanye Hudson: Thank you. Hello, everyone, and welcome to today's call. Joining me are Dave Mosley, Seagate's Chief Executive Officer; and Gianluca Romano, our Chief Financial Officer. We've posted our earnings press release and detailed supplemental information for our June quarter and fiscal year-end results on the Investors section of our website. During today's call, we'll 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 and/or cannot be reasonably predicted. Therefore, a reconciliation to the corresponding GAAP measures is not available without unreasonable effort. Before we begin, I'd like to remind you that today's call contains forward-looking statements that reflect management's current views and assumptions based on information available to us as of today and should not be relied upon as of any subsequent date. Actual results may differ materially from those contained in or implied by these forward-looking statements as they're subject to risks and uncertainties associated with our business. To learn more about the risks, uncertainties and other factors that may affect our future business results, please refer to the press release issued today and our SEC filings, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q as well as the supplemental information, all of which may be found on the Investors section of our website. Following our prepared remarks, we'll open the call up for questions. In order to provide all analysts with the opportunity to participate, we thank you in advance for asking one primary question and then reentering the queue. With that, I'll hand the call over to you, Dave. William David Mosley: Thanks, Shanye, and hello, everyone. Seagate closed out fiscal '25 delivering strong financial results for the June quarter marked by 30% year-over-year revenue growth and record gross margins, which improved for a ninth consecutive quarter, a trend that is set to continue as HAMR adoption gains momentum. We achieved non-GAAP earnings per share near historic highs and generated strong free cash flow. For the fiscal year, revenue increased 39%, non-GAAP gross profit dollars nearly doubled and operating profit more than tripled, demonstrating our focus on supply-demand alignment and ongoing cost discipline. Our execution resulted in one of the most profitable fiscal years in the company's long-storied history. The structural changes in our business model and strong product pipeline make Seagate well positioned to deliver improving profitability and cash generation in fiscal '26. Reflecting our confidence, we expect to resume share repurchases later this quarter, enhancing capital returns to shareholders. Operationally, in fiscal '25, we started the high-volume ramp of two new nearline platforms, including the industry's first heat-assisted magnetic recording hard drive, an engineering feat more than a decade in the making. These new cost-effective and energy-efficient platforms aligned well with data growth driven by traditional compute workloads and increasingly from AI-supported applications. Looking at the current end market dynamics, we see a continuation of strong global cloud demand for our nearline products. The visibility afforded by our build-to-order strategy indicates our nearline exabyte production capacity is largely spoken for through the middle of next calendar year with visibility building into the second half. We believe BTO contracts are also beneficial for our customers by providing predictable assurance of supply. With installed data center capacity expected to more than double by 2029 on a gigawatt basis, these contracts support the CSP's efforts to keep pace with end-user demand. Within cloud data centers, we see an evolving diversity of workloads and applications addressed through a combination of storage media, optimized across a multitude of factors, including performance, cost, floor space and energy efficiency. The diverse solutions that emerge are shaped by how these factors are prioritized and the scale that is required. For instance, one of the world's largest cloud service providers recently developed a tiered storage solution to support an application for a widely used social media platform. Leveraging hard drives for both mass data storage in addition to a caching layer to enable fast, repeatable data access, this customer was able to realize significant cost savings and efficiency gains compared with alternative storage solutions. In today's data-driven world, the growing need for mass capacity storage extends beyond the cloud to edge data centers. There are multiple trends that underpin this view. First, as more data is created at the edge, it will be replicated and retained across multiple locations to capture actionable insights through AI models. To preserve the integrity of these models, large volumes of data are being retained longer to support checkpoints and inferencing. Additionally, today, roughly 50% of the world's data centers are concentrated in just 4 countries. As data sovereignty regulations evolve and proliferate around the globe, we expect a growing demand for localized data storage. In this context, mass capacity hard drives will be critical from a footprint, efficiency and TCO perspective, ensuring data is safe, secure and compliant. For data centers at the edge, we expect enterprise storage demand will mirror the trends we've seen in the cloud, where upfront AI infrastructure investments led to increased demand for mass data storage over time. Supporting this point of view, a leading enterprise IT infrastructure provider is introducing new tiered storage system solutions later this year for AI applications designed to optimize their end customers' TCO and data utilization requirements by integrating high- capacity hard drives based on HAMR technology. While momentum for our high-capacity HAMR drives builds, we also have continued to increase exabyte shipments of our PMR 24 to 28 terabyte platform to address demand. In fact, in the June quarter, we achieved record quarterly sales and volume shipments for any nearline product with this platform. Leveraging the commonality across our PMR and HAMR platforms, we are executing the volume ramp of Mozaic 3+ products. We are tracking to plan with shipments expanding to additional CSPs in the September quarter. Across the board, qualifications are progressing exceedingly well, and we continue to expect the key global CSP customers to be qualified by mid-calendar 2026. Our progress in bringing HAMR-based Mozaic drives to market at scale strongly positions Seagate to address the significant opportunities we foresee in the cloud and at the edge. The top priority during fiscal '26 is executing our 4-plus terabyte per disk qualification and volume ramp. This product will support cloud workloads with capacities of up to 44 terabytes and also supports lower capacity drives ideal for edge workloads. As planned, we recently started qualification with a global CSP on the 4 terabyte per disk platform and expect to begin volume ramp in the first half of calendar 2026. This time line is consistent with our target for exabyte shipment crossover on HAMR-based nearline drives in the second half of calendar '26. Ongoing investments in innovation such as granular on platinum media and breakthrough photonics technology are critical to delivering our aerial density road map. We continue to make steady progress with 5 terabytes per disk technology, aligning to our goal of introducing it into the market in early calendar 2028, a time frame when we also expect to demonstrate double that capacity, 10 terabytes per disk in the lab. To close, I believe this is one of the most exciting periods in Seagate's history. Recall at our Investor and Analyst Day in May, we discussed how Seagate is in the right markets with the right technology and the right execution to enhance shareholder value. Demand for mass data storage is expected to grow as our cloud and edge IoT customers continue investing in AI-driven strategic imperatives to unlock and protect data value. Amid this strong demand backdrop, we are mindful of the evolving trade policy landscape. Based on our current outlook, we expect minimal tariff-related impacts to the business. We will continue to closely track developments and stand ready to deploy mitigation strategies that minimize potential future impact to Seagate and our customers over the long term. In this dynamic environment, our HAMR-based technology road map makes us uniquely positioned to capture these growth opportunities in the cloud and at the edge as we push forward aerial density gains to efficiently expand exabyte output while enabling our customers to benefit from the improving total cost of ownership. As a result, we are confident in our ability to produce compelling growth in revenue, profitability and cash generation in fiscal '26 and beyond. I'd like to thank our global teams, supply partners and customers for your contributions to a strong fiscal year and to Seagate's ongoing success. Let me now turn the call over to Gianluca. Gianluca Romano: Thank you, Dave. We capped fiscal 2025, delivering strong double-digit top and bottom line growth and achieving record gross margin levels. June quarter revenue came in at $2.44 billion, up 13% sequentially and up 30% year-over-year. We expanded non- GAAP gross margin by 170 basis points sequentially to 37.9%, and we increased non-GAAP operating margin by 270 basis points to 26.2%. Our resulting non-GAAP EPS was $2.59 at the high end of our guided range. For fiscal 2025, we grew revenue by nearly 40% to $9.1 billion. We achieved non-GAAP operating profit of $2.1 billion, marking one of our strongest annual performances and recorded non-GAAP EPS of $8.10. These results underscore our solid operational execution and the ongoing momentum for data center demand, particularly among global cloud customers. Trends from nearline cloud sales, along with seasonal improvement in the VIA markets led to a 14% sequential increase in hard drive revenue, reaching $2.3 billion. Volume shipments increased to 163 exabytes from 144 exabytes in the March quarter. Mass capacity revenue topped the $2 billion mark, up 15% sequentially and 40% year-on-year. Mass capacity shipments were 151 exabytes compared to 133 exabytes in the prior quarter. Nearline shipments into cloud and edge data center made up the vast majority of mass capacity volume. In the June quarter, nearline represented 91% of mass capacity exabytes with shipment of 137 exabytes, up 14% sequentially and 52% year-on-year. Our 24 and 28 terabyte PMR products have been widely adopted by global cloud and enterprise data centers to support their massive data workloads. At the same time, we are ramping our HAMR-based Mozaic products and continue to build customer momentum. Three major cloud service providers are qualified on our Mozaic products with additional qualification proceeding extremely well. On top of strong demand growth from cloud customers, nearline sales into the enterprise OEM market show a modest sequential improvement in the quarter, and we expect stable demand over the next few quarters. The remaining 80% of revenue came from legacy and other product lines. Sales from the legacy market totaled $270 million, up 6% sequentially, while revenue from our other product lines increased 3% sequentially to $163 million. Starting in the September quarter, we plan to adjust how we discuss our end markets. We will focus on two main areas: data center and edge IoT. The data center markets accounted for about 75% of our fiscal 2025 revenue and include nearline products and systems sold into cloud and enterprise customers as well as cloud-based VIA applications. Edge IoT includes consumer and client-centric markets, along with network attached storage. We believe this new framework is better aligned with industry practice and reflects the AI-driven market we serve today. Moving on to the rest of the income statement. Non-GAAP gross profit increased to $926 million, up 19% quarter-over-quarter and 59% compared with the prior year period. Our resulting non-GAAP gross margin expanded to 37.9%. We continue to benefit from a favorable mix, including increased adoption of our latest generation products and ongoing pricing adjustment. These factors, combined with a strong demand environment for data center products, supported non-GAAP gross margin for the Archive business above the corporate average. Non-GAAP operating expenses totaled $286 million, up 4% quarter-over-quarter and in line with our expectations. Other income and expenses decreased 9% sequentially to $73 million due in part to lower net interest expense during the quarter. Adjusted EBITDA was $697 million, up 24% quarter-over-quarter and up 73% year-on-year. Non-GAAP net income was $556 million, resulting in non-GAAP EPS of $2.59 per share based on a diluted share count of approximately 215 million shares. Turning now to cash flow and the balance sheet. We invested $83 million in capital expenditures for the June quarter and $265 million for fiscal '25, which equates to 3% of revenue. Looking ahead to fiscal '26, we anticipate capital expenditure to be inside our target range of 4% to 6% of revenue, while we continue maintaining capital discipline. Free cash flow nearly doubled in the June quarter to $425 million, up from $216 million in the prior period. Based on our current outlook, we expect free cash flow generation to expand further in the second half of calendar year 2025 compared to the first half. This is even accounting for a substantial variable compensation payout in the September quarter, which is consistent with our strong performance. In the June quarter, we returned $153 million to shareholders through the quarterly dividends, and we returned nearly 75% of free cash flow to shareholders for the fiscal year, demonstrating a strong commitment to our capital return strategy. Cash and cash equivalents increased 9% sequentially to close the June quarter with ample liquidity of $2.2 billion, including our undrawn revolving credit facility of $1.3 billion. We reduced our debt balance by approximately $150 million during the quarter, including retiring $505 million through a new $400 million note issuance and cash on hand. We exited the quarter with gross debt of approximately $5 billion. The combination of lower debt and strong profitability resulted in net leverage ratio of 1.8x with further reduction anticipated in the coming quarters as profit expands. Turning now to September quarter outlook. From a demand perspective, the visibility gained through our B2O strategy instill confidence in sustained demand strength for our high-capacity nearline drives and support both revenue and margin expansion in the September quarter. As previously communicated, starting in fiscal 2026, we will be subject to a global minimum tax rate in the mid- teens. Accounting for these factors and for the 14-week period, we expect September quarter revenue to be in the range of $2.5 billion, plus or minus $150 million. At the midpoint, this reflects a 15% improvement year-over-year. Non-GAAP operating expenses are expected to be approximately $290 million, reflecting the 14-week period, partially offset by lower variable compensation as we reset the annual plan for fiscal '26. Based on the midpoint of our revenue guidance, non-GAAP operating margin is expected to expand into the mid- to high 20s percentage range. And non-GAAP EPS is expected to be $2.30, plus or minus $0.20 based on a 16% tax rate and non-GAAP diluted share count of 221 million shares. Our EPS guidance reflects estimated dilution from our 2028 convertible notes and equity compensation. Dilution to non-GAAP earnings from the convertible notes occurs when the volume weighted average price of Seagate stock trades above approximately $108 during the period. We target to partially offset the dilutive impact of the convertible notes through share repurchases, which we expect to resume in the current quarter. To close, Seagate's strong June quarter performance underscores our continued focus on driving growth, enhancing profitability and optimizing cash generation. We are executing our strategic objectives, underpinned by a structurally changed business model and leading technology road map to deliver on our financial targets and enhance value for both customers and shareholders. Operator, let's open the call up for questions. Operator: [Operator Instructions] And your first question today will come from Erik Woodring with Morgan Stanley. Erik William Richard Woodring: Gianluca, I just want to kind of ask you about the maybe implied gross margin guidance for the September quarter. Over the last eight quarters, you've expanded gross margins by over 200 basis points sequentially on average. I believe at the midpoint of your guide, depending on the interpretation of mid- to high 20% operating margins, you're guiding to something like 20 basis points of sequential margin expansion. Can you maybe, one, just confirm kind of that math? And then two, just help us understand the puts and takes and maybe why we're not seeing that gross margin -- implied gross margin expansion in September despite the confidence that we're hearing from you guys about getting to 40% gross margins in a few quarters. Gianluca Romano: Thank you, Erik. I would say your estimate is a bit low. Actually, I say is significantly lower than what is implied in the guidance. So we have just achieved a new record high in our history in terms of gross margin and having a very high operating margin. But we are guiding up revenue. We are driving up gross margin and operating margin, I would say, significantly more than what you are modeling right now. So our path to achieve the milestone or the first milestone that we discussed at our Investor Day just a few weeks ago is intact. Now we are going exactly in that direction. I think we can be there fairly soon. Operator: And your next question today will come from Asiya Merchant with Citigroup. Asiya Merchant: If you can delve a little bit on the AI inference edge demand, both on the cloud side, maybe also on the edge side, what are you seeing perhaps in the customer commentaries that you're having that would suggest that there is an uplift here from AI? And sort of what's kind of your -- as you look ahead into the next few quarters, what are you implying or what are you seeing in terms of the AI exabyte demand, just specifically from inferencing and workloads that are sort of baking -- workloads that you're expecting for your guidance? William David Mosley: Thanks, Asiya. It's a fairly complex space, a lot of different things being called AI. What I would say, generally speaking, in the cloud, it's about video properties. We've seen this for many quarters in a row now. where video is actually stored in the cloud and the diversity of video that's actually coming in from all parts of the world that gets stored in the cloud, those are tremendously rich data sets for us to ultimately store on hard drives. As far as edge goes, you're starting to see all kinds of different applications, whether they're video applications themselves, factories, safety, factory efficiency, hospitals. There's a lot of big data sets that exist, especially video data sets that exist at the edge. And some of those applications are taking us. So call them inferencing, but they need a lot of data to be fed with at the edge. And then there's also just the normal growth of, I'll call it, data and analytics, text data analytics still. But interestingly, at the edge, we're starting to cross over from a point where you maybe treated data as something that you had to sort through and then delete. Now it's just snapshot, snapshot, just keeps saving lots of snapshots at the edge because you might want to go back and look through it. So those are actually driving some of the edge growth that we've made reference to as well. Asiya Merchant: If I may, just how does that affect kind of what you guys shared at the analyst event in terms of exabyte CAGR as you kind of look ahead? William David Mosley: Yes. I think the biggest wildcard in that, and we're still sticking to the same exabyte CAGRs that we talked about, mid-20s that we're comfortable with that. But there are -- we are watching some of these new applications, the ones that people talk about, viral applications that happen to be very data dependent are very interesting to us. And most of those are edge applications because there's a lot of data at the edge that ultimately gets just thrown away. And so if it could be processed or stored longer, it's more interesting to us. So I think the cloud knows how to deal with the data that actually ultimately resides on the cloud very well. And especially sovereign data sets, sorry, especially sovereign data sets where people are wanting to keep the data locally like we made reference to in the prepared remarks, I mean those are interesting as well. Operator: And your next question today will come from Jim Schneider with Goldman Sachs. James Edward Schneider: I was wondering maybe if you could talk a little bit about the HAMR contribution you saw in terms of revenue in this quarter and whether you expect -- how much you would expect that to increase, if at all, in the September quarter? And then maybe following on to that, any kind of impact you expect that would have on gross margins, either positive or negative in the out quarter? William David Mosley: Yes. Thanks, Jim. So HAMR is growing steadily, and we're very happy as we get more people qualified like we've talked about, then we'll continue to ramp. What we're very focused on in the company right now is getting to the 4 terabyte per platter platform. And we're, in some sense, winding up for that, which we'll expect that ramp early in calendar 2026, like we said in the prepared remarks. As far as gross margin, the current product sets are still accretive to gross margin. As we get higher and higher, we expect it to be more accretive. But Gianluca, do you want to give some more color on that? Gianluca Romano: Yes. No, we are ramping HAMR higher quarter-over-quarter, and we have already three major cloud customers that are qualified on Mozaic 3, and we have started Mozaic 4 terabyte per disk. So we are executing our road map, the one that we recently discussed at our Investor Day, and we expect Q1 to be another step higher in terms of volume and of course, in terms of revenue. And as we discussed, because HAMR is higher capacity drive and lower cost per terabyte, we expect a positive impact to our gross margin. Operator: And your next question today will come from Wamsi Mohan with Bank of America. Wamsi Mohan: Yes, you had a strong quarter, clearly, but you guided revenue slightly below consensus for the September quarter and your DSO also jumped up. So I was wondering if you could clarify if there was anything that you would point out in linearity in the quarter? And I guess the question is, how well is your HAMR capacity ramp aligned with qualifications and demand? Like are you tracking better on production versus demand because of qualification, which could maybe potentially drive some catch-up in the December quarter? William David Mosley: Yes, Wamsi, I'll let Gianluca jump in here. But relative to the HAMR ramp -- sorry, let me just talk about this quarter versus last quarter. Last quarter, obviously, the planning for these quarters is six months, nine months ago with build-to-order or more in some cases. And so we have to look at what is qualified exactly to your point and then what's going to be qualified in six months or nine months, we're leaning into the product transitions that happen along the way. If anything, if we can make more product of any kind, we would make it, but we're also trying to incentivize these product transitions to 3 plus and then 4 plus as well. And we're consuming a lot of our operational efficiency that way. Maybe there was a little bit of overpull to your question last -- about last quarter, and that's indicative of strong demand. I mean the demand may be stronger as we get out to the back half of the year. We certainly see fairly strong demand right now. We're trying to balance our manufacturing capability and that planning that we've done long term, what we had promised people 9 months ago, we're trying to balance all that together, but also prioritizing the product transitions. Gianluca Romano: Yes. No, Wamsi, you said well, we had a very strong June quarter. We achieved better results than also what we were estimating at the beginning of the quarter, and we are guiding a better quarter in September. Demand is strong, is above supply. So our guidance is mainly based on what we think we are ready to supply during the quarter and that volume of exabytes, they will be fully sold. We also need to dedicate a little bit of our production to qualification. So some of our volume is dedicated to coal. And as you know, we are qualifying a big number of customers on HAMR. And so of course, we are slightly impacted in the volume that we sell because we need to keep some volume for customer coal. But we are going in the direction that we recently discussed is another step further into our improvement in not only in revenue, but even more importantly, in profitability. And when you look at our guidance, of course, you need to remember that starting this quarter, we will be subject to the global minimum tax. So when you look at EPS, of course, there is an impact from the tax expense. And there is also an impact from a higher number of share outstanding because of the convertible and equity compensation. So when you model all those things correctly, you will see actually a fairly good improvement in both gross margin and operating margin. Wamsi Mohan: Just to clarify that one last point you made around the capacity ramp and some of the capacity being tucked away sort of for these calls. Would you say that, that's something that just continues to roll forward as you're qualifying more customers? Or do you have a potential for a really meaningful step-up once you get into December because now you've got the CSPs called on Mozaic 3? Gianluca Romano: We don't guide December. But as I said before, we are going into the direction of continuing to improve revenue and profitability. And of course, part of this revenue is coming from having a little bit more supply available. So we are executing our plans. We don't see any major constraint right now in achieving what we said recently, and we are very, very confident. Operator: And your next question today will come from Thomas O'Malley with Barclays. Thomas James O'Malley: On the HAMR side, I'll ask it differently. I don't think you guys want to give out the exact percentage of revenue over the next couple of quarters. I think you did a good job at the Analyst Day of showing where the crossover point was in the first half of fiscal year '27. But maybe from a customer perspective, like a large part of the ramp thus far has been with a single customer. You're talking about multiple customers qualified. At this point, are customers two, three, et cetera, outside of customer one making up a significant portion of the ramp, like 10% or more, let's say? I just -- I'm trying to get an understanding of the adoption outside of the first guy. William David Mosley: Thanks, Tom. Yes, simple answer to your question is yes. The other customers are starting to ramp as well, and the pull is pretty strong also, depending on who's called where they may ask for more of the last-generation product or may want to wait until the 4- terabyte per platter, but everybody has pretty good visibility, and we have multiple customers pulling hard. And that's indicative of the exabyte demand. Maybe to the earlier question that Wamsi was asking, we add exabyte capacity by getting through these transitions. And so that's been our move is we're not really trying to add gross capacity of number of drives. We're trying to get through these transitions as fast as we can to be much more efficient with the exabytes. Thomas James O'Malley: Helpful. And in terms of that transition, I think you guys had previously said on the mass capacity side, like where you kind of ran into a wall in terms of where you were willing to produce was like 160 exabytes on the mass capacity side. Is that still the right way to think about where things are stopping before you get just the growth from the technology side? Or are you looking at that in any different way now? I just wanted to see if there was an update there. William David Mosley: With continued ramp of Mozaic 3+ platforms, we could continue to grow. But 4+ allows significant growth above that, yes. So it's not a wall so much anymore. It really was when we were stuck in the middle of 2 terabytes per platter product, but we're way past that now. Operator: And your next question today will come from Amit Daryanani with Evercore. Amit Jawaharlaz Daryanani: Dave, as you think about the LTAs that are giving you visibility, it sounds like into early '26 right now. Can you just touch on what pricing assumptions are you seeing embedded on an exabyte basis in these contracts? And really, as you think about the HAMR products starting to ramp up over the next 12 months, do you end up in a pretty good cost advantage, I think, on a per exabyte basis on HAMR exabytes. Do you think these LTAs will enable you to keep those cost savings for Seagate? Or would we see a bigger drop in price per exabyte that you have to engage with your customers with at that point? William David Mosley: Yes. No, we don't have to -- it's a good question. We don't have to incentivize the transition. I mean there's a significant TCO benefit of running these new products in your data center. So if you think about a 40 terabyte versus a 30 terabyte, for example, and you're going to run that for six or seven years, that's a huge TCO benefit. So there's an incentive baked in right there. We know what our costs are going to be, and we know what pricing we want to incentivize and we know what margin that we need to be able to go back and refeed our R&D and our supply chain and everything else. So we're balancing all these things in the planning that we're doing. Gianluca, do you want to talk about pricing? Gianluca Romano: Yes, we are not changing our pricing strategy that we have started more than two years ago. So our like-for-like pricing will continue to slightly increase every time we negotiate a new build to order. Of course, the mix is going into more higher capacity drives, so -- but it's also that part of offset. But again, everything is aligned to how we are executing our plan that we presented just a few weeks ago. Operator: And your next question today will come from Aaron Rakers with Wells Fargo. Aaron Christopher Rakers: I want to ask a little bit about free cash flow generation and how we should think about share repurchase. So I think in the prepared comments, you had pointed out that you should be in your CapEx spend range of 4% to 6%. I guess the first part of this is that, that would seem to imply a fairly healthy uptick in the CapEx spend. year-over-year for fiscal '26 versus fiscal '25? And I guess why would that be? And then the second question is kind of tied to that is that as we see the generation of free cash flow, you've hit the sub-$5 billion gross debt level. How do we think about the right level of cash operationally you're willing to hold? Or how maybe in the opposite way, we should think about excess cash being built and capacity for share repurchase. Any thoughts around that would be helpful. William David Mosley: Thanks, Aaron. I'll hand it over to Gianluca in just a second. But just to handle from an operations perspective, I mean, obviously, given what we've been through in the last few years, we were pretty tight on CapEx. So I'm not sure that looking at a year ago or two years ago baseline is a great way to think about it, some of our gear needs to be replaced. there's a small tick up for that, but then there's also us looking forward into FY '27 and FY '28 and saying, how do we make sure we stage for 4 terabytes of platter and 5 terabytes platter mix, make sure we have the right gear for that. That may drive CapEx a little bit. We'll still be well within our range, though. And then Gianluca? Gianluca Romano: Yes, Aaron. So free cash flow is improving a lot. You have seen already in the June quarter, a major step-up. This will continue, as we said, during the second part of calendar '25 and will also continue for the second part of our fiscal '26. We have reduced our debt, as you said, at the target level we were targeting since more than a year at this point. And Dave just announced that we are restarting share buyback. So again, we are executing our plan. I think this is a good time to restart the share buyback. And in terms of liquidity, you were asking and excess cash flow or excess cash, we don't have excess cash right now. I think we can maybe still increase a little bit our cash position, but the vast majority of our free cash flow, of course, will go back to our shareholders through the dividend and through the share buyback. Operator: And your next question today will come from Ananda Baruah with Loop Capital. Ananda Prosad Baruah: Dave, just going back to your prior remarks about the AI drivers that you're seeing in your business. And this would be sort of not at the edge of the data center remarks. And did you actually make mention that you're seeing multiple types of AI video drivers? And if you are, could you -- do you mind just sort of speaking to those again? I just wanted to get clear on those. William David Mosley: Well, yes, I would say, Ananda, there's the video properties that I call them, the things that are storing a lot of video on the cloud and then sharing that video across many, many users around the world, right? So we all are familiar with those. And use those every day. There's also just unstructured data that's coming into the cloud for processing that could be video content as well. And then there's video generation from some of the new AI applications also that some of those are starting to go viral as well. That's a small trend so far. So the video processing, the unstructured data processing is big. And then the video properties, as I call them, is just huge, creating -- because humans are creating all kinds of diverse content and then storing them through these applications. Ananda Prosad Baruah: And are you seeing from the autonomous sector, anything starting to happen with generative AI? Any visibility into that? And that's it for me. William David Mosley: That's an interesting question. So we do have some partnerships with people that are making autonomous vehicles. Typically, so far, the data is actually gathered in the field and then processed in a local cloud. And it's fairly data rich. But so far, there hasn't really been a generation of data at the extreme edge and then monetization somewhere else besides just teaching the car how to drive better. Should that ever happen so that the cars themselves become units that are actually picking up a lot of data and then sharing it some other way, that could be a huge opportunity. So far, we haven't seen that. It's more about training and inferencing just to make sure that the vehicles are driving right and staying safe. Operator: And your next question today will come from C.J. Muse with Cantor Fitzgerald. Christopher James Muse: So I was hoping to better understand your ability to drive revenue growth, both short term and longer term. So for the September quarter, you're guiding up 2%. You have an extra week, but you talked about select HAMR bits going to qualification. So I would have thought perhaps with the extra week, maybe you could have had more output. So is there something else going on there? Is there a mix issue? Would love to have help there. And then for fiscal '26, at your Analyst Day, you talked about longer-term growth of low to mid-teens top line. And I'm just curious, at what point in the HAMR ramp do you think you'll have the capacity to support that type of growth? William David Mosley: Yes. I'll let Gianluca deal with the longer-term period. But obviously, as I said before, the quarter-over-quarter stuff was -- a lot of the supply perspective on these quarters was dictated six months ago or nine months ago under build-to-order. And I don't think our customers look at it as 14-week or an extra week or whatever. So if there happens to be a little bit more demand at the end of the quarter, maybe it will come our way. There's maybe some evidence that it did last quarter. But I don't really get into the -- what happened in one week period. From our perspective, the way we put more exabytes online is to go through the product transition, not necessarily buy capital to try to build more for demand because that would be a long, long lead time anyway. So we're actually very focused on getting the new products in qualified, up the ramp, so on and so forth, and that will help build our margins. Gianluca Romano: Yes. The mix is going in the right direction. So we are increasing both Mozaic, so the HAMR product, and the last generation of PMR products. So you will see the increase in exabytes that are implied in our guidance and also what we have done in the most recent quarter. We are increasing exabyte. We are not increasing units. So this is all technology transition. The more and more we move customers to HAMR, the more and more we have the opportunity to increase the exabyte. And of course, that will result in higher revenue. In terms of what we said at our Analyst Day in terms of revenue growth, -- so the low to mid-teens, we guided next quarter at $2.5 billion. If you look where we were a year ago, I think it's probably 15% higher. So I don't see anything different compared to what we were saying a few weeks ago and what we are executing. Of course, every quarter is different. And as I said before, we guide based on what we think we are producing in the quarter. If we will produce a little bit more, we will be able to generate a little bit more revenue. But right now, this is the visibility. Operator: And your next question today will come from Krish Sankar with TD Cowen. Hadi M. Orabi: This is Eddy for Krish. Just a question on the guide. It seems that your guidance implies incremental gross margins about like 50%, even though we are still below the $2.6 billion revenue baseline you outlined on the Analyst Day. I wonder as you go from the $2.5 billion in September to $2.6 billion and above, why would your incremental gross margin not be better than the 50% number you guided at the Analyst Day? Like are there some headwinds in the near term? It's just like a little bit puzzling, especially given that the HAMR ramp is still in very early stages. So someone should expect like revenue -- gross margin accretion above the 50% you guided. But -- so any color on that regard would be helpful. Gianluca Romano: Yes, guys, I think you need to look at your model a bit deeper because the implied gross margin in the guidance is way higher than what you are seeing. Again, look at your model, look at the impact of the increase in the share outstanding, the increase in the tax. But the gross margin in our guidance is much higher than 50 basis points sequentially. Hadi M. Orabi: Sorry, Gianluca, I meant 50% incremental gross margin, not 50 basis points. Gianluca Romano: Okay. Perfect. Well, no, I would say that every quarter will be a little bit different depending exactly from the mix that we change quarter-over-quarter. But I would say our first goal is to achieve the $2.6 billion in revenue and the 40% gross margin. And I think we are trending well in that direction. And after that, our goal is to continue to increase revenue in the low to mid-teens as we discussed at the Analyst Day and increase our profitability for an incremental 50% gross margin. So I would say nothing changed in the last eight weeks. So I think the plan is ongoing, and we are executing well. Operator: And your next question today will come from Timothy Arcuri with UBS. Timothy Michael Arcuri: Dave, you made a comment that I haven't heard you make before. You said the capacity is booked out to mid-'26 and visibility is extending into the back half. What does that mean? Because build-to-order -- I mean, the lead time to build to drive is a year. So if you place an order now, you're not going to get the drive until this time next year anyway. So sort of by definition, you have a year worth of visibility. Are you changing how you book that capacity? And I guess part of that is, what does that really give you? Like do you know exactly what's going to ship in December? I know you don't want to give us guidance, but can customers push out like if you wanted to guide December, could you tell us what you're going to ship in December? I'm just wondering if something changed for you to give that comment. William David Mosley: Nothing's really changed. So -- and you're somewhat right. We -- remember, we're leaning through these product transitions. So we have customers who are driving us to not only start the ramp of Mozaic 3+, but start the ramp of Mozaic 4+ and so on. And they're working with us on qualifications. And that's some of the stuff that we talk about visibility. They generally want exabytes. They don't want specific boxes, but they want the most efficient boxes they can get. And so do we have pretty good visibility into that? Yes, and we have long lead times for some of the components. So we have to make sure we start those components right now. If that helps your comment, Tim. Timothy Michael Arcuri: Yes. I guess I'm just trying to figure out like, do you know exactly what you're going to ship in December? I know you don't want to give guidance, but I mean, could December be down potentially? Or do you have enough visibility to say, look, we know exactly what we're going to ship in December, and we don't want to tell you, but we at least know what it's going to be. William David Mosley: Right. I would say we know what the customers want and demand is very strong. That's what we made -- as far as what else might happen in the world, I don't know what else might happen in the world. But from our perspective, demand is still strong, probably stronger than what we have capacity for. And even though we're building capacity as we get through some of these transitions, the exabyte capacity via the transition. Gianluca Romano: And Tim, we said previously also in prior calls, we expect calendar '25 to sequentially increase revenue and profitability. So we continue in that direction. So December will be higher revenue and higher profitability. Operator: And your next question today will come from Steven Fox with Fox Advisors. Steven Bryant Fox: I was just curious if there's any seasonality we have to think about as we figure out the full fiscal year quarters. It seems like there's a lot of positive quarter-on-quarter tailwinds as you go through the year. What kind of seasonal warnings would you throw up, Gianluca? William David Mosley: The seasonality, Steve, is starting to really diminish in our business. So if the legacy and other businesses, they still have some seasonality. And then VA is interesting because as time marches on via some of the VA workloads are moving to the cloud as well. And so we're seeing not the typical seasonality that we would have seen in the VIA markets. It's actually more muted now. But I think the bulk of our business, there really isn't any seasonality anymore. Steven Bryant Fox: And just real quick... Gianluca Romano: Sorry, in total, I would say March quarter is usually our lower quarter in terms of revenue. But as Dave said, that seasonality impact every year becomes a little bit smaller. Steven Bryant Fox: And just real quick, if I could squeeze one in. I know someone asked you about receivables. I'm not clear on the answer in terms of why the receivables were up so much in the quarter. Gianluca Romano: There is nothing strange. As you know, in the past, we did also some factoring, and we didn't do any factoring this quarter. And that's because our free cash flow was really strong already. So nothing unusual, I would say, in the business that drive receivable higher. William David Mosley: Yes. I'd say we're back to running the business the way we want to, and we've got the supply chain moving the way we want to. So we're very pleased with the progress in FY '25. Operator: Your next question today will come from Tristan Gerra with Baird. Tristan Gerra: High-level question. It looks like NAND hasn't been cannibalistic to HDD demand for some time. Each storage type has their own respective end market. And there's been so much in terms of capacity cuts in NAND recently that has precluded any production cost down. So as eventually NAND capacity normalizes and production costs return to a normal curve, should we view this as a potential pressure on HDD demand in certain end markets? Or are the dynamics such that notably with HAMR, your density versus production costs maintain the gap with NAND? William David Mosley: Yes, it's a complex question, but I would say that your last point is the way we think about it. We're continuing to increase the capacity point per drive and also keep our costs in line. We have a great value proposition for customers. And so therefore, in the markets that we -- that are really material to us like the cloud markets, the interface between NAND and HDD is not really changing that much. And when I say interface, keep in mind, there's a lot of NAND in the cloud, right? There's a lot of front-end memory in these application spaces. And in some cases, some are very memory dependent. But when it comes to mass data storage, the interface between all the NAND that's being used and all the hard drive bits that are being used is not changing that much. And because of the economics that you talked about, because of the -- like we talked about in the Analyst Day, the total amount of capital that would be required to replace the bites that are HDD with NAND. So NAND is a great technology. It's got a lot of interesting applications on the edge. They need to manage the business well. That may be the result -- that may be what's resulting in some of the behaviors that you made reference to. But in the bulk of mass storage applications, certainly in the cloud, the architectures are not changing. Operator: And your next question today will come from Vijay Rakesh with Mizuho. Vijay Raghavan Rakesh: Just first question on the gross margin side, assuming your margins go to like 38.7%, 38.8% in the September quarter. Is that pickup coming from pricing, utilization and the HAMR mix? Or can you give us some attribution like what percent goes to -- from the pricing improvement versus utilization versus the HAMR mix? And then I have a follow-up. Gianluca Romano: And you're talking about the September quarter or the June quarter? Vijay Raghavan Rakesh: Yes. September quarter, sorry, yes. Gianluca Romano: Yes. I would say all those factors that you mentioned. So HAMR volume will be higher, and this is, of course, a good help to our gross margin. And the pricing strategy, as we said before, is not changing. So for the few contracts that we will have renewed in the September quarter, we will have a little bit better pricing. And we are selling all our production. So of course, also on the cost side, we are getting fairly good cost per terabyte decline. So I would say not differently from the last few quarters, we are trending in the same direction, and we are continuing this sequential improvement. Vijay Raghavan Rakesh: Got it. And Dave, I think you mentioned three customers on HAMR now. And I think you guys have said five customers by the end of fiscal '26. Can you talk to what -- how the other two are going and how you expect the #2 and #3 ramps to progress, I guess? William David Mosley: Yes. So earlier, I talked about the fact that there were more people ramping the product relative to the three customer comment. We haven't really said 5 yet, but we've said major customers will be qualified by early '26. That's what I said in the prepared remarks. And we actually talked about that at Analyst Day as well. So we're still on exactly that path. To your question about how are the calls going, they're going very well. I think as customers need more bites, they see that -- as they get through the qualification, they see that as an option and then they're creating that demand. Obviously, we -- with the build-to-order, we have to be very prescriptive of it. So we know exactly what we're going to be able to build. We know which wafers are flowing, and we know what heads of media capabilities we're going to have to hit those things, we'll be as predictable as we can for them. But the progress on the qualifications is going quite well. Operator: And your next question today will come from Mark Miller with The Benchmark Company. Mark S. Miller: Yes, I'm trying to get my arms around the impact of this global minimum tax, which kicks in, in fiscal 2026. I believe you said the non-GAAP tax rate will be 16%. Can you give any insight what the GAAP tax rate will be with this global minimum tax? Gianluca Romano: Yes, it will be very similar. So the global minimum tax is impacting us on both GAAP and non-GAAP. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. William David Mosley: Thanks, Nick. Thanks, everyone, for joining us today. Fiscal '25 was an incredible year for Seagate, and I'm really proud of our team's execution. We're operating in a strong demand environment, driven in part by advancements in Gen AI and the march towards all these agentic models. These breakthroughs have solidified data as one of the world's most critical resources. Hard drives are a key component in empowering businesses to harness the full value of their data and Seagate's leading technology road map make us uniquely positioned to capture value from those growing opportunities. We appreciate the ongoing support of our customers, our suppliers, our employees and the shareholders, and we look forward to sharing our progress in the quarters ahead. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: Welcome to the Seagate Technology Fiscal Third Quarter 2025 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Shanye Hudson, Senior Vice President, Investor Relations. Please go ahead. Shanye Hudson: Thank you. Hello everyone and welcome to today's call. Joining me are Dave Mosley, Seagate's Chief Executive Officer, and Gianluca Romano, our Chief Financial Officer. We've posted our earnings press release and the detailed supplemental information for our March quarter results on the Investors section of our website. During today's call, we will refer to GAAP and non-GAAP measures. Non-GAAP figures are reconciled to GAAP figures in the earnings press release posted on our website and included in our Form 8-K. We've not reconciled certain non-GAAP outlook measures, because the material items that may impact these measures are out of our control and/or cannot be reasonably predicted. Therefore, reconciliation to the corresponding GAAP measures is not available without unreasonable effort. 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, 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're subject to risks and uncertainties associated with our business. To learn more about the risks, uncertainties, and other factors that may affect our future business results, please refer to the press release issued today and our SEC filings including our most recent annual report on Form 10-K and quarterly report on Form 10-Q, as well as the supplemental information all of which may be found on the Investors section of our website. Following our prepared remarks, we'll open the call up for questions. In order to provide all analysts with the opportunity to participate, we thank you in advance for asking one primary question and then re-entering the queue. With that, I'll hand the call over to you, Dave. Dave Mosley: Thank you, Shanye, and hello, everyone. Seagate delivered another solid quarter of profitable year-on-year growth and strong execution. Our third quarter results are highlighted by a 31% year-on-year increase in revenue and 81% growth in non-GAAP gross profit dollars. We continue to demonstrate strong financial leverage, expanding gross margin for the eighth straight quarter, and achieving the third highest operating margin in the company's history. This performance supported non-GAAP EPS performance at the top of our guidance range and increased free cash flow generation. These strong levels of performance reflect the combination of a healthy supply-demand environment for mass capacity storage and the proactive steps we've taken over the recent cycle to transform how we operate. Our supply discipline, the visibility we gain through our build-to-order strategy, and our execution on strategic pricing actions all contribute to sustainable and profitable growth over the long-term. In addition to strengthening our operating model, these factors further enhance our agility, which is critical to our ability to navigate the fluid business environment. Based on the latest trade policy announcements, we expect minimal impact to fourth quarter financial performance due to tariffs. We are continuing to monitor the situation and evaluate strategic solutions, including geographically shifting certain of our manufacturing processes and aligning our supply chains to mitigate risks associated with trade policies over the long-term should the need arise. In this dynamic macro landscape, we will continue to focus on managing controllable factors, while executing our aerial density driven technology roadmap, which delivers increasing value to our customers. Seagate's HAMR-based Mozaic drives represent the industry's only 3 terabyte per disk products. We are ramping volume to qualified customers and remain on track to qualify a broader range of cloud customers with shipments beginning in the second-half of calendar 2025. Turning to the demand environment, we are mindful that tariff measures could affect customer buying decisions. However, current demand indicators remain intact, particularly among global cloud customers. In the March quarter, cloud nearline revenue and exabytes were up by nearly 10% sequentially, almost doubling year-over-year amid a very tight supply environment. The growing demand for mass capacity storage aligns with the cloud CapEx investment cycle and ongoing build out of data center infrastructure to support AI transformations. Hard drives continue to store close to 90% of the bits in large scale data center deployments. Data center architects are highly sophisticated and have consistently employed a strategic mix of storage solutions to optimize scalability, cost efficiency, and workload performance. Reinforcing this approach, Google recently unveiled details about their foundational Colossus storage system, highlighting the use of SSDs for fast data access, while depending on hard drives for mass storage and data retention needs due to their scalability and cost benefits. This hybrid storage strategy is particularly vital for AI workloads that require access to massive data sets for training and inference, and subsequently generate valuable data content that users want to retain. For instance, training in an AI model to generate images requires billions of static pictures, while AI-based video generation demands thousands of hours of footage to accurately capture transitions and variations between frames. At 24 frames per second, each hour of video equates to roughly 80,000 images. Hard drives have historically benefited from the growth in video content on social media platforms and content delivery networks. Emerging text-to-video applications promise to revolutionize content creation and lower production costs likely to increase storage demand. In this context, hard drives are crucial for storing training data, maintaining model checkpoints, and preserving both interest and generated content. Over the past 18 months, large cloud and hyperscale customers have driven HDD demand growth. However, we have also started to see a pickup from smaller edge data centers and private clouds that seek to preserve their valuable data for privacy or sovereignty purposes. In the year ahead, nearline exabyte demand looks strong through calendar 2025, and we now have visibility of demand with several customers into the first-half of calendar 2026 as we negotiate new build-to-order agreements. Seagate is in a strong position to address the favorable demand outlook as we ramp shipments of our high-capacity drives. Our 24 and 28 terabyte PMR platforms continue to ramp aggressively, with exabyte shipments up roughly 60% quarter-over-quarter. Additionally, we are continuing to ramp HAMR-based products with our first hyperscale customer, and we are approaching the conclusion of our second major CSP qualification. Feedback from other cloud customers has been positive as they progress through their respective qualification timelines. We expect an appreciable increase in HAMR product shipments over the coming quarters as these future qualifications conclude. Based on the time required to fully scale HAMR production, we plan to fulfill build-to-order commitments through a blend of HAMR and PMR products over the next several quarters. It is becoming increasingly evident to both our customers and the market that HAMR is a groundbreaking technology that will extend TCO advantages for hard drives over other storage media for many years to come. More than a decade in the making, HAMR is pivotal in enabling Seagate to meet the world's exabyte demand growth through technology innovation rather than supply expansion, thereby supporting Seagate's ability to deliver sustained and profitable growth. I'll stop here and turn the call over to Gianluca. Gianluca Romano: Thank you Dave. In the March quarter, we delivered strong earnings and free cash flow generation, underscored by solid execution and our focus on profitability. March quarter revenue came in at $2.16 billion, above the midpoint of our guidance and down 7% sequentially, limited by the temporary supply constraints we discussed last quarter. Despite lower revenue levels, we expanded non-GAAP gross margin by 70 basis points sequentially to 36.2%, supported by strong adoption of our high-capacity nearline drives. Non-GAAP operating margin increased to 23.5% of revenue sequentially. Our result in non-GAAP EPS was $1.90, which is the top hand of our guided range. Within our hard drive business, continuous strength in nearline cloud demand partially offset the anticipated decline across most of the other end markets, due to typical seasonality and allocation of our available supply. Hard drive revenue was $2 billion, down 8% sequentially on volume shipment of 144 exabyte, compared with 151 exabytes in the December quarter. Mass capacity revenue declined sequentially by $145 million to $1.7 billion, which represents a 48% increase year-on-year. Mass capacity shipments of 133 exabytes were down 5% sequentially and up 50% year-on-year. Nearline represented roughly 90% of mass capacity volume in the March quarter, with shipment of 120 exabytes, down 5% sequentially, while up 55% year-on-year. We continue to experience strong product-based demand for our 24 and 28 terabytes PMR products, which remains the highest revenue and exabyte volume product family. The richer mix of these higher capacity drives, along with initial volume ramp of HAMR-based products, drove a sizable uptick in average nearline drive capacity for the quarter. Sales of our legacy products totaled $254 million, down 8% sequentially, primarily reflecting expected seasonal trend in the consumer markets. Finally, revenue for our other businesses, which include systems, SSD, and repurposed drives, was relatively flat at $157 million. Moving on to the rest of the income statement, non-GAAP gross profit was $781 million, compared with $825 million in the prior quarter and $432 million in the prior year period. At the company level, non-GAAP gross margin expanded by 70 basis points to 36.2% sequentially, and expanded by over 1,000 basis points year-over-year. We continue to benefit from a favorable mix, including increased adoption of our latest generation products and ongoing pricing adjustments. These factors support non-GAAP gross margin from the hard drive business above the corporate average. Non-GAAP operating expenses totaled $274 million, down 5% quarter-over-quarter. Relative to our plan, we benefit from the timing from R&D related material expenses and certain one-off items. For your awareness, the September quarter will have 14-weeks instead of the typical 13-week period. As a result, we expect to incur higher operating expenses for the period. However, revenue patterns tend to be based on calendar quarters and would therefore be largely unaffected by the additional week. We will provide further clarity on our July earning calls. Other income and expenses decreased 7% sequentially to $80 million, due to lower interest expenses from retiring debt and is expected to remain relatively flat in the June quarter. Adjusted EBITDA was $563 million, compared to $591 million in the prior quarter and $278 million a year ago, doubling year-on-year. Non-GAAP net income was $407 million, resulting in non-GAAP EPS of $1.90 per share, based on diluted share count of approximately 214 million shares. We are managing the business for long-term durability, optimizing both profitability and cash generation. In the March quarter, we increased free cash flow generation to $216 million, compared with $150 million in the prior period. Based on our current outlook, we expect free cash flow generation to improve sequentially for the rest of the calendar year. Inventory remains flat at $1.5 billion, as we prepare to support future demand growth, including HAMR products. Capital expenditures were $43 million for the quarter and represent roughly 3% of revenue for fiscal year-to-date as we continue to maintain capital discipline. We returned $152 million to shareholder through the quarterly dividend and close the March quarter with ample liquidity of $2.1 billion, including our undrawn amount of $1.3 billion from our new revolving credit facilities. Our debt balance was $5.1 billion at the end of the March quarter after retiring approximately $536 million of debt during the quarter, consistent with our intent to reduce debt. Our resulting net leverage ratio was 2.1 times, and we expect to see further reduction in the coming quarters. Turning now to our June quarter outlook, we have continued to see robust demand for our high capacity nearline products across the global cloud customer base, which along with incremental improvement in the VIA market are expected to drive revenue and profits higher in the June quarter. As noted earlier, we currently forecast minimal direct impact from tariff policies and will be monitoring for secondary impacts, including changes in customer demand. Based on what we know today, we expect June quarter revenue to be in a range of $2.4 billion, plus or minus $150 million. At the midpoint, this reflects 11% improvement sequentially and 27% improvement year-over-year. Non-GAAP operating expenses are expected to be approximately $285 million. And at the midpoint of our revenue guidance, we expect non-GAAP operating margin to expand into the mid-20s percentage range. We expect our non-GAAP EPS to be $2.40, plus or minus $0.20, based on a diluted share account of approximately 214 million shares, and non-GAAP tax expense of roughly $10 million. As a reminder, starting in fiscal 2026, we estimate a tax rate in the mid-teens, as the various jurisdictions in which we operate adopt the pillar to global minimum tax. To close, we are continuing to demonstrate strong financial discipline and operating leverage that support both profitable growth and greater agility to navigate the dynamic macro environment. I will now turn the call back to Dave for final comments. Dave Mosley: Thanks, Gianluca. I would like to conclude by reiterating three key points that underscore my excitement for Seagate's opportunities over the long-term. First, we've transformed our business model and made a cultural shift to prioritize profits and cash generation with a sustained focus on driving healthy industry supply demand fundamentals. Second, these changes are taking place amid secular growth tailwinds for mass capacity storage that are underpinned by the ever increasing rise in data generation and data value. And third, Seagate's winning technology platform and clear roadmap positions us to capitalize on those tailwinds to deliver sustained profitable growth with agility. We look forward to sharing more about how this winning combination of technology leadership, profitable growth and healthy industry fundamentals set Seagate up for even greater success at our investor and analyst event taking place on May 22. I'd like to thank our global teams, supply partners, and customers for your ongoing contributions to our success and to our shareholders for your continued support. Operator, let's open up the call for questions. Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Erik Woodring with Morgan Stanley. Please go ahead. Erik Woodring: Hey guys, good afternoon. Thanks for taking the question and nice quarter here. I know you guys were capacity constrained in the March quarter. So can you maybe just help us better understand how and where you got some of the upside in the quarter with that supply shortage? And as I just extend that to the June quarter. How do we think about the risk of pull forward impacting June quarter revenue? Or maybe if I asked you differently, if you guided to the June quarter a month ago, would you have still guided to $2.4 billion of revenue at the midpoint? Or has anything changed over the last month as it relates to your ability to your customers maybe needs to pull forward any demand? Thanks so much. Dave Mosley: Thanks for the question, Eric. Simple answer is yes, we would have guided the same thing a month ago, and that's largely this predictability that we've built in through the build-to-order process playing through. We were under serving the market last quarter. I think that's probably true not only for Seagate, but for other players in the market, we'll be able to assess that more over time. And some of that's due to our operational issues that we had. We discussed this back in November. Really came through last quarter. Those operational issues have been fixed. And so all that's been planned for quite some time that affects the Q4 guide here that's in front of us. As far as longer term, the build-to-order continues to serve us quite well. And we're doing it through product transitions as well, which helps the qualification predictability and all other financial aspects of Seagate. So, I'm quite pleased with that. Operator: The next question is from Asiya Merchant with Citi Group. Please go ahead. Asiya Merchant: Great. Thank you for the question and great quarter. If I can just if you can double click on where we are with HAMR, you know, where you are with your qualifications with your other customers and how much did HAMR contribute to the March quarter results? And how we should think about the contribution of HAMT to your bytes as you progress through calendar ‘25. Thank you. Dave Mosley: Thanks, Asiya. Yes, I'll let Gianluca speak specifically to the numbers. HAMR is growing quite well. I would say quarter-over-quarter since the last time we spoke. We're still on the exact same plan. So I'm very happy with the qualification progress. And we'll share a little bit more of that in the May 22 Analyst Day. So I'd say please attend. Relative to how we are standing right now, we talked about in the prepared remarks one qualification, a major CSP almost complete and we have another quite a few in flight as well, so… Gianluca Romano: Yes, also, now referring back to Erik's question about the revenue increase, compared to the midpoint of our guidance, I would say that is actually coming from more volume on HAMR products. So where we were able to squeeze a bit more supply during the quarter was mainly on the HAMR part. And HAMR is ramping very, very well and very rapidly. And we will disclose more about HAMR future development in a few weeks from now at the Analyst Day. Asiya Merchant: Thank you. Operator: The next question is from C.J. Muse with Cantor Fitzgerald. Please go ahead. C.J. Muse: Yes, good afternoon. Thank you for taking the question. I just did, you know, on the call today, you've discussed the industry on your shipping end demand. You're seeing new demand from NeoClouds and others. So the question is, how is your visibility improved? What kind of sense of urgency are you getting from your customers? And I guess is that extending beyond kind of a 52-week lead time? And last part of the third part question would be, how do you see that kind of playing out in pricing over time? Thanks so much. Dave Mosley: Thanks, C.J. I think there's two components to your question, obviously. The build-to-order, as we've discussed about the remainder of this calendar year and already into next calendar year, we're starting to have visibility. People are building data centers and refreshing data centers need that predictability of supply, and we need that as far as running our own shop. So all of that is run fairly predictably. There's occasionally swaps where some -- for some reason somebody comes down and another person needs more, but I think that's what we mean by healthy supply demand and agility. And relative to pricing you know as we continue to plow through these product transitions, especially at higher and higher capacity points, we negotiate those new build-to-order agreements with that in mind. You know, we need to continue to get paid more and more for what we do because we're making the requisite investments to make these people more efficient in their own data center. So there's a win-win there and we're factoring that into all forward-looking financial discussions. Operator: The next question is from Wamsi Mohan with Bank of America. Please go ahead. Wamsi Mohan: Hi. Yes, thank you. You just reported an increase of 70 bps in gross margins, even when the nearline was down quarter-to-quarter in total. In the June quarter, you're guiding a similar gross margin expansion, but nearline, I think, should be up quarter-on-quarter. So why are we not seeing more upside on June quarter for margins? And is the cloud versus enterprise mix changing significantly in the June quarter, because it feels like it was very tilted cloud in the March quarter, if you can square those? Thank you. Gianluca Romano: Yes, thank you, Wamsi, I'm happy you have strong expectations. I think we are doing a very good job in driving our profitability up every quarter since like eight quarters as Dave said in the prepared remarks. Mix is important to us. So of course, no nearline and cloud in particular will be higher in the June quarter. And we have no build-to-order, we have contracts and depending from the time of the negotiation of those contracts, we have price increase in certain quarters that are maybe higher than other quarters. But I would say the important is the trend is continuing, the strategy is strong, and we will continue to deliver. Dave Mosley: I think the other thing, Wamsi, is that we also underserved the market quite a bit in Q3. And now we're back to serving customers the way we want to. So, you know, all this is long-term planning, but we prioritize in particular the certain segments that Q3 needed where we actually had product for them. Operator: The next question is from Krish Sankar with TD Cowen. Please go ahead. Hadi Orabi: Hey guys, this is Hadi for Chris. Thanks for taking my question. Your guidance includes minimal impact from the tariffs in place, and that makes sense due to the 90-day exemption. But I wonder if these tariffs were to take place in the September quarter, how should we think about the impact on the financial model? Like, is there a time lag where you guys might take the tariff hit initially? And initially, and it's a matter of quarter or two until you raise prices or you expect to pass through tariff related costs right away? I just wonder like if you can share any color on how your conversation is going with customers about pricing, how long it would take you guys to pass through tariff related costs would be helpful. Thank you. Dave Mosley: Yes, thanks, Eddie. It's a complex world. Like you said, there's many scenarios being run. And our first response is to go work the supply chain or operational details, such as the rules are with our customers. And that will impact their demand, what they want, where, when. Ultimately, as we drive through these product transitions, as we talked about before, we're going to be adding more value, so we have a chance to reset the negotiation. Passing through the cost is a last resort option, but we'll factor that in any cost increases due to whatever reasons into the go forward model. I think everyone understands that we need those margins, as I referenced before, to go reinvest in our business and keep driving forward the technology, which is great value to the customer. So I won't get into specifics about what the different scenarios are because we just don't know yet, but you know, operationally we've dealt with these kinds of problems before and we'll deal with them again. I think we're very agile, nimble operationally to do that. Unidentified Analyst: Thank you, Dave. Operator: The next question is from Amit Daryanani with Evercore. Please go ahead. Amit Daryanani: Thanks for taking my question and congrats on a nice set of numbers here. Dave, as we look at the predictability in the business and you sort of talked about you see nearline exabyte demand I think looking strong not just to the end of this year, but also into early ‘26. Does that imply that you expect to see sequential revenue growth, gross margin expansion in the back half versus what you folks are guiding to June? I'd love to just understand how much visibility you have in the back half? And then maybe someone related to that, you know, Meta had a white paper out, I think, in the last 90-days, which got a lot of attention in terms of how QLC could be used almost as a new storage medium between traditional flash and nearline. Would love to get your perspective on that and if you see that having any sort of dampening effect in the nearline drives over the long-term. Thank you. Dave Mosley: Sure, Amit. I'll let Gianluca take the gross margin, then I'll take the flash discussion. Gianluca Romano: Yes, Amit our plan has not changed. As we were discussing also in prior quarters, we see opportunity to grow revenue, profitability. Of course, this is our current expectation. We need to wait and see if there are any new rules that could impact this view, but currently we have no reason to change our expectations. Dave Mosley: And on the discussion about the meta blog, I've read it. My first reaction was it's a fairly niche application and it makes sense. I mean, there's a lot of different types of applications in the cloud, some of which may benefit from QLC-NAND, especially if they're very read intensive. But I don't think that it comes anywhere close to disrupting the general blend of NAND and HDD in the cloud, in the larger cloud. Again, NAND is a very critical technology for everyone. And the data center architects know how to manage it. We pointed to a Google white paper as well in the prepared remarks. And there are others out there. I think a lot of our customers are some of the best storage architects in the world. And they're making these decisions very consciously, spreading the workload, if you will, to maximize cost power performance, so on and so forth. And so from a hard drive perspective, we still believe there's a very substantial cost differential between any kind of manned and hard drives, especially in the performance tiers that we have to operate in. And hard drives are much, much more capital efficient. We can add exabytes to the world in a much more capital efficient way. What I'm kind of excited about on this front is there's a bigger move to disaggregated storage, which is decouple compute from storage investments. And if that's the case, I think for some cloud service providers and even some on-prem instances, there's more opportunities for HDDs rather than less. Q - Amit Daryanani Perfect. Thanks a lot. Operator: Excuse me. The next question is from Aaron Rakers with Wells Fargo. Please go ahead. Jacob Wilhelm: Hi, this is Jacob on for Aaron. Thanks for taking the question and congrats on the results. I was wondering if you could get some color on how material you see emerging AI inference storage your mid to long-term TAM. And how, if at all, hyperscale purchasing patterns have changed over the last few quarters or two to support the ongoing shift in training to inference driven by some of these newer reasoning models? Dave Mosley: Thanks, Jacob. What we would have said 3 or 4 quarters ago was the first recovery, if you will, of the cloud was largely based on video applications, which a lot of people might call that AI models themselves. I think you have to be a little bit careful with this to the extent that large language models are opening up data analytics to much larger data sets. I think we're still in the early days of that. And then relative to new video applications, I think that's still in our future. So quite excited about it. There's a lot of -- and we've made some prepared remarks on this. There's a lot of new video applications coming that we believe that stores will really benefit from. And then there are bigger and bigger framing sets, if you will. And some of those training sets, as they're adjusted, they have to spin off more data that has to be stored so that you can go back and prove that they did it right, that data infrastructure that's going to come behind AI is residing to us. Jacob Wilhelm: Great. Thanks, And then I was wondering if you could just give a little additional color on your capital allocation priorities moving into the back half of the year and how that's changed, if at all, given the increased tariff uncertainties? Thanks. Dave Mosley: No changes, but I'll let Gianluca answer specific. Gianluca Romano: Yes, we are still working on reducing our debt. As you know, we have done a big step forward in the March quarter. We reduced more than $500 million of our debt, but we are still not at the level we want. So in the next few quarters, we will continue to address that level. And as we said, after that, we will start working on the share buyback. And of course, we were always focusing on our dividends. Jacob Wilhelm: Great. Thank you so much. Dave Mosley: Thanks, Jacob. Operator: The next question is from Vijay Rakesh with Mizuho. Please go ahead. Vijay Rakesh: Yes. Hi, thanks, good quarter. Dave, just a quick question on HAMR side. Just wondering how -- on the mix of HAMR be, let's say, exiting fiscal '26. And then Gianluca, are you still comfortable with the road map to the mid-40% -- gross margin as you look out? Thanks. Dave Mosley: Yes. We haven't guided exactly how fast our HAMR transition is going to be, although as these qualifications complete as we referenced earlier, we're going to continue to accelerate. So I'm happy with the progress that the team has made right now. And I think as we look forward, there will be more and more HAMR drives in the world very, very soon. So I'm excited about that. Gianluca Romano: Yes. For the gross margin, as I said before, we continue to improve every quarter. So this is our objective. We are -- and I think you need to wait a few more weeks to have a better idea of the model for the future. But the important is, we have a strong demand. We have a very good mix, and this is, of course, helping in improving the profitability. The gross margin and operating margin. I would like to bring your attention on the very strong operating margin that we are generating at this point. Vijay Rakesh: Yes, thank you. Operator: The next question is from Timothy Arcuri with UBS. Please go ahead. Timothy Arcuri: Thanks a lot. I had a multipart question. So guiding revenue of $250 million. How much of that's related to the $200 million that you lost in March, I know it's probably a little hard to tell. But I guess the question is like, have you caught up with demand yet? That's the first part. And then the back part is, I would think that customers are probably placing double orders, but how could you tell if there were? Are there enforceable pieces that come with the orders? I know you're talking about there's ability now into next year. How do you know how much of that is real? Are there penalties that are associated with these? Thanks. Dave Mosley: Yes. Thanks, Tim. So the build-to-order model, especially when we realized that we had these supply constraints now more than three months ago, we are communicating that specifically to the customers. This is long before any of the current macro issues have arisen. From my perspective, Q4 is happening to plan and Q1 will happen to plan half of that as well. That's how these build-to-order models are giving us that predictability. Gianluca Romano: I would say it's difficult to say how much of that $200 million demand that we're not able to serve in March is now the demand in June. Of course, the demand shift to the future and it's probably not part in June. And as I said before, we expect revenue to grow even in the following quarter. So it's just a situation where demand is above supply. I have no -- I don’t think we have any evidence of double orders. So I don't share that comment from you, but I will just say demand is continuing to go in the direction that we had even before even a quarter ago or two quarter ago. Now the build-to-order are not changing in the next few quarters and as they’ve said now we ae starting negotiating event calendar of '26. Dave Mosley: I think the other thing is that the data center infrastructure, the investments that need to be made are not these temporal things anymore, and there's not a lot of excess supply as we just said that to pull forward or to do deals at the end of quarters anyway. So as these new applications come online, we're not seeing any inventory buildup we're seeing people demand the demand be fairly stable. This is the point of the build-to-order. So happy that some of the new applications are starting to launch more and more data. And I think this it's been a fairly predictable world for us other than the supply issue that we had. Timothy Arcuri: Okay, thank you. Operator: The next question is from Ananda Baruah with Loop Capital. Please go ahead. Ananda Baruah: Yes, thanks guys. Appreciate you guys taking the question. Dave, just on sort of new data center creation. I guess the question is for Gen AI data centers, out like what's -- a decent way -- is there a decent way to think about sort of typical storage consumption into a Gen AI data center relative to like a classic cloud data center. I guess any context there would be useful. Dave Mosley: It's really hard, Ananda I think there are many different kinds of applications, and we're all looking for which are the killer apps and what order do they take off. And from our perspective, some of the early applications around large language models are very compute-intensive and opening up bigger, bigger data sets to be ingested and analyzed maybe data sets that are old, things from the past, makes data more valuable. As I said before, still early days of that. And then if you get into the types of Gen AI that actually create new data, video applications and things like that, very exciting for storage, long-term storage as well. But it's still very early days. Ananda Baruah: And I guess just a follow-on there. Is there -- and this may be getting sort of like two in the week, but do you guys have any sense on if you're starting to see more storage arrays, well, sort of more nearline drives that they use for their own storage arrays be placed into what's been existing data centers any context there? Dave Mosley: Yes. What I would say is that and I referenced this already, this concept of disaggregated storage is much more interesting. So that compute and storage is decoupled to some extent. And then if you need to scale storage, you can without the overhead and costs associated with adding more compute to that. So the compute can scale one way and that storage can scale the other. That, to me, is a more interesting trend as applications develop that need to ingest and spin off more and more storage than that storage investment will be relatively more efficient. So I'm really interested in those architectural changes. Ananda Baruah: That’s great. I appreciate it. Thanks guys. Operator: The next question is from Thomas O'Malley with Barclays. Please go ahead. Thomas O'Malley: Hey guys. Thanks for taking my question. June 14 the quarter, you're saying OpEx is impacted, but no real change on the revenue side. You guys are kind of talking about a continued growth profile into the back half of the year talking about good visibility. Should we be thinking about September, any kind of headwind from that 14-weeks? Or does the same rule apply to the back half of the year with just revenue unaffected? Do we need to be kind of discounting that September quarter after the stronger June? Gianluca Romano: In general, when you have this extra week in the quarter is only impacting your OpEx. It's not really impacting your revenues. Revenues are generally negotiated based on a quarter, not based on a week. Dave Mosley: And Tom, I think I heard you say June quarter. That will be the September quarter. Gianluca Romano: Yes. September, it is 14-weeks. Thomas O'Malley: Excuse me, sorry for mistaking. I was just talking about the stemmer. Yes, thank you. And then the second is just if you look at the exabyte shipments, like rewind the clock, you're kind of getting back to where you were kind of pre-pandemic from a total exabyte shipments. I think you guys have talked about like 160 exabytes is kind of the range where you need technology transitions to move ahead of that? So I guess part one is when do you guys think -- do you think that this is in the next fiscal year that you're going to kind of hit that wall because it sounds like you're accelerating very quickly. And then secondarily, like on the pricing side, I know you talked about direct impact to tariffs. But indirect impacts, oftentimes, the conversation comes up, will your large customers be more aggressive with pricing. Do you feel like you're going to -- have you seen any behavior change to your customers? Are you safeguarding against that with this view that you have your kind of fully baked already? Thank you, I know that was a bunch there. Dave Mosley: No worries. So recall our strategy, we're adding exabyte capacity through aerial density technology, which makes our ability to serve the market more and more efficient. As we do that, we can grow revenue and profit and deliver better value to customers as well. So I wouldn't think about 160 or 165 as being the peak ever. The drives are much more exabyte efficient than they used to be. And so we're really excited about our ability to deliver more and more exabytes and therefore, see that kind of growth. From the broader perspective, tactically, we have not really seen very much impact from customers changing anything, one way or the other. Nobody is losing their place in line. People are still making the data center infrastructure investments they are because data infrastructure is key to some of this cloud applications or the AI applications that are going to come and so we expect predictability from that, and that's what we need as manufacturers as well as predictability. So that's one of the reasons we've driven these new strategies. Thomas O'Malley: Thank you. Operator: The next question is from Tristan Gerra with Baird. Please go ahead. Tristan Gerra: Hi, good afternoon. A quick follow-up on the question you just addressed about adding exabyte capacity. So in an environment where you were in shortfall a quarter ago, do you have to -- and assuming your utilization rates are pretty much at peak. So are you dedicating more CapEx to ramp capacity? How linear is this of a step function? And are you going to pose on any capacity ramp because of the uncertainty of indirect effect of tariffs? Dave Mosley: Thanks for the question, Tristan. So the issue that we had in supply that really manifested itself last quarter, but that started in wafer last summer actually, during August. That issue was only on PMR products. And so we have the HAMR technology products. We've already planned the CapEx. So we don't need to add any additional CapEx to continue to ramp the HAMR products. I say this all the time, we already have this advanced manufacturing that's some of the most sophisticated manufacturing of the world build these devices atom by atom by atom. It takes a long, long time. And we're going to continue to invest in that -- some of that investment is in the U.S. as well. So we're going to continue to invest in that, but we need demand predictability. We need to be able to predict the rate of return. Right now, we're fairly happy with where our capital is versus the demand that we see. And maintaining an eye with healthy supply-demand balance. Should there be more demand than we can address that when we need to, but we haven't done that just yet. Gianluca Romano: Yes, we are not planning for more heads or media production, but of course, those hasn’t meet or will generate a higher volume of exabytes, because of the technology transition. And this is how we want to address the increasing demand. Tristan Gerra: Great. Thank you very much. Operator: The next question is from Mark Miller with the Benchmark Company. Please go ahead. Mark Miller: Congrats on your quarter, and thanks for the question. I’m wondering if you have seen any recent or do you expect any significant changes and data center CapEx by your major hyperscale customers? And second question is any significant component sourcing out of China? Dave Mosley: So Mark, I would say that we have recoupled supply chains long ago. So I think we can control sourcing whatever we need to make sure that we don't run out of parts or there aren't any significant cost impacts. So that's one of the reasons why we said whatever has happened so far has been minimal. But we always watch specific sourcing issues to make sure that we have what we need. I think there are geocentric options for anything that we need from a sourcing perspective. And relative to predictability of the customers, their demand. We've said before that this has been fairly predictable. Some of it is because the market has been underserved, but we're running the play and there's visibility into more demand in the back half of the year and even people are starting to book into calendar year '26 because data center infrastructure is very important in their business models. It's a relatively small percentage of their CapEx to is what they spend on storage. So given how important it is and how data continues to grow, they're making that a priority. Mark Miller: Thank you. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Dave Mosley: Thanks very much, Gary. I'd also like to take the opportunity to once again thank our employees and our customers and our suppliers for contributing to our results and our shareholders for your support. We look forward to speaking with you in a few weeks at our analyst event May 2. Thank you. Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: Good afternoon, and welcome to the Seagate Technology Fiscal Second Quarter 2025 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Shanye Hudson, Senior Vice President, Investor Relations. Please go ahead. Shanye Hudson: Thank you. Hello, everyone, and welcome to today's call. Joining me are Dave Mosley, Seagate's Chief Executive Officer; and Gianluca Romano, our Chief Financial Officer. We've posted our earnings press release and detailed supplemental information for our December quarter results on the Investors section of our website. During today's call, we will refer to GAAP and non-GAAP measures. Non-GAAP figures are reconciled to GAAP figures in the earnings press release posted on our website and included in our Form 8-K. We've not reconciled certain non-GAAP outlook measures because material items that may impact these measures are out of our control and/or cannot be reasonably predicted. Therefore, reconciliation to the corresponding GAAP measures is not available without unreasonable effort. Before we begin, I'd like to remind you that today's call contains forward-looking statements that reflect management's current views and assumptions based on information available to us as of today, and should not be relied upon as of any subsequent date. Actual results may differ materially from those contained in or implied by these forward-looking statements as they are subject to risks and uncertainties associated with our business. To learn more about the risks, uncertainties, and other factors that may 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, all of which may be found on the Investors section of our website. Following our prepared remarks, we'll open the call up for questions. In order to provide all analysts with the opportunity to participate, we thank you in advance for asking one primary question and then reentering the queue. With that, I'll now hand the call over to you, Dave. David Mosley: Thank you, Shanye, and hello, everyone. Seagate closed out calendar 2024 on a strong note, driving 7% sequential revenue growth in the December quarter. Our 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, underscoring our continued focus on profitability. Our performance was supported by increased demand across nearly all markets we serve with the most significant growth in the cloud sector. This broad-based demand from global cloud customers led to an almost doubling of nearline product revenue in the December quarter on a year-on-year basis and close to 60% nearline revenue growth for the entire calendar year. We are experiencing strong momentum with our areal 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 fiscal 2025 and beyond. We continue to advance our product roadmap and have achieved several key milestones related to our HAMR-based Mozaic platform in the December quarter. We completed qualification and started to ramp HAMR-based products to our initial CSP customer. Earlier today, we also announced sampling of Mozaic drives with capacities of up to 36 terabytes. Overall, Seagate is in an outstanding competitive and technology position in a strengthening demand environment. 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. 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. Now, turning to the mass capacity markets, cloud remains the primary demand driver. The surge in nearline product demand that I referenced earlier aligns with the nearly 50% increase in cloud capital investments made by our customers in 2024 with their CapEx expected to continue growing in calendar 2025. 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 GenAI applications. These applications will be prolific creators of data. And given that a substantial volume of the data will be stored on HDDs, we expect GenAI to drive future mass capacity storage growth. This is particularly true of data-rich imagery and video content created by GenAI models, which is projected to expand nearly 170 times from 2024 through 2028. 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 mass storage data lakes form the backbone of trustworthy AI by storing checkpoints or snapshots of AI model datasets, ensuring that data is both retained and available in the future for continuous model refinement. A recent survey of over 1,000 business leaders and AI decision-makers underscores the critical importance of data retention and checkpoints in enhancing the quality of AI outcomes. These insights are not only applicable for the cloud, but also the edge where the vast majority of data is generated. The enterprise markets fall under this edge umbrella. We expect enterprises to replicate and store more data locally at the edge as AI computing and inferencing moves closer to the source of data generation. 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 VIA markets, which help form actionable insights from data for applications such as smart cities and smart factories. In the December quarter, average drive capacities for VIA products set a record, reflective of increasing uses of video analytics as well as longer data retention periods. Overall, we believe mass capacity storage remains both an enabler and a beneficiary of these emerging data trends. Seagate is in a great position to address the resulting demand growth through our areal density-driven product roadmap. As we've shared in the past, we are maintaining a disciplined approach in planning our production capacity. We will leverage technology transitions to support exabyte growth rather than adding new head and media unit capacity. Looking at our long-term roadmap, our Mozaic-based technology provides Seagate with a highly capital-efficient means to satisfy growing exabyte demand to deliver a strong TCO value proposition for our customers and expand profitability over the long term for the company. Today, we have continued to ramp our 24-28 terabyte PMR platform, which has rapidly become our top product platform in terms of both revenue and exabyte shipments. At 30 terabytes or higher, our Mozaic HAMR technology delivers leading capacities and is gaining momentum across our customer base. There are now multiple customers qualified on this platform across each of the mass capacity end markets. Currently, we are ramping volume to our lead CSP customer while progressing on qualifications at additional cloud and hyperscale customers. These qualifications will set the foundation for the next phase of our Mozaic volume ramp starting in the second half of calendar 2025. We are confident that our Mozaic HAMR 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. Consistent with feedback we've received from many cloud customers, AWS highlighted at their recent re:Invent conference that adopting the highest capacity hard disk drives allows their storage system architecture to lower costs, conserve floor space, and reduce power consumption. Data center architects will continue to adopt both hard disk drive storage and compute-oriented memory technologies such as NAND Flash to support the breadth of their workloads. 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. We do not see these dynamics changing over the foreseeable future due to several advantages that HDDs hold over NAND. HDDs offer customers at least six times lower cost per terabyte of storage capacity. They possess a significantly smaller embodied carbon footprint and provide manufacturing scale that is highly capital-efficient. Wrapping up, Seagate is in position to deliver further improvements in revenue and profitability in fiscal 2025. Looking out further, the path is set up for Seagate with our steadfast focus on supply discipline in a favorable demand environment, a leading technology roadmap, and the tailwind of AI's massive data storage requirements. I'll turn it over to Gianluca now. Gianluca Romano: Thank you, Dave. Seagate's strong December quarter results were highlighted by 50% growth in revenue and a four-fold increase in non-GAAP operating income on a year-over-year basis. We delivered December quarter revenue of $2.33 billion, up 7% sequentially. We increased non-GAAP operating income 22% sequentially to $538 million, translating to a non-GAAP operating margin of 23.1% of revenue. And our non-GAAP EPS was $2.03, at the high end of our guidance range, reflecting strong adoption of our high-capacity nearline drives along with ongoing price adjustment and cost discipline. Within our Hard Disk Drive business, revenue increased 8% to $2.2 billion with volume shipment of 151 exabytes, up from 138 exabytes in the September quarter. Mass Capacity revenue grew for the sixth consecutive quarter, reflecting continued strength in nearline cloud demand, along with anticipated improvement in the enterprise and OEM markets and seasonal uplift from VIA customers. Mass Capacity revenue and exabyte shipments both increased 9% sequentially and totaled $1.9 billion and 140 exabytes respectively. Starting this quarter, we are including nearline exabyte shipped to VIA customers within our overall nearline exabyte reporting. Many VIA customers are adopting nearline drives consistent with the shift toward more cloud-like solutions that we had highlighted last quarter. Consequently, we believe this reporting change more accurately reflects how customers are utilizing these drives and aligns with industry reporting standards. With this change to all periods presented, Seagate's total nearline shipments were 126 exabytes in the December quarter, up from 114 exabytes in the prior period. Our performance reflects strong demand for our 24 and 28 terabyte PMR products, particularly among cloud customers, as well as continued improvement in enterprise marked by record-high average drive capacity for the second consecutive quarter, extending the trend for a higher storage content per server unit. Sales of our Legacy products totaled $275 million, up 2% sequentially, supported by higher seasonal demand in the consumer market. Finally, for our Other business, which includes systems, SSD, and refurbished drives, revenue was $156 million, down slightly from last quarter as lower SSD revenue was partially offset by improved system demand. Moving on to the rest of the income statement, non-GAAP gross profit increased 14% sequentially in the December quarter to $825 million. This increase reflects continued revenue growth of Mass Capacity products, increasing mix of new high-capacity drives, ongoing price adjustment, and cost efficiencies. Our resulting non-GAAP gross margin expanded by 220 basis points to 35.5% at the company level, marking our seventh consecutive quarter of sequential gross margin improvement. Non-GAAP gross margin for the HDD business remained significantly higher than the corporate average. Non-GAAP operating expenses totaled $287 million, consistent with our plans and up 2% quarter-over-quarter. Other income and expense was stable at $86 million and are expected to be relatively flat in the March quarter. Adjusted EBITDA increased 19% sequentially in the December quarter to $591 million. Non-GAAP net income increased to $433 million, resulting in non-GAAP EPS of $2.03 per share, based on a diluted share count of approximately 213 million shares. Moving on to cash flow and the balance sheet. We continue to focus on driving free cash flow generation, which increased to $150 million in the December quarter compared with $27 million in the prior period. We continue to expect free cash flow generation to improve sequentially through the rest of the fiscal year. Capital expenditures for the quarter were $71 million. For fiscal 2025, 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 revenue. We returned $148 million to shareholders through the quarterly dividend and closed the December quarter with $2.7 billion in available liquidity, including our undrawn revolving credit facility. Inventory increased slightly to $1.5 billion, primarily to support the ramp of new high-capacity products. Our debt balance was $5.7 billion at the end of December quarter. Consistent with our intent to reduce debt, we retired approximately $479 million of notes as they matured in early January. As a result, we have no debt obligation until late fiscal 2027. We exited the December quarter with a net leverage ratio of 2.5 times and expect to see further reduction in the coming quarters. Turning now to our March quarter outlook. We expect ongoing demand strength from cloud customers to partially offset seasonal decline in the VIA and legacy markets, along with the supply constraints that we have already discussed. We still expect to meet our build-to-order commitments, but our ability to respond to in-quarter volume upside opportunities will be limited. Consequently, embedded in our guidance is approximately $200 million of revenue impact from these supply constraints. With that as a context, March quarter revenue is expected to be in the range of $2.1 billion plus or minus $150 million. At the midpoint, this reflects more than 25% year-over-year improvement. Despite supply limitation in the March quarter, ongoing demand for our latest generation nearline products, including Mozaic, offers the potential for sequential improvement in gross margin performance. We expect non-GAAP operating expenses to be in the range of $290 million and at the midpoint of our revenue guidance, we expect non-GAAP operating margin to remain in the low-20% range. We expect non-GAAP EPS to be $1.70 plus or minus $0.20 based on a diluted share count of approximately 214 million shares, and non-GAAP tax expense of roughly $20 million. In summary, Seagate's strong December quarter financial performance underscores our continued focus on enhancing profitability, optimizing cash generation, and driving growth. As we focus on capturing the significant opportunities ahead, we will remain diligent in supporting a healthy supply and demand environment, which we believe positions Seagate to deliver further improvements in revenue and enhance profitability this fiscal year and beyond. I will now turn the call back to Dave for final comments. David Mosley: Thanks, Gianluca. As data value continues to increase, so too does the strategic relevance of mass capacity storage, particularly in the era of AI. 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 store the world's data. We've crossed an exciting inflection point with our Mozaic HAMR platform now ramping volume to address customer demand at exabyte scale. The Mozaic platform provides a capital-efficient solution for Seagate to sustain areal density leadership and effectively address the growing demand for mass storage. This paves the way for Seagate to offer significant economic advantages both to our customers and the company. 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. Operator, let's now open up the call for questions. Operator: We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Erik Woodring with Morgan Stanley. Please go ahead. Erik Woodring: Hey, guys. Thanks so much for taking my question. Maybe, Dave, maybe just to start, if I look to past June quarters, I know we're getting ahead of ourselves here, but we've seen sequential growth historically. And in light of your positive demand comments and the fact that March quarter supply issues would be transitory, 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 call that back? Thanks so much. David Mosley: Yes. Thanks, Erik. 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 valued that predictability. 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 the exabytes are going to continue to grow, demand is going to continue to grow, we're 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 issue. Operator: The next question is from Wamsi Mohan with Bank of America. Please go ahead. Wamsi Mohan: Yes, thank you. I just wanted to clarify the comment 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. And my main question is really around the fact that you've seen six quarters of really strong nearline and mass capacity exabyte shipment increases. Historically, these have been 1.5 to 2-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. David Mosley: Yes, Wamsi. I think we're still pretty early in calling this a cycle because 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, 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 discipline that we have is giving us good predictability and people continue to ask for, with that predictability, more certainty of the build-outs that they're doing, the data centers that they built need population, the refreshes that they're doing of old gear, the wholesale replaced entire data centers to uplift their capacity. I think the whole industry and supply chain is getting more predictable and quite happy about that. So, that gives us confidence through this calendar year. Relative to kind of like Erik's question, same one you asked, relative to this issue that we have this quarter, it's really hard to tell in that predictable behavior that we're doing for say, a year in a build-to-order or visibility that's even going beyond a year, whether or not this quarter effect is a pull-in or is a push-out, that's really hard. But I'm confident in the financial expectations that we have. And I'm also confident in these product transitions that we have that that's building value for our customers and we're going to be able to execute them. So, that's how I think about it. Gianluca, do you want to add something? Gianluca Romano: Yes. No, related to the part of the question on the impact to the March quarter, now the answer -- 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 the demand. So, we could have of course achieved a higher level of revenue. But as Dave said, we see further improvement through the calendar year. So, it is not going to impact our overall results. Wamsi Mohan: Thank you so much. Operator: The next question -- excuse me, the next question is from Krish Sankar with TD Cowen. Please go ahead. Krish Sankar: Yes. Thanks for taking my question. Gianluca, when I look at your guidance, it seems like your March quarter gross margin is about 36% give or take. And you said HAMR is obviously going to be accretive to numbers, and both you and Dave seem pretty optimistic on nearline for the rest of the year. So, is it fair to assume, as the nearline grows, the gross margin should improve quarter-over-quarter through the rest of calendar 2025 off of this 36% baseline in March? Thank you. Gianluca Romano: Yes. We see good opportunity to continue the trend that started like six quarters ago to improve our gross margin sequentially. Part is mix, of course, now moving more and more into the high-capacity drive give us opportunity to improve gross margin. And of course, there is always our strategy in term of stable consistent price increase quarter-after-quarter, cost efficiency, HAMR will help us, especially in the second part of the calendar year when we can ramp much higher volume. So, no, right now, we have -- now we are very confident that our profitability will continue to improve. Krish Sankar: Thank you. Operator: The next question is from Amit Daryanani with Evercore. Please go ahead. Amit Daryanani: Thanks for taking my question. I guess, Dave, I was hoping you just talk a little bit about -- 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, 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 are done? Can you just touch on that part? And then maybe along that theme, I'm somewhat surprised that your gross margins are expected to go up in March despite revenues coming down and despite the capacity addition. So, just talk about what's going well or what's offsetting what I think are headwinds sequentially in March quarter that's enabling gross margins to expand? Thank you. David Mosley: Thanks, Amit. Yes. Yes. If it helps, if you think back three quarters or four quarters ago when things were -- 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 have blown through largely. 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 the higher and higher capacity points, we believe that that's a compelling value proposition for our customers. We also believe that we're giving predictable economics for them and for ourselves as well, and that's what's building the margin structure in. Operator: The next question is from Timothy Arcuri with UBS. Please go ahead. Timothy Arcuri: Hi, thanks. I just wanted to ask about this $200 million and the effect into June again, because I'm not sure I understand what the message is. 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 million back, but you seem like you're not really willing to clarify that. So, can you clarify exactly what you meant by, the entirety of the impact is being felt in March? David Mosley: Yes. Remember, this is -- hey, thanks, Tim. This is a supply issue, not a demand issue. So, from our perspective, we're communicating this and we started -- after the conference in December there, we started communicating to the customers exactly what's going on. We can maintain all the build-to-order commitments that we have this quarter. Next quarter is next quarter, we're recovering from the issues as quickly as we can. But again, it's not a demand compression, it's only our ability to hit the supply. Gianluca, do you want to add something? Gianluca Romano: Yes. So, Tim, basically, as we explained in December, we did not start enough material in a certain period of time because we didn't put back the equipment that were necessary to produce the material. So, we don't have that level of supply, but could have been necessary to match demand in the March quarter. So, that $200 million is not coming back. It's just material we were not able to start. And so we miss that opportunity in the March quarter and then we go back to June with the right level of supply that will match the June demand. But of course, the one that is in March is probably going away. David Mosley: 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 the build-to-order predictability for our customers and for ourselves. This problem started manifesting itself late summer and then we realized that we had it in late November and but -- and 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 -- and it's up against the backdrop of a very steep ramp. So, it's not like a hole that goes away. It's a ramp that we're on that's very steep. It's just -- there is an impact this quarter as these parts don't flow through that we wanted to at the level we had. And then we fixed the problem now. So, we're convinced that we can get back and satisfy demand next quarter and beyond. Operator: The next question is from Asiya Merchant with Citi. Please go ahead. Asiya Merchant: Great. Thank you for taking my question. The -- you sound very confident about a lot more upside to gross margin, especially as HAMR ramps here and you're shifting your mix to even these higher capacity drives. Maybe if you can shed some light on what do you think about the appropriate margin for Seagate as you go forward given you're executing well above your target range at this point? Thank you. David Mosley: 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 it. People will buy the new drives, higher and higher capacities because they need -- 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 with these build-to-order negotiations, then -- and we know what we're building anyway, so we can go out and have those negotiations and say, we'll build it for you if we all agree to this. And so I think that's served the industry really well, served our supplier -- our supply base really well, helping us recover from the situation we were in a year or two ago. Gianluca Romano: Yes. And that target range that you are referring to, now we gave that target and we clearly said this is not including HAMR. So, of course, in future, we were already expecting a higher profitability and we will ramp HAMR in just two or three quarters from now. We will discuss maybe more at our Analyst Day in the future what will be our next model, but I would say I will not focus on that old gross margin range that we were discussing in the past. David Mosley: Yes. One of the things I'd say about margins, gross margins, and operating margins is that at the -- even at the revenue levels that we're at right now, we have to continue to fund the R&D in order to keep driving the roadmap forward, four terabytes, five terabytes that we have to fund CapEx so on and so forth. And from my perspective, those things provide such a compelling value proposition to our end customers, they want us to as well. So, 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. And I think everyone's kind of understood that is, even though these undulations in supply and demand that we went through in the pandemic were so painful, but I think we're 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. Operator: The next question is from Steven Fox with Fox Advisors. Please go ahead. Steven Fox: Hey, good afternoon, everyone. Dave, I was just wondering, as we think about the longer-term impact of transitioning to HAMR, you move version through the initial ramps of new technology. Does the customer mix or how you ramp become faster, slower, more broad? Like I'm just -- you mentioned like going from one cloud guy to having a second and third, but as you go towards 36 terabytes, what changes in how this technology hits the market? David Mosley: I'd say our first ramp was tougher than we expected, even right up against it. We had great results out of the labs and the first experiments and then we ran into some problems in productization. We don't exactly see any of those problems in future productization. So, it should shorten the cycles. The strain on all the other subsystems, not just the recording subsystem, but all the other subsystems as we go from 30 terabytes to 40 terabytes to 50 terabytes is still great. But we have confidence and we've told people that based on what we see right now, 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. So, from my perspective, onward and upward, that's what this industry gets paid for is areal density, that's how we bring value to the world and that's what we'll continue to drive. Steven Fox: Great. That's helpful. Thank you. Operator: The next question is from Thomas O'Malley with Barclays. Please go ahead. Thomas O’Malley: Hey, guys. Thanks for taking my question. I just want to get a better picture for your mix of business. I think you like to talk on exabytes that are moving towards HAMR. 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 2025, you could talk about how much of your business in terms of mix is HAMR 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. David Mosley: Hey, thanks, Tom. We did talk about the success of the 24-28 platform. So, that's growing it even very, very fast ramp, very-high volume. There's a lot of common parts with that and HAMR. So, we can ramp HAMR quickly as well. And we're focused on doing that, getting through the qualifications and ramping. Last year, we were pushing through these transitions as hard as we could just to inject some margin back in the business. This year, the demand picture is quite different. And the response of people and what are -- where they are in qualifications is very different. So, we're going to be a little bit more careful. Remember, HAMR is still accretive to margins and we still want to drive it and we still have parts that are coming. But we'll just be a little bit more cautious and make sure we work with the customers on exactly what they need. I think as we get to higher and higher capacity points, it's such a good compelling value proposition for our end customers that they're pulling very hard. So, yes, maybe even to some of the earlier questions, I do think that there's going to be an acceleration based on the fact that we are already at the curve productization-wise, we -- that we have all those learnings so the other person doesn't have to learn those same lessons and there is this compelling value proposition that people know about. Operator: The next question is from Aaron Rakers with Wells Fargo. Please go ahead. Aaron Rakers: Yes. Thanks for taking the question. I'm going to stick with the gross margin narrative here a little bit. Gianluca, if I try and make some adjustments for your non-HDD gross margin, I guess what I'd be left to think about is that your hard disk drive gross margin is probably in the 37% plus or minus range. I guess the question is that, would you say even today as you're initially ramping HAMR that your HAMR gross margin is accretive to the hard disk drive only gross margin? 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, etc., etc.? Just curious on what your thoughts are. David Mosley: Yes, Aaron, thanks. 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 that's good business and higher capacity points through these transitions. So, 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. And we'll keep you informed on that as time goes on. But I think we've done a really good job of getting the margin structure back into the industry or even in some cases to all-time highs, revenue is still not back and the output is still not back, right, frankly. I mean we could do some more output. So -- but we want 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 transitionary period to future models versus continue to just execute as hard as we can to rebuild and we're quite happy with the progress. Gianluca Romano: And Aaron, no, part of the confidence we have in improving gross margin even in the March quarter where, as you know the revenue is lower, is coming from the increased volume of HAMR. So, in general, the mix moving to higher capacity drive has always helped us to improve margins and HAMR will increase a lot the capacity per unit, so it is a good contributor to the improved gross margin. Aaron Rakers: Yes. Thank you. David Mosley: Thanks, Aaron. Operator: The next question is from Karl Ackerman with BNP Paribas. Please go ahead. Karl Ackerman: Yes, thank you. As we think about the sustainability of the cycle, are your nearline and hyperscale customers giving you more visibility today, which I think was six months or longer last quarter since you've experienced these production capacity constraints? And for my clarification question, does the production capacity address only HAMR drives or were these tools used for conventional nearline drives as well? Thank you. David Mosley: Thanks, Karl. Yes, the second question first, the production capacity issue affected non-HAMR drives, not the HAMR drives. So, it was the ramp of the 24-28. Think of it this way, we've actually qualified that back in even some old programs, but it's the non-HAMR product being affected. So, stepping out a little bit more into the future, I think that the HAMR 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. Higher capacity points and then we can also refresh lower capacity points as well. So, that's what helps build margin into this entire portfolio, not just the highest capacity point. Karl Ackerman: Yes, thank you. I was hoping you could talk about the visibility you're receiving from hyperscale customers today since those capacity constraints. Thanks. David Mosley: Oh, yes. So, the built-to-order models that we're coming up with have given us good visibility. Maybe as we get through the supply constraint issue that we had this quarter, we said we're protecting all the build-to-order commitments that we have. So, on an account-by-account-by-account basis, then I think it's almost -- that particular issue is almost irrelevant for them, right? So, that's -- we're talking about Q4 is Q4, Q3 is Q3. Q1 next year is Q1 next year. So, they're helping us with that visibility and this temporary issue is irrelevant in that BTO model. Operator: The next question is from Vijay Rakesh with Mizuho. Please go ahead. Vijay Rakesh: Yes. Hi, Dave and Gianluca. Just looking at the HAMR, when you look at your 150 exabyte product shipments or the 126 exabyte nearline, do you expect HAMR to get to like 10% to 20% of that mix by like first half calendar let's say 2026? David Mosley: Well, we certainly expect to make it -- to ramp it really hard. Yes. 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 say a very specific number, but we expect it to ramp very hard. The customers are pulling it very hard because of the value proposition that they see. So, it has to be accretive as well. We've said that for some quarters now. But we're confident that it is. So, yes, we're going to drive it hard and drive the volumes very soon. Gianluca Romano: Yes, Vijay, we will have a -- we will have improvement every quarter, of course, but we'll have to follow the qualifications with the different customers. And as we said, we expect multiple qualifications between December last year and mid of calendar 2025. So, I -- we still expect the majority of the ramp to happen in the second part of calendar 2025 and that will be another improvement for our business and our performance in just few quarters from now. Vijay Rakesh: Got it. Thanks. And then in terms of capacity as you ramp HAMR, do you expect -- do you need to add more capacity in the back half or how do you see the available capacity and the ramp of HAMR with that? Thanks. David Mosley: No, most of the tools -- almost all the tools that we're using for our non-HAMR products are convertible to the HAMR products. So, there's really no added tools that we need to bring on. We planned this transition for quite some time. And we've said in the prepared remarks, we would not add head and media unit capacity. The capacity adds that we get are by virtue of driving the areal density. So, we can go to customers and say, hey, instead of shipping a 24 terabyte drive, I'll ship you a 32 terabyte drive, hopefully someday we'll ship you a 40 terabyte drive and that gives us more exabyte capacity and more relative power, more TCO proposition for them, benefits to their -- for their value and more power for us to go increase our margin, make sure that plan is working. Vijay Rakesh: Thank you. Operator: The next question is from CJ Muse with Cantor Fitzgerald. Please go ahead. C.J. Muse: Good afternoon. Thank you for taking the question. I guess first question, it's a clarification. On the $200 million for March, is that completely traded away or are you expecting partial part of that business in the June quarter? And then for my main question, in your prepared remarks, you talked about increasing focus on imagery and video as part of generative AI. I'm curious if you've done any work in terms of sizing what that might mean. It looks like Meta is really the big driver today, but curious if you've sized it at all and how you think about the incremental demand to your overall business. Thank you. David Mosley: Yes. So, the $200 million, I think we answered this a little bit earlier, CJ. So, the way I think about it is the build-to-orders are all -- all those commitments are being made. So, if there was this stuff on top of it, does it transact this quarter or next quarter, I mean we'll get into that. But as far as the major accounts that are participating in build-to-order, it's really not an impact. The -- so it's a supply hole, remember, it's not a demand hole. So, that's -- the demand is still fairly strong. When we talk about video and imaging, we're usually talking about what's going on at the edge, smart cities, smart factories, the data that's actually being created at the edge and finally making it to the cloud. But there are video applications as well that are raging in the cloud. I mean, some of the use of video on some of the major media properties and things that are growing the -- videos themselves are growing in length, in number in the long-tail is getting huge and there's more hour-long documentaries and things. The creation tools with AI are coming that allows people to create video much -- be more inventive on that. So, the -- think the creative professionals that are out there creating content. So, all those trends are very beneficial for us. And yes, some of the first movers that we saw in this resurgence as demand started coming back were those people who are servicing those models. Video is creating a lot of demand in the cloud. Yes. C.J. Muse: Thank you. Operator: The next question is from Ananda Baruah with Loop Capital. Please go ahead. Ananda Baruah: Yes. Thanks, guys, for taking the question. So, maybe I'd love to hear maybe from both of you guys. This is just sort of HAMR transition question. So, I might have missed this, but Gianluca, did -- are we just -- are you communicating that the HAMR margin -- I guess at what point are the HAMR margins accretive? And then, Dave, I guess for you in that question, I was going to ask, like how to think about the pacing of volume of HAMR given the richness of the legacy tech margins right now? And I guess I was thinking you might be more selective with rolling them out given the margins, but you also just made a comment about driving HAMR into the market with some energy. So, I guess just sort of -- those are really the questions. I appreciate it. Thanks. Gianluca Romano: Hey, Ananda. Yes, no, HAMR is high capacity drives, and that is generating a higher level of gross margin than of course, other drives. As I said before, it will be more visible later during the calendar year when we can ramp more volume. And now we would like to have more volume today, but we need to go through a certain number of quals before we can really ramp up in a much higher quantity. But as with -- as all the high capacity drives, we expect a very good profitability from this product and this technology. David Mosley: Right. And Ananda, if this helps, if you go back a year ago when our gross margins were considerably lower, of course, we were saying HAMR is accretive to the gross margin. Now the gross margins are considerably higher on some of the legacy products like you talked about and some of the 24-28 PMR platform, PMR SMR platforms. HAMR is still accretive and more we can drive through these transitions that we're talking about, not only do we increase the top-line capacity, if you will, which provides 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 drives, lower capacity points with fewer and fewer components inside and therefore, you get margin uplift that way. So, we're still driving the HAMR transition, if that helps. Ananda Baruah: I got it. No, that's great. So, you're going to ship as much HAMR as you can and it's going to -- as quickly as you can, it's going to be accretive although. David Mosley: Yes. And we 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. Ananda Baruah: Thank you. Appreciate it. Operator: The next question is a follow-up from Wamsi Mohan with Bank of America. Please go ahead. Wamsi Mohan: Yes. Thanks for taking the follow-up. I guess a quick question on HAMR. The sampling of the 36 terabyte drives that you announced, is that with the same leading CSP that you qualified the earlier HAMR drives? And any color that you could share on HAMR units? Originally, your expectation was shipping 1 million in the first half of last year. Clearly, now with this ramp being much more significantly underway, would you say that it should be orders of magnitude higher than that in the second half of this year? Thank you so much. David Mosley: Yes. Thanks, Wamsi. So, it's much more broad-based. We're shipping sample units to not -- to more than one person, let me say it that way. Not to just one. I won't comment specifically on any one customer, of course. But -- and then relative to the size of the ramp, yes, we've got customers that are latched pretty well right now on the 24-28 product and we talked about factories being full and the ramp being really high. We will supplant some of that product with HAMR product. We'll do it in a measured way based on when the qualification is complete, what those customers exactly want. Some of them, yes, you always have to keep in mind, they have to get their systems ready. Some of these -- some of the transitions that they're going through as silicon transition or software capability for some of 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 HAMR and then shipping more HAMR. We 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 so accretive. Wamsi Mohan: Thank you. David Mosley: Thank you. Operator: And the next question is a follow-up from Krish Sankar with TD Cowen. Please go ahead. Krish Sankar: Yes, hi, thanks for taking my follow-up. Gianluca, a quick question. Of the 126 exabyte nearline you shipped in December, how much went to surveillance? You start to do a comparison because you did 109 in September, but that was all your traditional nearline definition. So, I'm just trying to figure out through 126, how much is surveillance versus traditional nearline? Gianluca Romano: In general, in different quarters about 4, 5 exabytes. Krish Sankar: Thank you. Shanye Hudson: And our supplemental will show the history for the last five quarters so that you have like-for-like over the prior year period. Krish Sankar: Thanks, Shanye. Shanye Hudson: You bet. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. David Mosley: Thanks, everyone. I wish everyone a Happy New Year, a Happy Lunar New Year. Really appreciate all the efforts of our employees and our suppliers in helping the recovery what's still ongoing and looking forward to talking to everyone this quarter or next quarter's call. Take care. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: Welcome to the Seagate Technology Fiscal First Quarter 2025 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Shanye Hudson, Senior Vice President, Investor Relations. Please go ahead. Shanye Hudson: Thank you. Hello, everyone, and welcome to today's call. Joining me are Dave Mosley, Seagate's Chief Executive Officer; and Gianluca Romano, our Chief Financial Officer. We've posted our earnings press release and detailed supplemental information for our September quarter results on the Investors section of our website. During today's call, we will refer to GAAP and non-GAAP measures. Non-GAAP figures are reconciled to GAAP figures in the earnings press release posted on our website and included in our Form 8-K. We've not reconciled certain non-GAAP outlook measures because material items that may impact these measures are out of our control and/or cannot be reasonably predicted. Therefore, a reconciliation to the corresponding GAAP measures is not available without unreasonable effort. 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, should not be relied upon as of any subsequent date. Actual results may differ materially from those contained in or implied by these forward-looking statements as they are subject to risks and uncertainties associated with our business. To learn more about the risks, uncertainties and other factors that may affect our future business results, please refer to the press release issued today and our SEC filings, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q, as well as the supplemental information, all of which may be found on the Investors section of our website. Following our prepared remarks, we'll open the call up for questions. In order to provide all analysts with the opportunity to participate, we thank you in advance for asking one primary question and then reentering the queue. I'll now hand the call over to you, Dave. Dave Mosley: Thank you, Shanye, and hello, everyone. Seagate delivered a strong start to the fiscal year with revenue growing nearly 50% and non-GAAP gross profit increasing over 150% compared with the prior year period. These results demonstrate our ability to drive profitable growth, which is the outcome of sustained supply discipline and the strategic cost efficiencies that we have built into our operations. Fiscal first quarter revenue came in at $2.17 billion, and non-GAAP EPS was $1.58, both were above the midpoint of our guidance range, benefiting from a better-than-anticipated mass capacity product mix and an improved pricing environment. Continuing cloud demand strength coupled with improvement in the enterprise and OEM markets, drove top line growth and also contributed to enhanced profitability. Company non-GAAP gross margin expanded by 240 basis points sequentially to 33.3%, the highest level in over a decade. This impressive performance was driven by our HDD business, with non-GAAP gross margins now in the mid-30% range. Amid a healthy industry supply-demand environment, we anticipate further margin expansion opportunities as we ramp our portfolio of high capacity nearline drives, including our Mozaic based HAMR products, which I'll discuss shortly. The increasingly favorable business landscape combined with our industry-leading technology road map, lends growing confidence in Seagate's future opportunities. Reflecting this confidence, we are increasing our quarterly dividend by nearly 3%. Our optimism is reinforced by our build-to-order model, which provides us with good demand visibility over the next few quarters. We see the potential for significant revenue growth for fiscal 2025, inclusive of the seasonal demand fluctuation that is typical for the March quarter. We are maintaining supply discipline, and we'll address near-term exabyte demand growth by efficiently leveraging our available capacity. Beyond that, we are well positioned to support further demand growth, mainly through technology node transitions with HAMR playing a vital role, as we complete qualifications and ramp shipments. Turning to the mass capacity market trends. Cloud demand for our nearline drives remains robust, and we believe customers are managing their inventory levels well. In the September quarter, revenue growth was driven by U.S. cloud providers, though we continue to see positive demand trends globally. For instance, some customers have highlighted the growing use of video content on e-commerce and social media platforms. Data indicates that video is the most effective format for engaging digital audiences. Furthermore, research suggests that longer form video content and personalization through AI technology can significantly enhance revenue generation opportunities for our customers. These trends bode well for mass capacity HDDs, which are ideally suited for storing large and diverse data intensive video content. HDDs comprise close to 90% of bites stored in public cloud environments and we are confident that proportion will hold for the foreseeable future. Among the enterprise and OEM customers, we observed the first meaningful uptick in nearline demand following a multi-quarter period of stability. This increase reflects an improvement in traditional server demand, as well as higher storage content per unit, pushing the average capacity per enterprise drive to a new record high. In the VIA markets, sales remained stable in the September quarter and slightly ahead of our expectations. We are witnessing a shift towards more cloud like storage solutions that utilize higher capacity drives. This transition is due in part to longer data retention needs and increased video analytics. Our HDD solutions, including Mozaic HAMR products, provide cost efficiency and scalability to our VIA customers' evolving demands. These same advantages are also crucial for generative AI applications, which is why we continue to believe Gen AI will be a driver of mass capacity storage simply by being a powerful catalyst for data creation. HDDs provide a trusted, economical and secure platform to host data that feeds into AI engines and preserves the content produced by AI powered applications. This data is ultimately fed back into the AI training models in a continuous cycle. As data center architects prepare for GenAI to move into the widespread adoption phase, they continue to grapple with cost, scale and power challenges. Seagate's product road map is addressing each of these key challenges. Compared with NAND based storage alternatives, our HDD solutions offer approximately 6 times lower cost per terabyte. And HDDs are roughly 9 times more capital efficient, delivering the economies of scale necessary to support the anticipated surge in data demand. And according to cloud customers, HDDs have 10 times lower embodied carbon per terabyte relative to NAND, which can translate into a much lower carbon footprint, very important given the world's growing number of data centers. That provides a good segue into our product ramp and qualification plans. We have three primary areas of focus for fiscal 2025 aimed at driving profitable growth over the long term, and we're progressing on all of them. They include ramping the company's last PMR platform, expanding Mozaic adoption and executing our Mozaic product road map that will enable Seagate to address the breadth of customers' mass capacity storage needs. Consistent with our plans, we began to aggressively ramp our final PMR platform in the September quarter, which is currently up to 28 terabytes in capacity. We are very pleased with the pace of customer adoption. These drives have quickly catapulted to our second highest revenue product, and we are continuing to both ramp volume and broaden our customer base in the December quarter. We have expanded customer qualifications on our three plus terabyte per disc Mozaic HAMR based platform with a few customer quals already completed spanning the enterprise nearline, VIA and mass market segments. The qualification with our lead CSP customer is progressing well through what has been a very intensive and thorough testing process. The learnings that we have gained are already being leveraged into future customer qualifications and product generations. To that end, HAMR qualification drives are now in the hands of multiple global cloud and enterprise customers. Our expectation for shipment and revenue ramp timing across the broader customer base still points to mid-calendar 2025. Our confidence in HAMR technology remains strong and customer feedback has reinforced our value proposition that the Mozaic platform provides the foundational technologies required to satisfy high capacity storage requirements at the lowest total cost of ownership. We expect to extend our technology leadership as we deliver on the next stage of our HAMR road map, the 4+ terabyte for this platform. As a reminder, the step function capacity increase to 4 terabytes per disc is being achieved entirely through aerial density gains, supporting our cost per terabyte reduction path with additional benefit to both customer TCO and Seagate's structurally improved margin profile. In closing, Seagate is performing well amid an improving demand backdrop with healthy industry supply dynamics. We are at an exciting inflection point rooted in the structural changes we've made to our business and with our compelling technology road map. These factors underpin our ability to build on the last four quarters of strong sequential performance and drive future profitable growth to create long-term value for our customers and stakeholders. Thank you, and I'll now hand it off to Gianluca. Gianluca Romano: Thank you, Dave. Seagate started fiscal 2025, delivering strong revenue and profitability growth for a fourth consecutive quarter. September quarter revenue was $2.17 billion, up 15% sequentially and 49% year-over-year. We increased non-GAAP operating income 35% sequentially to $442 million, translating to a non-GAAP operating margin of 20.4% of revenue, and our non-GAAP EPS was $1.58 at the high end of our guidance range and reflecting improving demand trends, ongoing price adjustment, and continued cost discipline. Within our Hard Disk Drive business, exabyte shipments grew 20% sequentially to 128 exabytes and revenue increased 16% to $2 billion. Mass capacity revenue grew for the fifth consecutive quarter more than offsetting the expected decline in the legacy business. Mass capacity revenue was $1.7 billion, up 21% sequentially driven by continued strength in nearline cloud demand, along with a significant uptick in nearline enterprise sales. Mass capacity shipments totaled 128 exabytes compared with 104 exabytes in the June quarter, up 23% sequentially. Mass capacity shipments now represent a record 93% of total HDD exabyte, reflecting the continued long-term secular growth for cost efficient scalable storage. As planned, we began to ramp our 24 and 28 terabytes PMR, which helped to boost Seagate nearline shipment to 109 exabytes in the quarter, up from 84 exabytes in the prior period. As Dave highlighted earlier, customer reception for this product has been strong and represented more than 20% of our nearline revenue in the September quarter. We expect nearline demand will continue to improve in the December quarter as shipments for our latest high capacity products broadened across global CSP and enterprise customers. Demand for our VIA products remained relatively stable in the September quarter, and we currently project similar revenue in the December quarter. Smart City projects remain a key demand driver for VIA products worldwide and regional economic conditions play a key factor in budget decision for the new projects. The ongoing, economic uncertainties in China has been a headwind for the VIA business in that market. We are cautiously optimistic that recently announced stimulus plan in China would positively impact on VIA demand over time. Sales of our legacy products totaled $270 million, representing roughly 12% of total revenue. The remaining 8% of revenue was derived from our other businesses, which held steady at $164 million. The other businesses include system, SSD and refurbished drives, a business that has grown by about 25% year-over-year and includes drives under our circularity programs. Moving on to the rest of the income statement. Non-GAAP gross profit increased 24% sequentially in the September quarter to $723 million. With significant increase reflects a favorable mix shift to our mass capacity products, continued price adjustment and ongoing cost efficiency in improving demand environment. Our resulting non-GAAP gross margin was 33.3% at the company level. Overall non-GAAP gross margin expanded by 240 basis points quarter-over-quarter, which was slightly more than we had originally anticipated. Non-GAAP gross margin for the HDD business and mass capacity, in particular, remains significantly higher than the corporate average. Non-GAAP operating expenses totaled $281 million, up 10% quarter-over-quarter and above our original plan, largely due to higher variable compensation commensurate with improved profitability levels. Other income and expense were $86 million, and we project similar levels in the December quarter. Adjusted EBITDA continued to improve and was up 23% sequentially in the September quarter to $498 million. Non-GAAP net income increased to $337 million, resulting in non-GAAP EPS of $1.58 per share based on a diluted share count of approximately 213 million shares. Moving on to cash flow and the balance sheet. Free cash flow generation was $27 million, reflecting our initial steps to normalize working capital to support our supply chain, while at the same time, meeting increasing mass capacity demand. It will take a couple of more quarters for working capital to fully adjust, which will have some impact to free cash flow generation. Even so, we expect free cash flow to improve in the December quarter and through the rest of the fiscal year. Capital expenditures for the quarter were $68 million for fiscal '25. 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 revenue. We returned $147 million to shareholders through the quarterly dividend exiting the quarter with 211 million shares outstanding. As Dave mentioned earlier, the company approved an increase to our quarterly dividend, raising the quarterly payout to $0.72 per share, and reflecting our long-term confidence in the business. We closed the September quarter with $2.7 billion in available liquidity, including our undrawn revolving credit facility. Inventory increased to $1.4 billion including material that we are staging in support of improving mass capacity demand. Our debt balance was $5.7 billion at the end of the September quarter, with more than 90% of our long-term debt obligation maturing in fiscal '27 and beyond. We exited the quarter with a net leverage ratio of 3.2 times and expect to see further reduction in the coming quarters. Turning now to our outlook. Mas capacity revenue continued to trend higher, with growth driven by global cloud customer demand for our high capacity nearline drives, along with ongoing improvement in the enterprise and OEM markets. With positive trends are expected to more than offset lower sales into the legacy and other markets. We anticipate profit to further expand from the richer mix of mass capacity revenue that I just described and ongoing pricing actions. With that as context, December quarter revenue is expected to be in the range of $2.3 billion, plus or minus $150 million. At the midpoint, this represents an increase of 6% sequentially and 48% year-over-year. Non-GAAP operating expenses are expected to be in the range of $285 million. At the midpoint of our revenue guidance, we expect non-GAAP operating margin to expand into the low-20s percentage range. We expect our non-GAAP EPS to be $1.85 plus or minus $0.20, based on a diluted share count of approximately 214 million shares and a non-GAAP tax expense of about $20 million. I will now turn the call back to Dave for final comments. Dave Mosley: Thanks, Gianluca. In closing, Seagate is achieving significant profitability expansion in a favorable demand environment. I'm confident that the structural improvements we have implemented and our differentiated technology road map will further enhance that profitability and meet the evolving requirements of our customers. Demand for our high capacity nearline drives remained strong and we will build on that momentum to deliver scalable, cost efficient storage solutions to support the anticipated growth in data demand, including from GenAI applications. . Seagate's dedicated global team, strong business model and technology leadership form a winning combination that positions us well for future success and underscores our confidence in deploying capital and enhancing value for our shareholders. Operator, let's now open up the call for questions. Operator: We will now begin the question-and-answer session. [Operator Instructions] And our first question today comes from Wamsi Mohan with Bank of America. Please go ahead. Wamsi Mohan: Hi. Yes. Thank you so much. Dave, I was wondering, if you could flesh out a little bit your commentary around this build-to-order and very good demand visibility into this fiscal year. You noted significant demand growth, including some seasonality that you typically expect around March quarter. I was wondering, if you could maybe elaborate a bit on maybe some bookends around what you're thinking around demand growth as March quarter seasonality going to be different from what you've experienced before. And I'd be curious to also hear your thoughts around, if I could, how you're expecting to compete versus your competitors' products, which have slightly higher capacities currently as you're ramping HAMR. It sounds like HAMR gets there sort of mid-next year in volume. Thank you so much. Dave Mosley: Thanks, Wamsi. So a couple of things. If I go back at six months ago or a year ago, we instilled these build-to-order models largely to get predictability, and I think it's working well. As we look into the next year, we're confident that we booked those quarters pretty well. So I'm very happy the way we're running the business with given that predictability. And we're only going to build what we need to build. We're still not fully recovered as an industry from what we just went through a couple of years ago. So I'm quite pleased with how the build-to-order models have gone. There is some seasonality in some markets as you alluded to, and we'll watch that carefully. But I think everyone is a little cautious on next year. From a cloud perspective, I don't think inventory is built up any, I think the buffers are still low from my perspective. And so I think we are happy with the cloud predictability, the mass capacity predictability from here. On the second part, I think from a capacity point leadership perspective, we're shipping the leading products. From a CMR perspective, no one else is shipping over 30 terabytes for sure. And as we mentioned in the prepared remarks, there's capacity points even higher than that going up and if we put SMR on top of that, we can qual even higher. So I'm very comfortable with our positions there. So I'm not quite sure exactly what you're referring to on capacity leadership or lack of leadership. I mean, from our perspective, we've got to get all the quals and all the ramps done and so on. And then we get on to 4 terabytes of disk and so on. We're very comfortable with our technology portfolio that way. Wamsi Mohan: Thanks, Dave. Operator: Our next question comes from Krish Sankar with TD Cowen. Please go ahead. Krish Sankar: Yeah. Hi. Thanks for taking my question. Dave, I had a question on your market share. Historically, you're more in the mid-40s, but last few quarters, it's kind of dipped down to 30% to high 30% range. Can you talk about the factors that are behind this low share? Is it potential disruption from HAMR causing temporary share loss? Is it customer specific where WLE (ph) customers are ordering more than yours? And along the same path, how to think about the industry pricing in calendar '25. It's been extremely rational in HDD, how to think about it in 2025? Thank you. Dave Mosley: Thanks, Krish. Yeah. For market share, I said a number of times, market share is an outcome of running your play. And exactly to Wamsi's question, we changed our place a year ago when we said we want these build-to-order. So we said I want predictability, a longer time horizon rather than we're building a bunch and then hoping to push it into a channel and going for market share or something like that. I think when we were at the bottom of the demand cycle, market share doesn't really matter. It's more of the predictability of the cash that you're generating and so on. As we get back into things, obviously, we're taking -- now that the margins are higher, we're getting rewarded for the money that we extend and the investments we've made and so on, then we'll clearly take more of that demand our way. And so I think the market share will re-equilibrate. From an exabyte share perspective, I think we'll be just fine because these customers want to continue to push the TCO proposition going to higher and higher capacity points, I think, we're going to be fine there. On the pricing side, I think I'll let Gianluca answer the question there. Gianluca Romano: Thank you, Dave. Yeah. I think the pricing environment continued to be positive for the industry. Every quarter, we have seen a little bit of improvement, and this is what is also driving our gross margin higher a little bit every quarter. As you know, on the cost side, we still had some unused capacity in the June quarter. And in September quarter, we don't have any of those extra costs. So we also had a little bit of that help in the gross margin. And going into December, if you look at how we guided, we expect further improvement in gross margin, further improvement in operating margin, which is, of course, very important to us, and that is coming from the mix, ramping more of our latest PMR product. Of course, we also have a certain volume of HAMR in our December quarter and the pricing action that is still ongoing and we have a good balance between supply and demand, in general, for Seagate and I think for the industry, and we are continuing for our long-term strategy. Krish Sankar: Thanks, Dave. Thanks, Gianluca. Operator: And our next question comes from Amit Daryanani with Evercore. Please go ahead. Amit Daryanani: Good afternoon. Thanks for taking my question. I guess, the question really, Dave, is around there's always this fear that the HDD industry broadly, Seagate specifically are sitting at these cyclical peak levels. I'd love to get your perspective, as you look at the exabyte shipments that you have right now, how do you get confident that with your shipping is actually getting deployed by your customers versus perhaps, ending up in inventory for them? How do you kind of gain that confidence? And then really related to that cyclical fear, I would say, you focus on very confident that there's a lot more upside to gross margins versus where you are today, which is actually above your long-term target. What do you think is the appropriate margin frame of Seagate as you go forward now? Dave Mosley: Thanks, Amit. Yes. We have run a cyclical business over the many, many years. I think it's changed quite a bit as we came down from client server. There used to be a lot of seasonality in that market. And now as we're in the cloud, the cyclicality, I'm not sure, it's totally periodical, but the pandemic, in particular, caused a very big bubble and then a big crash on the back side of it. So I think that's kind of an anomaly there. How do we know what customers actually have. We have to triangulate ourselves and I think we've really improved our processes for being able to do that. But we're also not pushing in nearly as many drives, total units or exabyte points. And some of this the build-to-order model, actually, helps us with quite a bit. So that we know that we're not overbuilding if you were planning to overbuild. Exactly to your point on upsides to gross margin, I mean we believe that the way we bring on more capacity is to drive for more aerial density gains. And we have to go work the cost on those platforms, and that's what we're really focused on doing, making sure that we can introduce terabytes in the 20s and 30s and 40s with lower and lower costs to be able to serve the market. A good TCO proposition for our customers who are building data centers and want to support data centers for a long time is to put more capacity online because it's so much more efficient for them, but we need to be able to get that efficiency through our continued cost reduction also. So I do think there's significant upside to gross margin still, but it all starts, to your point with supply and demand, managing supply and demand properly. Operator: And our next question today comes from Erik Woodring with Morgan Stanley. Please go ahead. Erik Woodring: Great. Thank you, guys for taking my question. Gianluca, maybe if we just stay on the theme of gross margins here. I think your guidance for the December quarter implies about a 34% gross margin, up roughly 70 basis points sequentially. You've been growing gross margins by about 2 points to 4 points sequentially over the last four quarters. And so, I'm just wondering, if pricing and mix are still favorable. And obviously, Dave just made some positive comments on gross margins. Can you help me understand why we might not be seeing more gross margin expansion in the quarter, again, relative to the multiple points of gross margin expansion you've been able to drive over the last 12 months? Thanks so much. Gianluca Romano: Yes, Erik. Well, as I said before, in the September quarter, we also had the support from better cost structure because of higher capacity and the elimination of the underutilization charges, that was about 100 basis points in our gross margin improvement. We are not going to have that improvement in the December quarter because now we don't have any other utilization charges anymore. But we are still progressing with our pricing structure, and we are making a good ramp of our latest PMR product, and we will see some volume on HAMR, so all those are positive. And as you know, we guide based on forecast that we had at the beginning of the quarter and then we executed during the quarter as best as we can. And our focus is to keep improving quarter-after-quarter. We are not trying to increase too much at one time. We want to be consistent and keep this cycle up for as long as we can. . Operator: And our next question today comes from Toshiya Hari with Goldman Sachs. Please go ahead. Toshiya Hari: Hi. Thank you so much for taking the question. I had a multipart one on HAMR. I think on the last call or at a conference, you guys talked about your expectation around getting qualification at your lead customer in Q3, I believe. Is that now Q4? Is that early '25? Any thoughts on that would be helpful. And then, Dave, you talked about additional cloud companies or customers having qualification products on hand. Should we expect the qualification process at some of those customers to be smoother than your lead customer given sort of the debugging process that you've been through over the past year or so? Thank you. Dave Mosley: Yeah. Thanks, Toshiya. Yeah. The failure mode that slowed us down as we ramp to high volume this spring and summer is behind us. The team's worked really hard to make sure we get all the process improvements that we talked about last time in. I did speak on last earnings call about the our confidence was based on the test beds that we have running that are all designed to detect these fail modes with, intense stresses that are way beyond our spec. And here we are another quarter later, we have more drives, more configurations, running more models of tests, and we haven't seen hide nor error of the failure mode. So we're confident that it's behind us, that's that initial learning that we get relative to proving it, sometimes it takes a little bit of time with the customers to prove it, but I'm confident we're going to be able to prove it right now and those tests are ongoing. The customers know exactly where we are. When we think about qualifications, there's a lot of different facets or quals of interoperability and different data center applications and so on and so forth. No significant concerns there. It really does come down this one last issue. And that's why we have confidence that no one else is going to see it because as we ramp to high volume, those other customers -- we've got this problem fixed, I'd say, those other customers want. Some multiple non-cloud customers have already qualified the product and already -- we're already getting volume shipments there. They run tough quals themselves but may not have these same kinds of stresses. But now that we have the recipe, I think we're going to apply it every. Toshiya Hari: Thank you. Operator: And our next question today comes from Asiya Merchant with Citigroup. Please go ahead. Asiya Merchant: Great. Thank you very much. As you guys ramp HAMR and you start to see more qualifications and more shipments, let's say, you're at December and into the March, how -- is that a negative to gross margins, just given the shipment volumes are lower, there might be some ramp issues there. How should we think about overall impact to margins as HAMR ramps? And I get the sense that obviously, once you guys are much further along, that's a margin driver. But near term, how should we think about the impact to margins from HAMR ramping? Thank you. Dave Mosley: Thanks, Asiya. Near term, we don't want to give it away. Long term, we don't want to give it away. So we definitely want HAMR to be accretive to gross margin. And we think it does add benefit to our customers as well. So there's a trade-off. Do they want to increase the higher -- the capacity for the data center build-outs that they're doing. And then we have to say, you have to make sure you pay for it to replace the drives. As we said before, our factories are largely full. So to take drives out of those or take the supply out and turn it over to HAMR, we have to make sure we're getting paid for it. And I'm confident, we can do that in the near-term as well. It's just a matter of managing the supply and demand picture properly. Gianluca Romano: Yeah. I’ll say on the cost side, a similar level of volume. HAMR cost per terabyte is below the PMR cost per terabyte. So for sure, there is an advantage on HAMR. And the pricing, of course, depends on the timing and where we are in the cycle. But at this point, in the short term, there’s no reason why HAMR should not be accretive to our gross margin. Operator: And our next question today comes from Aaron Rakers with Wells Fargo. Please go ahead. Aaron Rakers: Yeah. Thanks for taking the questions. A couple of just real quick model questions. It looks like your OpEx was a little bit higher than you expected in this quarter. I'm curious, relative to the $285 million guide, how do we think about the trajectory of operating expenses as we look out into the March quarter beyond any kind of framework of what kind of we could think about from a normalizing operating expense perspective? And then as the kind of quick follow-on. As you get the -- I think it's $480 million of debt maturing in January, from that level, how are you thinking about the possibility of reentering share repurchase activity going forward? Gianluca Romano: Yes. On the OpEx, the increase between June and September is only due to variable compensation. So we are not hiring more people. It's just a matter of -- last year, we didn't have variable comp. And this year, we have variable comp at a fairly good level. So from here, I would say, probably we stay fairly flat through the rest of the fiscal year, around 280 to 285, I think that the new range. The debt, as you said, is maturing in beginning of January. So as we said before, we are going to address that with cash on hand. So we start reducing our debt. We want to be even a little bit lower before we’ll start share buybacks. So I’ll say, as you know, we have increased dividend that is a top priority for the company, and then we want to take care of the debt. And then after that, we will look at share buyback, probably a little bit further in time. Aaron Rakers: Thank you. Gianluca Romano: Thank you. Operator: And our next question today will come from Timothy Arcuri with UBS. Please go ahead. Timothy Arcuri: Thanks a lot. I had a question about the capacity outlook now given that you're just kind of bumping up against your max today. So unless you decide to add more, you're -- I mean you're going to ship close to that 130 exabyte of nearline, probably not in December, but quite soon. So I mean you're growing nicely off the bottom on mix and on exabytes coming back. But if you're not going to expand capacity, should we think of things starting to flatten off from here? And I realize that pricing is going to go up. But it seems like you kind of lose a degree of freedom in the model unless you start to expand exabyte capacity. Thanks. Dave Mosley: Yeah, Tim. I think exactly to your point, we’ll expand exabyte capacity by transitioning to new products. And so if you think about it, as I go to – from 20 terabytes-ish to 30 terabytes-ish to even 40 someday, we’ll be able to expand exabyte capacity without adding significant capacity from a driver heads or media perspective. We’ll just use it much more efficiently on an exabyte basis. And that’s where we’re confident that we’ll be able to also take out cost at those higher capacity points, which is what builds into the margin proposition into the model. Operator: And our next question today comes from C.J. Muse with Cantor Fitzgerald. Please go ahead. C.J. Muse: Yeah. Good afternoon. Thank you for taking the question. Dave, in your prepared remarks, you talked about good visibility for growth in fiscal '25, notwithstanding seasonality for March. So I was hoping you could kind of speak to where your visibility is today for nearline? Is it three, six, nine months? And then based on that backdrop, how should we be thinking about, at least for mass capacity, what seasonality will look like into the March quarter? Dave Mosley: Yeah. I think mass capacity is pretty full, and it goes out that nine month period that you talked about, C.J. And that's a virtue of the build-to-order model that we've actually established on. I think customers understand that. They get predictable economics. And we're all going through these qualification processes so they get access to that technology as well, that's all serving as well. I think, right now, I would say the total demand is not significantly higher than historical demands. And I certainly don't think there's inventory buildup going in or anything. So I don't think there's a cycle coming. I think we're running a fairly predictable business. And we'll get better visibility as we get through, obviously, early next year. People are re-upping, if you will, the build-to-order configurations. But right now, I feel fairly confident certainly through the front half of the year and probably even into the back half of the year. Gianluca Romano: Yeah. On the seasonality, C.J., usually, the majority of the seasonality is on the legacy part of the business, where the March quarter is a lower quarter, slowest quarter in the year, but we also have part of mass capacity, in particular, VIA so the surveillance part of the business that is usually fairly weak in March and they start to grow in June and is fairly strong in September and December. So when you model your four quarters for calendar ‘25 or consider that there is seasonality not only in the legacy part, but also in some of the mass capacity products. C.J. Muse: Very helpful. Thank you. Gianluca Romano: Thank you. Operator: And our next question today comes from Stephen Fox with Fox Advisors LLC. Please go ahead. Steven Fox: Thanks for taking my question. Good afternoon, guys. I guess just following up on the point on how much capacity you have available. I think I understand how you create capacity when you go from like 3 terabytes per platter to 4. But from here, going over, say, the next 12 months, I think last quarter, you talked about debottlenecking. There's a potential that maybe you do get a better cycle in enterprise and VIA next year. Like, how do we get comfortable with the idea that you can manage all that and still satisfy all your customer needs or any further color on that would be helpful. Dave Mosley: Yeah. I think that's an -- it's a question -- a good question about how big could things get. If the edge really turns on; if GenAI turns on, which I would say is still very, very early innings of that, if there's some kind of macro recovery in all the markets; and we're not there yet. We're still being very cautious on any supply. And any additional supply we would have to put on would be very long lead time. So we can satisfy more exabytes exactly as you described, and we've talked about earlier. But additional drive demand, if you will, I think we’d have to add supply, which would be longer – much longer lead time. As we spend 4% of our revenue on CapEx, we do add technology transition capacity, so you get some small capacity adds because of that. As you’re buying new tools, they tend to be more efficient. But the growth would be necessarily slow, I think. Steven Fox: Okay. That’s helpful. Thank you. Operator: And our next question today comes from Ananda Baruah with Loop Capital. Please go ahead. Ananda Baruah: Yeah. Good afternoon, guys. Thanks for taking the question. I guess, Dave, sort of sticking right there on the capacity question. If things progress as you anticipate with HAMR in the event that even with HAMR and areal density increases, sort of data increases, GenAI, video apps, etc., all of that were to put in a position where you want to be increasing capacity? What -- you just mentioned long lead times? What is that process? Can you give us some sense of what that process would look like? We've also heard about kind of the whole component change that you have also needs to be tended to, I guess, just what would be the ways that you guys could maybe get with that, that would be helpful? Thanks a lot. Dave Mosley: Yeah. Thanks, Ananda. I think that we fix it in our industry on the highest capacity point. And obviously, that's the -- max capacity gets a lot of attention. But when you get into the growth of some of these other markets, we would be talking about 20 terabytes or maybe even less than that. What's your value prop at that level. And by pushing forward in aerial density, we get to take components out of those capacity points. So we can actually hit much more aggressive price bands, if we want to and still maintain really good margins. And then those components that are freed up go -- you can make twice as many drives with half the components going -- being dedicated to each drive, right? So I think that's where if we saw resurgence aerial density helps solve a lot of problems because you can go address those markets that are half capacity, if you will, of the max capacity in a much more efficient way. Ananda Baruah: I got it. That's super helpful. And just to complete that, does that mean like even in like a strong case with HAMR, you guys feel pretty good when you sort of map out ability to hit exabyte ships for the industry for a good amount of time to come, I mean, measured in probably years, not months? Gianluca Romano: Well, it depends, right? We have our supply plan if demand is much higher than our supply plan. Of course, we will have a little bit of unbalance that we have time to address, but our focus is on technology transition, is not on more units. And we think this is the most profitable way for the industry to progress in this period of time, and this is what we want to do. So let's see where demand is in two or three quarters from now, but we know where our supply will be. Ananda Baruah: Thanks, guys. Operator: And our next question today comes from Vijay Rakesh with Mizuho. Please go ahead. Vijay Rakesh: Yeah. Hi, Dave. On the -- I'm just wondering, if you give or size, what do you think the unit shipments could be for calendar '25. And Gianluca, I think in the past, you've talked about trying to bring on some of the idle capacity and headcount as you start to bring some capacity back on. Can you lay out how that road map looks like? Thanks. Dave Mosley: Thanks, Vijay. Yeah. We didn't speak specifically about how many units and how fast will push. We just -- we said that mass qualification will be done for all these customers that we just shipped to probably mid-2025. From my perspective, the factories are relatively full right now. And so, as we plan with those customers and they say, hey, I'd like the exabytes in this form rather than this form. We'll make the transition, but it will be probably less of a transition than we would have made, say, a year ago when we had empty factories, we would have ramped much more aggressively. This time, I think we'll make sure that we pivot accordingly and carefully. It's very important that -- to realize that the components that we use in our last generation of PMR product are very, very similar to the components we use in HAMR as well. So not the critical components ads (ph) and media, obviously, but all the other components. And so we feel very comfortable being able to pivot from one product to the other if we have to, the mechanics, the electronics, there's still much leverage there. So that's what allows us that flexibility. Gianluca Romano: Yeah. From an idle capacity standpoint, I would say, at this point, we don’t have much idle capacity anymore. So what we are doing is, now moving faster into technology transition now with our latest PMR products that we are ramping very aggressively already in the September and December quarter. And then the transition to HAMR will generate a certain level of additional exabytes that will support the increasing demand. Vijay Rakesh: All right. Thank you, Dave and Gianluca. Dave Mosley: Thanks, Vijay. Operator: And our next question today comes from Thomas O'Malley with Barclays. Please go ahead. Thomas O'Malley: Hey, guys. Thanks for taking my question. Dave, if you would just humor me, as I try to clarify things too. But just in the back half, it sounds like you are fully at capacity and technology transitions are getting you some growth, and it sounds like that looks really good. It's obviously been a couple of really good quarters for you guys. But let's just say, we head out into fiscal year '26, you're talking about more volume per HAMR kind of coming in the middle of the next calendar year. And so you would imagine more substantially into the next fiscal year for you guys. If you guys were to see further delays on the HAMR side, what actions would you guys take just given the fact that you're at capacity and wouldn't -- from a factory perspective, you wouldn't see the technology transitions. Just walk me through what you would do in that instance, obviously, that's not ideal and you're not planning for that, but we've seen the qualification slip a couple of quarters with the largest guy. So I just want to understand how you guys think about things if it's further delayed? Dave Mosley: Yeah. I'm not really worried about it for exactly the reasons that you talked about. We see the how the test sets are running. We see how the qualifications are running, and we're very confident in being able to make the pivot. But exactly to the earlier question, I think it was Vijay's question, we can pivot from the last generation PMR to the HAMR technology very, very easily. And last generation PMR is a great product for us with really good margins that we're not fully ramped on yet either. So from that perspective, if it came out like one quarter of delay and some customers said, I want it like this rather than like this, we can very easily pivot back. Thomas O'Malley: Helpful. And then, in terms of just your outlook on AI, you obviously made some comments earlier on the call. You're saying it's still kind of on the come. In terms of initial conversations with customers, do you have a time frame of when you may start to see some contribution there? Is that something that would come as early as this next fiscal year? Dave Mosley: Yeah. Thanks, Tom. This is a really complex topic because I think there's a lot of different things that are called AI. Some of them are traditional workloads that we've seen for years and years, and some of them are brand new workloads. And we are seeing demand that's coupled to brand new workloads, right, with purchase orders that reference specifically things that people would identify as predictive AI or gen AI applications. What I would say is that the recent trends are really more towards video, which we talked about in our prepared remarks. And that’s the biggest thing that we’re seeing right now grow, and I’ll call that AI for a while because I think it is a much more efficient way to drive our customers’ business models and that’s – we see that demand flowing through right now. I don’t think that there’s a bubble going on in there. I think there’s a continued value competition happening in a bunch of different vectors, with new technologies, new applications coming that could continue to drive video as fundamental value store for our customers. So that’s why we’re excited about it. And I know some people call those traditional workloads, but I'll give credit to AI because I think they’re being used in very interesting, creative new ways. Operator: And our next question today comes from Mark Miller with the Benchmark Co. Please go ahead. Mark Miller: Congratulations on your upside results and your good guidance. I just want to go back to AI and the opportunity there. Do you believe that PCs with AI chips will drive a major refresh cycle? And if so, when? Second half of next year? Dave Mosley: Yeah. Mark, I don't have a ton of visibility into that. Although, I do talk to some of these customers that I grew up with about that exact topic. Look, I think that the PC space has been relatively slow to adopt new applications of late, and I think that's about to change. How quickly it will change is still anybody's guess. And of course, it's not about spec-ing new hardware. It's about spec-ing new applications that come. And most of those applications are, to your point, they're video applications. So yes, I do think that when you can enable creative professionals certainly to do -- to create especially video, but audio counts as well and all kinds of other analytical tools that happen at the edge, you allow them to create much more aggressively. I think they'll spin off more data. Some of that data will be serviced by the cloud service providers that already are. And so we see those applications growing, but some of that may be closer to the edge, and we're really excited about that. It's still very early. And I can't really predict where AI PCs are going to be just yet. But I think from what I'm seeing from application development, I'm excited about it, and I think it is going to be a driver in the near future. Mark Miller: Okay. Just one other question. You mentioned there's a little idle capacity at the moment. What is the factory utilization in your hidden media fabs? Are they 85% or higher? Dave Mosley: Yes, fairly high in both. I think we do have capacity as we transition to HAMR, we can -- because we've dedicated a lot of that space to experiments, if you will, in the last few years. And so now some of that can become production instead of experimentation but I think very high over 90% utilization right now. And that's the way we want to keep it. We don't want to dip down because, as you know, that has a lot of cost implications back into the business, and we want to make sure we maintain those fabs running full. Mark Miller: So the greater 90% is both for ads (ph) and media fabs, is that correct? Dave Mosley: That's right. Mark Miller: Thank you. Operator: And our next question comes from Karl Ackerman with BNP Paribas. Please go ahead. Karl Ackerman: Thank you. I was hoping you could discuss your build-to-order visibility and whether it's based on take-or-pay contracts or if it would be better characterized as strong indications of interest, as you and customers plan their storage capacity additions over the coming quarters? And secondarily, if I may sneak in another one. I was just hoping you could also discuss the mix of SMR today, and perhaps going forward as we think about the mix of these higher capacity products going into December and into 2025? Thank you. Dave Mosley: Yeah. Thanks, Karl. I'll let Gianluca do the build-to-order question. Just on the SMR, I said this many times, there's only a couple of cloud customers that really take SMR. There's a couple of client server customers that take SMR as well, so we ship it into multiple markets, but we talk about SMR versus CMR, but I just look at it as drives, drives, how does the customer need them, and we can configure them for those applications for those particular customers, whether it's one or two people accordingly. From my perspective, we have a great technology set that we can deploy every place, and we'll try to keep those factories as full as we possibly can and maximize it. So that's how I think about the SMR mix. Gianluca Romano: Yeah. On the build-to-order, we have different kind of agreements with different customers, but the vast majority are orders that are fully committed by customers out in time. Karl Ackerman: Thank you. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Dave Mosley for any closing remarks. Dave Mosley: Thanks, Nick. Our strategic improvements in advanced technology road map position us well to meet evolving customer needs and drive future growth. We remain committed to delivering value and scalable storage solutions for our customers. I’d like to thank our dedicated team, our supply chain partners and our shareholders for your continued support. Thanks. Talk to you next quarter. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: Good afternoon, and welcome to the Seagate Technology Fourth Quarter and Fiscal Year 2024 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Shanye Hudson, Investor Relations. Please go ahead. Shanye Hudson: Thank you. Hello, everyone, and welcome to today's call. Joining me are Dave Mosley, Seagate's Chief Executive Officer, and Gianluca Romano, our Chief Financial Officer. We posted our earnings press release and detailed supplemental information for our June quarter results on the Investors section of our website. During today's call, we'll 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 and/or cannot be reasonably predicted. Therefore, reconciliation to the corresponding GAAP measures is not available without unreasonable effort. Before we begin, I'd like to remind you that today's call contains forward-looking statements that reflect management's current views and assumptions based on information available to us as of today and should not be relied upon as of any subsequent date. Actual results may differ materially from those contained in or implied by these forward-looking statements as they are subject to risks and uncertainties associated with our business. To learn more about the risks, uncertainties, and other factors that may affect our future business results, please refer to the press release issued today and in 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, all of which may be found on the Investors section of our website. Following our prepared remarks, we'll open the call for questions. In order to provide all analysts with the opportunity to participate, we thank you in advance for asking just one primary question and then re-entering the queue. I'll now hand the call over to you, Dave. Dave Mosley: Thank you, Shanye, and hello, everyone. Seagate in fiscal 2024 on a high note, reflecting strong operational execution and more favorable supply demand dynamics. Fourth quarter revenue increased 18% year-on-year, supported by strengthening global cloud demand. We achieved non-GAAP gross margin of nearly 31% at the company level, supported by HDD gross margin that were above that level and at the top end of our long-term target range. These results, along with ongoing expense discipline, led to non-GAAP EPS of $1.05, far exceeding the high end of our guidance range. At the start of the fiscal year, we highlighted three financial priorities, namely to increase profitability, drive cash generation, and strengthen our balance sheet. Reflecting on our full-year performance, we delivered on all three. Our results were due in part to the built to order or BTO strategy that we put in place to provide greater supply-demand predictability and optimize our cash resources. For fiscal ‘24, we expanded non-GAAP operating profit by 64%, grew free cash flow sequentially every quarter of the fiscal year, and maintained healthy liquidity levels. As we enter the new fiscal year with operating and financial momentum in an improving demand environment, executing our mass capacity product roadmap is a top priority. In the September quarter we expect to complete the HAMR-based Mozaic 3+ product qualification with our lead CSP partner. We've also started to ramp our 28 terabyte PMR, SMR product platform drives in high volume. These two product advancements align well with the strengthening nearline demand environment. I'll share further details around our product execution momentarily, but first I'll briefly review the current market trends. As I highlighted a moment ago, we are seeing strong nearline cloud demand growth from customer globally. Fourth quarter nearline cloud revenue more than doubled from the year ago period and we expect growth to continue in fiscal 2025. We attribute the underlying demand drivers to an increase from both traditional cloud computing workloads, as well as new AI-related deployments. We believe this demand rebound follows a period of deferred HDD storage investments by cloud providers as they prioritize spending towards compute-intensive infrastructure. While cloud service providers are continuing to build out that infrastructure, they increasingly focus on developing, deploying, and monetizing AI applications. This involves both training of large language models and expanding the entire hardware stack to support future generative AI content-driven growth. While HDD demand pull-through related to AI is still relatively small, we believe HDDs will play a crucial role in enabling both of these phases of the AI adoption curve. By offering cost efficient, scalable storage solutions, HDDs are ideal for maintaining the integrity of AI training data sets, as well as preserving the valuable content that AI engines are projected to generate in the future. In the enterprise OEM markets, we observed a gradual improvement in demand for the second consecutive quarter and continue to project stronger growth in the second-half of the calendar year, driven by both modest improvement in traditional server unit demand and increased exabyte content. We've also started to see incremental demand for higher density storage specific solutions, due in part to enterprises putting storage capacity in place, either on-prem or in private clouds, as they prepare for future AI applications. Finally, turning to the VIA markets. Sales of our VIA products came in better than we expected in the June quarter, while customer inventory remains at healthy levels. We expect VIA sales will likely fluctuate a bit in the second-half of the calendar year off of this higher base. Global demand indications for smart city projects remain strong, but near-term budget visibility for these projects is mixed in many markets amid the current global macro uncertainty. Overall, the end-market demand trends are solidly pointing to long-term growth opportunities for mass capacity storage. Demand recovery for our high capacity near line drives has been faster than anticipated, which has extended product lead times and led to tighter overall supply conditions. Based on our current outlook, our nearline exabyte supply is committed through the end of the calendar year. These trends underscore the relevance of our BTO strategy, which is intended to provide greater demand predictability for Seagate and supply assurance for our customers. In this environment, we are working with our customers to obtain better demand visibility and address their exabyte growth needs through product transitions while maintaining a strong focus on profitability and supply discipline. As noted last quarter, we are executing the qualification and ramp of two new high capacity drives. Transitioning to these higher capacity products enabled Seagate to profitably expand exabytes shipment volume with our existing Hard Disk Drive production capacity, while also supporting our customers growing data demand and TCO needs. Customer acceptance of our new PMR product continues to gain momentum. These drives, which offer capacities of up to 28 terabytes, have demonstrated solid yield, quality, and performance today. With numerous customers now qualified, spanning the cloud, enterprise, and VIA markets, and several more planned to complete in the coming months, volume ramp is already underway. In the June quarter, we shipped a small volume of HAMR-based Mozaic drives for revenue to non-cloud customers. Consistent with our recent public commentary, our lead CSP customer is validating drives built with the improved process controls and new firmware optimized for their specific workloads. Testing on these drives is progressing to plan and we expect a complete qualification to begin shipping them revenue units later in the September quarter. Based on our confidence in the technology and experience on this product platform, we are proceeding to launch new HAMR qualifications with the expectation to have multiple U.S. and China cloud customers, calls underway this quarter. We estimate these qualifications will take around three quarters on average to complete, which points to a broader volume ramp toward mid-calendar 2025. We are leveraging all of our learnings and pushing the pace of development on our next generation of HAMR drives, the Mozaic 4+. Mozaic 4+ offers 33% more capacity compared with the HAMR drives that we're shipping today with minimal changes to the bill of materials. This illustrates the central value proposition of the Mozaic platform, namely the technology's ability to scale drive capacity through aerial density gains rather than adding Hard Disk Drive. This capability is enabling Seagate to deliver significant cost benefits to our customers as well as offer power and space advantages that are particularly valuable for data center operators as they expand cloud and AI infrastructure. For example, each data center slot loaded with one of our Mozaic 3+ drives offers 3 times the storage capacity relative to the average capacity of nearline drives in our installed base and consumes about 70% less power per terabyte. These represent tremendous savings opportunities for data centers at exabyte scale. We are hearing from customers directly, including CSPs, that HDDs already play a crucial role in extracting value from data in the early stages of AI application deployment. As GenAI engines mature, customers expect an acceleration in content creation that will lead to significant demand for mass capacity storage. We recognize that GenAI is still in its early stages of adoption. However, this customer feedback combined with our early engagements with nearline cloud and OEM customers reinforces our view that mass capacity storage will be a beneficiary in both the cloud and at the edge as the adoption of these new exciting applications take hold. I'll stop there and pass the call over to Gianluca. Gianluca Romano: Thank you, Dave. Seagate delivered a strong June quarter financial performance underscored by double-digit revenue growth on both a sequential and year-over-year basis, with profitability exceeding the high-end of our guidance range. For the June quarter, revenue was $1.89 billion, up 14% quarter-over-quarter, and 18% year-over-year. Non-GAAP operating income was up 79%, sequentially to $327 million, leading to non-GAAP operating margin of 17% of revenue, expanding 120 basis points quarter-over-quarter. And our non-GAAP EPS was $1.05, exceeding the high-end of our guidance range, reflecting the improving exabyte demand trends, ongoing price adjustment, and continued cost discipline. Within our Hard Disk Drive business, exabyte shipments grew 15% sequentially to 114 exabytes, while revenue increased 17% to $1.7 billion. Growing demand for our mass capacity product more than offset a sequential decline in the legacy and non-HDD businesses. Within the mass capacity market, revenue increased 22% sequentially to $1.4 billion, driven by strengthening global nearline cloud demand, along with an improvement in the VIA market. Mass capacity shipments totaled 104 exabytes, compared with 89 exabytes in the March quarter, up 17% sequentially. Mass capacity shipments now represent more than 90% of total HDD exabytes, reflecting the continued long-term secular growth for cost-efficient scalable storage. Seagate nearline product portfolio is as well positioned to address with growing demand. In the June quarter, nearline shipment totaled 84 exabyte, up quarter-over-quarter from 72 exabytes. The expert demand will continue to improve from global CSPs as well as nearline enterprise customers into the back half of calendar 2024. As Dave mentioned, demand for our VIA product was better than we had forecasted in the June quarter, which is more a function of older timing as our VIA revenue outlook for the calendar year has not changed. Finally, legacy product revenue was $290 million, while revenue for our non-HDD business was $160 million, both down slightly on a sequential basis and lower-than-expected at the beginning of the quarter. Moving on to the rest of the income statement, non-GAAP gross profit increased sequentially by $151 million in the June quarter to $583 million. This represents a 45% increase in gross profit, compared with similar revenue levels in the December 2022 quarter. Importantly, we achieve a non-GAAP gross margin of 30.9% at the company level, which is well inside our long-term margin range. Overall, non-GAAP gross margin expanded by 480 basis points quarter-over-quarter, which was faster than we had originally anticipated. As Dave noted, margin for Hard Disk Drive business were notably higher than the corporate margin. Our outperformance is supported by continued price adjustment, favorable mix shift toward mass capacity products and ongoing cost efficiencies. Underutilization costs decreased to roughly $20 million, compared to $43 million in the previous quarter. The expected underutilization cost will be minimal going forward, reflecting the improving demand environment. Non-GAAP operating expenses totaled $256 million, up 3% quarter-over-quarter, roughly in line with our plans. Adjusted EBITDA continued to improve and was up 45% sequentially in the June quarter to $404 million. Non-GAAP net income strongly increased to $122 million, resulting in non-GAAP of $1.05 per share, based on diluted share count of approximately 212 million shares. Moving on to cash flow and the balance sheet, in the June quarter, cash and cash equivalent total $1.4 billion, including $560 million, representing a majority of the proceeds from the sales of our SOC assets announced in April. From an accounting perspective, we recorded $126 million of the proceeds in operational cash flow, which are net of transaction cost and related to our long-term SOC purchase agreement. The remaining proceeds are reflected in invested cash inflow. Capital expenditures for the quarter were down 10% to $54 million. For the fiscal 2024, CapEx spending was $254 million, which is just below the low-end of our target 4% to 6% of revenue. Looking out to fiscal ‘25, we will maintain capital discipline and currently expect CapEx to be at the low-end of the target range. Free cash flow generation was $380 million, including the $126 million noted earlier from the SOC divestiture. As a reminder, we plan to use a portion of this proceeds to support our supply chain. With this in mind, we expect free cash flow in the September quarter to be at or slightly above breakeven. We return $147 million to shareholders through the quarterly dividend, exiting the quarter with 210 million shares outstanding. We close the June quarter with $2.9 billion in available liquidity, including our undrawn revolving credit facility. With cash and cash equivalents of $1.4 billion, net debt decreased 11% to $4.4 billion at the end of the June quarter. Other income and expenses were $81 million, down from $85 million in the prior quarter, and reflecting higher interest income from improved cash balance and relatively flat interest expenses. Turning now to our outlook, we expect mass capacity revenue to trend higher in the September quarter, and more than offset lower sales into the legacy markets. We continue to see demand growth from global cloud customers, as well as a modest improvement in the nearline enterprise market. We expect growth margin to benefit from a richer mix of mass capacity revenue and ongoing pricing actions. With better context, September quarter revenue is expected to be in a range of $2.1 billion plus or minus $150 million, an increase of 11% sequentially, and 44% year-on-year at the midpoint. We are planning for non-GAAP operating expenses of approximately $270 million, which include costs associated with reinstating our variable compensation plan. At the midpoint of our revenue guidance, we expect non-GAAP operating margin to be in the high-teens percentage range. We expect our non-GAAP EPS to be $1.40 plus or minus $0.20, based on a deleted share account of approximately 213 million shares and a non-GAAP tax expense of $15 million to $20 million. Our results reflect our supply discipline and strong focus on profitability. I will now turn the call back to Dave for final comments. Dave Mosley: Thanks, Gianluca. I'm pleased with our strong performance exiting fiscal ‘24, which reflects our team's unwavering focus on improving profitability and driving cash generation. Two key financial imperatives, as we enter fiscal ‘25, and the improving near line cloud and enterprise demand, we will focus on supporting exit by growth through product transitions. We are working closely with customers to address their data storage needs through two new high capacity products, including the Mozaic 3+ HAMR Drives. We remain confident in the HAMR technology, which provides our customers with cost efficient, scalable storage that we believe will prove critical in an era where data holds unprecedented value. We want to thank our global teams for their creativity and perseverance over the last several quarters that have helped us achieve the results that we announced today. Our structural performance improvements, coupled with a favorable demand environment and differentiated technology roadmap, position us well for years to come. We also wish to thank our suppliers for your support and our customers and shareholders for placing your trust in Seagate. Gianluca and I are now ready to open up to call for questions. Operator: We will now begin the question-and-answer session. [Operator Instructions] Our first question today is from Wamsi Mohan with Bank of America. Please go ahead. Wamsi Mohan: Yes, thank you so much. Dave, you mentioned that nearline capacity is committed through end of calendar ’24? How should we think about the market coming more in supply-demand balance and when do you think that would happen? Or maybe asking it another way, how long would it take for you to add incremental capacity? And how do we square that with the low end of capex for fiscal 25 comments from Gianluca? Thank you. Dave Mosley: Thanks, Wamsi. Yes, we are being very careful with adding more capacity. It's good news seeing the demand come back to the extent that it has, but it's still not back to the levels it was a couple of years ago. And if you'll recall, we took something like 25% of the capacity offline and we let a bunch of people go. And so, you know, we've been hiring a lot of the people back, but we're still pretty far away from the supply capabilities that we had years ago. What we're doing right now is trying to get predictable. So, you know, making sure that with the supply that we do have, we're getting it booked and that's why we have the confidence through the end of the calendar year. And then we're trying to drive product transitions, which helps us answer the call for exabyte demand with the new products and make making sure we get that book, so that people are committed to the qualifications and then can have access to that technology as well, which obviously helps us rebuild the industry and the margins that we have. We can share that with suppliers as well. So just that predictability is our priority right now, not adding more capacity. Wamsi Mohan: Okay, thanks. If I could really quick one for Gianluca. In your guide of the gross margin improvement, right? As you've gone through the last few quarters, you've been seeing material step function changes in your gross margin as some of these underutilization charges have gone away on these higher revenues. As you think about this quarter-on-quarter into September and beyond, it seems that the gross margin improvement is sort of asymptoting. And I'm wondering, is that more because of the ramp and qualification around HAMR and sort of where those volumes are this year? Or is it, and should we think that we won't get as much leverage on gross margins over the next few quarters. How should we be thinking about that? Thank you so much. Gianluca Romano: Thank you, Wamsi. Well, I would say, first of all, we are very satisfied with the trend in our gross margin. This quarter, I mean, the June quarter, was even little bit higher than what we were expecting. So we went a little bit faster on both the pricing actions and the reduction in our internal cost. This is going on. We expect this to happen again in the September quarter. It's always difficult to perfectly estimate how much will be the impact for the full quarter. As you know, volume is going up. So the underutilization charges will decline even more in September, and we don't really expect this cost to be impacting the company through fiscal ‘25. And then, of course, because of the supply-demand balance now is a bit different than what was in the past. We still expect some improvement on the pricing action. So everything is reflected in our guidance and the trend is continuing and is going in the right direction. Wamsi Mohan: Okay, thank you so much. Gianluca Romano: Thank you. Operator: Next question is from a Asiya Merchant with Citigroup. Please go ahead. Asiya Merchant: Great, thank you for taking my question. The guy talked about improving enterprise storage demand from your enterprise OEM customers. How much visibility is there, and how do you feel about the sustainability of that demand as the quarters progress? Thank you. Dave Mosley: Thanks, Asiya. I would say that the visibility is not as good as what we have from the CSPs today, but it's been a fairly sharp downturn in on-prem enterprise, as well over the last year. So talking to the customers, they see some of that coming back, maybe not as early, but probably into FY ‘25 later in the year. So that's what we're targeting right now. And again, trying to get the new products qualified there so we can answer it with exabytes. We think that over time on-prem is going to grow, because a lot of the cool applications that people are talking about, read AI applications, will need on-prem storage, as well for various reasons, snapshotting and checkpointing of the data and just making sure you feed all the AI engines with mass data at the edge. So we think there's opportunity there, but it's definitely lagging what we're seeing in CSPs right now. Asiya Merchant: Thank you. Operator: The next question is from Erik Woodring with Morgan Stanley. Please go ahead. Erik Woodring: Great guys, thanks so much for taking my question. Dave, really if you could provide an update on HAMR timing. Tonight, those comments are obviously helpful in understanding the ramp. I guess, I want to provide some assurance for the market on timing. And that is just, if we're at from 1 to 10, 10 being highest conviction, how much conviction do you have that HAMR will qualify for your first maker cloud customer in the September quarter and why? Thanks so much. Dave Mosley: Well, yes, we're pretty convicted from our comments in the prepared remarks, of course. You know, in short, Erik, we're looking at the data and we have thousands of drives running in our shop. We have at the customer sites as well they're running under a variety of workloads and we're mindful of the fact that we have to prove the long-term performance. We had some supplier issues during the course of this summer when we went to high volume, but we see the fixes and we see how they're responding in the test beds that we've got. So we're very optimistic about getting through these things. Our industry's really upped its game as the drives, they have to last for five, six, seven, years in the data center. It takes a little time to prove that kind of performance. We can't just fix that in a week. We have to actually prove it ourselves. So the bar is pretty high, but we'll get over the bar really soon, and that's why we're optimistic about it. Erik Woodring: Super. Thanks so much, Dave. Operator: The next question is from Krish Sankar with TD Cowan. Please go ahead. Krish Sankar: Yes, thanks for the question. I have a two-part question, one for Gianluca on gross margins. It looks like September quarter gross margin is up probably at 50 to 100 basis points. Is this a fair characterization? And do you have any update to your long-term growth margin targets since you're already there? And then Dave, you kind of spoke about exabytes committed for this year. Any view on FY ‘25 or calendar ‘25 exabytes for you or for the industry? Thank you. Gianluca Romano: In terms of gross margin, as I said before, we are going in the right direction. We have improved our gross margin by a lot in the last three or four quarters, so we are pleased with this trend. And we see further improvements coming in the current quarter. And then, as we discussed also in the past, we see both revenue and profitability continue to improve through the calendar ‘24. So we are fairly optimistic of course, we always need to check supply and demand balance and we need to have enough volume to bring underutilization charges to zero and right now it is in our forecast. So we are going the right direction, and we are not giving a new range for now. But as Dave said in his script, especially the hard disk part of the business is particularly strong and is already at the top of what we have in the current model range in terms of gross margin. Dave Mosley: And then Krish, relative to your question, for me, there is some evidence that the cloud continues to strengthen going into calendar ‘25. We don't want to talk about that too much just yet, but I think enterprise on-prem will, this is to a CS question, will improve in exabyte demand as well in calendar ‘25. Our exabytes are fairly committed through calendar ‘24, so we have limited supply and FY ‘25 is starting to fill up. And for customers needing more exabyte scale, that's why we're driving the mix via new product introduction, so hard that we talked about. Krish Sankar: Thank you, gentlemen. Very helpful. Thank you. Operator: The next question is from Amit Daryanani with Evercore. Please go ahead. Amit Daryanani: Good afternoon. Thanks for taking my question out too as well, I guess. I guess just both on pricing, especially on the mass capacity side, it looks like your pricing is up mid-single-digits maybe even slightly better than that. Can you just talk about how do you see the pricing trajectory on a year-on-year basis pan out through the end of this calendar year or fiscal year. I'd love to just get a sense on the pricing side? And then, Dave, when you talk about these HAMR volumes getting -- happening in mid-2025, so the push out you've seen, there's always this fear that as people, as investors, as customers wait for HAMR arms, Western did will pick up more incremental share with the Seagate. So can you just talk about customers broadly doing as a way for these HAMR qualifications to happen? And what gives you comfort that perhaps the share -- market share doesn't go away from you as these qualifications happen over the next few quarters? Dave Mosley: Well, I think we have products all the way from 20 to 32 terabytes, and we're going to go to 40 terabytes and we're just asking customers exactly what they want to fill their exabyte demand. So we have a lot of options. And we're making sure we're as predictable as we possibly can be. So market share is an outcome. And what we said many, many times is we're going to go build to order. We're going to communicate with the customers exactly what's going on. So I'm not really worried about market share. It's more how do we predictably run our factories. Long lead times on the products and the supply is fairly tight right now. Making sure we get the customers exactly what they need when they need it is really our priority. And that does transition into the pricing discussion, which I'll let Gianluca answer for you here in a second. But what I would say is if you look back 6 months ago before we started to see some of this demand uptick, we said we're not taking some deals that we thought were dilutive, increasingly dilutive to our industry. And now as we see better and better dynamics, tighter supply dynamics and so on, we've taken the deals obviously in the back half of this year. And where it goes from here really is dictated by the continued demand. So how big is the demand next year with all these new applications that people are talking about? Gianluca Romano: Yes. On the pricing, of course, we are coming out from a fairly long down cycle, and we have started to increase our pricing based on the increased demand a few quarters ago. Part of the pricing is already included in our build to order that Dave already discussed, so already is part of the volume that already include a certain pricing for the next several quarters and is another part that will be discussed during the quarter in terms of upside and in different segments. In some segments, now the demand is strong, especially in the cloud. Enterprise OEM is also starting to improve. That is very good for us. Video and image application, I think through the end of the calendar year, will show some further improvement. Of course, there is also part of the business more in the legacy side that is not currently growing. Obviously the industry is becoming more healthy. The ecosystem is improving. So the pricing trend is going in the direction where we have discussed also in the last couple of quarters and of course is part of the improvement that we can see in the gross margin. Amit Daryanani: Perfect. Thank you very much. Operator: The next question is from Aaron Rakers with Wells Fargo. Please go ahead. Aaron Rakers: Yes, thanks for taking the question. Kind of digging a little bit into the gross margin drivers. One of your competitors talks a lot about SMR. And I know in your slide deck you highlighted the 28-terabyte SMRs going through qualification. I'm just curious of how much of your nearline business today is on SMR. And if not a lot, how much does that ramp change the trajectory of gross margin? Just trying to isolate that SMR benefit that, I think, could play out from gross margin. And then I guess, Gianluca, on gross margin, I'm curious of -- excluding the underutilization charges, it, to me, looks like you're guiding gross margin more or less flat sequentially. Is there any drivers of why you wouldn't see the same kind of incremental margin flow-through in the model this quarter relative to what you've seen over the last two quarters or so? Gianluca Romano: Yes. I would say the June quarter came out better than what we were expecting, so we have anticipated a little bit of that gross margin improvement in the June quarter. Again, we are very positive for the current quarter. We have included in the guidance what we already have agreed with customers, and then we will see how the quarter will come out, can come out also a little bit better than what we expect in terms of pricing but of course, depends on what are the negotiations through the quarter. We are happy on the cost side. Cost is declining, so this is helping us. And it will be another step during the second part of the calendar year. So in terms of SMR, I don't know if, Dave, you want to answer that question. Dave Mosley: Yes. Hi, Aaron. So on SMR, I would just say, look, we've qualified SMR at all customers that want it, and SMR as a percentage of the total is really a function of what customer is pulling in a given quarter. And so we work with the customers that they happen to want -- there's different flavors of SMR. There's some people who need variance of CMR, and there's a lot of different complexity in the customer base. We'll ship whatever the customer needs. Relative to margins, SMR, does it help margins or hurt margins? It's not very relevant. It helps capacity points in some cases, and that's important for individual customers, but we have options to go wherever we want to in the different flavors of SMR if we have to. Aaron Rakers: Yes. Thank you. Operator: The next question is from Timothy Arcuri with UBS. Please go ahead. Timothy Arcuri: Hi, thanks. I think in the past, you said that your max exabyte shipment capacity is about 120 exabytes. You just shipped 114. You're going to ship more in September. So in the not-too-distant future, you're going to kind of bump up against max capacity. I know, Dave, you said that you're hiring folks back and stuff. But we're going to kind of get to a point where you've been raising prices. But how do you think about -- strategically, do you sort of slow roll the capacity expansion so that you don't really grow that number very much and you then take price? Or do you just think about more of a modest price increase trajectory and you basically back solve into what you have to expand in terms of capacity? How do you think about that balance? Dave Mosley: Yes. Thanks for the question, Tim. So we're going to be very cautious given what we've just been through. So it's not ancient history, and I guess the scars are fairly fresh on our back, not only us but our entire industry, right? So the entire supply chain needs to recover. I think as we start to look out further and people are booking with more confidence things further along, we'll probably add back some people, use some of the existing capacity that we have, top out at that 125 number or maybe slightly higher than that, which we'll work as tough as we can inside of operations to do that. We can grow more exabytes by getting through product transitions. And that's one of the reasons why we're driving so hard to get through the product transition. So we don't have to necessarily answer it with new CapEx. We have the CapEx that can actually go through the product transitions already. And that's the way we're going to answer it first, and then we'll see how much demand continues above that. Historically, as you all know, demand has been significantly higher for HDDs before the pandemic and even in -- sometimes during the pandemic. So we've been through a wild ride from a supply chain perspective and the demand, especially with some of these new applications that are coming online, continues to go north. We'll have to deal with that at the time. I think it's too early to do that yet. Timothy Arcuri: So is there just -- is there some number that the customer is bearing to -- I mean, willing to bear, Dave? Is it like -- do you think the customer can bear these sort of 5% to 10% price increases? I mean those are the kind of numbers we're hearing for the back half of the year. It seems very high and not a number that the customer probably can bear? Dave Mosley: Well, the way I would think about it instead is as we go to higher and higher capacity points, that value proposition into their data center, if they're going to be running those drives for five to seven years, is huge, right? They're getting more power efficiency and everything else. And so yes, they see that TCO benefit as well driving through the product transition. Gianluca Romano: Yes. Tim, finally, the supply-demand dynamics will determine the price. That's a reality at the end. So demand is fairly strong at least in part of the business right now, and hopefully, this will continue for a certain number of quarters in the future. Timothy Arcuri: Okay, thank you. Operator: The next question is from Karl Ackerman with BNP Paribas. Please go ahead. Karl Ackerman: Yes, thank you. I’d look to follow-up as well on exabyte capacity. I just was hoping you could think about or help us think about rather the outlook for mass capacity demand from here. You indicated that nearline enterprise and OEM should gradually improve with stronger growth projected in the second-half of calendar 2025. However, with HAMR expected to ramp in mid-calendar 2025, are you anticipating or should we anticipate any moderation in cloud demand from now until then given the fact that September quarter will be the fifth quarter of growth of exabytes, which is a bit longer than what a typical cycle is? Thank you. Dave Mosley: Yes. Karl, as you know, the front end of the plunge was much more significant than anything we've ever seen before. We didn't ever even seen negative growth before the middle of this pandemic, right, on nearline exabyte demand. So it's -- we started from a very weak spot. I don't think we're back to normal demand by any stretch of the imagination, but we're going to have to -- like I said, because of what we've been through, we're going to be very cautious. And do you want to say something else, Gianluca? Gianluca Romano: I would say we -- of course, now we have HAMR, which is in qualification right now. And in the script, we said we will have few other customers that will qualify in the next few quarters, and then we will ramp more volume. But we have, of course, many other products that we can use to answer the increase in demand between now and when we have a significant ramp in HAMR. Dave Mosley: Right, Karl. I mean the BTO process gives us the visibility that we need. I don't think I would take away that's some middle of next year or anything else. I mean we're going to be very aggressive on all of the products moving forward to give exabytes that way. The high volume issues, the process issues that we've seen are really valuable learning for us, and I'm happy that the industry is all aligned at 4 terabytes and 5 terabyte value propositions that are not too far away. So we're going to aggressively drive these introductions and be as aggressive as you can just to help reconstitute the margin in the industry. We've had a busy summer making it work, of course, but I wouldn't trade all those learnings in as far as future ramps and future qualifications. Let's go. Operator: The next question is from Vijay Rakesh with Mizuho. Please go ahead. Vijay Rakesh: Yes, just a quick question on -- when you look at your underutilization, I just wonder if you can give us a color on what the utilization levels are now? And how do you -- does it get to like 85%, 90% by exiting the year? Gianluca Romano: I'm not sure I got the question. But if you're talking about the level of underutilization, is not going to be any significant impact for the fiscal year '25. So that will help our cost per terabyte, our cost in general and is one factor on the increase of the gross margin that we expect. Dave Mosley: Right. If it helps, the utilization generally is high, but there are various factories in the industry and the supply chain that have been pulled offline. So the question is do we bring those factories back online, even though the utilization of the existing factories might be high than bringing new factory -- or the -- sorry, some of the old factories back online is one of the questions we're dealing with. Operator: The next question is from C.J. Muse with Cantor Fitzgerald. Please go ahead. C.J. Muse: Yes, thank you for taking the question. You talked about nearline exabyte committed for all of calendar '24. Curious how much of that have you locked in fixed pricing. And then, I guess, bigger picture question on gross margins. Now that underutilization is de minimis pushing into the second-half of the calendar year, how should we be thinking about ASPs versus mix driving gross margins higher? And as part of that, as HAMR revenues start to trickle in, in September, in December at those lower volumes, do you expect that to be accretive or dilutive? And very helpful. Dave Mosley: C.J., on the bookings, if you will, some of that stuff was booked, as I mentioned before, as much as a quarter ago as we started to see the demand go up. So we're fairly confident in the price and the volume that we can actually supply towards the back half of the year. Gianluca Romano: Yes. So I would say, all what you said will be an help to our gross margin, of course, the pricing in the BTO, the eventual pricing that we will negotiate through the rest of the quarter and the fiscal year, now assuming demand is still growing as we expect and of course, also HAMR. HAMR, hopefully, we will be able to ship a significant volume in the next few quarters, and that will help also our gross margin to grow. Dave Mosley: And C.J., you also asked a question about whether it's accretive or dilutive to gross margins. That's not exactly the way we think about it. HAMR unlocks new capacity points, of course, very quickly, and so we'll drive for that. It's a better TCO proposition as I talked about before. There's not significant cost issues with the HAMR platforms. So I think what we can do over time is drive for more product efficiency, especially as we get higher and higher capacity drives, the lower capacity drives become much more component efficient, and that's exactly why we're driving the transition. Operator: Next question is from Mehdi Hosseini with SIG. Please go ahead. Mehdi Hosseini: Yes, thanks for taking my question and I appreciate all the details. I appreciate all the details. Dave, just want to go back to the long-term strategy. You guys have done a great job of resizing the company and adjusting to tough market environment and now benefiting from pricing and very diligent with CapEx and everything else and HAMR is ramping middle of next year. When you think about it longer term, especially as we go through this up cycle, what are your thoughts about recapitalizing the balance sheet? What are your thoughts about longer-term earning power for the company? And is there anything that you see in the next year or so that you can do to better strengthen the balance sheet so that we could think of the longer-term growth drivers and earning power in an environment where you're not spending $80 million a quarter in interest expense? Dave Mosley: Yes. Thanks, Mehdi. So these are questions that we're stewing on now since the last year has been so operationally focused, to your earlier point, and thanks for all the accolades. I mean it's a very, very tough year that we've been through, but we're going to have to start addressing these questions. A lot of it comes down to what ultimately the demand is and is that demand persistent. What we don't want to do is drive our supply back up to some higher demand thing and then go through the same kind of cycle again. We just can't. We can't do that, I mean, on our financial footing. So we're going to have to address the debt. Depending on what the demand ultimately is, we're going to have to address the debt where it is. But if the demand is even higher, then we'll address that when it comes. And I think it's too early to speculate on what that is. We're still recovering from what we've just been through. Gianluca Romano: Yes, in terms of the balance sheet, we've already partially addressed the high level of debt. We enter into the down cycle with $6.2 billion of debt. We are now at $5.7 million. Our liquidity is much better than what it was a few quarters ago. We were fairly open in the discussion even in the prior quarters. We want to bring this debt down possibly around the $5 billion. And then we see, based on where the business is, if we want to do even more or we stay at that level. Operator: The next question is from Steven Fox with Fox Advisors. Please go ahead. Steven Fox: Hi, good afternoon. I hope you don't mind if I go back over the capacity question again. I guess I understand where you're talking about as you go through these product transitions, you sort of are shipping more exabytes per head and platter, et cetera. But I guess given that -- this new technology, how do we think about this transition in terms of opening up capacity over the next 12 months versus prior node transitions? Anything you can do on that to help us in modeling out three, four quarters because I think we're all struggling with the idea do we assume that you're in an incredibly tight environment in three or four quarters where you're getting more price or do we assume that you're matching demand and pricing is steady? It sounds like you're adding people back already, so I'm just trying to put all that together in some kind of quantifiable manner. Dave Mosley: Thanks, Steve. It is difficult math because you have to understand exactly what the mix is of the demand that comes, right? So if it's all highest capacity drives, that's one question. If you get a lot of mid-capacity -- mid-range capacity, which is really the strength that we saw before the pandemic, was mid-range capacity and if some of that starts coming back, there's various customers that may need that. We answer the call differently for our product today or once we drive through these transitions, we're much more efficient, right? So a lot of it will depend upon the exact mix. I think where we are right now is our thinking is do not add any drive capacity at all. Just continue to be as utilized as we can and wait and see how that mix develops. Operator: The next question is from Ananda Baruah with Loop Capital. Please go ahead. Ananda Baruah: Hey, guys. Thanks for taking the question. Dave, just going back to GenAI, in the prepared remarks, you talked about starting to see demand driven by AI. I guess how much -- in what spirit is it starting to show up? Is it just kind of like dribs and drabs? Are you starting to see legitimate kind of chunky orders? And then any view -- like do you have any visibility or any view on when on-premise starts for inferencing? And I guess just in that context also, are the Tier 2s yet kind of "get customers treated as"? Appreciate it. That's it for me, Tier 2 CSPs. Dave Mosley: That's a pretty rich question. Let me try this Ananda. So I think, remember, a few years ago, we talked about the cloud being in the early innings. I think most of what we're seeing as far as demand right now is traditional cloud workloads, continuing to migrate to the cloud, so that's maybe middle innings -- maybe still early innings for that matter. As far as GenAI, I think we're in the very early innings. So we can all see the efficiency of some of these new applications that are coming, but I have yet to see the big data applications really taking up. And I think they will come with video creation, video storage, video consumption at the edge, exactly to your point. More importantly, I think a lot of AI applications will need snapshotting in order to trust them. I mean if you make a decision with an AI engine, you're going to need to be able to prove that, that decision was the right decision by having snapshots of the data. And I think that's the biggest opportunity that we see at the edge and in the cloud. And so we're quite excited about it, but it's still very early. We do have some purchase orders that are specifically targeted at AI, but we have not really seen how fast some of these are going to grow. And especially for the big data applications that we're really excited about, they're still in the very early innings. Operator: The next question is from Tristan Gerra with Baird. Please go ahead. Tristan Gerra: Hi. Good afternoon. The focus on the HAMR has been on CSP customers, but I think you said you're now qualified with some Chinese cloud customers. Is that -- how incremental is that? And how does it help move into potentially the U.S. hyperscaler market over time? Dave Mosley: Sorry, Tristan. Yes, we said non-cloud customers. We didn't say anything specifically. Gianluca Romano: We didn't even say Chinese. Dave Mosley: Yes. I think the way I think about this is there's different kinds of customers that have different kinds of qualifications and also those customer architectures are more and less tolerant of certain kind of faults and things like that. And we're very communicative with the customers on this. So the volume ramp has begun. It's not as aggressive as we were 6 months ago because of some of these volume issues that we have, but we're going to continue to ship more and more units to other people and learn from those shipments as well as we build volume in our factories, we'll learn about these -- some of these supplier interactions that really slowed us down. Operator: The next question is from Thomas O'Malley with Barclays. Please go ahead. Thomas O'Malley: Hey guys, sorry if I missed this, I was bouncing between calls, but could you just update us on the process with the firmware update that you chose to do? I think you had previously mentioned that you had a subcomponent with a single supplier that was causing an issue, but then you used that opportunity to update the firmware. So have you completed the firmware, I guess, requalification? And does that have anything to do with the push out into Q3? And what incremental steps do you need to take to complete the qualification from this point? That would be super helpful. Thank you. Dave Mosley: No, I think the test beds are up and running. The firmware, we have high confidence in the firmware qualification, and we think we're over that. We're always doing firmware updates for new features for various customers, various market segments and so on. I mean we talked about this in the SMR details earlier. There's always architectural changes going on. So I think we're fairly confident about that. Operator: The next question is from Mark Miller with The Benchmark Company. Please go ahead. Mark Miller: Just wondering what your thoughts about in terms of the ramp of introduction of AI chips into PCs. Where do you see that, say, in the middle of next year as a percent of PCs with AI chips? Dave Mosley: This is a very interesting topic as well, Mark. From my perspective, it's time for the PC ecosystem to get some new applications. And so I'm very excited about it. I hope that some of those applications are what I'll call video editing applications. And so then the question is where is the data. Is it on the PC forever? Is it right next to the PC? Is it in the closet in the small, medium business? Is it up in the cloud? I mean as long as those applications are creating data and you want to store that data for a long time, I'm happy with it. Some of the sharing may not be as rich, but I think people are going to be very creative with some of the applications that are coming. We've seen the applications in the AI PC space, but I think the adoption is still going to be slow. And I hope I'm wrong. I mean I hope it's a little bit faster. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Dave Mosley: Thanks, Gary, and everyone on the call. We appreciate your participation and your questions today. Hopefully, you've seen our enthusiasm for how Seagate is positioned to address the improving demand environment across all of our end markets. By continuing to focus on the fundamentals, the strong financial and operational execution and advancing our areal density growth road map, Seagate is well positioned to deliver value both to our customers and our shareholders, and we look forward to keeping you posted on our progress. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: Welcome to the Seagate Technology Fiscal Third Quarter 2024 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Shanye Hudson, Senior Vice President, Investor Relations. Please go ahead. Shanye Hudson: Thank you. Hello, everyone, and welcome to today's call. Joining me are Dave Mosley, Seagate's Chief Executive Officer, and Gianluca Romano, our Chief Financial Officer. We've posted our earnings press release and the detailed supplemental information for our March quarter results on the Investors section of our website. During today's call, we will refer to GAAP and non-GAAP measures. Non-GAAP figures are reconciled to GAAP figures in the earnings press release posted on our website and included in our Form 8-K. We've not reconciled certain non-GAAP outlook measures because material items that may impact these measures are out of our control and/or cannot be reasonably predicted. Therefore, a reconciliation to the corresponding GAAP measures is not available without unreasonable effort. Before we begin, I'd like to remind you that today's call contains forward-looking statements that reflect management's current views and assumptions based on information available to us as of today and should not be relied upon as of any subsequent date. Actual results may differ materially from those contained in or implied by these forward-looking statements as they are subject to risks and uncertainties associated with our business. To learn more about the risks, uncertainties, and other factors that may affect our future business results, please refer to the press release issued today and our SEC filings, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q, as well as the supplemental information, all of which may be found on the Investors section of our website. Following our prepared remarks, we'll open the call up for questions. In order to provide all analysts with the opportunity to participate, we thank you in advance for asking one primary question and then re-entering the queue. I'll now hand the call over to you, Dave. Dave Mosley: Thank you, Shanye, and hello, everyone. Seagate is delivering solid financial results in an improving demand environment. In the March quarter, we grew revenue 6%, expanded non-GAAP gross profit 18%, and more than doubled non-GAAP earnings per share compared with the prior quarter. Our performance is a function of both improving end-market demand and the decisive actions we implemented throughout the downturn to strengthen our financial profile heading into the recovery. Nearline cloud demand trends are increasingly positive across both US and China customers, and we also saw a sequential improvement in the enterprise OEM markets in the March quarter. On the execution side, the quarter-on-quarter margin expansion reflects our pricing initiatives taking hold as well as favorable mix, resulting in revenue growth in the quarter outpacing exabyte growth. Pricing strategy is just one key piece of our broader focus on profitability, which also includes maintaining a healthy supply-demand balance, introducing new technologies to enhance value for our customers, and maintaining tight expense controls with an emphasis on generating cash. Looking at the near-term end-market dynamics, cloud continues to lead the demand recovery. For a second consecutive quarter, we realized strong double-digit revenue growth from sales to cloud customers, with improvement across both US and global cloud names. We believe the long-running cloud customer inventory correction is mostly complete and their end demand is also improving. Based on our customer interactions, we currently expect healthy nearline demand growth to continue through the rest of calendar 2024. Within the enterprise OEM markets, demand stabilized in the second half of calendar 2023 and we observed incremental improvement in the March quarter. Historically, enterprise nearline demand has correlated well with traditional server growth, which is projected to modestly increase in calendar 2024. As a result, we expect enterprise OEM revenue to improve as server growth resumes. In the VIA markets, revenue was seasonally lower in the March quarter and we expect demand to trend higher through the calendar year. Smart cities remain the largest end-market opportunity for VIA products. However, new applications continue to emerge that use AI analytics to form actionable insights from data at the edge, where an estimated 80% of data resides. One such use case centers on smart energy and utility management that aims to use imaging data to drive energy efficiency and conservation. Analysts place this among the fastest-growing sectors for VIA applications worldwide. Within China, the pace and magnitude of demand improvement in VIA and other HDD markets will be shaped by economic recovery in the region. We continue to monitor the government's efforts to spur economic growth, including stimulus plans aimed at digital transformation and infrastructure spend. Recent economic indicators show signs of progress. However, it will take time for the benefits of these programs to take hold. Overall, we believe these constructive market trends support steady revenue growth throughout the calendar year. Our ability to deliver that growth is enhanced by our build-to-order initiative that is now in place with the majority of large mass capacity customers. These plans support Seagate better demand visibility and greater predictability for capacity planning, while our customers find value in the assurance of supply that meets their volume and timing needs. Importantly, the improving overall outlook for HDD demand is unfolding as we execute on our product and technology roadmap. Today, we are simultaneously driving qualification and ramp plans for two high-capacity product families. Our last PMR product delivering up to 28 terabytes per drive, as well as our first HAMR-based Mozaic product on 3-plus terabytes per disk. This is rare for our industry, and I want to acknowledge our product teams at Seagate, who are doing a phenomenal job supporting customers as we work together to advance our industry-leading products and technologies through the various customer qualifications. These two product families share about 95% commonality in components and leverage the same assembly processes and test processes. This enables efficiencies across areas such as procurement, manufacturing, capital investments, and customer qualifications. The 24-terabyte, 28-terabyte PMR drives are in qualification at most of our global cloud and enterprise customers. We have already completed qualification with one major enterprise customer, some global Tier 2 customers, and with our enterprise systems business. We currently expect to begin shipping significant volumes in the first half of fiscal 2025. Relative to HAMR technology, we continue to progress towards completing our first large CSP customer qualification, though we experienced a temporary slowdown in recent weeks. We determined a mechanical component unrelated to the HAMR recording subsystem and some of our drives was not performing as expected. We identified and rapidly implemented the solution with full support from our customer. Verification tests are underway and these tests should be completed in the June quarter. Every other aspect of the qualification process has gone as expected. With this shift in timing, we now expect to ship a few hundred thousand HAMR-based Mozaic drives in the June quarter and meet the remainder of our customer's exabyte demand through other already qualified products. As we gradually ramp HAMR products with our lead hyperscale customer in the second half of the calendar year, we remain focused on broadening the number of customers qualified on Mozaic products. Customer feedback reaffirms strong interest in HAMR technology and that is further reflected in the successful completion of our first qualification with a top non-cloud customer a few weeks ago. We've laid out a Mozaic roadmap with a clear path to at least 50 terabyte drives that offers customers TCO and sustainability benefits, including lower power consumption and less required floor space on a per terabyte basis. We are scaling drive capacity through aerial density gains rather than adding heads and disks. As we execute on our product roadmap to 50 terabytes and beyond, we expect to incur minimal changes to our bill of material costs and maintain low capital intensity of between 4% and 6% of revenue. As a result, we believe HAMR provides the path for achieving margin performance beyond our current target range as production scales and also positions Seagate well to continue capitalizing on megatrends like AI and machine-learning, which drive long-term demand for cost-efficient mass storage. As we've discussed in the past, the initial phase of GenAI has focused on building out the compute-intensive infrastructure required to develop and train large language models. As development shifts to the deployment phase, enterprises will begin to leverage these trained AI models to transform data with value-enhancing applications and generate data-rich content. Customers expect HDD demand to increase as this phase takes hold. Over the next several years, the volume of AI-generated content is expected to increase and also shift towards more imagery and videos, which can be up to 1,000 times larger than text. These trends bode well for HDD demand over the long-term, as HDDs remain the most cost-effective means to house and subsequently use mass capacity data. To summarize, the combination of more favorable demand trends, strong operating discipline, and product and technology leadership, provide the foundation for driving further financial performance gains. This combination reinforces our confidence in returning to our long-term target margin ranges and potentially exceed those ranges over time as HAMR-based products proliferate in the marketplace. With that, Gianluca will now cover our financial performance and outlook. Gianluca Romano: Thank you, Dave. Seagate delivered solid financial performance in the March quarter with sequential improvement across every key financial metric. Revenue was $1.66 billion, up 6% quarter-over-quarter. Non-GAAP operating income was up 44% sequentially to $183 million, leading to a non-GAAP operating margin of 11% of revenue, expanding nearly 300 basis points quarter-over-quarter, and our non-GAAP EPS was $0.33, increasing $0.21 sequentially and above the midpoint of our guidance range, reflecting the improving demand trends and continued cost discipline. Within our Hard Disk Drive business, exabyte shipments grew 4% sequentially to 99-exabyte, while revenue increased 7% to $1.5 billion. Revenue performance was mainly driven by the expected improvement in the nearline cloud market as well as favorable pricing actions. Within the mass capacity market, revenue outpaced exabyte growth, increasing 11% sequentially to $1.2 billion with nearline cloud demand more than offsetting the slight decline in the VIA market. Mass capacity shipment totaled 89-exabyte compared with 83-exabyte in the December quarter. Mass capacity shipment as a percentage of total HDD exabyte was 89%, reflecting the continued long-term secular growth for mass capacity demand. For nearline products, shipment of 72 exabytes were up quarter-over-quarter from 65 exabytes. We believe that inventory among most CSP customers has decreased and anticipate continued nearline demand improvement in the June quarter and beyond. In the VIA market, we believe the March quarter will prove to be a low point of the calendar year with demand returning to more typical seasonal patterns moving forward. Legacy product revenue was $297 million, down from $324 million in the prior quarter, primarily driven by lower seasonal demand in the consumer market. Finally, revenue for our non-HDD business was $178 million, essentially flat quarter-over-quarter. We expect both the legacy and non-HDD market to remain at similar level in the June quarter. Moving on to the rest of the income statement. Non-GAAP gross profit increased sequentially by $65 million in the March quarter to $432 million. Non-GAAP gross margin improved for a fourth consecutive quarter to 26.1% and expanded approximately 250 basis points compared to the previous quarter. Continued pricing adjustment and favorable mix shift toward mass capacity products offset margin headwinds from underutilization costs, which were about $43 million. Non-GAAP gross margin for the HDD business expanded much faster than overall company gross margin. Looking ahead, we expect underutilization cost to decrease in the June quarter and abate in the second half of the calendar year as our overall build volume improves to support incremental demand in the nearline market. We believe these factors along with ongoing expense discipline and product execution support the return to the 30% minimum margin benchmark in the current calendar year. Non-GAAP operating expenses totaled $249 million, up 4% quarter-over-quarter, but slightly better than our guidance, reflecting the timing of certain R&D spending and continued cost control efforts. Adjusted EBITDA continues to improve and was up 29% sequentially in the March quarter to $278 million. Non-GAAP net income was $71 million, nearly tripling quarter-over-quarter, resulting in non-GAAP EPS of $0.33 per share based on diluted share count of approximately 212 million shares and a tax expense of $27 million. Moving on to cash flow and the balance sheet. In the March quarter, we increased free cash flow generation to $128 million. Capital expenditures were down sequentially to $60 million as the majority of planned capital expenditures were completed in the first half of fiscal '24. We expect fiscal '24 CapEx to be at or below the low end of our long-term target range of 4% to 6% of revenue. We returned $147 million to shareholders through the quarterly dividend, exiting the quarter with 210 million shares outstanding. We closed the March quarter with $2.3 billion in available liquidity, including our undrawn revolver credit facilities. Today, we announced that Broadcom has acquired our [ASIC] (ph) assets, including development engineering and related IP for $600 million in cash. The cash inlay will be reflected on our balance sheet in the June quarter and Seagate expects to use a portion of the net proceeds to support our supply chain as we begin to ramp new product builds, as well as pay down debt over time. Additionally, we expect to realize annualized OpEx savings of approximately $40 million starting in fiscal 2025, but there is no expected impact to revenue. Inventory increased to $1.2 billion as we staged material to support the continuous mass capacity demand recovery, along with our concurrent ramp of our last PMR-based product and the initial Mozaic-based product ramp. Our debt balance was $5.7 billion at the end of March quarter, with more than 90% of our long-term debt obligation maturing beyond three years. Interest expense were $82 million and we project interest expense to be between $83 million and $85 million in the June quarter. Turning to our outlook, we expect continued improvement in our mass capacity markets, led by ongoing demand for our nearline cloud products as well as modest improvement in both the nearline enterprise and VIA markets. Legacy and non-HDD revenue are expected to remain relatively flat sequentially. With better context, June quarter revenue is expected to be in the range of $1.85 billion, plus or minus $150 million, an increase of 12% sequentially and 16% year-on-year at the midpoint. We are planning non-GAAP operating expenses of approximately $260 million. At the midpoint of our revenue guidance, we expect non-GAAP operating margin to improve into the low-teens percentage range, including underutilization cost of approximately $20 million. We expect our non-GAAP EPS to be $0.70 plus or minus $0.20, based on a diluted share count of approximately 212 million shares and a non-GAAP tax expense of $25 million. Our strong expense management and supply discipline are contributing to the year-over-year profitability expansion that you are seeing in our results and outlook. Our balance sheet and healthy free cash flow generation position us well to continue supporting our capital return commitments. I will now turn the call back to Dave for final comments. Dave Mosley: Thanks, Gianluca. Seagate is demonstrating strong operational execution and supply discipline amid an improving demand environment, which sets us up well to grow revenue and further expand margins throughout calendar year 2024. Our product portfolio, anchored by industry-leading HAMR technology, offers compelling economics for our customers and for Seagate. As we proliferate these new products, we expect to drive further financial leverage over time. I'm confident that our product strategy offers customers the most compelling TCO proposition and positions Seagate well to capitalize on long-term demand for cost-effective mass capacity storage. We believe that the Mozaic platform delivers TCO advantages for datacenter operators and supports their increasing focus on conserving power and space. This week, Seagate published our 18th Annual ESG Report outlining the progress we've made towards our own sustainability goals, including our product circularity program. We are collaborating with customers and recovering drives from our own operations to extend these products' life cycles and conserve the planet's limited resources. Since launching this program in 2020, we've recovered and shipped nearly 4 million drives back into the market. Finally, I want to thank our global team members for their hard work and dedication and recognize our suppliers, customers, and shareholders for your ongoing support of Seagate. Gary, we're ready to open up the call for questions. Operator: [Operator Instructions] Our first question today is from Erik Woodring with Morgan Stanley. Please go ahead. Erik Woodring: Great. Thank you so much for taking my question. I'll make it -- I'll combine this into a two-part question. So, Dave, I appreciate your comments on HAMR in the prepared remarks, really just wanted to get clarification on two points, if I may. First is, have you replaced the mechanical component that was giving you an issue and then proceeded to do testing such that you won't have any further delays on HAMR and now you're just going through kind of the final testing phase with your lead CSP customer? And then second, I believe you've talked in the past about a goal of onboarding the remaining large CSPs by the end of calendar year '24. Does this hiccup impact that timing at all, or have you started the call process with these customers? Just any clarification on those two points would be super helpful. And that's it from me. Thank you. Dave Mosley: Thanks, Erik. Yeah, appreciate the question. So, relative to the mechanical component in question, we do have other sources and we had those other sources running in parallel, so we were able to segregate the material and then get the test beds back up with the right material, I'll say it that way, and repopulate all those test beds and we recovered the schedule quite quickly because of that. So we're not happy that we had this issue, but obviously, I think we can move on from here and that's why we're expressing the confidence that we did in the script about completing the qualification this quarter and shipping the units. Relative to big picture of the program and these kinds of things happen when you start to integrate high-volume from all your suppliers, sometimes you see interactions that you didn't use and foresee, and long-term, this isn't going to slow us down at all and it shouldn't impact the other qualifications either. We are -- to the second point of your question, we are always re-evaluating exactly where we are involved but we want to also ramp HAMR as fast as we possibly can and get not only the 3 terabytes per platter but 4 terabytes per platter as well. So, still very optimistic on that front. Erik Woodring: Great. Thank you so much. Operator: The next question is from Amit Daryanani with Evercore ISI. Please go ahead. Amit Daryanani: Good afternoon. Thanks for taking my question. I guess, Dave, in the -- I just want to focus on the cloud recovery part. In the past, I think you've talked about this being potentially a bit more gradual in nature, but certainly looking at your March numbers and the June guide, it would suggest perhaps the recovery is a bit more steeper. So I'm hoping when you talk to -- to get a sense of when you talk to these cloud customers, how do you think about the pace and the durability of demand recovery on the cloud side? And related to that, I think you folks shipped close to 100 exabytes of capacity this quarter, what is the total available capacity that you have right now? And what triggered the decision to potentially add more capacity down the road? Thank you. Dave Mosley: Yeah, thanks, Amit. It's been a remarkable journey, I think over the last year and a half, two years because the demand was so low relative to the supply that we had, that the industry had and we all took, I think, some supply offline, and we started this build-to-order in earnest at least nine-months ago, telling people that, hey, in order for us to actually trigger the builds, we're going to -- we need some predictability out of the business and we're quite happy with how that's proceeded. What's different in the next nine -- in the last 90 days is that the demand really is coming back. And so when we see the exabyte growth last quarter being outstripped by the revenue growth and then we see even more exabyte growth now, then we're fairly optimistic about it. We are still not full though to your point. We still have underutilization charges, if you will, costs, and we also have factory capacity that's not fully utilized yet. So we're going to stick to the plan I think. The main point for us is we don't want to overbuild or build product based on speculation. We really want predictability long-term financial health and so on. We're happy with the improvements that have been made, but we're not quite there yet, and so we'll continue to drive this. Gianluca Romano: Yeah, let me add on the underutilization charges, we said in the prepared remarks we do not expect underutilization charges in the fiscal year '25, so fairly soon we will not have that additional cost. Dave Mosley: Thanks, Amit. Operator: The next question is from Aaron Rakers with Wells Fargo. Please go ahead. Aaron Rakers: Yeah, thanks for taking the question. I know, Gianluca, you just kind of highlighted the underutilization costs, but I guess as we think about the model and you think about the recovery that you're seeing, I'm curious if we adjust for underutilization, it looks to me like you're guiding maybe a 70 basis point, again ex-underutilization gross margin expansion this quarter at the midpoint of the guidance. How would you characterize the company's ability to price up in this environment, especially looking at the results, it looks like your mass capacity dollar per terabyte was up about 5% sequentially. Where are you at in that journey and how much more do you think pricing could turn favorably for the company? And really what I'm getting at is the continued driver from pricing to gross margin. Gianluca Romano: Yes. Well, I would say in the last several quarters, now we had some success in improving our pricing and we are continuing to do that, so part of this increase in gross margin that you are estimating for the June quarter is, of course coming from pricing. As you know, we are -- in the March quarter, we were very high in mix for the mass capacity, then when we go through the rest of the calendar year, you have other parts of the business that will grow. So the mix will not be maybe as good as we had in March, but pricing is going up, and our cost, of course, is always trending in the right direction. Of course, we have a ramp of new products, but overall, we are very happy with the pricing action and where the mix is today. So we see further improvement through the calendar year. Operator: The next question is from Wamsi Mohan with Bank of America. Please go ahead. Wamsi Mohan: Yes, thank you so much. Dave, if I could just go back to the qualification, any color you can share on the differences between these two qualifications at your CSP and non-CSP customer? And is there a meaningful difference in the product itself between the CSP and non-CSP customer? And if I could for Gianluca, with this Broadcom deal that you also announced, how should we think about both the OpEx trajectory and would this impact your gross margins, so should we expect your gross margins to go down because of this slightly and then OpEx also to go down, or what the dynamics -- what dynamic should we expect? Thank you. Dave Mosley: Thanks, Wamsi. To your first question, there's no significant difference in the hardware. The qualification for cloud versus non-cloud, it's not usually that much different. There can be some software features depending on which cloud service provider you're talking about, that complicates the qualification and especially different customers, whether it's cloud or non-cloud, might be going through other types of architectural transitions at the time, so we have to make sure we get that right. But by and large, it's the same drive. I think that was your question. Wamsi Mohan: Right, yes. Gianluca Romano: So on the financial impact for the transaction with Broadcom, the major difference will be in OpEx where we expect a decline of about $40 million for fiscal '25. Now, we have a very good collaboration with our partner, so we don't expect basically any other change from the -- from operations. So it's mainly a reduction in OpEx due to the transfer of asset and people to our partner. Wamsi Mohan: Okay, got it. Thank you so much. Dave Mosley: Thanks, Wamsi. Operator: The next question is from Krish Sankar with TD Cowen. Please go ahead. Krish Sankar: Yeah, hi, thanks for taking my question. I had a question for Dave or Gianluca. A two-part HAMR question. Dave, you mentioned you might ship a few hundred thousand units of HAMR this quarter, kind of curious how to think about the HAMR unit shipment in the second half of this year or exiting 2024, how many units do you think you can ship? And just as a follow-up to that is, you mentioned about the gross margin exceeding the range longer-term, I'm kind of curious, as HAMR drives become more mainstream, say, a couple of years from now, do you think your gross margin can be over 40%? Thank you. Dave Mosley: Yeah, thanks. We will continue to ship aggressively and go through the HAMR transition largely because we think it provides better value to our customers. Higher and higher capacity points, and then ultimately over time it allows us to get components out of the chain, which saves cost against these platforms as well. I mean, we're in an interesting position right now because, say, six months ago, I think supply was ahead of demand and now supply is lagging demand, some of that's just lead times on the product. So, balancing all these things is very important, I think, in today's market, but we're still going to drive very aggressively through the transition and we do believe that this is the way to get more margin into our business as well. So I won't go into specific numbers as we qualify customers, because right now, customers are seeking any kind of product that we can actually make, which then we may actually turn -- our turnover to some products that are already qualified versus prior plans we were driving, but I view that as a good thing because now we actually have demand that's helping our factories that's getting us focused and so I'm very optimistic about that. But -- so just we all are very clear, we're going to continue to drive the transitions very aggressively. Gianluca Romano: On the gross margin trajectory, we said before, we expect to be at 30% or higher during this calendar year. And as you know, there is only a part of the ramp of HAMR. So for sure, when we move higher-volume of HAMR, we expect to be now in the high part of the range or even higher, we will see as a point in that point of the ramp. But, yes, even without HAMR we can be into the 30% to 33% range that we discussed as our target in the past. Krish Sankar: Thank you. Operator: The next question is from Steven Fox with Fox Advisors. Please go ahead. Steven Fox: Hi, good afternoon. Dave, I was wondering if there's any more color you can provide on your experience with talking to customers about build-to-order plans for, say, the next 12, 24 months. I mean, it sounds to me like you have accelerating demand on the cloud side, Legacy, and VIA sort of recovering on a seasonal type of basis, and then you have channel partners that are going to need inventory in order to help even things out. So how are you balancing all that? What is going to be different do you think that we should consider if we're looking out over the next few quarters with how you're going to be doing business? Thanks. Dave Mosley: Yeah, Steven, I think it's a really good question because I think it goes back to what we've just been through -- living through this downturn, one of the key lessons was just the sheer amount of supply chain inertia that we had can create problems when the demand stops so quickly, and so we need to be a lot more diligent. I mean, we can't have volume shipments -- exabyte volume shipments that where the revenues far under-running the exabytes. And I think part of the -- part of what we can control is control the builds and make sure we don't overbuild and make sure we're not trying to push stuff into the market, especially when the market’s soft. Now that it's a little bit stronger, exactly to your point, which is a nice trend in the last 90 days that we're really encouraged about, then we can go back and say, okay, which ones will we actually build more for and we're having those conversations with the customers. But again, we want to come back to predictability as the overarching objective here and we'll also reward customers who give us that predictability with the best financial outcome for themselves as well. So having those negotiations is giving us pretty good visibility into what's coming over the next three or four quarters, and I'm happy with that. Steven Fox: That's helpful. Thank you. Operator: The next question is from Timothy Arcuri with UBS Securities. Please go ahead. Timothy Arcuri: Thanks a lot. I wanted to ask about this million HAMR unit that you had guided for the first half of the year, mostly was going to be 30 key drives. So you're going to make up, it sounds like 700,000, 800,000 drives with other stuff beyond HAMR, but I had kind of two questions. One, you probably have to rework some of the HAMR WIPs, so that would be a negative, but it did seem like HAMR was going to be dilutive initially. So is that all kind of a net positive [trade] (ph) for June quarter gross margin? And then because you gave us this -- sorry, go ahead. Dave Mosley: No, you go ahead and finish your question, Tim. Timothy Arcuri: Yeah, so I just was going to ask, since you gave us that million unit number, I'm curious if you can give us some indication of what you think units will be in the back half of the year for HAMR? Thanks. Dave Mosley: Yeah, there's two aspects of this. One is the completion of the time -- the timing of the qualification and then the other is the total amount of material. And remember, we said we have other sources for the particular component, so we don't have to segregate the entire WIP. There's parts of the WIP that are still moving, right? But I think the timing of the qualification is really the issue there. We're not going to get into how many we're forecasting for the back half of the year because a lot of that will depend on specifics of demand from customers and when the rest of the qualifications time-out. But from my perspective, once we get that material segregated, yeah, is there some rework or scrap to do? Yeah, but I think we can take that. And keep in mind that all of these products are common with one another. So we have homes for other product -- other materials if we want to. It's -- it can be pivoted from the [24 -- 28] (ph) family up to the Mozaic family as well. So I think we have a lot of flexibility there. Gianluca Romano: And just a clarification, Tim, on the HAMR gross margin, we never said that HAMR was dilutive to gross margin. We said that HAMR gross margin will for sure improve in the second part of the ramp or the first part of the ramp as, of course, a little bit more cost, but we never said it was dilutive to our overall gross lines. Timothy Arcuri: Right. Okay. Thank you, Gianluca. Operator: The next question is from Karl Ackerman with BNP Paribas. Please go ahead. Karl Ackerman: Yeah, thank you. I wanted to get a better understanding of the demand impact of both the ramp of 28-terabyte SMR and the simultaneous ramp of 32-terabyteb HAMR, which might be 34, 35-terabyte SMR. I'm curious whether you see that as perhaps somewhat catalystic to your early deployments of HAMR. If you could just discuss that, that would be great. Thank you. Dave Mosley: Yeah, thanks, Karl. Different customers have different requirements and different feature sets, how they use the drive, and so I don't think there's a one-to-one swap. I mean, the good news for us is we have a lot of commonality and so we can react fairly quickly as to whether more people want one family or the other. But we're working with a lot of people on, as I said in the prepared remarks, on two different qualifications at the same time. And as far as I'm concerned, the qualifications are going well. We're staying very communicative with the customers. And against a demand environment that's improving, I think we -- that's why they should value our predictability even more as we show them what we have and what we're willing to build. Operator: The next question is from Ananda Baruah with Loop Capital. Please go ahead. Ananda Baruah: Yeah, good afternoon, guys. Thanks for taking the question. I guess just one on gross margin. In the past when you had dynamics similar to these demand ramp and price increases, and then Dave, supply demand tightness, there's typically been a quarter or so where you can get pretty pronounced step-ups in gross margin. And just wondering if there is anything that will preclude this cycle at some point from having the same type of dynamics. And then just to sort of sneak one in there real quick. Gianluca, any updated metrics -- you've given metrics in the past about revenue to gross margin, kind of scale ratios, do those still hold the ones that you've been given -- giving or does the pricing dynamics here change that at all? Thanks, guys. Dave Mosley: Thanks, Ananda. I'll let Gianluca answer his part, but I guess what I'd say, at a very high level is that we're going to continue to push aggressively through product transitions because we think that's the best way to continue to add value to our customers and margin for ourselves. Some of the margin uplift that we're seeing right now is obviously because of the factories being -- they're filling up, they're not completely full yet, but they're filling up and that's a good sign. Gianluca Romano: Yeah, on the trajectory, especially of the gross margin, but with the business in general, every cycle is a bit different. We are saying today we see a good recovery from the cloud part of the business. Of course, it's not all the business increasing at the same way. So we still need to wait for other segments to start having the same kind of recovery before we can see a strong upcycle. But, no, we are very positive. We said earlier, we see that gross margin improving quarter-over-quarter and to be in the target range during this calendar year. I would say, every quarter, we have a little bit better pricing, little bit better cost. So the opportunity for us to achieve that target range at even lower level of revenue is for sure a reality. Ananda Baruah: Cool. That's super helpful. Thanks, guys. Dave Mosley: Thanks, Ananda. Operator: The next question is from Mehdi Hosseini with SIG. Please go ahead. Mehdi Hosseini: Yes, a couple of follow-ups from me. I was under impression that for most of your components you have gone in-source, so what is it with HAMR that has made you rely on external vendors and how is -- how you're switching these vendors? And one follow-up for Dave. What is your most updated exabyte -- overall exabyte growth looking forward as the cycle gains momentum? Thank you. Dave Mosley: Yeah, Thanks, Mehdi. For our critical components, we are largely in-sourced, but again these -- this is a mechanical piece part that is not something that we make ourselves, it's something that we source from the outside and it's very common in all product families, so just for that clarification. And, Gianluca, you want to take the second part? Gianluca Romano: No, I was just thinking about the components, but there are many components that we source externally, actually now the Ads and media, of course, we produce internally. Those are the most critical components, but there are many other components that we get from external suppliers. And on that particular component, we have multiple sources, so we can switch from one to the other. Dave Mosley: Yeah, and then on exabyte growth, Mehdi, I think it's a good question because we come out of negative and we know that that's not real. The negative was the first time in the history of the industry that we've ever seen something like that. So I do expect things to start expanding. And the -- we get into this discussion about whether we like 35% or 25%, we back down to 25%, maybe near-term we're going to see something a little bit more expansive. It's still early in this demand cycle, but we're fairly encouraged by what we're seeing. And I think also our ability to go answer that with these new products, which provide more exabytes may actually drive even more exabyte expansion. The key point right now is we want to make sure that we reestablish the financial predictability of our industry because the industry has been so damaged of late, I think as we grow back, we have to make sure we're not giving this stuff away that we're doing it in a way that's very measured, and the only way we can do that right now and it's the only way that makes any financial sense too is to make sure we control supply very tightly. Mehdi Hosseini: Thank you. Operator: The next question is from C.J. Muse with Cantor Fitzgerald. Please go ahead. C.J. Muse: Yeah, good afternoon. Thank you for taking the question. I know you talked about the qualification just being a three-month delay in qualifications elsewhere on track, but if things do push out a bit, how do you, I guess, expect to maybe impact your planned utilization elsewhere, your thoughts around pricing and mix, and what kind of impact could that have? I would think positively on gross margin in the back half, would love your thoughts there. Dave Mosley: Yeah, thanks, C.J. The interesting thing is, as demand comes back, we have much more flexibility than we did, say, six months or a year ago. We've -- we in this build-to-order process, we've basically told people what we're going to build and then they've said, okay, I understand the economics, as more demand comes, we can now have a new discussion with them and say, which product is qualified, which one do you want to hurry up and qualify, and so I think we have a lot of options there. I mean, we've been focused on operating profit and free cash flow and we're finally back in double-digits on operating profit and ROAC is finally turning back up. So all of this is just reinforcing the strategy to keep running the business for long-term predictability. This build-to-order thing is working and I think we're going to stay on it. C.J. Muse: Thank you. Operator: The next question is from Toshiya Hari with Goldman Sachs. Please go ahead. Toshiya Hari: Hi, thanks for taking the question. Dave, in your prepared remarks, you talked a little bit about AI. I realize you don't have perfect visibility into what's driving customer demand, but I'm curious based on your conversations with your customers, to what extent is AI having impact on your business? I know it's nascent, but if you can comment on that, that would be great. And then related to that, I was hoping you could opine on your ability and the broader ACD industry's ability to compete with Flash in AI. I think based on recent conversations, some of the concerns that investors seem to have is that hard disk drives, you're very cost-competitive, but when you take into consideration things like read-write capability, space, and power consumption, it might be a little bit more competitive vis-a-vis what you're shipping today. So curious if you can -- if you can opine on that. Thank you. Dave Mosley: Thanks, Toshiya. So, yeah, AI is a big question and I know it's confusing for a lot of people because there's so much marketing around it. I do think that the cloud service providers, even the enterprise OEM customers that we have, they have many different types of applications, and some of those application spaces continue to grow. Some of those applications are being dramatically transformed right now by the new compute capabilities that people have and so on. And what I would say in general, is that there are applications that are definitely, I'll call it, cold storage, colder storage, or big data applications that are coming, video applications, for example, that we are very encouraged by, and we are seeing purchase orders now from cloud service providers and so on that actually say AI on them, which is -- it wasn't true six-months ago, but given all the creativity in this application space, I'm really excited about it. I think there's a lot of opportunity there for us. Relative to our ability to kind of pivot for where we need to go, I think we're going to keep driving mass capacity for sure. We are working a little bit on performance in our tiers, and then Flash, I'm going to say, I usually don't opine on this very much, but I don't have very much bad to say about Flash. I think it's a great technology. I think it's going to be critical for Flash to execute in their layers to enable their application. Some of those applications may have nothing to do with mass capacity, but this idea of mass capacity being in conflict with Flash, I don't think is right. I don't think that's the way architects think about it in data centers. I don't think that's -- that economically it makes sense. And even when you get into things like power and space, I think hard drives are going to stay very, very competitive on the workloads that they that they offer. So, my -- from my perspective, look the new application space is exploding is a good, good thing and it should benefit a lot of hardware providers over time. We've all been through a pretty rough patch of late and we've got to make sure that we watch our supply into it because we can't tolerate another dramatic downturn like we just saw. So we've got to be very careful. Toshiya Hari: Thank you. Operator: The next question is from Thomas O'Malley with Barclays. Please go ahead. Thomas O’Malley: Hey, guys. Thanks for taking my question. I just want to understand the ramp with your largest customer in HAMR. You talked about this subcomponent and you were replacing that subcomponent, is that -- you're saying multiple vendors are getting qualified at the same time, so if you look at what a step back traditionally takes in terms of having a customer qualify a product, is that several weeks? Is that several months? I guess, what gives you the confidence that with this effect that you'll be able to not only qualify but then ship these drives within the quarter? Thank you. Dave Mosley: Yeah, so Tom, we already said that there's multiple sources for this, and so we segregate the parts that were affected and then we push the other ones on their merry way. We've already repopulated those test beds that are running well, so that's why we have confidence. Thomas O’Malley: Okay. So in the future, you will just not use that supplier anymore or you would just rely more heavily on the others? Dave Mosley: No, no, no, I wouldn't say it like that. I mean, we'll go work with everybody. Everybody has got a tough challenge. They have issues and we'll go work with them, yeah. Thomas O’Malley: Helpful. Thank you. Dave Mosley: Thanks. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Dave Mosley: Thanks, Gary. As you heard today, Seagate is well-positioned to drive improved financial performance in a recovering demand environment through ongoing operating discipline, keen focus on supply-demand balance, which is a big deal, and ramping our latest CMR, SMR, and HAMR-based products. I'm confident in our product strategy. I think it's serving us well, and in our HAMR technology, which positions Seagate well to capitalize on long-term demand for cost-effective mass capacity storage. I'd just close by thanking our stakeholders for their ongoing support. Thanks for joining us today, and we look forward to speaking with you during the quarter. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: Welcome to the Seagate Technology Fiscal Second Quarter 2024 Conference Call. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Shanye Hudson, Senior Vice President, Investor Relations. Please go ahead. Shanye Hudson: Thank you. Hello, everyone and welcome to today's call. Joining me are Dave Mosley, Seagate's Chief Executive Officer; and Gianluca Romano, our Chief Financial Officer. We posted our earnings press release and the detailed supplemental information for our December quarter results on the Investors section of our website. During today's call, we'll 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 have not reconciled certain non-GAAP outlook measures because material items that may impact these measures are out of our control and/or cannot be reasonably predicted. Therefore, a reconciliation to the corresponding GAAP measures is not available without unreasonable effort. 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 the information available to us as of today and should not be relied upon as of any subsequent date. Actual results may differ materially from those contained in or implied by these forward-looking statements as they are subject to risks and uncertainties associated with our business. To learn more about the risks, uncertainties and other factors that may affect our future business results, please refer to the press release issued today and our SEC filings, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q as well as the supplemental information, all of which may be found in the Investors section of our website. As always, following our prepared remarks, we'll open the call for questions. I'll now turn the call over to Dave for his opening remarks. Dave Mosley: Thanks, Shanye and hello, everyone. I am going to focus on 2 key topics in my remarks today. First, we delivered solid fiscal second quarter results with revenue at the midpoint of our guidance and non-GAAP earnings of $0.12 per share, exceeding the upper end of our guided range. And second, last week, we marked a major inflection point in mass capacity storage with the launch of our ground-breaking Mozaic platform. Mozaic is intentionally named to describe the fusion of innovative technologies including Seagate's unique implementation of HAMR that collectively enable us to extend our areal density leadership. As we shared in the past, growing areal density is the most efficient way to enable data center operators to scale mass capacity storage to lower their TCO and to advance their sustainability targets. I'll discuss the platform in more detail shortly and also share progress towards qualification and volume ramp of our first HAMR-based Mozaic product which lays the foundation for products boasting 5 terabytes per disc and beyond. Let me start by highlighting our fiscal Q2 performance. Revenue of $1.56 billion was led by sequentially improving cloud nearline demand and a seasonal uptick in consumer drives, offset partially by the decline in VIA sales that we anticipated. Strong cost discipline and execution on pricing adjustments resulted in non-GAAP operating income tripling quarter-over-quarter and increasing roughly 17% year-over-year despite lower revenue levels. These performance and demand trends affirm our expectation for the September quarter to be the bottom of this prolonged down cycle. The enhanced discipline we've built into the business, including strict cost controls, management of supply and the strengthening of our balance sheet gives us an excellent foundation to build on as we move into a broader recovery. Additionally, execution of our product roadmap is expected to structurally improve profitability and return us to our targeted financial model which supports healthier industry economics. We enter calendar 2024 with increased confidence in our non-GAAP gross margin trajectory, including our ability to reclaim 30% minimum benchmark level at quarterly revenues that are at least 20% below our prior cyclical peak. From a demand standpoint, gradual recovery within the U.S. cloud market has started to take shape, reflecting solid progress in consuming excess inventory, along with more stable end market behavior. Enterprise OEM demand trends have also stabilized within the U.S. markets. Customer feedback still points to macro-related concerns, although IT hardware budgets are projected to modestly improve in calendar 2024 and traditional server growth is expected to resume, trends that support incremental HDD demand growth in the calendar year. We were also encouraged to see incremental demand among certain non-U.S. cloud and enterprise customers in the December quarter. Across the broader China markets, we project a relatively slower pace of recovery given the ongoing economic challenges within the region. However, some local governments announced further steps to support the region's economy which our customers believe will bolster local demand across mass capacity markets in China in the second half of the calendar year. These efforts support our view for demand in the VIA markets to pick up sometime after the Lunar New Year. Against the dynamic market environment, Seagate has continued to execute on a mass capacity product portfolio that further advances our technology leadership and serves the breadth of our customers' unique workload requirements while also supporting our objective of improving profitability. I'll outline the execution path for our latest product launches and the relevance of the new platform and then share how we believe our mass capacity solutions deliver economic value both to our customers and to Seagate. Our product qualification and ramp plans are on track with what we've been articulating over the past several quarters. We began shipping initial volumes of our 24 terabyte PMR, 28-terabyte SMR drives in the December quarter. Customer reception has been positive, as illustrated by the numerous active qualifications underway across multiple cloud and enterprise customers. Our 3-plus terabyte per disk product is the first major release of the HAMR-based Mozaic platform and we are rapidly nearing qual completion with our initial hyperscale launch partner. The qual has gone very well and we are working with this customer at their request to fully transition future Seagate demand to the 3-plus terabyte per disk platform. Volume ramp is starting in the March quarter according to plan with a goal to ship about 1 million units in the first half of this calendar year. We then expect to continue to ramp through the balance of the calendar year and we are currently broadening our customer engagements. Based on their planned timelines we expect to complete qualifications with a majority of U.S. hyperscalers and a couple of global cloud customers during calendar 2024. Starting at 3 terabytes per disk, Mozaic delivers a quantum leap forward in areal density innovation with a well-defined path that extends to 5 terabytes per disc and beyond. This transformative platform is the culmination of decades of development and numerous technologies pioneered by Seagate, including our Super lattice platinum alloy media that enables higher bit density. The revolutionary plasmonic writer with integrated laser capable of reliably writing each bit and an advanced reader technology that boast one of the world's smallest reading sensors. While Mozaic represents ground-breaking technology, the platform is fully plug-and-play with existing conventional drives and addresses the breadth of our customers' mass capacity workloads. These drives can also be deployed with SMR technologies for the few customers able to integrate SMR to take advantage of the additional capacity gains. As I noted earlier, areal density gains are the most efficient way to scale storage capacity. Let me offer a few clear examples. First, as we execute our product road map we can deliver increasingly higher capacity drives with minimal changes to the bill-of-materials. This results in a better TCO value proposition for our customers and attractive economics for Seagate. Second, as we scale areal density to 4 terabytes per disk, this enables extremely cost-effective product offerings in the low to midrange capacity points used by a majority of our enterprise VIA NAS customers. With 4 terabytes per disk, we use half the number of heads and disks to produce a 20-terabyte drive. Prototypes are already working in our labs with revenue planned for the second half of calendar 2025. As we ramp production to expand to other end markets, we gained tremendous manufacturing efficiencies, adding to the attractive margin opportunities that I just described. We continue to build on our technology and operational innovations with each successive product generation. For example, we are executing plans to vertically integrate the laser manufacturing process which enhances supply flexibility, provides greater control of the technology and provides opportunities to lower production costs. Collectively, we believe these actions underpin our mass capacity cost reduction road map while also providing a very strong TCO story for a broad range of customers. While TCO remains a key driver for mass capacity storage, data center operators are also focused on power and space consumption, particularly as investments in compute-intensive infrastructure proliferates to support generative AI applications. For context, the latest AI GPUs consume up to 700 watts which is roughly 100x more power intensive than a hard drive operating at maximum performance. Our products can help data center operators store more exabytes using less power and space. To quantify this, a single 32-terabyte Mozaic drive can replace three 10 terabyte drives storing more capacity at 1/3 of the power and footprint. TCO and sustainability gains of this magnitude are decision altering when architecting a new data center and offer a highly economical path to modernizing existing infrastructure. We believe that this dynamic can potentially accelerate the replacement cycle. As we move into the early stages of demand recovery, Seagate's strong focus on maintaining our product and technology roadmap through this past down cycle position us to return to profitable growth and address data center operators most important challenges: cost, power and space. We believe we've got the right product at the right time, heading into a gradual recovering mass capacity market. With that, Gianluca will now cover details on our financial performance and outlook. Gianluca Romano: Thank you, Dave. Seagate's December quarter financial results reflect solid operational execution. Revenue was $1.56 billion, up 7% quarter-over-quarter. Non-GAAP operating income more than tripled sequentially to $127 million, leading to non-GAAP operating margin expanding to 8.2% of revenue up 540 basis points quarter-over-quarter. And non-GAAP EPS was $0.12, improving $0.34 sequentially and exceeding the high end of our original guidance range, reflecting both improving demand trends and our focus on profitability. As these trends continue, we expect our results to improve and reach the target financial model over time. Within our hard disk drive business, exabyte shipments grew 6% sequentially to 95, with revenue growing 7% to $1.4 billion. Revenue performance was mainly driven by an expected improvement in cloud customer demand, along with seasonal improvement in the consumer market. Within the mass capacity market, revenue increased 4% sequentially to $1.1 billion, driven mainly by strong nearline cloud demand, offsetting the expected decline in the VIA market. Mass capacity shipments totaled 83 exabytes compared with 79 exabytes in the September quarter. Mass capacity shipments as a percent of total HDD exabyte was 87% which is comparable to the prior quarter 88%. For nearline products, shipment of 65 exabytes were up quarter-over-quarter from 56 exabytes. Average capacity per nearline drive continue to increase sequentially, reflecting modest demand improvement among both U.S. cloud customer and China cloud customers. We believe that inventory among many CSP customers is reaching more normalized levels and anticipate continued nearline demand improvement in the March quarter and beyond. VIA market revenue was down sequentially in the December quarter, consistent with our expectations. Looking ahead, we expect VIA to reflect more typical seasonal patterns through calendar 2024, with the March quarter representing the low point. Legacy product revenue was $324 million, up from $278 million in the prior quarter, driven by higher seasonal demand in the consumer market. We expect the legacy market to be sequentially lower in the March quarter following typical consumer demand trends post-holiday season. Finally, revenue for our non-HDD business increased to $171 million compared with $159 million last quarter, primarily driven by improved SSD demand. Moving on to the rest of the income statement. Non-GAAP gross profit increased sequentially by roughly $80 million in the December quarter to $367 million, ahead of our original expectations. Non-GAAP gross margin of 23.6% expanded nearly 400 basis points compared to the previous quarter, due in part to pricing adjustment and cost savings from earlier restructuring activities as well as lower amortization costs which were about $40 million consistent with our view for ongoing demand recovery. However, we expect underutilization cost to marginally increase for the next couple of quarters as we transition some of our production line to Mozaic. Accounting for this headwind, we still expect to see margin expansion every quarter –[Indiscernible] 2024 as nearline demand continues to improve gradually and we ramp our latest products along with continued execution of price adjustment across the entire portfolio. Non-GAAP operating expenses totaled $240 million, down from $248 million in the September quarter and reflecting ongoing spending optimization. With the benefit of diligent expense management and higher margins, adjusted EBITDA improved more than 50% sequentially to $216 million. Non-GAAP net income turned positive in the December quarter, resulting in non-GAAP EPS of $0.12 per share based on diluted share count of approximately 211 million shares and tax expense of $17 million. Moving on to cash flow and the balance sheet. In the December quarter, we had inventory flat at just below $1.1 billion. Capital expenditure were also flat sequentially at $70 million. A majority of planned capital expenditure were completed in the first half of fiscal '24. Consistent with prior commentary, we still expect fiscal '24 CapEx to be down significantly compared with fiscal '23, also still sufficient to support our innovation-driven product roadmap. We generated about $100 million in free cash flow and returned $146 million to shareholders through the quarterly dividend exiting the quarter with 210 million shares outstanding. We closed the December quarter with $2.3 billion in available liquidity, including our undrawn revolving credit facility. Our debt balance was $5.7 billion at the end of December quarter, with more than 90% of our long-term debt obligation beyond 3 years. Non-GAAP interest expense were flat quarter-over-quarter at $84 million and we project similar expense levels in the March quarter. Turning to our outlook. We expect incremental improvements in mass capacity demand from both cloud and enterprise customers to more than offset seasonal related decline in VIA and the legacy markets. With [Indiscernible] context, March quarter revenue is expected to be in the range of $1.65 billion, plus or minus $150 million,. an increase of 6% sequentially at the midpoint. We are planning for non-GAAP operating expenses of approximately $260 million as our temporary pay reduction ended late in the December quarter. At the midpoint of our revenue guidance, we expect non-GAAP operating margin to expand to the low double-digit percentage range including underutilization cost of approximately $50 million. We expect our non-GAAP EPS to be $0.25 plus or minus $0.20 based on a diluted share count of approximately 212 million shares and a non-GAAP tax expense of $27 million. I will now turn the call back to Dave for final comments. Dave Mosley: Thanks, Gianluca. Heading into calendar 2024, we have increased confidence in a gradual nearline demand recovery that coincides with the launch of Mozaic. We believe this platform delivers sustainable areal density leadership with compelling TCO advantages, enabling data center operators to satisfy their increasing workload demands while conserving both power and space. This combination of capabilities is significant and our timing is fortuitous. We've navigated the last 7 quarters with discipline and focus while maintaining our product and technology execution plans. As a result, we emerge well positioned to drive optimized financial performance to support our capital return commitments and return to our targeted profitability levels over time. Our strong execution is only possible through the tremendous efforts of our global team and I would like to thank them for their resiliency and dedication through this dynamic period. I would also like to thank our suppliers, customers and shareholders for your ongoing support of Seagate. Operator, let's open up the call for questions. Operator: [Operator Instructions] And today's first question comes from Wamsi Mohan with Bank of America. Wamsi Mohan: Dave, you alluded to the progress that you've made on Mozaic. -- Given what you know now, how would you characterize the outlook for maybe HAMR units in the second half of '24 or perhaps into '25? And I think you mentioned your first customer looking to transition to 3 terabyte HAMR. What kind of exabyte installed base opportunity is that? And maybe you could address it even more broadly across hyperscalers. That would be very helpful. Dave Mosley: Yes. Thanks, Wamsi. So we were very quantitative and prescriptive on the last call about the front half of this year. I think we won't be as much on the back half of this year but the ramp is continuing on at a healthy pace. And we're continuing to look at all what customers need on the last generation platform, next-generation platform, trying to balance supply and demand really well [indiscernible]. I think that's the primary metric that we're focused on, make sure we get financial predictability. We'll drive the HAMR transition aggressively this year. And then Mozaic really gets into when we get to 4 terabytes of flatter [ph] and how are we populating that chain. I mean we expect to drive as many HAMR exabytes into 2025 as we can. So we're off to a good start, I think and we're going up the ramp and trying to work the yields and get everybody qualified like we talked about. Nothing really changed in the last 90 days, I would say, problems are tough problems but the team is knocking them down. So I'm pretty happy with that. Wamsi Mohan: Okay. Gianluca and maybe could you help us just think about the margin ramp? I think you noted some headwinds that will continue from underutilization charges but you're also expecting the margins to increase all through calendar '24. Could you maybe also help us think through in that margin commentary, how -- what the margin differential is between HAMR and CMR mass capacity drives and how that might change over time? Gianluca Romano: Yes, good question. Well, first of all, our December quarter showed a good improvement in profitability. Our gross margin was up about 4%. Operating margin was up more than 5%, so I'll say this profitability recovery already started. Part of that is, of course, coming from a cost actions that we have taken in the last almost 2 years. And of course, the mix improvement and of course, the pricing action also that we have taken in the last several quarters. So this will continue to be reflected also in the future quarters. Mix [ph] will continue to go through more mass capacity volume and those cost actions are, of course, continuing to be very effective. In terms of the underutilization defend a little bit what we ramped during the quarter. In the December quarter, we -- bit more of the wafers but of course, has high cost in our manufacturing to get ready for the achievement of the current quarter and next quarter in terms of HAMR. And then now we can mediate use it to be the wafer and trend more on the media and, of course, having more driving the final test. So depending on the base of the mix inside our production. So. we said underutilization charges could be slightly higher, a little bit higher but not very much higher which is a little bit higher. So I expect that for the next few quarters to see mix going in the right direction, meaning more high capacity drive and starting to see the impact from some volume of HAMR. So March will not be particularly high volume but we will have more in June. And as Dave said, we will have even more into the second part of the calendar year. With the business improving, demand improving, we go into possibly higher revenue and we are, of course, targeting to bring back our gross margin into the target range of 20% to 23% [ph], as we said in the prior quarter at a much lower level of revenue compared to the prior upside. Operator: And our next question today comes from Erik Woodring with Morgan Stanley. Erik Woodring: Dave, I was wondering if you could just double-click again on some of the dynamics behind the hyperscalers and where their inventory is. How long do you see any more pain or what their behavior is, what your conversations look like? And then again, how they're responding to any pricing actions and production changes that you've been making over the last -- relative to 90 days ago? Dave Mosley: Yes. The dynamics for them is very interesting and it has affected us quite a bit over the last year or so I do think the inventory situation is much, much better than it was 6 months ago. So I'll say, it's basically cleaned up at this point. And it's going into the inventory changes going out and being consumed by the data centers again. So we're much happier with that. The rate of consumption isn't what it was 2 years ago. And but I do think it's going to accelerate a little bit. And this is where we get into the forecast numbers of what the CAGR is the exabyte CAGR. In 2020, we were in the high 50s and then we stayed in the 30s for 2021 and 2022. And then for the first time ever for the last year, 1.5 years, we've seen negative exabyte growth which doesn't make any sense. We're forecasting still in the mid-20s right now. And it may be a little bit higher as people get into some of these replacement cycles that we talked about. The interesting dynamic as I look back on the last 1.5 years was the push for AI and how it consumed a lot of compute dollars for the compute infrastructure that was going on in the data centers. And that's critical for most of our customers. They have been raised up to get as much compute memory for that compute online as they could to be able to handle all these AI applications everyone's talking about. I do think ultimately, there's a data back end piece of that. And then also, there's the fact that they were -- as they were prioritizing that, they were letting the drives that they had in the data centers just continue to run. So there's the replacement cycle for power and space and just overall cost benefits. We're all -- we're definitely having those conversations with our customers. And then factoring that into what exactly our volume plans are for the next 3 years and saying this is what we're intending to build. This is the economics that you could get it to -- and we've talked about this build to order before and I think we're getting a lot of good reception is. There's a lot of other supply chains that are actually managed this way by these people. So they understand it fairly well and they see the TCO benefits of the higher capacity drives, so they want to reach for that, plan it well and they'll get it. And we have to be careful, of course, because the factories have been so decimated by this downturn that we need to make sure that as we grow back, we go back in a smart way. Operator: And our next question today comes from Aaron Rakers with Wells Fargo. Aaron Rakers: I wanted to maybe just ask about the income statement, just the P&L trajectory from here. This guidance that you've given, looks like it's the first kind of sequential increase in OpEx that we've seen and I can appreciate improving fundamentals, et cetera. I'm just curious, how do we think about the pace of quarterly OpEx and maybe a normalized level of operating expenses looking out over a couple of quarters. And then kind of building off of that with free cash flow generation returning -- just remind us again how you think about the capital structure and possibility of coming back into the market in terms of share repo? Gianluca Romano: Thank Alan. Well, in terms of OpEx, if you look, our trend has always been very positive in terms of OpEx control, cost control. Just a few quarters ago, we were at well above $300 million. So we went fairly low, especially in the last quarter, now at $240 million. As I said in the prepared remarks, we have little bit of higher costs expected in this quarter because we took some extraordinary action on salary that ended at the end of last quarter. So we have a little bit of higher labor cost. As usual, we will focus on OpEx control is still a very, very good number. And I think in the next few quarters, we will stay around this level of OpEx until next fiscal year, as you know, in the current fiscal year, we don't have any variable compensation overall in our COGS and OpEx but a big part is in OpEx. So I think this level is probably reasonable for fiscal Q3 and fiscal Q4. And then next fiscal year, probably a little bit higher cost in OpEx. Still, I think well below the $300 million, probably between $270 million to $80 million a quarter is probably a reasonable way to model it. Free cash flow, we had another positive free cash flow quarter. Of course, always very important for us to generate positive free cash flow. Revenue is increasing, profitability is increasing and therefore, we expect free cash flow also to improve sequentially through the next few quarters. Operator: And our next question today comes from Krish Sankar with TD Cowen. Unidentified Analyst: This is Eddie [ph] for Krish. Congrats on the HAMR launch. It's an exciting opportunity for you guys I have a question regarding the customer value you are providing with these 2 terabyte HAMR drives. Will customers be enjoying lower price for terabyte versus 22 and 24 terabytes CMR drives, for example, or because HAMR yields haven't matured yet, this benefit will be more about power and space and the lower price per terabyte to take place in the future. Dave Mosley: Yes. Well, it's a good question. We will balance everything, of course, what our yields are and our costs are and the try to get the customers incentivized but there is some incentive business provided by their power and space reductions as well. We call that their TCO proposition. So all things in balance. I do think that the price per terabyte, if you will, is nominally the same. It may be just slightly lower but there's definitely going to be a TCO incentive for the customers to move off of the lower capacities and under guidance. Unidentified Analyst: That's great color. And if we just suppose the HAMR transition to the transition from LMR to PMR that took place back in 2006, 2008 you guys went from like 0% PMR mix to 100% within 5 to 6 scores. Do you think the HAMR transition will be as quick or you see some reasons why this trans may be a little bit slower transition from LMR to PMR but that? Dave Mosley: Cycle times are a little bit longer now. So I don't think it will be as fast. I mean, I'd like it to be as fast and we'll continue to drive it as quick as we possibly can. The one thing I will say is that our last generation PMR product, if you will, the 2.4 terabytes [indiscernible] drive that we've just talked about has a remarkably similar kit of parts as the HAMR drives do. So relative to what we're making one versus the other, it's not a big deal and we can get through customer transitions easier. I think as we gain more confidence in a year over the 4-plus terabyte Mozaic platforms, then we'll definitely want to accelerate. Because by the time you get to say, 5-plus terabytes, then it's such a great replacement on every legacy product that you have that we want to drive the whole portfolio there because utilization is much better in the factories and the costs come way down. Operator: And our next question comes from Thomas O'Malley with Barclays. Thomas O'Malley: I appreciate it. So I just wanted to understand the move from qualification to revenue recognition. It sounds like with your largest customer, you're finishing qualification right now and you're obviously pointing to some big units in the first half. You mentioned on the call that you're expecting calls with the majority of the U.S. cloud and a couple of others in calendar year '24. Would you expect a similar time frame between qualification and revenue recognition? Alike if those are getting qualified in the second half of this year, you could see revenue from a large number of additional customers. Just wanted to understand the timing. Dave Mosley: Thanks, Tom. It's complex. There are some customers that are relatively shorter qualifications and that -- some of that's because of feature set, making sure we get the feature set checked out. If they're on a generic feature set that we're already shipping versus their own unique feature set we have to -- we have to make sure we're doing all those things, right? That's normal in any near-line transition. And I will say that a lot of people are seeing the TCO benefits. So they're asking and trying to speed these qualifications through, right, because they want that benefit to flow through as well. We will also be limited on our ramp as to what we can do and the cycle times are quite long. So we're going to balance all these things together, if that helps you. Thomas O'Malley: Yes, that's helpful. And then I just wanted to ask one on the margin side. So you guys have talked about 20% below peak but still getting back to that 30% gross margin target or at least at the low end. If you look at what you're saying for mass capacity growth for the industry, mid-20s if you just assigned that to kind of your revenue ramp over the next couple of years, it takes probably 1.5 years to kind of get to that $2.5 billion, $2.6 billion mark, just using like a linear growth rate. Is that the time frame we should be thinking about until you get back to that 30% to 32% gross margin? Or can you get there before? And what are the levers that get you there before revenue gets back to that $2.5 billion, $2.6 billion. Gianluca Romano: Thank you, Tom. Well, the major lever is HAMR, the more we ramp up HAMR, better will be the margin. So we are becoming more and more positive on, of course, the timing of that continuous improvement in our margin. I would say, we gave an indication last quarter in terms of the level of revenue. But we think we need to achieve in order to get a certain level of gross margin. That is probably I'm getting a little bit more optimistic right now. So probably we can do an even lower level of revenue. As you said before, qualification of customers is important but we are working hard on qualifying more and more customers. So assuming we can continue our ramp on him. Now I'm fairly positive we can do to alter than what you said and also at the lower level of revenue. Operator: And our next question comes from Karl Ackerman with BNP Paribas. Karl Ackerman: Gianluca, it's encouraging to see an improving gross margin trajectory but it doesn't appear to be driven by price yet. Given our mass capacity suggests that price per terabyte did fall low single digits sequentially and year-over-year. Could you perhaps address whether we should expect previous actions to raise prices across the channel may occur over the next couple of quarters? I have a follow-up, please. Gianluca Romano: Well, I would say, you can see the good improvement in our profitability. A good part of that is actually coming from pricing. Of course, you need to check into the like-for-like pricing. The mix has, of course, always a major impact on the average. We are very happy with what we are doing, both on pricing and on cost. This quarter show a fantastic improvement in profitability, both gross margin and operating margin. And if you look at our guidance, this imply another strong improvement in profitability. So Pricing is a good part of that. Mix is another part of that improvement. And we will continue to do exactly execute a strategy and we are really we are very glad with the outcome so far. Dave Mosley: Yes. I would say, Karl, the raw demand is still not what it was 2 years ago. And so -- and we have a supply chain that's not entirely healthy yet. We have to go continue to work on those actions. But I do think over time, especially incentivizing transitions to newer mass capacity drives. And then if there's price raises, it tends to be more on legacy and to the extent that everyone is under the same strain throughout the entire ecosystem, this is the trend that we're seeing, I think we'll probably take advantage of it. My sense is that in the next year or 2, we'll get to the point where we get high enough of the ramp that we can be very predictable. And then I think things will stabilize quite a bit. But we're not at a place where the industry has enough demand relative to the capacity that has online yet. Operator: And our next question today comes from Kevin Cassidy of Rosenblatt Securities. Kevin Cassidy: Congratulations on the great results. You implemented a build-to-order program with your customers. Can you give an update on that? Is that still active? And how is it giving you visibility? Dave Mosley: Yes. Thanks very much. It is and it's transitioned from my last comments as well because the industry just at the levels that we're at, to build on my last comment is just can't fund the investment disease make an areal density and exabyte growth over time with the revenue and margins where it was and what helps us is to run factories is the improved visibility and the predictability towards that in demand. And so I think that's why the HDD industry has changed fairly dramatically through this cycle, the last 6 or 8 quarters because capacity did come at the same time that people were that demand was down. And the industry is, therefore, underinvested in capital and lead times are going up, as we've talked about before. So we need this build-to-order framework to just get back to a healthy industry. And we are rewarding predictability with our customers and we're incentivizing that predictability and where the people aren't predictable and they come in at the last minute for product that either we don't have it or they have to pay for our flexibility. I think that's the way we're thinking about it and then making sure that we stabilize the supply base as well because it's not just ourselves as the HDD supplier but we have numerous upstream supplies that need to be stabilized as well. So it's still going to take some time. Kevin Cassidy: Okay. Great. And you mentioned vertical integration of your laser technology. Is that a cost savings? Or is it more controlling the supply chain? Dave Mosley: Yes. I think at this point, it's been a long time coming and we definitely value the suppliers that have helped us get HAMR products to market. We also feel like given how intricate this silicon photonic circuitry is, is that we needed our own capability to control but right now, it's more of a technology second sourcing, if you will. And so we're going to continue to run with a few sources. I think over time, there should be the opportunity to go drive the cost down and balance all things with multiple sources and the ability to control the investments that we make in capital, for example and things like that. But it's been a long time coming and part of the reason we're talking about it as part of Mozaic because it's very relevant as we get the 4-terabyte platter and 5 terabyte platter I think also there's been some noise out there in the industry about, well, as goes the ramp of that supplier so goes the Seagate ramp and that's clearly not true. Operator: And our next question today comes from Stephen Brian Fox with Fox Advisors, LLC. Steven Fox: Dave, I was just wondering if you could zoom out a little bit without putting any kind of time frame on it, to get to the 30% gross margins, it seems like you can almost get there from here on just the typical incremental margins from volumes. But based on everything you said, it doesn't seem that easy, especially early stage with HAMR versus later stage. So can you sort of walk through some of the puts and takes, say, over the next 2 to 3 quarters versus, say, when you hit that volume crossover where it becomes more smooth to get to the margin. It's just -- there's been a lot of comments around this. Maybe you could just sum it up. Dave Mosley: Yes. And Gianluca can share some insights as well here. I think that First of all, we're ramping HAMR according to some prescriptive schedule. We can deploy it into certain mass capacity hyperscaler markets. We can also deploy it in other markets, depending on how we choose to do things so we can put it in VIA markets, for example, over time. And the rate at which we are able to transition and our yields and scrap and things like that, especially once we get to 4 terabytes per platter, then I think that becomes more and more accretive in margin. Fundamentally, though, I still think the demand picture actually is going to shape the next few quarters from a margin perspective. My sense is the demand has still not come anywhere close to where it was 2 years ago. We may see with the growth of data and with investments that people need to make in data around all these AI applications, we may see demand pick back up again and that will be the fundamental driver. Gianluca, go ahead. Gianluca Romano: Yes. No, I said that before, I think the combination of stronger demand through the cycle and our very good products based on HAMR technology. will drive further improvement in gross margin, sequential improvement. Now I think we will have a sequential improvement through the entire kind of '24. And this is, of course, based on our view of the ramp of HAMR and also the recovery from the prior down cycle that we expect, especially in the mass capacity to continue through the entire kind of '24 and actually even kind of '25 in it. Steven Fox: That's helpful. Just can you fill in one other blank which is back-end testing capacity? How does that sort of help hurt margins as this ramp happens? Dave Mosley: Based on where we were from legacy products years ago on desktop and so on and even just the volumes we were at a couple of years ago, I think we have plenty of back in test capacity. Steven Fox: But is it a longer test cycle though, is it minimal cycle for test cycle. Dave Mosley: It is. It certainly is the bigger the drive, the longer the test cycle but we still have plenty of capacity to cover the demands at this level. Operator: And our next question comes from Timothy Arcuri with UBS. Unidentified Analyst: This is Mia [ph] on for Tim. Just one for me. Now you don't report orders but perhaps you could give us some color on book-to-bill and just some idea of where orders are relative to revenues and where that -- how that book-to-bill has been trending and where you think that's going over the next couple of quarters, that would be helpful. Dave Mosley: Yes, that does get into our build-to-order plans. We are definitely, like I said before, very prescriptive on what we're building for people 2, 3, 4 quarters out. And as long as we all stay on that plan, I think that's predictable economics for our customers as well. So it's going better and better every quarter. I think when we first launched this, there was questions that I was getting on these earnings calls about supply is so far below or sorry, since demand is so far below supply today, how can you do something like this but we need that predictability in order to run the supply chain and reward everyone upstream of the supply chain. So far, the progress has been fairly good and we're getting better visibility in the next quarter and beyond. Operator: And our next question comes from Vijay Rakesh with Mizuho. Vijay Rakesh: Dave, just on the enterprise hard disk drive side on the hardest asset, do you see, given the 25% exabyte growth and recovery on the TC side this year, do you expect those revenues to get back to that $2 billion run rate exiting '24, I guess, calendar '24? Gianluca Romano: No, we don't guide after this quarter. So we just gave a good guidance for the March quarter in terms of revenue increase and profitability increase. And as we said, no, we are ramping here volume. We are seeing better demand environment. So we expect sequential improvement through the quarter but we don't give specific guidance on revenue for the end of the calendar year. Dave Mosley: Yes. I would say that, obviously, we're watching near-line demand, CSP demand on-prem [ph] enterprise demand continuing to build strength but not nearly be as big as it was a couple of years ago but that's very good and we're being very careful building into it. The one point that you just raised which was the whole AI TPC [ph] demand which I think it's still very early innings in this but we do see opportunity there. high-end workstations, if you will, that are running AI applications may actually be an interesting opportunity. Vijay Rakesh: Got it. And then on the gross margin line, sorry to [indiscernible] that, look at -- do you see you guys getting back to that target window 33% exiting this year? And especially on the HAMR side, I think Dave mentioned you can do with 4 terabyte plus 5 disks or a 20-terabyte drive versus 7 to 10 disk now. What are the gross margins on HAMR versus where you see your corporate margins today, I guess. Gianluca Romano: We know we said in the past amortized gross margin is, for sure, accretive to the corporation. So it's always above our average. Right now, as you know, there is no HAMR drive in our results. But now we see starting in the March quarter and you already see some improvement in our guidance. It will be I expect more when we go into the June quarter and through the rest of the calendar year. So we are positive on the profitability from that product. And we need to take our time to qualify big customers and then to start ramp because, as Dave said, we take a little bit of time to rent high-volume production for the new product. Operator: And our next question comes from Ananda Baruah with Loop Capital. Ananda Baruah: Really appreciate it. I guess for Dave and Gianluca can jump in here, too. The hyperscalers are sort of having some conversation about data center redesign over the coming years, a lot of this is around GPU compute. But they are referring to it as data set reasons on more generally and Vale [ph]. And I guess would there -- if that occurs, do you have any opinion on if there would be incremental opportunity for near-line drive that would, I guess, substantively be like in addition to whatever data growth is going on. So I just wanted any thoughts on that in any context. And that's it. Dave Mosley: Yes. Ananda, it's a real complex topic. What I would say is that the compute infrastructure is changing dramatically and the memory architectures will change to support that computer architecture very dramatically as well. So there is a lot of redesign discussion going on. there are different types of applications and things that are being branded AI, there's stuff that's very focused on text or large language models. And then there's image recognition and video creation. And so there's a lot of different types of applications that propagating. And I think this is just normal application development that's been going on for years and years and years. But I do think there's different types of hardware. So I think there are some now AI data centers being discussed that are largely compute. I also think that some of these applications are spinning off a lot of data and they're requiring data to be stored for a certain period of time and then brought back up to the higher levels to be reprocessed. And so that's just normal data growth as well. So I think the net of it is there's a lot of architectural redesign going on, probably not affecting the tiers that we're in. If anything and we made reference to this in the prepared remarks, there's cost power and space or at a premium. There's many AI applications from what I'm hearing that there's just not enough power for and our infrastructure is going to be critical. But to the extent that you can do your part to buy transitioning to higher capacity drives that net-net gives you the same exabyte capacity with less power. I think that's a good thing. It may be an opportunity for us. Ananda Baruah: So that would be in addition to like the 25% kind of data run rate driven -- that sort of power as a catalyst date? Dave Mosley: It's hard to say. It depends on the bills and how much people are having to pay for it. Again, I think in the AI applications that are really exploding right now, power is going to become one of the limiting factors. And so to the extent that there may be a really good payoff in not only cost savings, space savings and so on but also just freeing up that power infrastructure to go to other things. I mean, that might actually help us get above the 25%. Operator: And our next question comes from Mark Miller of the Benchmark Company. Mark Miller: Congratulations on the launch of Mozaic. I'm just wondering, you mentioned it briefly. What kind of traction are you seeing from AI-related opportunities? And what do you -- how do you see that ramping throughout the year? Dave Mosley: Yes, Mark, me, I'm pretty cynical sometimes on these things and I'm looking for POs that actually say AI on them. And they are starting to happen but it's still fairly small. And again, I'll go back to my previous comments, these are really applications that have been developing on a lot of fronts over many years anyway. So say, for example, image recognition, whether it's at the edge or in the cloud, that application space has been developing over time quite a bit. When we get into specific things like large language models where people talk about, I think the data infrastructure impact piece is still secondary to the compute piece even at this point. So at some point, there will be compute enabling all these really cool applications and efficiencies that people and businesses like ours were taking advantage of and then the data will continue to grow on the back side of that but we're still early innings on that. Mark Miller: So that's more 2025, you think? Dave Mosley: For large language models. I'd say maybe. I don't know exactly. Operator: And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to management for any closing remarks. Dave Mosley: Thanks, Marco. Seagate is focused on executing our product road map, leveraging the advanced technologies in our Mozaic platform which we believe positions us well to enhance profitability over the near term and capture long-term opportunities for mass capacity storage. I'd like to close by once again thanking all of our stakeholders for their ongoing support of Seagate. Thanks for joining us today and we look forward to speaking with you during the quarter. Operator: Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

Operator: Welcome to the Seagate Technology Fiscal First Quarter 2024 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Shanye Hudson, Senior Vice President of Investor Relations. Please go ahead. Shanye Hudson: Thank you. Good morning, 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 posted our earnings press release and detailed supplemental information for our September quarter results on the Investors section of our website. During today’s call, we’ll 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 and/or cannot be reasonably predicted. Therefore, a reconciliation to the corresponding GAAP measures is not available without unreasonable efforts. Before we begin, I’d like to remind you that today’s call contains forward-looking statements that reflect management’s current views and assumptions based on information available to us as of today and should not be relied upon as of any subsequent date. Actual results may differ materially from those contained in or implied by these forward-looking statements as they’re subject to risks and uncertainties associated with our business. To learn more about the risks, uncertainties and other factors that may affect our future business results, please refer to the press release issued today and our SEC filings, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q as well as the supplemental information, all of which may be found on the Investors section of our website. As always, following our prepared remarks, we’ll open the call up for questions. I’ll now hand the call over to Dave, for opening remarks. Dave Mosley: Thank you, Shanye, and welcome, everyone. Before I discuss our financial results, I want to acknowledge the situation taking place in the Middle East. Our thoughts are with all of the people in the region including our Seagate team members, their families, and loved ones. Moving on to our September quarter results, revenue came in at $1.45 billion, with non-GAAP loss per share of $0.22. Consistent with our recent public commentary, we experienced softer than anticipated demand in the legacy markets, while the ongoing cloud inventory correction and weak economic trends in China continued to restrain near-term demand for hard drives. Looking ahead, we expect the pace of economic recovery in China to be uneven. However, we are encouraged by the positive progress of U.S. cloud inventory consumption. Importantly, we continue to demonstrate financial discipline and strong execution on the priorities we outlined at the onset of this down cycle, namely to drive cash generation, strengthen our balance sheet and position the Company for enhanced profitability as the markets recover. We also continued to hit all key HAMR product development milestones, demonstrating our ability to drive significant areal density gains with this technology. These gains translate into lower storage costs on a per bit basis, enabling Seagate to offer a compelling TCO proposition for our customers while enhancing our future profitability. Qualification and revenue ramp plans for our 30 plus terabyte products remain fully on-track with high volume ramps starting early is a competitive differentiator and increasingly important in light of the green shoots that we're starting to see with respect to cloud demand trends. Within the mass capacity markets, we saw a modest uptick in demand for our high capacity Nearline products among U.S. cloud customers. We project incremental revenue growth from U.S. cloud customers again in the December quarter, and are encouraged by constructive customer dialogue regarding our transition to a build-to-order model, making us more confident on demand fundamentals entering calendar 2024. Additionally, industry analysis of cloud customer behavior suggests that their cost optimization efforts are nearing a conclusion, while enterprises continue migrating new workloads to the cloud. These include both core IT workloads as well as AI specific workloads. In addition to cost optimization efforts, spending priorities for CSPs have temporarily shifted towards AI-related infrastructure, which have further slowed the pace of demand recovery for mass capacity storage. While AI-related spending remains a near-term priority, several cloud customers have indicated that investments in traditional servers and other IT hardware will resume in the coming quarters. All of these trends bode well for HDD demand recovery in both the cloud and enterprise OEM markets. The same markets in China are lagging these early positive signals due to the regional economic conditions that I mentioned earlier. However, video and image applications were a notable exception reflecting demand both within China and globally. Public and private investments in smart city and smart security projects have been key demand drivers for the VIA market. While we believe these underlying demand trends remain intact over the long-term, the severe slowdown in China's property sector and broader global macro uncertainties are likely to temper demand over the next couple of quarters. Near-term conditions aside, we are optimistic about the VIA market given the increasing use of AI and deep data analytics that enhance the effectiveness of VIA systems. These systems are evolving from basic monitoring tools to more fulsome solutions incorporating advances like high definition AI cameras that offer more valuable insights and lead to longer data retention rates. These data intensive solutions are well suited for hard disk storage in terms of cost, capacity and performance. Looking back across our 45-year history, cost effective high capacity storage has been vital to the enterprise's ability to harness the benefits of every generational technology megatrend that we have experienced. From personal computing to the internet, mobile to big data, to the ongoing migration to the cloud, we anticipate the same will be true with the rise of AI and generative AI applications, which contributes to our long-term view for return to healthy exabyte growth. Seagate's mass capacity storage portfolio sets us up strongly with this growth backdrop. Last week, we announced our latest high capacity Nearline products boasting 2.4 terabytes per disk and leveraging our proven 10-disk platform to deliver capacity starting at 24 terabytes. We continue to offer customers the flexibility to deploy these drives as a conventional CMR drive or as a shingled SMR configuration based on their specific capacity and architectural needs. We are engaging with a number of cloud and enterprise customers on qualification, and expect volume shipments to begin in the first half of calendar ‘24. We also expect to begin aggressively ramping 3 terabyte per disk products based on HAMR technology in early calendar 2024. These drives deliver capacity starting at 30 terabytes and offer customers the same flexibility to adopt either CMR or SMR configurations, to further boost areal density into the mid-30 terabyte range. Initial customer qualifications are progressing very well, and we continue to hit our reliability and yield metrics. We are getting extremely positive customer feedback and we are broadening the number of customer qualifications as planned. We've been very thoughtful in building our product roadmap to stage HAMR technology, leveraging existing product design and process commonality where possible. For example, virtually all of the capital invested for the 20 plus terabyte PMR drives is compatible HAMR products. The 30 plus terabyte HAMR drives utilize many of the same components in electronics as our 20 plus terabyte products. They represent the fourth generation product using our 10-disk platform and the seventh generation that leverages glass substrates. These actions improve capital efficiency, reduce manufacturing complexity, ensure reliability, and hasten time to market. While many aspects of our product design are evolutionary in nature, HAMR revolutionizes areal density advancements. Through years of persistent research and development investment, innumerable design iterations and optimization cycles across all elements of the drive from mechanical and electrical designs to wafer processing and firmware, we have now reached the appropriate balance between areal density gains, cost optimization, and reliability to launch HAMR and volume. Our execution and cycles of learning have enabled us to continue strengthening our portfolio and we expect to launch products yielding 4 terabytes per disk in less than two years' time. Significantly differentiating Seagate and addressing the full spectrum of mass capacity demand. Architecturally speaking, in today's data driven business economy, mass capacity storage is a crucial tier. The HDD areal density advancements that we are delivering affirm and sustain the existing TCO advantages relative to NAND for mass capacity storage. Simply put, we offer customers mass data storage at less than one-fifth the cost of comparable NAND solutions on a per bit basis. We don't foresee that value gap closing over the next decade relative to data center architectures. In addition to optimizing costs, customers are intensely focused on conserving data center power and floor space. Customers can realize benefits across each of these objectives by upgrading their existing installed base of HDDs to higher capacity drives. The 30 plus terabyte HAMR drives currently in qualification are more than two times the capacity compared to the average installed base across large data centers. This HAMR based upgrade would more than double their existing storage costs in the same footprint or offer a 50% reduction in operating cost for the same storage capacity using about half the power and floor space. These are compelling savings for customers and offer valuable optionality to best monetize their storage assets, or reallocate floor space and power budgets for other uses, or even defer new data center build-outs to maximize their capital dollars. As we deliver these benefits to our customers, we are also focused on capturing the value of our product portfolio. As noted on our last call, we are continuing efforts to adjust price commensurate with that value, which ensures both a healthy industry supply chain and offers customers the opportunity for improved TCO over the long-term. We have already seen some benefit from this strategy which we anticipate will take a few quarters to implement more broadly across the end markets we serve. I’ll now hand the call over to Gianluca, for further details on the September quarter results and share our outlook. Gianluca Romano: Thank you, Dave. Seagate September quarter financial results were consistent with our revised expectations. We generated revenue of $1.45 billion and a non-GAAP loss of $0.22 per share. Despite a sequential decline in revenue, we expanded total company non-GAAP gross margin by about 30 basis points and HDD non-GAAP gross margin by more than 130 basis points, reflecting our focus on enhancing profitability. Within our hard disk drive business, revenue declined 6% sequentially to $1.3 billion, reflecting a modest improvement in mass capacity sales offset by steeper decline in the legacy market than we had originally expected. The mix shift toward higher capacity drives resulted in total HDD shipments of 90 exabytes, essentially flat with the prior quarter. Average capacity per drive increased 17% sequentially to roughly 7.5 terabytes per drive. Mass capacity revenue increased 3% sequentially to just over $1 billion, driven mainly by the anticipated improvement in the VIA market. Mass capacity shipments totaled 79 exabyte compared with 75 exabyte in the June quarter. The Mass capacity shipment as a percentage of total HDD exabyte were roughly 88%, up from 82% in the June quarter. For Nearline products, shipments of 56 exabyte were slightly up quarter-over-quarter. Average capacity per Nearline drive increased 12% sequentially as demand trends among U.S. cloud customers began to modestly improve. We believe that the industry continues to shift below end consumption and is making progress in reducing existing inventory at our cloud customers. As we mentioned last quarter, we anticipate that it will take at least through the end of the calendar year for inventory levels among CSP customers to rebalance and for demand to improve more broadly. Specific to the VIA market, revenue was up sequentially as expected in the September quarter. However, as Dave noted earlier, the uncertain economic environment in China seems unlikely to change in the near-term. As a result, we anticipate the VIA market will reflect an uneven pattern of recovery going forward. Legacy product revenue was $278 million, down 31% sequentially with lower demand in each of the three markets served mission critical, clients and consumer. Finally, revenue for our non-HDD business decreased slightly more than anticipated to $159 million compared with $218 million last quarter. We reserved IT spending patterns in light of economic uncertainties remain a headwind to our enterprise system business, and we expect similar revenue levels in the December quarter. Moving to our operational performance, consistent with lower revenue levels in the September quarter non-GAAP gross profit decreased by $25 million to $288 million. Non-GAAP gross margin of 19.8% expanded slightly compared to the prior quarter. Pricing adjustment enacted during the quarter and cost saving from earlier restructuring activities more than mitigated the 9% decrease in revenue and increase in underutilization costs, which were approximately $59 million. We expect to see further margin benefit in future quarters, as we continue to execute price adjustment across the entire portfolio, and achieve [full utilization] (ph) of projected cost savings. I note that beginning with the September quarter, our results reflect a change in the estimated useful lives of certain capital equipment used in manufacturing. Our ability to increase the efficiency of our existing fixed adapted base has enabled us to extend the useful lives from a range of three to seven years to a range of three to ten years. This change reduced depreciation expense in the September quarter by approximately $9 million within cost of goods sold and is expected to increase by about $20 million in the December quarter. We reduced non-GAAP operating expenses to $248 million, down from $258 million in the June quarter. While we continue to actively manage all areas of spending, we do expect non-GAAP OpEx in the December quarter to be up slightly, as certain minor spending reduction measure begin to conclude. Moving into cash flow and the balance sheet, we are continuing to take actions to improve our debt profile and manage working capital to support positive free cash flow generation. September quarter, we reduced inventory by 8% sequentially to just under $1.1 billion. Capital expenditures were $70 million compared with $50 million in the prior quarter. For the fiscal year, we are still planning a significant reduction in CapEx spend, compared with fiscal '23 and expect spending will be more heavily weighted to the fourth half of the fiscal year. Free cash flow generation was $57 million, after giving effect to approximately $90 million of restructuring related payments that we had highlighted on our last earning calls. We used $145 million for the quarterly dividend and exited the quarter with 208 million shares outstanding. We closed the September quarter with $2.3 billion in available liquidity, including our undrawn revolving credit facility. During the quarter, we raised $1.5 billion in new capital through the issuance of convertible notes bearing a low interest rate of 3.5%. A portion of the proceeds were used to fund [capital co-transaction] (ph) that increased the effective convert price to nearly $108 per share, reducing potential future share dilution. The majority of the remaining proceeds were used to retire as outstanding balance on our term loans, which totaled approximately $1.3 billion. As a result of its debt restructuring actions, we expect to realize cash interest savings of about $15 million on an annual basis. Additionally, we renegotiated the terms of our credit agreement, and we support from our lender group with significantly relaxed the debt covenants through fiscal 2025. Accounting for all actions that I just described our debt balance was $5.7 billion at the end of the September quarter, up $215 million quarter-over-quarter. Non-GAAP interest expense was sequentially flat at $84 million and we expect similar expense levels in the December quarter. Turning to our outlook, we expect mass capacity sales to move slightly higher in the December quarter. Supported by incremental demand for our Nearline products from both cloud and enterprise customers, offsetting softer sequential VIA demand. Within the legacy business, we are projecting higher seasonal demand, mainly from the consumer market, while non-HDD revenue is expected to be essentially flat. With better contact, we expect December quarter revenue to be in a range of $1.55 billion plus or minus 150 million. At the midpoint of our revenue guidance, we expect non-GAAP operating margin to be in the mid-single-digit percentage range, with underutilization cost expected to be relatively flat with the September quarter. We expect to narrow our non-GAAP loss per share to $0.10 plus or minus $0.20, based on a share count of approximately 210 million shares and a non-GAAP tax expense in the $15 million range. I will now turn the call back to Dave for final comments. Dave Mosley: Thanks, Gianluca. We are operating in a longer than typical cycle, and I'm very proud of our team's shared determination and resilience. We've continued to drive our financial, operational and innovation priorities, which is evident by the actions we've discussed today. We are focusing our tactical business decisions on free cash flow generation. We are strengthening our balance sheet through debt restructuring actions. And we are executing on our mass capacity product roadmap to address future data growth. Signs of recovery has started to emerge as we look past the end of calendar 2023 and as industry conditions improve Seagate is ready to capitalize. We are a stronger, more efficient company with a technology roadmap that extends our areal density leadership, positioning Seagate to deliver enhanced value, to our customers and shareholders. Thanks to all of our stakeholders for your ongoing support of Seagate. Operator, lets open up the call for questions. Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Erik Woodring of Morgan Stanley. Please go ahead. Erik Woodring: Super. Thank you for taking my questions this morning, guys. So, Dave, I kind of want to take a step back. And if we go back to your prior Analyst Day, the expectation was that mass capacity exabyte shipped could grow at a 35% annual rate. Now the world is clearly different today both from a macro outlook and the emergence of AI as kind of a board level investment priority. So curious as we look forward, how are you thinking about kind of the long-term, three to five year rate at which mass capacity exabytes could grow? And, maybe help us think about the linearity of that. Could that strengthen over time? Is that relatively linear? Just any thoughts that you have kind of longer term on what mass capacity exabyte growth could be. Thank you. Dave Mosley: Thanks for the question, Erik. Yes, we were coming off the back of a number that was almost 80% in one year. So to your point, back in the last Analyst Day, the 30, the mid-30s was feeling pretty good for us given all the data growth that we know is happening. And then we've gone through these current events. I'll say that we're all seeing. Look, to your point about linearity, I don't think it's a very linear function. I think there, it can be very choppy. Up one year down the next, it can be. As we look out three to five years now, I would temper that somewhat and say in the mid-20s is probably good modeling range. But we will see probably more growth from time-to-time. I do think that given the move of that happened in the middle of the pandemic of data into data centers for -- enterprise applications that were being run in data centers. I think that data is still going to grow in those data centers. So we're not at peak data center growth. And then you lather on top of all these new applications that will be, really sped up with features like AI and generative AI on top of them, I think that there's a, there's a big healthy demand growth coming. 25% would be healthy for any kind of CAGR that's going to go out for three to five years or a decade or something like that. So we think there's healthy demand growth, but I do think it will -- it won't be linear. There are both periods of, big growth and then there will be periods of digestion as well. We'll continue to see this as the economy flutters. Erik Woodring: Great. Thanks so much. Operator: The next question comes from Wamsi Mohan of Bank of America. Please go ahead. Wamsi Mohan: Yes. Thank you. Good morning. Dave, can you talk about, HAMR qualifications? How many customers are you expecting qualifications in the near term and maybe share a color on what you expect in aggregate, given what you know about the ramp in terms of you know, unit shipments maybe one, two years out. And if you could, maybe just comment on how this higher areal density shift might change the dollars per terabyte relative to current product. That'd be super helpful. Thank you. Dave Mosley: Yeah. Interesting. I can take a crack at that. So relative to qualification, we are prioritizing customers, not necessarily the easiest customers first, sometimes they can be more difficult challenging customers, but, we're staying very tight with customers, and we're trying to make sure that every of the initial drives that we build has a home. Make sure that we as we bring on more qualifications, like we talked about in our prepared remarks that we will make sure that we have the supply that's adequate for those because I do think there will be a strong demand. What we're showing customers right now exactly to your point on the value proposition is a projection for what their TCO benefits will be. Part of that's the acquisition cost of the drive itself. Part of it's the power and floor space improvements that they'll get as we model TCO with some of them. So I do think that there's going to be a big push for the higher capacities, just like there always has been in our industry. And I think this is going to be one of the biggest jump scenario density that we've done in the last five years. So the healthy growth is right ahead of us. We are filling the lines with -- the wafer lines with HAMR parts. And we expect to see volume shipments in the millions of drives next year, next calendar year. You know, it'll all time out based on when the qualifications are, but the parts are coming. Wamsi Mohan: Thanks, Dave. Operator: The next question comes from Sidney Ho of Deutsche Bank. Please go ahead. Sidney Ho: Great. Thank you. It's great to see some green shoots in the US cloud market. Dave, last quarter, you talked about expecting cloud inventory to normalize in a couple quarters. Can you give us an update, about the timing there? But more importantly, are you getting indication that the rate of recovery is going to -- what kind of rate of recovery is going to like beyond the December quarter, especially given your efforts to increase visibility through, earlier collaboration or longer term collaboration with your customers. Thanks. Dave Mosley: Very good. Thanks. Yeah, I think as we are giving predictability on what products that we have in our pipeline, the customers are likewise giving more predictability on what they will need out there in time. So I would say if you look at two years ago, the demand was quite strong. And then we entered into this period about six quarters ago now where some customers were saying we really don't need very much and we're going to make allocations of what we've already got in our data centers last for another year or something like that. The entire industry has been suffering through that. It's very hard to run factories like that. And so that's why we gone out and said, okay, let's get predictable. What we're showing -- the numbers we're showing for customers right now in these long term forecast for, build to order are nothing compared to the volumes of where we were at two years ago. They're much smaller. But I think the customers are showing us predictability and then asking us for upside on top of that. So it gets into a really interesting discussion about what's the true demand. And exactly to your point, you know, I think it'll help us get through the back of this period. But then I think ultimately, we're not satisfying true demand when the -- because of the growth of data is still large. 25% CAGR is still very, very large. And so, we're trying to make sure that we start the parts that ultimately will get paid for and showing people exactly what we have in process for them. And they're trying desperately to show us a more predictable schedule that we can all manage better for better economics on both sides ourselves and our customers. Sidney Ho: Thank you. Operator: The next question comes from Karl Ackerman of BNP Paribas. Please go ahead. Karl Ackerman: Yes. Thank you. Good morning. On HAMR, could you discuss the reliability metrics and perhaps power efficiency metrics relative to your existing SMR drives. I ask because at OCP last week, you know, it's clear that hyperscalers continue to prioritize those metrics as they introduce newer technology. And I guess as you address that question, could you also discuss maybe the number of customer engagements you have, with HAMR perhaps beyond the existing customer. Thank you. Dave Mosley: Yeah. As we said before, Karl, we're bringing on multiple customers right now. So we've already shipped qualification units out to multiple customers. I won't talk about them in particular. The HAMR reliability metrics will be identical to the reliability metrics of traditional drives. So there's really no change there, and there's no change in the power either. I mean, the people have pointed to the laser subsystem and things like that. Yeah, there’s some very small changes according to that, but we're also working power down in normal course on these products. I think one thing important to realize about the family is that the mechanical and electrical design points of the of the 2.4 terabyte per platter drive that we just announced are very similar to the 3 terabytes per drive, nodes or even beyond that, we should get into the mid 3 terabytes per disk drives. With those same parts. So same electronics, same mechanics. So there's really no change in power. There's no change in reliability expectations either. Karl Ackerman: Super helpful. If I may sneak another one, just on your systems business, that has moderated roughly 40% the last two quarters. Just curious. I suppose why and kind of the outlook for that. And within that, how much of that is maybe softness in flash prices versus perhaps the core vault hard drive offering. Thank you. Dave Mosley: Yeah. I don't really think flash has much to do with it. It's more, what I'll call on prem traditional enterprise applications. And thankfully, that space has not been as bad as we thought it was at the back of the year. It's not nearly as cyclical as what the cloud has been in this recent cycle. But it was down year over year. And I think it will recover over time as well because I think on prem enterprise should benefit from all the growth of data. And in many cases, you can't move the data off-site or into the cloud. It's just either too massive or you've got regulatory requirements or sovereignty requirements and you want to keep multiple copies anyway. So I do think on prem enterprise should have a good recovery at some point. And we're happy with the systems business and our penetration into multiple accounts on that front to recover when the on prem enterprise business does recover. Operator: The next question comes from Aaron Rakers of Wells Fargo. Please go ahead. Aaron Rakers: Yeah. Thanks for taking the question. I wanted to maybe just unpack the gross margin a little bit. Appreciating that you guys don't give a defined kind of guide on a forward basis. Could you help us understand kind of the impact of underutilization you expect going into the December quarter relative to the $59 million reported this last quarter. And how do we think about as maybe that starts to lift out of the model, kind of the glide path to back to that 30% level as HAMR starts ramping, etcetera. I'm just curious of how we think about or how you guys are thinking about the gross margin trajectory kind of the variables within that looking out over the next couple of quarters. Gianluca Romano: Hey. Good morning, Aaron. Thank you for the question. Yes our guidance for December quarter is, of course, implying an improvement in gross margin. It is not coming from underutilization. We think, underutilization will be fairly flat, with the September quarter. But it's coming from, of course, there's a pricing actions that we are taking, and we have already started in the prior quarter. And a better cost structure. No part of improvement is for sure coming from the full impact of their restructuring plan that we started in the prior quarter. So now we start seeing the full impact in our cost structure. So those are the major drivers for the improvement in gross margin. Then now we will continue to improve our structure and we think our revenue will continue also to increase sequentially. Now to go back to the let's say the 30% gross margin. No, we think we need to have a revenue that is lower than the prior peak. We think at least 20% lower. So we can achieve that level of profitability with a much lower rate. Aaron Rakers: Very helpful. Thank you, Gianluca. Gianluca Romano: Thank you. Operator: Next question comes from Timothy Arcuri of UBS. Please go ahead. Timothy Arcuri: Thanks a lot. I also wanted to ask on gross margin. Gianluca, as HAMR ramps, I think there's some controversy in terms of whether it's initially negative for gross margin or, you know, like what the crossover point will be for when it becomes positive to gross margin. I think it depends on your yields, obviously. But can you just talk about sort of how that plays into the answer to your question, the trajectory of margins off the bottom here. Thanks. Gianluca Romano: Yeah. No. As Dave said before, no, HAMR will strongly increase our capacity per drive. And that will for sure improve our gross margin. It will, no, it will be accretive to our gross margin since the beginning. But, of course, when we go to 3, 4, 5 terabyte per drive, you will see even a bigger improvement. Now we think we'll start our HAMR revenue fairly strongly in the first six months of the calendar 24. Now we think we have about a million unit as opportunity to be solved. That will help. Of course, as every time you go into a new technology and new product, we could have a little bit lower yield, and that could limit in the first quarter or two. The improvement to the gross margin, but we see gross margin improving sequentially. Dave Mosley: And, Tim, just I would add, remember that it's not just about the highest capacity point, although that drop does drive a lot of heads and media in our factories. It's also about mid-range, if you will, capacity points like 20 terabytes or 24 terabytes again or those the areal density enables us to go address those capacity points with improved cost structure. Timothy Arcuri: Great. Yes. Thanks for that. So I also jumped on just [mid way] (ph). So, maybe you talked about this, but can you talk about how the change to build the order is impacting bookings? So I know that revenue is being guided pretty flat, but it seems like bookings are improving. And I wonder how much of that is due to the shift to bill to order and how much of that is due to just the customers having worked through inventory. And what do the bookings tell you about the trajectory of where revenue is going to into the first half of next year? Thanks. Dave Mosley: Yeah. It's actually an interesting question. So we do have some customers that are embracing the predictability. And there are reasons for that, maybe some of it is because they have burned through their inventory completely. And so they know that they're going to be buying. I think there are customers who are not leaning into, multiple years just yet. For various reasons, they make procurement decisions all the time and so do we. Right? Everybody has to make these tough decisions. But, you know, generally speaking, I think it's giving us better visibility, at least at the lower rate that the industry now runs because remember, the industry just doesn't have the money to speculatively start a bunch of products right now. We have to make sure that what we do start that the suppliers are going to get paid for and so on. I think the model is generally working out pretty well. And as we show higher value, like the 3 plus terabyte per disk capacity points. And then the 4 plus terabyte per disk capacity point, I think people will want to make sure that they can take advantage of that TCO proposition we put out in front of them. So, I anticipate it'll pick up steam. We are still doing things that are two quarters or four quarters or something like that. And so you know, there's negotiations and everything. And I can be frustrated by that. But as those negotiations continue on, I think we will continue to make sure that we write the industry and ourselves our suppliers so that we can at least get back to a point where returning value to everyone so we can keep investing in the industry. I think that's an important point. That's one of the reasons we've done this. Timothy Arcuri: Got it. Thank you so much. Operator: The next question comes from Krish Sankar of TD Cowen. Please go ahead. Krish Sankar: Yeah. Hi. Thanks for taking my question. I have two part question. First is, you folks shipped about 56 exabytes to Nearline customers in the quarter. Given the view that, Nearline has been improving calendar 24, you think you'll hit the 100 exabyte run rate, sometime in calendar 24? And then a follow-up is, Dave and Gianluca, it seems they're giving more confident about HAMR ramp and gross margin this quarter versus all the prior quarters. Kind of curious what is the reason for that? Were there any improvement in the quarter that you could hit some milestones, or was it more increased customer demand or better visibility into their purchasing of HAMR next year. Any color on that would be helpful. Dave Mosley: Yeah. I would say all of the above as time marches on, our teams make progress against the yield targets, the reliability targets, and the qualifications progress, and we can see when we have more and more certainty we get towards the end of the qualification. So all of those things are factoring into to our confidence. And I think, we'll continue to update everyone going forward exactly how this is going. Remember that we're also starting into qualification with this 2.4 terabyte per platter, which, again, I made the point before it's almost the same box. And so, we have a PMR outlet for those same parts and we're driving the vendors to that commonality, most of the vendors, the lion's share, the vendors have common parts through these two platforms. So, we can drive that much more volume in and predictably get people paid and things like that. Krish Sankar: And then on the exabytes senior line, can you hit 100 exabytes next year, or is that too aggressive? Gianluca Romano: Yeah. I think for the current fiscal year and probably the calendar 24, is not very probable that we can double the exabyte, but we think we will grow sequentially in all those quarters. Krish Sankar: Thanks, Gianluca. Thank you, Dave. Dave Mosley: Thank you. Operator: The next question comes from Blayne Curtis of Barclays. Please go ahead. Thomas O’Malley: Hey. Sorry about the name mix up there. This is Tom O'Malley on for Barclays. I just wanted to understand the timing of the recovery a bit better here. You previously have talked about Q4 and then you talked about the end of December. And this is a Nearline in particular, and you know, it's kind of pushed to Q1. You're seeing this US cloud uptick. You said again, so kind of in September and in your expectations for December. But when do you expect the market step up in the market? Is that still expected for March? Or have things kind of elongated just given the inventory situation? Any update on that recovery will be helpful. Dave Mosley: Yeah, Tom. Thanks. I think we're still on the same plan that we talked about last quarter. It's a gradual uptick. So, we're watching the inventory being depleted. We're seeing new orders come in. I think the one variable would be maybe some of the global cloud customers, not the US cloud customers, maybe some of the global cloud customers given some of the economic issues that we have in various parts of the world. But generally speaking, we're still on the same plan and we'll see a gradual uptick rather than a hockey stick. Thomas O’Malley: And then just on the gross margin side as well, just taking the midpoint of guidance and you're talking about operating expenses actually up slightly in the December quarter. It implies 200 plus basis points of sequential improvement in gross margin. I understand that you pointed to some pricing increases, but that'll be pretty quick in terms to get the full benefit there. Is there any other levers that are contributing to December? Obviously, you have some mix benefit with [Viagon] (ph) or going down and Nearline up, but just any other levers that you could point to other than the pricing that are impacting December? Thank you. Gianluca Romano: Yeah. I will not say that pricing is the only thing, driving the gross margin up, actually the cost side is very important. We have the full impact of all the restructuring plan that we executed in the prior quarter that are now going into our COGS. Of course, also in our OpEx. OpEx could be a little bit higher, but not much higher. So we are talking about few million dollar higher. So, I would say both pricing and cost should go in the right direction to improve our gross margin sequentially. Dave Mosley: And sorry, just to be clear, we are also going through product transitions. Right? So as we may raise price on one of the older products and then there's a -- the customer can offset some of those increases by a better TCO proposition in the next drive. And we can go work the cost on that. So the mix plays a role and the customers can see the TCO benefit they're incentivized for that. Operator: The next question comes from Steven Fox of Fox Advisors. Please go ahead. Steven Fox: Thanks for taking my question. Dave understanding everything that you said about sort of a cyclical recovery, there's still a lot of macro headwinds out there. And, obviously, your decline in sales over the last 12, 18 months is out done, what the macro is doing. So I'm just curious. How can we get comfortable with the idea that as you see more macro pressures that business your business keeps recovering. Is there anything you would point to in particular that may not limit cloud spending as much more than you think of? Or just like other cycles where you outgrew in tough environments. Thank you. Dave Mosley: Right. Thanks. You're right. It is a tough environment. I will say that data continues to grow and people want to improve their economics all the time. So, the data centers that exist in the world have an enormous number of hard drives. So we're going to see some, refresh of those for various reasons, power some of them are just aging off. The upgrades are -- can be actually fairly large. If you think about buying a 32 terabyte drive and replacing 4, 8 terabyte drives that may still be in your system. I mean, those are market economical benefits that will ripple through the data centers. And so I do think that in some cases, since data is growing so big, it bucks the trend of what's going on in the macro. I mean, obviously, that everyone's paying attention to the macro. But I do think that, there will still have to be some investments to make, and there will also be opportunities to go save cost with some of the new products that we have coming. And we've also been through the cycle on the early side already of already the inventories being depleted around the world. So, there's not that massive inventory bubble out there anymore. Steven Fox: Thanks for that. That's interesting color. And then, Gianluca, can you just, I mean, I assume you don't want to give like specific underutilization charges likely for the first half of next year. But can you sort of directionally give us a sense for how long you think we should keep modeling even if there's smaller charges, in calendar Q1 and Q2 keep that in there gross margin calculations. Thanks. Gianluca Romano: Yeah. We expect to have a underutilization cost also in calendar Q1 and calendar Q2. Probably little bit, could be lower than what we have in December, of course, but, of course, the volume that we are producing is still little bit below what we had installed in at the top of the cycle before. Steven Fox: Great. That's helpful. Thank you. Operator: The next question comes from Ananda Baruah of Loop Capital. Please go ahead. Ananda Baruah: Yeah. Thanks, guys. Good morning. Thanks for taking the question. I guess, Dave, just given that you're starting to see things start to firm up, and talking about I think, Gianluca, q-over-q increases, in Nearline as you go through 2024, what's the opportunity, Dave, for things to get tight as you go through 2024 just given the capacity that you've taken offline? Dave Mosley: Well, I think that tightness is actually kind of interesting because, like we said before, the data is growing in the data centers. We all know that. You know the amount of data being generated is growing quite quickly. And I think relative to the hard drive industry, quickly reacting to anything right now because of some of the damage been done in the supply chain and just some of the, frankly, the lead times that exist on current parts, especially at the highest capacity points, there's not as much flex as there used to be. And so I think, we may see -- we may enter into an environment where people say, okay, I see the economics of upgrading part of my fleet here now. Let's go ahead and do it. It'll save me power. It'll save me space. It'll allow me to answer the call for the data that's growing. And then once they get their orders in, we'll say, well, the lead time is x and that might be the challenge. So that's how I think things may get tight and it'll manifest itself. I don't know exactly when, but I certainly think that we could get into a situation like that just simply because the hard drive industry does not have the immediate capacity games that it used to. Ananda Baruah: And then what is that -- so what are the downstream impacts of that? I mean, in the past, it's been pricing goes up, long term agreement, that type of deal. Is that still some of the stuff that could occur that you find -- Dave Mosley: That’s right. But that's exactly why we're addressing the customer base with these built to order models, because we -- I think we're in some sense, we're helping the customers get a predictable financial outcome and if they can give us at least some predictable visibility. Ananda Baruah: That's super helpful. Thanks. I'll keep it there guys. Thanks. Operator: The next question comes from Mark Miller of The Benchmark Company. Please go ahead. Mark Miller: Thank you for the question. You mentioned AI opportunities in via cameras and other areas. I'm just wondering, when you think these opportunities will really start to ramp and any idea on the magnitude of these opportunities in terms of sales for next year? Dave Mosley: Yeah, Mark. I think it's really hard to quantify just yet, but there's a lot of stuff going on in, I'll say big data around AI. You know, you've got people pointing Chief Data Officers now to be able to track where is the data, what's its value, might we want to retain that just in case that we end up with some tools that are allowing us to monetize it or understand more about our processes, so on and so forth with customer base, factories. So my personal opinion is we're in the early innings of a move from throwing data away to keeping some of it longer term for the benefits of the corporations. And I do think that a lot of that will be edge. I don't think all of it will end up in a cloud. I think a lot of it will actually be on the edge. And so this is something we were tracking very carefully. I don't think it's really manifested itself just yet. I think people are using some of the new application capabilities, that are being branded AI applications. To get to know them and understand them. And I certainly, like things like generative AI, which I believe is kind of a new user interface, if you will, that will allow the applications to be used much more efficiently and maybe queries to be made of these applications much more efficiently, but I think we're still in the early innings. And I think once it does latch, we're going to know that data and the longevity of that data and the integrity of that data is all critical. And so I think that's good for us. Mark Miller: You mentioned lower CapEx for fiscal 2024. Can you give us a range or any idea on what would it be? Dave Mosley: I think we'll probably stay inside of our existing range, 4% to 6% of revenue. But we are -- since the revenue is so far down, we are very mindful of the spending. However, we can see the tools that we need to bring HAMR up according to a certain pace. And as soon as if the pace is quickens we will get there as quickly as we possibly can. So, we understand what the recipe is and we understand what's needed to make a recipe really well, and we'll spend accordingly. Mark Miller: Thank you. Operator: The last question will come from Vijay Rakesh of Mizuho. Please go ahead. Vijay Rakesh: Yeah. Hi, guys. Just, quickly on the HAMR side. I was just wondering, when you look at, exiting 2024, what your mix of HAMR would be either by exabyte or units? Dave Mosley: Calendar 2024, you said? Vijay Rakesh: Yeah. Right. Gianluca Romano: Yeah. I don't think we guide. So far in time precisely on the mix. Dave Mosley: Yeah. We're not going to guide that, but I will say that, we'll be very aggressive. When we talked about 4 terabytes per disc and the and cost optimization of these platforms and things like that. I mean, this is something the hard drive industry has been doing for years and years, decades. Right? So, we know how to do these transitions. We are very confident in technology. And we look to be very aggressive there. The wafer lead times are also quite long. So, we're already starting on this journey because we're already in wafer and so we're populating the wafer fabs with the parts that will support it. Vijay Rakesh: Got it. And then on the Nearline side, obviously, the shipments, extra shipments have come down quite a bit. As you look at the green shoots with some data center coming back, do you feel pretty comfortable given what the inventory levels are at the OEMs and what you see in terms of a return, on the spend. How would you characterize that, if you look at those two? Thanks. Dave Mosley: Yes. I do think that the inventory has been depleted now to levels that if you think about the complexity of all the data centers of the world and how much material needs to be parked out of them in front of them for replacements and then what the data growth is in the data center, I think the inventory levels have come down to a point where we feel comfortable now that people are going to get back to more predictable buying patterns. Vijay Rakesh: Thank you. Operator: This concludes our question-and-answer session. I would like turn the conference back over to management for any closing remarks. Dave Mosley: Thanks, Andre. As you heard today, Seagate remains focused on our key priorities including executing our leading technology roadmap which we believe positions us to to enhance profitability over the near term and to capture long term opportunities for mass capacity storage. I'll close by once again thanking all of our shareholders for their ongoing support of Seagate. Thanks for joining us today. And we look forward to speaking with you during the quarter. Operator: The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.

Operator: Good day, and welcome to the Seagate Technology’s Fourth Quarter and Fiscal Year 2023 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Shanye Hudson, Senior Vice President, Investor Relations. Please go ahead. Shanye Hudson: Thank you. Good afternoon, 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 posted our earnings press release and detailed supplemental information for our June quarter and fiscal year 2023 results on the Investors section of our website. During today’s call, we’ll 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 that was filed with the SEC. We’ve not reconciled certain non-GAAP outlook measures because material items that may impact these measures are out of our control and/or cannot be reasonably predicted. Therefore, a reconciliation to the corresponding GAAP measures is not available without unreasonable efforts. Before we begin, I’d like to remind you that today’s call contains forward-looking statements that reflect management’s current views and assumptions based on information available to us as of today and should not be relied upon as of any subsequent date. Actual results may differ materially from those contained in or implied by these forward-looking statements as they’re subject to risks and uncertainties associated with our business. To learn more about the risks, uncertainties and other factors that may affect our future business results, please refer to the press release issued today and our SEC filings, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q as well as the supplemental information, all of which may be found on the Investors section of our website. As always, following our prepared remarks, we’ll open the call for questions. I’ll now hand the call over to Dave for opening remarks. Dave Mosley: Thank you, Shanye, and hello, everyone. We appreciate you being here with us on today’s call. Amid a tough business environment, Seagate delivered fourth quarter revenue of $1.6 billion, while holding non-GAAP operating margin at 3.5% to narrow our non-GAAP loss per share to $0.18. These results demonstrate financial leverage and our focus on returning to profitability. Importantly, we continue to generate positive free cash flow, achieving $168 million for the quarter and $626 million for the fiscal year, reinforcing Seagate’s solid operational and financial execution amid the business backdrop we have seen in fiscal 2023. This past fiscal year has been shaped by macro and end market conditions that have tested our resilience in addition to our financial performance. I’m proud of our team’s perseverance and execution. As a result of our proactive actions, we’ve lowered our cost structure by more than $350 million on an annualized basis. We’ve enhanced balance sheet flexibility taking out nearly $800 million of debt funded largely by monetizing non-manufacturing facility assets. We reduced production output by approximately 25% compared with peak volume in order to drive better supply/demand dynamics and enhance profitability as the markets recover. And all of these accomplishments were made while delivering on our 30-plus terabyte HAMR product development and qualification milestones with volume ramp on track to begin in early calendar 2024. Looking ahead, we expect the macro end-to-end market conditions that we have flagged throughout fiscal 2023 to continue weighing on demand through at least December. Consistent with our track record of managing what is within our control, we are taking additional measures to weather the near-term business environment. First, we are adjusting pricing, which we believe will help to ensure a healthy industry supply chain for our customers over the long term. And second, we are carefully managing our manufacturing capacity through a build-to-order approach for certain areas of the business to align our future production output with customer qualification and demand plans. It will take time to bring production capacity and associated support resources back online. Therefore, it is crucial that we balance lead times for mass capacity products with our ability to reramp production. We expect these efforts will enable Seagate to efficiently manage supply for our customers as demand improves. I’ll now share some perspectives on near-term demand factors, in particular in the mass capacity markets, starting with our business in China. As expected, sales in China improved sequentially off of the March quarter lows, driven by increased demand in the VIA markets and certain regional cloud and enterprise OEM customers. While these trends are pointing in the right direction, sales are still well below historical levels. Since the strict COVID protocols were eased last December, the pace of economic recovery in China has been uneven. For now, we are forecasting sales into China to remain relatively stable for the balance of the calendar year. We are encouraged to see Chinese authorities begin to inject more stimulus to reaccelerate economic growth. Based on customer input, economic improvement is expected to catalyze e-commerce, drive cloud-related ad revenue and spur new smart city projects. Seagate’s VIA and nearline products are positioned to benefit from these anticipated improvements in the end market demand. Outside of China, nearline demand from enterprise OEM customers has remained soft. CIOs continue to operate under tighter budgets in response to near-term macroeconomic uncertainties. Ongoing efforts to optimize existing workloads, both on-prem and in the cloud, are helping enterprise customers defer mass storage deployments. These trends have slowed the pace of inventory absorption among most of our U.S. cloud customers. We have significantly reduced shipments to several large cloud customers in order to accelerate inventory absorption and protect our financial returns. We project it will take another couple of quarters for inventory levels to normalize. We also believe the timing for demand recovery could be affected by spending priorities focused on accelerating the build-out of compute-intensive AI infrastructure. While AI and ML have been around for quite some time, generative AI has quickly emerged as the next megatrend. This megatrend makes us as excited as ever about the long-term growth drivers for Seagate. In addition to the ongoing migration of workloads to the cloud, which we believe is far from over, gen AI is expected to be a catalyst for data creation, underpinning future demand for mass capacity storage. In today’s earliest stages of gen AI development, you’re seeing the necessary first steps of building and training of AI models. These efforts require significant investment in compute architectures, and we’re seeing that investment ramp today. The next stage of development will yield enterprise-specific use cases that leverage trained AI models to convert data into value-enhancing applications. As this phase plays out, cost-effective mass storage will be critical and we see HDD as a long-term beneficiary. We are already seeing examples of content creators generating high-definition images from text, which is growing in use as evidenced by four of the top services selling 20 million images each day. Development is well underway to create data-intensive videos and animations simply from voice commands. The adoption of AI-generated video bodes well for mass capacity storage. For context, today, nearly four million videos are uploaded daily to YouTube and their file sizes can be thousands of times larger than a single image. Additionally, we believe that predictive AI will lead to advances in many fields, including science and health care. For example, predictive AI can be used to analyze large collection of medical images, many created by Gen AI to provide insight for early detection, prevent disease progressions and develop patient-specific treatments. Mass capacity data storage will remain both an enabler and beneficiary of these trends working in harmony with flash and DRAM memories to bring AI applications to bear. While flash will continue to feed high-performance compute engines, mass capacity HDDs will remain the most cost-efficient storage media to house the enormous volumes of data being generated and used for predictive analytics. Even in today’s unsustainably low NAND pricing environment, HDDs are still roughly five times more cost-efficient than comparable flash solutions on a per bit basis, and we do not project that gap to close in the next decade. This level of conviction is due in large part to our leading technology road map. Seagate is leveraging magnetic recording technology innovations such as HAMR across our mature 10 disc [ph] HDD platform, positioning us very well to meet increasing demand, including from data-intensive AI applications. Given the current business climate, Seagate is focused on product development and execution and helping our customers qualify next-generation drive capacities. We are executing well on both fronts. We continue to deliver aerial density and TCO advancements through our conventional PMR hard disk drive products. Development efforts on what may be our last PMR product are nearing completion and will extend drive capacities into the mid- to upper 20 terabyte range. As mentioned earlier, our 30-plus terabyte product launch plan is fully intact and initial customer qualifications are progressing well. We are on track to begin volume ramp in early calendar 2024. We are also preparing qualifications with a broader number of customers, including testing for lower capacity drives targeting VIA and enterprise OEM workloads. While there is always work to do, I am pleased with the progress the product development teams have made during fiscal year 2023. Overall, Seagate has consistently demonstrated the ability to quickly adjust and execute at a high level on every factor within our control. We remain diligent in managing through near-term business conditions. At the same time, I am excited by the tremendous long-term opportunities ahead brought about by existing and emerging megatrends underpinned by data. Cost-effective mass capacity storage is a critical enabler and Seagate is poised to deliver with strong technology road maps and improving financial leverage. I’ll stop there and hand it over to Gianluca. Gianluca Romano: Thank you, Dave. Amidst the current industry down cycle, we delivered results that demonstrate our ability to maintain disciplined production output and strong cost control measures. For the June quarter, we reported revenue of $1.6 billion, in line with our recent public commentary and non-GAAP loss of $0.18 per share, slightly better than the midpoint of our guided range. Total hard disk drive revenue declined 14% sequentially to $1.4 billion, with shipment of 91 exabytes. Mass capacity revenue declined 20% sequentially to $1 billion, reflecting softer demand in the cloud nearline market, partially offset by an improvement in the VIA business. Shipment into the mass capacity markets totaled 75 exabytes compared with 104 exabytes in the March quarter. Mass capacity shipments as a percentage of total HDD exabyte was roughly 82% compared to the March quarter 88%. The expected slowdown in our cloud business led to nearline shipments of 55 exabytes, down 37% sequentially. As Dave outlined earlier, we anticipate that it will take a couple more quarters for CSPs to consume inventory and demand to improve. Specific to the VIA market, revenue was up sequentially from what we believe was a demand drop in the March quarter. We expect a relatively stable VIA demand environment in the second half of the calendar year, although still below the run rate before the downturn. Within the legacy market, revenue was $401 million, up 8% sequentially, reflecting higher demand for mission-critical products. The client and consumer markets were down slightly quarter-over-quarter, typical for a June quarter. Finally, revenue for non-HDD business decreased 15% sequentially to $218 million. As anticipated, current IT spending behavior in light of economic uncertainties impacted our enterprise system business. We expect this headwind and the purchase timing for a couple of large customers to result in a meaningful decline in our system revenue in the September quarter. Importantly, we shipped our first HAMR-based CORVAULT system for revenue as planned during the June quarter. We expect broader availability of these CORVAULT systems by the end of calendar 2023. Moving to our operational performance. Non-GAAP gross profit in the June quarter was $313 million, down 10% sequentially, reflecting lower revenue and a less favorable mix partially offset by lower underutilization costs. Non-GAAP gross margin expanded 80 basis points sequentially, approaching 20%. Underutilization cost decreased to approximately $40 million in the June quarter as we temporarily increased production to build long lead time components. Based on the current business outlook that Dave outlined, we expect higher underutilization costs in the September quarter. However, we expect gross margin to modestly increase as our cost structure improvements are fully realized and we implement pricing adjustments in certain markets during the second half of calendar 2023. We reduced non-GAAP operating expenses to $258 million, down $91 million year-over-year and $24 million sequentially. The year-over-year decline reflects our cost structure improvement actions to-date, lower variable compensation as well as disciplined cost management. We expect non-GAAP OpEx in the September quarter to be similar to the June quarter, reflecting nearly full realization of cost savings from restructuring efforts announced in April, offsetting an increase related to the recent sales and leaseback of three nonmanufacturing sites. Moving on to the balance sheet and cash flow. We ended the June quarter with liquidity level of approximately $2.3 billion, including our revolving credit facilities of $1.5 billion, which was lowered by $250 million as previously disclosed in the credit agreement amendment. Inventory was down $60 million quarter-over-quarter at $1.14 billion and we will continue to focus on reducing our own inventory in the coming quarters. Capital expenditure totaled $50 million in the June quarter, down 7% sequentially. Fiscal year 2023 CapEx was $316 million or roughly 4% of revenue. We target lower CapEx in fiscal year 2024 as we maintain our focus on shifting to a build-to-order factory loading, balancing supply to demand and still supporting our innovation-driven product road map. Free cash flow generation was $168 million for the quarter and $626 million for the fiscal year, reflecting solid operational execution and efficiency in working capital management. We expect free cash flow to be lower in the September quarter as we incur a majority of the cash payments associated with the restructuring charges announced in April. We used $145 million for the quarterly dividend and exited the quarter with 207 million shares outstanding. There were no share repurchases during the quarter. Our debt balance exiting the quarter was $5.5 billion down $507 million quarter-over-quarter, primarily reflecting the 2023 notes retirement. This debt reduction was mostly funded through the sales and leaseback of the three facilities noted earlier. Additionally, we raised $1 billion in new notes and user proceeds to prepay $450 million of existing term loans and retire the March 2024 notes of $500 million. As a result of these actions, we now have less than 12% of total debt coming due over the next two fiscal years. Interest expense in the June quarter was $84 million and is expected to increase lightly for the September quarter, reflecting a full quarter of the debt restructuring actions that I just described. Adjusted EBITDA for the last 12 months totaled $974 million resulting in a net debt leverage ratio of 4.8 times well below our amended credit agreement terms. According to our September quarter outlook, for the hard drive business, we expect incremental improvements in mass capacity to offset declines in the legacy markets. For non-HDD revenue for the system business is expected to decrease sequentially during part to demand timing among a couple of our large system customers as noted earlier. With vetted context, we expect September quarter revenue to be in a range of $1.55 billion plus or minus $150 million. As a mid-point of our revenue guidance, we expect non-GAAP operating margin to be in the low to mid-single digit range, which includes the proactive measure we discussed today partially offset by higher under-utilization cost in the range of $70 million. And we expect a non-GAAP loss per share in the range of $0.16 plus or minus $0.20. I will now turn the call back to Dave for final comments. Dave Mosley: Thanks, Gianluca. I’m proud of the perseverance and agility as we continue to proactively respond to the market environment we have faced over this past year. Entering fiscal 2024, we are leaner. Our balance sheet is healthier and our product roadmap is stronger. All of these factors enhance our ability to weather near-term market conditions, deliver financial leverage and position the company to capture attractive long-term opportunities for mass capacity storage. As we conclude our prepared remarks, I would like to thank our employees, suppliers, customers, and shareholders once again for their support. Thanks for joining us and let’s open up the call for questions. Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Krish Sankar with TD Cowen. Please go ahead. Eddy Orabi: Hey guys, this is Eddy for Krish from TD Cowen. I understand you want guide for December, but curious to know your thoughts on December nearline exabyte shipments. Like do you see them growing sequentially from September or more like flat or maybe slightly down? I’m asking is in case we remain at current revenue of $1.6 billion per quarter into next year, I’m wondering if there would be a risk to the dividend that in case especially you guys continue to invest in the business. Thank you. Dave Mosley: Yes. Thanks, Eddy. So we aren’t guiding for December. I think we expect at this point to hold the line on overbuilding and so that’s one of the reasons we’re being very cautious, but there will be some – there’s an indication of some natural flow through at the cloud service providers, for example. So we expect it to slowly start trending back up from here. I don’t expect a big hockey stick rebound. I mean I could be wrong on that, but we do expect it to be – to slowly go back up because – mainly because we’re not pushing it a bunch of our own inventory. And relative to the dividend, we’re planning for all this in all of our plans right now, and I think we execute this plan, we should be just fine. And we want to continue to be the person for all of our stakeholders that we’ve always been before. We’ve got a laser focus on that right now. Eddy Orabi: Got it. Thank you. Operator: The next question comes from Wamsi Mohan with Bank of America. Please go ahead. Wamsi Mohan: Yes. Thank you so much. I was wondering, Dave, if you could flush out a little bit two of the points that, that you made in your purported marks. One on adjusting pricing strategy in certain markets. What specifically are you doing in these markets? And then secondarily, the reduced production output through this bill to order and lower CapEx comments that you made. How exactly will this bill to order work? Is this specifically for mass capacity? What kind of lead times would you require and are your customers and what do you expect your follow through from customers and also from a competitive standpoint? Thank you so much. Dave Mosley: Thanks, Wamsi. Yes, it is complicated, because there’s a number of different markets in play here. So for example, a distribution channel or some of the classic markets we have consumer client server. You just don’t move things very quickly, but some places it’s relatively easier to raise prices and have that flow through into the system. On mass capacity drives, generally speaking, we do the price increases through transitions of products. So we’ll say this is the changing economics. We need to make sure that we get paid for that. So as we go through the next product generation, there’s still a TCO benefit to the end customer to drive through that product transition. But the economics have to change largely. So we can go back and pay our suppliers and keep everybody healthy. There’s been such a profound downturn in demand that we have to make sure that the entire supply chain is treated properly. But exactly what you said, different markets are behaving very differently and accept things very differently. And this is the direction we’re pushing at this point. Gianluca Romano: Yes, on the cost side, Wamsi, and on the production, that is of course driving under-utilization. Now, we had a little bit higher production in the June quarter, mainly on the wafer side and little bit on the media, but I would say more on the wafer, we will no need to do that level of production right now. So general utilization charges that declined in the June quarter from almost $80 million to $40 million, it’s probably going up a little bit in September. We estimated about $70 million, but of course through the quarter, that could change a little bit. Wamsi Mohan: Thank you so much. Operator: The next question comes from Timothy Arcuri with UBS. Please go ahead. Timothy Arcuri: Thanks a lot. I also had a question on pricing and sort of how you think about it versus market share. We’ve heard examples of you raising prices 10% to 15%. It’s obviously a little bit counterintuitive and such a soft market. So I guess two questions. One, how are customers reacting to that? And then also, are you willing to lose share as you kind of look out? Is there like a line in the sand on share that you’re going to draw where, you wouldn’t raise pricing if you lost share? Or are you willing to lose share to get pricing reset to a more susceptible level? Thanks. Dave Mosley: Yes. Thanks, Tim. So, yes, you are right. It’s a weak demand environment. But I think also there’s, generally speaking, the whole industry is underwater. So I mean, we have to make sure we protect ourselves, we protect the supply base as we talked about earlier. And it’s different in different products across the market obviously – the different markets obviously. How is being accepted? There’s – you can imagine the entire monopoly of different responses. Some people are worried about supply longer term. They do believe that supply will be short and demand will come back. And so – and especially with the long, long lead times that there are on mass capacity products right now, I think it’s something that people are very much in tune with. And so it’s forcing good discussions. There’s other people for various reasons that need to make tactical procurement decisions and they’ll take whatever deals are out in front of them. And I get that. I mean, that happens from time to time in the business. That’s one of the big reasons why we don’t want to overbuild, we want to make sure, we hold as much as we possibly can. And as we continue to play this forward, I think we’ll see and adjust accordingly to make sure that we defend our products. I think the optimism for us is that we can actually go through the product transitions, get to the higher capacity points, provide a better TCO proposition, get components out of the supply chains and so on. And then, we didn’t dilute or extend the problem any by overbuilding or dilute the problem by continuing to overbuild and then lowering price. And that’s what we have to hold onto. Operator: The next question comes from Erik Woodring with Morgan Stanley. Please go ahead. Erik Woodring: Awesome guys. Thanks for taking my question. Now, Dave, I just wanted to ask if you could flesh out the comment you made in your prepared remarks about the timing of a demand recovery being delayed by AI investments. Just in the context of you talking about market conditions weighing on demand through December. Are you telling us we shouldn’t expect sequential growth in capacity shift until calendar 2024? Just if you could help us connect some of these dots that’d be great. Thank you very much. Dave Mosley: Thanks, Erik. Yes, and I think I mentioned in one of the earlier comments that it’ll be slight capacity growth, but the way I read through most of the results that have already – are already coming through in the cloud, and in most of my conversations as well, I think it’s fairly consistent that there’s priorities being put on data center infrastructure, new data center build out, power infrastructure that was already kind of – it was – things were biased that way instead of mass capacity stores, the mass capacity being something that would come later. And we all know about the great new capabilities that there are in some of the compute technologies and how those new technologies are being applied in new applications. So that’s AI and that’s a high priority for cloud service providers and people doing stuff on-prem as well. We think data follows behind that. Predicting it is going to be really tough, but we do think that that’s going to be a bow wave at some point. There’ll be competition for the data that actually feeds the AI engines, if you will, right? Right now there’s a big battle to get the AI engines up and running and show those applications as being meaningful. And I think that’s an interesting space to watch. Behind it there’s going to be a lot of data that actually has to feed those AI engines every day, every day, every day. And we think that’s mass capacity infrastructure net positive. Operator: The next question comes from Thomas O’Malley with Barclays. Please go ahead. Thomas O’Malley: Thanks for taking my questions. In the deck, you guys mentioned that you were extending your PMR platform into the mid to upper 20 TB capacities. Could you talk about where your original plan was to extend into the mid-20s and where that is now and why you made that decision? Thank you. Dave Mosley: Yes. Tom, there’s no real change. We’ve been talking about it, I think for about a year. We said we can get PMR into the mid-20s. And the product that we have now, let me – I’ll talk about it very quickly here. We believe that with SMR variants, it can get in the high-20s, the product is in the mid-20s, but it is highly, highly leveraged. It’s almost identical electronics and mechanics that takes us to HAMR. So it’s almost the same product, you swap out the heads and discs for HAMR and a couple other component changes that have to happen. So we’re going to get a lot of leverage from that. That platform has been planned for a long, long time. We called it a 10 disc platform in the prepared remarks. So I have a lot of confidence that we can solution PMR anywhere the customer wants to stay there in the mid-20s or we can go to HAMR variants with the same bag of parts or very, very similar bag of parts. I do think that there’s a lot of confusion out in the market. I’ll say that this way about what capacity point is it? 24, 25, 26, but there’s customers who need all kinds of different variants and I think that we confuse people frankly by kind of amalgamating all these things. All I will say is that I think those products that we have are very, very competitive in the market. Right now the issue is, if I had it, I’m not going to try to force it into the market, into a space that people don’t need the product simply because it poisons the well for that product, maybe two quarters out or three quarters out for when people do need it. And it would erode the value proposition for the HAMR products when they come. So we’ve got to run the business the way we are right now. Gianluca Romano: Yes. Let me add that just for clarity, when we say the mid-20s is in the CMR version, if you go to the SMR version of that drive, of course, we are in the mid to high-20s. Operator: The next question comes from Aaron Rakers with Wells Fargo. Please go ahead. Shanye Hudson: Aaron, sorry, we can’t hear you. Aaron Rakers: Yes, guys, sorry about that. Thanks for the question. I just wanted to unpack some of the kind of considerations we should be thinking about in terms of gross margin as we move forward. Appreciating that you’re not guiding explicitly, but I guess first of all, if I look at the pricing discussion, based on the math it looks like your mass capacity dollar per terabyte was up by about 10% sequentially. I guess as we look forward, should we be thinking that the ASP on that basis continues to trend higher? Or how much of that capacity shift have you already kind of imposed price increases upon? And then also, when we look at the capacity shift in total with a 25% reduction in production capacity, do we take prior peak capacity shipment levels and take 25% of that? And that should be a level for which you think you would get back to kind of that 30% gross margin level? I know there’s a lot in that, but I’m just trying to think about some of the variables, looking out just not this current quarter, but beyond. Dave Mosley: Thanks, Aaron. I’ll give it to Gianluca to answer. I think as I look in at the tactics of what’s going on right now, I think it’s dangerous to say what changed quarter-over-quarter and extrapolate from there. You can draw straight lines, but I’m not sure that – like whether we take a deal at the end of a quarter or not is a good way to think about what’s going to happen over the long haul. We’ve said that pricing needs to go up or stabilize, depending on the different capacity points, the product transitions that we’re going through, whether or not suppliers still want to stay around for a certain product line. I mean, there’s a lot of different things to unpack there, to your point. Relative to our manufacturing capacity, we talked about 25%. Of course, that’s not perfect across every single factory we have, nor is it perfect across the supply chain. And we’re only as good as our weakest link. We have to make sure those weakest links are still well cared for. And so that’s largely what’s driving that. The ability to go put that capacity back online would – is severely hampered because it’s not just the capital, if you will, that we haven’t invested in enough for peak capacity, but it’s also the people we’d have to bring back. I mean, unfortunately, our people and a lot of people in the supply chain have been dramatically taken down. So do you want to add something, Gianluca? Gianluca Romano: Yes, Aaron, you were asking about the price per terabyte in particular in Q4. That is a result also of the mix. So we have a reduction in cloud. That, of course, is our higher capacity that usually has the lowest price per terabyte, but also the lowest cost per terabyte. And we have an increase in VIA. So mid-capacity drives with, again, higher price per terabyte and a little bit higher cost per terabyte. So there is a mix that is impacting, of course, when the volume is not very high. Just a few exabyte difference in the different segments can swing those price and cost per terabyte. Aaron Rakers: Thank you. Gianluca Romano: In terms of capacity, Aaron, the 25%, I would not take the peak of where we were probably more than a year ago. We have done a lot of restructuring, a lot of adjustments. And as they said, we will need time to eventually rebuild that capacity also in terms of employees. Dave Mosley: Yes. We don’t need to get back to the full capacity in order to get back into our margin model because we’ve taken so many cost actions across the business. I think we’ve been very, very aggressive on that, knowing that our footprint had to change. I think we’ll be able to scale much better from a margin perspective as some of the demand comes back. Aaron Rakers: Thank you. Operator: The next question comes from C.J. Muse with Evercore ISI. Please go ahead. Kurt Swartz: Hi, this is Kurt Swartz on for C.J. Thank you for taking my question. Open to delve into generative AI implications for both HDD and SSD demand. What is the perceived time line for storage demand uplift as data creation accelerates? And is there any concern regarding more workloads moving from HDD to flash within an AI data center paradigm? Thank you. Dave Mosley: Yes, thanks. I don’t think of things that way that people in data centers are not making decisions like you would make for example, if you’re building your own PC, this or that or this combination. Instead, they know how to manage data across multiple tiers and geographies very, very well. And make sure that the right data gets the right place at the right time. There are some gen AI discussions that are very transactional and probably don’t need a whole lot of HDD and then there’s a lot that are very video-intensive and want data to be sequestered in a certain tank and so that nothing else can touch it. And we believe that’s going to be that normal tier that you see today. So, I think it’s a win-win for memory and storage long-term. Obviously, it’s win for compute. And I think as some of these new applications are lit up, I’m really excited to see it. We haven’t seen it yet. I mean, unless you start to look back at some traditional cloud service provider capabilities and say that all along that was AI. But I do think there’s a whole host of new tools coming. It will be a very competitive space. And the data tiering infrastructure will become a critical part of that as we go forward. Operator: The next question comes from Karl Ackerman with BNP. Please go ahead. Karl Ackerman: Yes. Yes, thank you. I have two questions. First, I may have missed this, but why did average capacity per drive for the mass capacity area of your business shrink this quarter? And then second, I guess, how should we think about mass capacity unit growth from here? And where do you believe we are in the replacement cycle and whether that should continue to elongate or whether that returns to some form of normal from a unit perspective? Thank you. Dave Mosley: Yes, thanks, Karl. So the – we are not overbuilding, especially the high capacity drives are trying to push out into some of the cloud service providers. We’re waiting until the inventory actually goes down. And so I think that’s why, and I made reference to this earlier, that’s why some of the metrics may look weird, like you just pointed out on capacity per drive diving down. I don’t think that’s a long-term trend either. I think of course that’s going to go back up. Gianluca Romano: Yes. The average capacity is down because of mix. So as I said before, in the June quarter, we shipped less to cloud and more to VIA, and of course the capacity is much higher in the cloud business. Dave Mosley: I’m sorry, Karl, what was the second part of your question? Karl Ackerman: Yes, sorry about that. It’s about how we should think about mass capacity unit growth from here? And where do you believe we are the replacement cycle? Dave Mosley: Okay. Karl Ackerman: I asked because it appears your mass capacity unit shipments peaked in the first quarter of 2022. So it’s been about five consecutive quarters of a decline. At the same time, units are down over two thirds in that same period. And so if we could just discuss perhaps the corollary between units and exabyte growth, I think it’s relevant here would be helpful? Thanks. Dave Mosley: Good. There are hundreds of, sorry, hundreds of millions of cloud drives, if you will, in data centers around the world. And some of them are aging to your point. And if unit shipments go down, its exabytes can still go up even though unit shipments are going down because the ones that are aging off are lower capacity points, say fours, eights, 12 terabytes, whatever. But over time it’s much more efficient, actually it’s more efficient power-wise and for all a lot of other features system level features to put the newer drives on. So it’s about all these things in balance. And I do believe that unit shipments are down largely because of this inventory digestion that we’ve been talking about. That will turn, again, will it go back to the peak of where it was five or six quarters ago and how fast will it go back? These are tough questions for our customers right now. It comes down to their prioritization of their spend. But all indications are in the latest numbers. And if I think about these latest numbers that the cloud service providers are announcing versus where they were six months to nine months ago, there’s a very positive trend. And I think to the questions about GenAI and other feature sets, we’re not at peak cloud yet. So I do think it’ll come back fairly strongly from a unit’s perspective when it does. Operator: The next question comes from Tristan Gerra with Baird. Please go ahead. Tristan Gerra: Hi, good afternoon. A couple of questions. The first one is about the production cost curve, and if you could talk about the percentage decline per year that we should expect in a medium term on a per bit basis? And then second question about is the percentage of production that’s coming from China and also the true demand that you see from China as a percentage of your revenue? Thank you. Dave Mosley: I think, the relative – I can answer to China question first and then Gianluca can take the cost discussion. China is down quite a bit, but relatively as part of our portfolio, it’s about the same relative numbers that it was – even when it was the peak of the – of our portfolio. So, I wouldn’t overly analyze China versus CSPs versus consumer spending and all these other things that have affected our revenue downturn. I think it’s a fairly consistent number across the entire portfolio. And we’re looking for demand upswings in every one of those sections as well as we go forward. But we’re also managing the business really carefully because we don’t think it’s going to come back in the next six months like we said in our prepared remarks. Gianluca Romano: The cost per terabyte of course we don’t guide the full year. What I would say is in a down cycle it depends a lot from the level of utilization that you have in your factories, so can vary a lot from one quarter to another quarter. In general, no we are continuing to do our product road map. And as Dave said, we have a new PMR product coming out soon, higher capacity, that means lower cost per terabyte. And then we will have HAMR in just a couple of quarters, so all those new products will help us in reducing the cost per terabyte. Dave Mosley: Right. I like our chances in the cost per terabyte arena going forward. And I think as we continue to work yields and scrap on these new products and so on, have the highest capacity points out there, have the ability to take that aerial density to lower capacity points as well, it helps our cost per terabyte immensely. Tristan Gerra: Great. Thank you very much. Operator: The next question comes from Mehdi Hosseini with Susquehanna. Please go ahead. Mehdi Hosseini: Yes. Thanks for taking my question. A couple of follow-ups. Given your lower OpEx missed around to 160, how should I think about scaling, especially on the revenue side before you would need to increase OpEx materially? Dave Mosley: Yes. Mehdi, I think we can hold the line on where we are right now and get a lot of scale. I mean we’ve been through the product transition far enough on the PMR product and HAMR product that we can – we’re pretty much done with the development phases, all the experimentation and so on and so forth. So I don’t think we need to grow OpEx until we build back quite a bit of revenue and so we’ll get very efficient scale there. I appreciate the question. Mehdi Hosseini: Sure. And then for Gianluca, should I assume that free cash flow would be down in September and then up in December? Gianluca Romano: Well, in general, no, we have generated good free cash flow through all our quarters. I said in the prepared remarks, September would be a little bit lower because we have to pay for the restructuring charges that we executed in end of June and during July. Mehdi Hosseini: Right. Gianluca Romano: But we also said we expect every quarter to be positive. Mehdi Hosseini: Negative, just sequentially, down in September and then rebounding in December on a sequential basis? Gianluca Romano: Yes. Better, yes, better point. On the OpEx maybe, I want to – I just clarify, we don’t have variable compensation right now in our numbers. So we could have a little bit of increase in the future if the business comes back stronger, just a little bit, not much. Mehdi Hosseini: Got it. Thank you guys. Operator: The next question comes from Mark Miller with The Benchmark Company. Please go ahead. Mark Miller: I’m just wondering if, it sounds like the PMR is going further than I originally thought it would be. Is this a change? Or was that always in your plan? Dave Mosley: It was always in the plan. Yes. I think, Mark, we’ve kind of been focused on 16, 20, 24 and bringing on the technology that way. We believe we have great heads of media on PMR. It’s getting towards the top end of the curve, right? So it’s harder and harder to squeeze things up. And we’ve worked really hard to make sure that the drive that was taking us there would also take us to HAMR. So we’re leveraging as much as we possibly can and then only changing the aerial density critical components that get us the area of that to get us into the 30s and building much more confidence on that new S-curve actually as time goes on. So I’m convinced there’s going to be 40 terabyte drives in the world, not too distant future. And we’ve talked about the capabilities of these things in the lab. We’re ready to go 5 terabytes per disk. So teams incrementally more positive every time. So that’s good. The teams are making progress. Mark Miller: Is there any specific technology advance that’s allowing you to push that now up to almost 30 terabytes? Dave Mosley: Sorry, you mean beyond HAMR? Mark Miller: No, I mean taking the PMR up to the high-20s in terms of terabytes, anything new in the technology and any breakthroughs or advancements? Dave Mosley: Well, we’re always working new readers designs that are applicable to go to 30 terabyte and 40 terabyte drives as well. It’s not only about the write [ph] technology, if you will. There’s – because PMR is implying the write technology. That’s right with the write, you know that. So it’s not a HAMR just versus PMR. There’s other technology things that are being worked. Technology vectors are being worked. But mid-20s is CMR, high 20s has been SMR, and there’s many different kinds of SMR variants for different customers. So I think you have to be a little bit careful with picking individual capacity points. And by the way, HAMR can use SMR as well on top of it. So when we get into the 30s, there might be that same kind of spread of capacity points because of how people are choosing to deploy HAMR in their data centers. Mark Miller: Thank you. Operator: The last question today comes from Vijay Rakesh with Mizuho. Please go ahead. Vijay Rakesh: Yes. Hi, just a quick two questions. Just when you look at HAMR, obviously ramping well, any way of looking at what the exabyte mix would be as you look at calendar 2024 or even calendar 2025? Dave Mosley: Yes. I do think that as we – and this is a delicate balance between the capacity we’ll still have to make drives, the lead times associated with those big drives and the economic returns that we’re going to be getting, so how many do we start now, how many parts do we start now to be able to answer that. But theoretically, with HAMR allowing us to jump quite a bit in exabytes per box, if the demand is strong enough, then the exabyte growth will be strong, very strong. So a lot of this first order driver is still demand, we’re going to answer that call with the components that we have. We’re very much leaning into the product transition on HAMR because we have that much confidence. I think the customer’s qualification is going well and the customer interest is high because they see such a market TCO proposition as well. And if all that stuff lines up into good box demand like somebody asked earlier, that means good exabyte growth. That’s what we’re all hoping for. Vijay Rakesh: Got it. And then on the data center inventory side, any way to kind of gauge how much – how many weeks of inventory is still there? And how that compares to the prior terabyte I guess, in data center inventory or... Dave Mosley: Right. It’s not an exact science. I would say we have evidence that it’s going down, not only that’s what people are telling us, our customers are telling us, but also we’re not putting any in. So definitely, the Seagate inventory is going down. We’re even managing our owned inventory down as well; I can’t speak for the rest of the industry. But all indications are that things are getting healthier and – but we don’t think that it’s going to be fixed overnight. We think it’s going to take another couple of quarters before the upturn. And that’s something that I’m very cognizant of. We didn’t project originally going into this downturn that this would be this long, but I don’t think it’s going to last forever either. I think it will turn north again here. We just basically said not until the end of the calendar year. Vijay Rakesh: Got it. Thanks a lot. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Dave Mosley: Thanks, Betsy [ph]. As you heard today, Seagate is continuing to take proactive actions to navigate this tough business environment over the near term. However, we remain excited as ever for the long-term opportunities for mass capacity storage, and it’s brought about by existing and emerging trends that are underpinned by data like AI, like we talked about today. Our leading technology road map positions us really well to address future demand and enhance value for both our customers and for Seagate’s financial performance. I’ll close by thanking all of our stakeholders for their ongoing support. Thanks for joining us today. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

Operator: Welcome to the Seagate Technologies Fiscal Third Quarter 2023 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Shanye Hudson of Investor Relations. Please go ahead. Shanye Hudson: Thank you. Hello, everyone, and welcome to today's call. Joining me are Dave Mosley, Seagate's Chief Executive Officer; and Gianluca Romano, our Chief Financial Officer. We posted our earnings press release and detailed supplemental information for our fiscal third quarter 2023 results on the investors section of our website. During today's call, we'll 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 that was filed with the SEC. We've not reconciled certain non-GAAP outlook measures because material items that may impact these measures are out of our control and/or cannot be reasonably predicted. Therefore, a reconciliation to the corresponding GAAP measures is not available without unreasonable efforts. Before we begin, I'd like to remind you that today's call contains forward-looking statements that reflect management's current views and assumptions based on information available to us as of today and should not be relied upon as of any subsequent date. Actual results may vary materially from today's statements. Information concerning our risks, uncertainties and other factors that could cause results to differ from these forward-looking statements are contained in our most recent Form 10-K and 10-Q filed with the SEC, our Form 8-K filed with the SEC today and the supplemental information posted on the Investors section of our website. As always, following our prepared remarks, we'll open the call up for questions. With that, I'll now turn it over to you, Dave. Dave Mosley: Thanks, Shanye, and hello, everyone. Seagate's March quarter revenue came in at $1.86 billion, just above the low end of our guidance range, while we reported a non-GAAP loss of $0.28 per share. These results reflect rising economic uncertainties and an elongated inventory correction that impacted demand among a few large customers late in the quarter. As a result, we've altered our outlook regarding the timing and trajectory of recovery to now begin later in the calendar year. In response to the current market environment, we are taking aggressive actions to further reduce costs and rightsize the business to navigate this downturn and position Seagate to thrive when recovery ultimately comes. Beyond this cycle, we remain excited about the long-term opportunities presented by the secular growth of data and the relevance of mass capacity storage as new data-centric applications emerge and more workloads migrate to the cloud. We continue to make strong progress on our industry-leading technology road map, including launching HAMR-based products this quarter, which we believe put us in outstanding longer-term position. In my remarks today, I will share some perspectives on the current market dynamics, provide greater context on our restructuring initiatives and update you on our product plans. First, let me address the settlement we announced with the U.S. Department of Commerce, Bureau of Industry and Security, or BIS. The agreement resolves BIS' allegations regarding Seagate's sales of hard disk drives to a certain customer between August 2020 and September 2021. Under the terms of the settlement agreement, Seagate has agreed to pay a total of $300 million in $15 million quarterly installments that will take place over the course of five years. I want to emphasize that Seagate maintains its strong commitment to export compliance, and we believe that we comply with all export regulations at the time we made the shipments. However, in working toward a mutually acceptable solution with BIS, we balance factors such as the risks and cost of protracted litigation involving the U.S. government, the size of a potential penalty, which could have been a significant multiple of the settlement amount, and our desire to focus on current business challenges and our long-term business goals. We believe the outcome we have reached and putting this matter behind us is in the best interest of our customers, shareholders and other stakeholders. Turning now to the near-term business environment. For the past year, Seagate has been navigating a complex market shaped by a few primary factors. Inventory digestion among our large cloud customers that is impacting our nearline business, lower economic activity in China owing to the country's COVID lockdown policy and weakening macro conditions that initially impacted consumer demand and is now affecting all end-markets. These pressures have been compounded recently and weighed on our end of quarter dynamics. In the nearline markets, CIOs are now facing constrained IT hardware budgets, which has raised the bar for projects to get funded and resulted in efforts to optimize existing workloads, both on-prem and in the cloud. In turn, cloud service providers have focused on maximizing utilization of their existing infrastructure rather than deploying new capacity. The combination of these factors dramatically slowed the pace of cloud customer inventory consumption, and led to the pronounced slowdown in cloud and enterprise storage demand that we experienced exiting the March quarter. However, we don't foresee a strategic shift in customer spending patterns or a change to what remains a robust long-term outlook for cloud storage. Digital transformation trends will continue as enterprises realize significant cost benefits and operational efficiencies by transitioning workloads to the cloud. Industry analysts have observed that once applications and workloads are moved to the cloud, they generally stay there and grow. Digital workloads rely on data, which bodes well for mass capacity storage as the number of new cloud workloads multiply every year. Within the China markets, customers remain constructive on their end market demand outlook as the economy continues to reopen. However, rising macro uncertainties are pushing timing for recovery to begin later in the calendar year. Despite the pushout, we are seeing some positive demand movement in the consumer and service sectors after COVID lockdown restrictions were lifted. These trends support a digital economy growth that bodes well for China cloud demand as growth in consumer demand has historically led to revenue growth for regional cloud customers. Within the VIA markets, future demand pickup is based on two factors. First, you will recall that several existing VIA projects were delayed during COVID lockdowns. Customers expect these projects to gradually resume as the economy reopens in the coming months, which will consume the existing HDD inventory that was earmarked for these projects. Second, we expect new smart city and smart manufacturing initiatives to build momentum as government funding and enterprise budgets free up and the global economy improves. In this dynamic environment, we are continuing to manage what is within our control. In late March, we extended the first phase of our restructuring efforts to adjust our factory headcount to align with lower production volumes, realized efficiencies across various operational support functions and reset our live edge to cloud business plans. We are scaling back new investments in Lyve Cloud as we focus on filling our existing infrastructure. We expect to drive operational and cost synergies across all platforms to accelerate time to profitability while growing the business over the long term. Since fiscal Q1, we've taken more than $150 million out of our cost structure, lowered debt by 5% and significantly reduced manufacturing capacity. Given the prevailing market conditions and our reduced near-term demand outlook, we are undertaking the next phase of restructuring actions targeted to yield at least an additional $200 million in annualized savings from both COGS and OpEx as well as implementing temporary cost savings measures, including salary reductions. We are taking a programmatic approach focused on three key areas: first, we are reassessing the levels of production output and functional support required to meet both near- and long-term business needs. These actions are intended to ensure that supply and demand are appropriately balanced. Second, we are simplifying our product road map to create operational efficiencies. We plan to reduce the number of drive configurations and major capacity node transitions to lower supply chain and manufacturing costs and complexity. We're taking these actions in concert with our customers who can also capture cost benefits from fewer product qualifications. Finally, we will continue prioritizing resources towards higher-return products and end markets, while rationalizing support levels and investments aimed at noncore businesses. Our goal is to emerge a stronger, more agile company able to navigate well in all demand environments, return to profitable growth and preserve our technology leadership momentum. To that end, we have not let up on executing our HAMR-based product road map to preserve our significant time-to-market advantage. We are tracking well to our stated plans and achieved the key milestone last week of shipping initial qualification units to a cloud launch partner, and we expect to recognize initial revenue from 30-plus terabyte platforms this quarter as part of our Corvault system solutions. The decades of development that have led us to HAMR productization are even more important today as highly cost-efficient, mass capacity storage will be a competitive enabler in a world where data is rapidly growing and increasing in value. We believe HAMR will further extend the large and sustainable cost advantage multiple compared to other storage media, even with current market prices. Additionally, Seagate's ability to service this growing demand through areal density gains by increasing capacities from three to four to five terabytes per disc or more provides far greater capital efficiencies compared with current PMR technology over time. We are confident in Seagate's ability to translate areal density leadership into the most advantaged TCO across a broad range of customers from the highest capacity drives used in cloud data centers to lower and mid-cap drives more typically used by enterprise and VIA customers. We currently expect the high-volume ramp to begin in early calendar 2024, depending on customer qualification time lines and prevailing macro conditions at that time. Tactically, we are very focused on realizing our targeted savings which, along with an improved demand environment, should create the foundation to move towards our targeted financial model. And as we transition to our strategically vital HAMR platform, we believe that we are positioning the Company to drive differentiated financial performance for Seagate over the long term. Thanks. And now I'll turn the call over to Gianluca. Gianluca Romano: Thank you, Dave. Amid intensifying economic uncertainties, we saw a rapid decline in demand in certain parts of the business over the last couple of weeks of the quarter, pressuring supply-demand balance. These factors, along with underutilization charges and tax expenses weighed unfavorably on profitability. For the March quarter, we reported revenue of $1.86 billion and non-GAAP losses of $0.28 per share. Despite these conditions, we generated free cash flow of $174 million, demonstrating our ability to maintain discipline and strong cost control measures. In response to the near-term business environment, we have and we will continue to evaluate and take steps to improve our cost structure and strengthen our balance sheet as evidenced by the expansion of our restructuring efforts, which we announced in the late March. Exiting the June quarter, the actions that we committed to and taking charges for are expected to deliver cost savings of $40 million to $45 million annually, with roughly 60% realized in cost of goods sold. As Dave described in his comments, we are taking additional actions to further improve our cost structure, targeting at least $200 million of annualized savings exiting fiscal Q1 2024. Now turning to the end markets. Total hard disk drive revenue declined 4% sequentially to $1.6 billion. Mass capacity revenue remained essentially flat quarter-over-quarter at $1.2 billion, but lower than our expectations due to more prolonged cloud customer inventory adjustment and slower demand recovery in China. Shipments into the mass capacity market totaled 104 exabytes compared with 97 exabytes in the December quarter. Consistent with the prior quarter, roughly 83% were derived from nearline products shipped into cloud and enterprise OEM customers. Nearline shipments of 87 exabytes were up 9% sequentially, driven by growth in 20-plus terabyte drives. As a percentage of our nearline exabytes shipments, 20-plus terabyte capacity drives has grown from high single digits to approximately 2/3 of our nearline exabytes year-over-year, reflecting our customer of higher density storage for their data center needs. Looking ahead, we expect nearline exabyte shipments to decline over the next couple of quarters as cloud customers intensify their efforts to reduce inventory and improve the productivity of their existing infrastructure. Specific to the VIA market, revenue declined sequentially, largely as expected. As we outlined earlier, based on interaction with customers, we expect gradual recovery in the second half of the calendar year. Within the Legacy market, revenue was $371 million, down 12% sequentially, reflecting a steeper-than-anticipated decline in mission-critical sales amid a more cautious spending environment and weakening server demand, while the client and consumer markets reflect the typical seasonal demand patterns. Finally, revenue for our non-HDD business increased 14% sequentially to $256 million, a bright spot for the quarter. As anticipated, we grew sales for our enterprise system as component supply constraints continue to improve and we expand our market coverage. Moving to our operational performance. Non-GAAP gross profit in the March quarter was $347 million reflecting lower revenue and a less favorable mix than what we anticipated. Underutilization cost of approximately $75 million, similar to the prior quarter but higher than we were originally forecasting as we delayed the start in production to later in the quarter, as noted at the recent investor conference. Accounting for risk and underutilization cost, which translates into more than 400 basis points of margin headwind, we recorded non-GAAP gross margin of 18.7% compared with 21.4% in the prior quarter. Based on our current outlook, we expect underutilization costs to improve in the June quarter, even if production output remained well below the year ago level. We expect both gross profit and gross margin to move higher as demand recovers towards the end of calendar year 2023 and our cost structure improvements are fully realized. We reduced non-GAAP operating expenses to $282 million, down $63 million year-over-year and $12 million sequentially. The year-on-year decline reflects our cost structure improvement actions to date, lower variable compensation as well as disciplined cost management. We expect non-GAAP OpEx in the June quarter to be similar to the March quarter. I would point out that our GAAP operating expenses for the March quarter included the $300 million reserve associated with the BIS settlement agreement and will be paid in quarterly installments of $15 million over the course of five years, starting in fiscal Q2 of 2024. We incurred non-GAAP tax expenses of $36 million in the March quarter. Our tax expense is largely based on a full year GAAP forecast by geography and allocated between the quarters based on expected profitability. We expect total non-GAAP tax expenses for fiscal year '23 to be approximately $45 million to $50 million. Based on diluted share count of approximately 207 million shares, GAAP loss per share for the March quarter were $2.09, which reflects the reserve that I mentioned earlier. Non-GAAP loss per share was $0.28. Moving to balance sheet and cash flow. We ended the March quarter with liquidity level of approximately $2.5 billion, including our revolving credit facilities. Inventory was relatively flat sequentially at $1.2 billion, consistent with our plans. We reduced capital expenditure to $54 million in the March quarter, down 22% sequentially. We expect CapEx to remain relatively flat in the June quarter. Free cash flow generation was $174 million, up slightly quarter-over-quarter and reflecting our ongoing focus to optimize free cash flow. We currently expect to generate positive free cash flow through calendar year 2023, dependent on the timing of restructuring costs. We used $145 million for the quarterly dividend and exited the quarter with 207 million shares outstanding. We are not currently planning to repurchase any share in the next several quarters, consistent with our near-term focus on optimizing cash balances. Our debt balance exiting the quarter was just below $6 billion, down $71 million quarter-over-quarter. Adjusted EBITDA for the last 12 months totaled $1.3 billion, resulting in a gross debt leverage ratio of 4.5x. Since fiscal Q1 of '23, we have reduced debt by approximately $290 million. In fiscal Q4, we plan to further reduce debt by approximately $550 million. Interest expense in the March quarter was $81 million, and is expected to be similar in the June quarter. Turning to our outlook. In the context of the market challenges that we have outlined today, we expect the June quarter revenue to be in the range of $1.7 billion, plus or minus $150 million. We project incremental decline in the mass capacity business mainly driven by customer focus on inventory drawdown in our nearline cloud market. At the midpoint of our revenue guidance, we expect non-GAAP operating margin to be in the low to mid-single-digit range, which includes between $50 million and $60 million in underutilization cost, and we expect a non-GAAP loss in the range of $0.20 plus or minus $0.20. I will now turn the call back to Dave for final comments. Dave Mosley: Thanks, Gianluca. The past year has presented a set of challenges that have impacted Seagate and our industry to a degree not seen for more than a decade. As our outlook and commentary today demonstrate, we believe that we are still a couple of quarters away from seeing a positive turn in demand for data storage. However, there are a few key takeaways that underpin our confidence in the business and our long-term potential. We are aggressively managing through this environment and taking appropriate actions to generate positive free cash flow, strengthen our balance sheet and enhance future profitability, all while executing our technology road map. To that end, we have continued to prioritize investments on our HAMR product road map. These drives offer the highest density, most cost-efficient mass capacity drive storage, which we believe translates into a competitive advantage for our customers, and we are focused on driving appropriate returns for the value we are delivering. And we continue to receive indications from our customers that demand will pick up as the global economy improves. The secular drivers powering long-term demand for storage are intact, and this fact is at the root of the conversations we're having with customers across our key markets and geographies. I'd like to thank and recognize our global team for your resilience and perseverance through this challenging period. We are keeping our heads down and aim to make continued progress towards our goal as we move closer to market recovery. Thanks again for joining, and let's open up the call for questions. Operator: [Operator Instructions] Our first question will come from Erik Woodring of Morgan Stanley. Erik Woodring: Dave, can you maybe help us understand kind of as we sit here today, what gives you the confidence to kind of talk about a recovery towards the end of the calendar year? I guess what I'm hearing from you is a worsening of demand in the last few weeks of the quarter, greater macro concerns amongst customers, obviously, challenges in the nearline market. And so like what data points are you seeing today? Or what are customers saying to you that gives you the confidence that the recovery will happen towards the end of the year as we sit here today? And then I have a follow-up. Dave Mosley: Yes. Good. Thanks, Erik. As you alluded to, we've been anticipating a return to exabyte demand growth in the nearline for a few quarters, but what we saw coming out of the last quarter still reflects that there's too much inventory against just a very slow near-term mass capacity demand. I would say that the customers are spending money. They're not necessarily spending money on mass capacity storage right now, they may be spending on compute or other investments that they're choosing to make. And then as we look through into their data center behaviors, if you will, we're somewhat encouraged that the data continues to grow. So in the data centers, the drives that are in there are being strongly utilized. There are some drives that are living a little bit longer in data center applications, but there's also really compelling value propositions we're putting in front of them with higher capacity drives like 30-plus terabytes and new features that are coming that should drive adoption, and we should get a refresh. So as all of these things need to be factored into our planning, they're all important. But the most important thing right now is this reflects kind of our sentiment coming out of last quarter is we don't want to push too much in, especially the older technology products. We want to really stage ourselves for the new technology products and make sure that, that inventory flows through. Timing is everything, exactly to your point. But I do think with the way data is growing, the evidence that we have, the data is growing. Even anecdotally, I can talk about Seagate's IT, we can see the data growing in the cloud much further than our projections were a long time ago, and this is fairly consistent with discussions that I have with CIOs and other fellow travelers. I do think that we're not at peak cloud or anything like that. I think the cloud applications are growing tremendously in data size, and it's just a prioritization issue that we're in the middle of right now. So we just focused on taking actions to further manage the downturn like cost and footprint and still to keep driving the technology leadership so we're there when markets recover. That's how we think we can create the best foundation to quickly move back into the targeted financial range when the demand resumes. Erik Woodring: Okay. And then I guess, Luca, I know you mentioned talking about paying down the $540 million maturity in June. But can you maybe just help us understand some of your sources and uses in cash over the next, let's call it, 6 to 12 months, how you're thinking about your liquidity situation, just given your leverage is kind of quickly kind of creeping up towards that 5x number. And then, for example, how are you thinking about the stability of your dividend, any potential drawdown of your revolver, adjustments to covenants? Maybe if you could just unpackage that a bit, that would be helpful for us. Gianluca Romano: Yes. Thank you, Erik. Well, we renegotiated our covenants in the December quarter. We have paid down already a big part of our debt between December and even the March quarter. As you said, we already discussed about the repayment coming in June about $550 million. So we are very focused on reducing the debt as to the leverage. We are generating free cash flow -- positive free cash flow every quarter until now. So part of that free cash flow is also going to help with the repayment of the debt. We have other sources that we are looking at. One of those that we discussed in the past is some sales and leaseback of nonmanufacturing buildings that we are working on right now. So all this will help with our debt covenants. And if we need to do more, we can do more. Operator: The next question comes from Tom O'Malley of Barclays. Tom O'Malley: I just wanted to dive a little bit into the dynamics of the full year. I think you just said that you expect some declines in nearline for the next several quarters. Just given the size of how big that end market is for you guys, do you expect any sequential growth for the remainder of this calendar year? And if so, are you getting that with about a VIA market or a recovery in Legacy? Can you just walk through the puts and takes of total revenue and when you may see that inflection given the new outlook? Dave Mosley: So a few points. I would say that the next quarter will be fairly muted as what we just described. I do think that there will be exabyte growth as we -- I'll say, late in this calendar year as we get towards the end of the calendar year. That comes from many cloud service providers in the world that are getting through their digestion phase, if you will. Because again, there's a lot of data that we get from them about utilization rates being high inside the data centers and data continuing to grow. So I do think this is going to be over at some point. Relative to the VIA markets and maybe the broader macro, we're not really calling the end of any macro uncertainty as part of this, but we do think that some of the investments that have been put off and put off for quite some time may actually come back at the -- towards the back half of the year. So there's positive sentiment. It hasn't translated into POs yet, but that's the way we're feeling about it. And only one other point that I would make there is that inside of the cloud workloads that we see, the data growth is actually fairly profound. So I think people can make trade-offs with older drives that they have running and throwing data away and things like that, but at some point, the world runs out of gas. We all know it's -- we're creating more and more data all the time in the form of videos and communications and AI and things like that are all going to need the data. So we're just really focused on making the space for it. I don't think the world can deal with this kind of supply and demand imbalance for very long, but we need to take the actions that we are taking on the supply side to make sure that we're not waiting too long. Tom O'Malley: Got it. And then the second one is for Gianluca. Just on the gross margin side, underutilization charges went up slightly quarter-over-quarter, and you kind of laid out what the charges would be for the guided quarter. But in terms of the impact to gross margin, gross margins are down substantially more than the impact on the map that I'm doing in underutilization. Obviously, there's some revenue impact as well. But could you talk to -- is it just mix with VIA being a bit higher in mass capacity? Is there any pricing pressure that you're seeing from the nearline customers? Could you just walk through why you're seeing more gross margin pressure than just the underutilization charges? Gianluca Romano: Yes. Thanks, Tom. So I would say the March quarter, of course, has some mix impact also. For example, mission-critical was sequentially down. And as you know, it has a good gross margin generation. VIA was also sequentially down. So we had a couple of segments that are, let's say, above average gross margin in March because of seasonality we're down. So we see that recovering actually in the June quarter. As you said, there is also some pricing pressure, especially through the end of the quarter with no certain customers. We decided to take some of those deals, and we decided to take -- not to take other deals. And so this is what we are focusing on, trying to keep a supply-demand balance where we can. This is why we are doing another restructuring action. We want to keep the capacity that we have internally aligned to the short-term demand and then, of course, in the longer term, keeping that balance in a way that there is not too much pricing pressure to Seagate and to the industry in general. Dave Mosley: Tom, I would add on to that. Just you can see the pricing stress in the -- fairly readily in the dollar per terabyte trends. And so that's why we have to be very discerning about what deals we're taking. But I think it's reflective of a world where manufacturers are just trying to convert inventory back to cash as quickly as they can. And our answer long term has got to be don't build too much so that we don't get ourselves into that position and then focus on a transition to a more substantial value proposition like higher capacity or lower cost like VIA, the areal density gains that we might have and we apply that to lower capacity drives, just in order to rebuild the margin for ourselves and for the industry. Operator: The next question comes from Wamsi Mohan of Bank of America. Wamsi Mohan: I was wondering if you could just maybe talk about the outlook and pricing as well. It seems like your time line for nearline demand recovery is kind of late in the year, HAMR shipments starting like in volume, maybe early next year. In the interim, clearly, like memory pricing, NAND demand, NAND pricing has been also under significant pressure. So would you say that -- as you're thinking about this comment about gross margin improvement as you go through the course of the year, is that predicated on stable pricing, improving or worsening pricing? Any color you can share? And do you think that, that pricing environment could deteriorate a lot more as you go through the course of the year? And I'll follow up. Dave Mosley: I'll let Gianluca talk about the restructuring because I think that's a significant part of your question. But I would say relative to the pricing environment, this is really where -- we believe we have good products that 20 terabytes to mid-20 capacity points and not -- there's not great demand right now, but we have good products that we can yield and so on. The way out of it, of course, is to continue the areal density gains into the mid-30s and we get the chance to reset things a little bit. From my perspective, the demand environment is so low that the way pricing becomes more strained is when we overbuild. And so that's what we have to make sure that we don't do because we can't continue to stress ourselves and our cash that way. So we just have to wait this thing out a little bit. So Gianluca, if you want to talk about the first part. Gianluca Romano: Yes. A good part of the improvement in our gross margin starting fiscal Q1 is related to the restructuring actions that we are taking right now. We said it is about $200 million annualized savings. And it will be fully realized probably through the end of fiscal Q1. The plan is based on the current visibility of pricing. As you know, that can change. And we are trying to reduce our capacity so that we build the right level of products for the current demand, and we take out some pressure from pricing. Wamsi Mohan: Okay. Thanks for that color. And if I could follow up, Gianluca, on the comments around positive free cash flow for the remainder of the year. Your free cash flow and EBITDA levels have the potential to deteriorate from current levels. And when we look at that on an LTM basis, it does get you pretty close to your existing covenants. I know you mentioned certain actions that you can take on sale leaseback and other elements. But how should investors think about the dividend in this context, given that you have some cash restructuring charges coming up, you do have other uses of cash as well? I know you are paying down debt. But in the context of dividend, should investors think that's pretty secure as we go through the course of this year? Or is that going to be another lever to use to balance the cash sources and uses for you? Gianluca Romano: Seagate has always been very focused on shareholder return. As you know, we have suspended share buyback based on the current economic situation, but we have protected our dividend. We think we can reduce our leverage in the next few quarters or already discussed that leverage level with our banks. But I'll say until now, we have always protected our dividend. Dave Mosley: Yes. I'd say, Wamsi, that I'm proud of who we've been. If you look just over the last 15 years when we came up with some of the policies that we're talking about, I'm really proud of what have we been able to return value to shareholders. Times are tough right now. We have a lot of levers that we can look at, I think, over time. But we want to continue to be that company that we have been. So we're factoring this into all of our discussions right now what our priorities are, trying to keep the exact same priorities we've always had for shareholders. And one of the reasons why we're being really aggressive on the cuts that we are, we're also as aggressively trying to turn some of the assets that we have into cash. We'll continue to look at all those options. Operator: The next question comes from Timothy Arcuri of UBS. Timothy Arcuri: I had two. So Gianluca, just on free cash flow. So are you implying that it's going to be positive for the June quarter? Because you did extend payables a lot in March, and you'd probably have to bring that down maybe 25 days or so. So it seems like maybe June free cash flow could be quite a bit negative. So what's the message on June and particularly around cash flow? Gianluca Romano: We see June still a positive free cash flow. Of course, we need also to look at the exact timing of the payment for the restructuring actions. But in our plan, we have positive free cash flow for June. Timothy Arcuri: You do. Okay. Okay. Then I guess I had a bigger-picture question. So Dave, in your prepared remarks, you talked about some evaluation of the longer-term capacity needs for the business and that's kind of a new angle. And we've gone from a year ago, thinking that the industry didn't have enough capacity, and now we're thinking about having too much on a structural basis. So I guess, can you talk about that and maybe in the context of that, just given how low NAND pricing has gone, we're now basically at cash cost. Is there a risk that there's some cannibalization happening now in nearline? And sort of what's the TCO difference in SSD and nearline now and data center? Is that part of what's driving you to talk about maybe rethinking what the longer-term capacity needs are for the business? Dave Mosley: Okay. Let me address that second problem -- or the second question first. No is the answer to that question. I think we believe that some of the SSD pricing that we're seeing is unsustainable, fundamentally unsustainable. It might go on for a while, but it's unsustainable. So we're not really factoring that into our calculation for exabyte demand over time. I don't think -- even at the rates that we're seeing today, our ability to continue to take cost out and deliver more terabytes over time is going to keep us with a substantial gap to any competing technology. I will say that your question is super appropriate. It's -- over the last year, industry hasn't been putting on capacity. There are suppliers that we have that are unfortunately bearing the brunt of this and they're still assessing their own investments or consolidating the factories and things like that. So from an equipment perspective, there's less capacity than there was a year ago. But definitely, from a people perspective, there's less capacity than there was a year ago because of significant people takedowns, which we know is really hard and nobody wants to do, and that capacity can recover but not quickly. So if you start staring out a year from now, does the industry have the same amount of capacity that it did a year ago? The answer is no. Theoretically, it can grow back, but it's a matter of time and investment. And from my perspective, the biggest thing we're focused on is the lead times are so long on some of the starts, for example, wafer starts that we have for the new products that we're making sure the customers understand that it's not going to snap back and we better have discussions right now about what the true demand that they they're going to need fulfilled out there a year from now. In some sense, the kind of consumer behavior where you say, I don't need to buy any for a while and then I can go -- always go to the store and get some. That's the -- but I think it will be challenged because I think that's what a lot of enterprises are kind of assuming to make their models look okay right now. And that's why the factory workers are getting strained. But we're going to have to navigate our way through this and be as communicative as we can. I don't think the industry capacity is what it was a year ago. And I think if you don't tell us now, then it may actually be even more stressful for you a year from now. Operator: The next question comes from Aaron Rakers of Wells Fargo. Dave Mosley: Aaron, we can't hear you. Aaron Rakers: Yes. Sorry about that, guys. Can you hear me? Dave Mosley: Yes, yes. Aaron Rakers: Yes. Sorry about that. I guess I got two real quick. Dave, just on the heels of that last question, I'm just curious of if you're asked kind of the longer-term growth of nearline capacity shift trends, where do you think that is today? Like as we come out of this, do you think we -- maybe I will stop there. What do you think that long-term capacity shift growth trend looks like now? Dave Mosley: Yes. It's an interesting question because I think if we go back a couple of years, you remember there was a stall and then there was an enormous growth pop back. I think it's not going to happen like that again. I mean, from an exabyte perspective, if by that time, we're on mid-3 terabytes per disc or even potentially 4 terabytes per disc that our exabyte output is going to be significantly higher at better economics for us as well. But will we have enough capacity for everyone all at the time? I think the answer to that is probably no. So -- and I don't think we'll see the magnitude of the swing that we did before. Maybe we can't from theoretical demand, but I don't think there's going to be supply right now because of the stresses that are going on in the industry. And the fact that people just can't start materials, they won't have a whole lot of inventory, they won't have a whole lot of materials, they won't be leaning forward into some of those really great value propositions nearly as hard because they just can't do that speculatively on long lead times. So it's actually an interesting problem set versus what it was a few years ago. Aaron Rakers: Yes. And then the follow-up question, just trying to think about gross margin kind of normalizing itself or, I guess, taken another way, if we kind of think about the progression of lifting out the underutilization charge, appreciate you're not guiding beyond this next quarter. But as I look back in time, when I look back and say, hey, if this model gets back to total capacity shipment levels of 150 exabytes a quarter, 130 exabytes a quarter. How do we think about that relative to lifting out the underutilization charges in the P&L? Gianluca Romano: Well, of course, it depends on what will be the capacity installed at that point. As you know, we are reducing capacity right now. So gross margin, what we see today for the next several quarters is despite the short-term decline in revenue, we guided in a way that is implying an improvement in gross margin already in the June quarter. So I think that will continue for the next several quarters. And of course, as Dave was saying before, demand weakened it and capacity will be at a certain level, and hopefully, supply and demand will be well balanced. And we have to manage this short-term demand decline. But again, we are ready to do it. We have done that in the past, and we think we know how to do it. Aaron Rakers: So underutilization charges continue beyond the June quarter through the back half of the calendar year? Gianluca Romano: We will have some, I think, also in September. But it is declining sequentially. Dave Mosley: And some of that is a reset to fixed and variable cost as well, Aaron. So I think as we look forward, we have to project what we think the supply that we'll need to meet that demand is, of course, and we'll be adjusting and trimming as need be. Operator: The next question comes from C.J. Muse of Evercore ISI. C.J. Muse: Yes. I was hoping to maybe drill down a little bit deeper on the nearline outlook. If you think about your vision three months ago versus today, obviously a change. And I guess I was hoping you could kind of isolate between cloud, enterprise and China and maybe rank order the change statements there in terms of the slowdown as well as from an end demand overall perspective versus just realizing that there's just too much inventory downstream, and that's what kind of caught you by surprise. So I would love to hear kind of maybe the moving parts there. And if you could prioritize what has really driven the change, that would be helpful. Dave Mosley: Good. Thanks, C.J. I think it is good to break it down in a few different pieces. The most relevant, obviously, is the major cloud service providers around the world, and there are a few different behaviors depending on geography and so on. If I think about the big applications in the cloud, they are growing a lot. I think right now, there are priorities being made on compute and their priorities being made on other investments. And then there's people questioning business models and all of that just takes time to sort out, but the data keeps growing. So I think that's largely what we're seeing. We would have forecast six months ago that we would be coming out of it by now, just based on all these trends and run rates, and I think people can always hold on for another three months or six months. They can't hold on much longer than that. So that's the way I think about the major cloud service providers. The difference -- but Mike, the subtle difference might be in China, where you've got cloud providers there that really have been kind of on a pause for quite a while and are starting to get a little bit more optimistic, again, like I said -- I alluded to earlier, not necessarily purchase orders just yet, but get a little bit more optimistic about their investments. And so that's a watch item for when that might come back. On the enterprise side, I know there's a lot of discussion about servers and other componentry. From our perspective, data does continue to grow on-prem. There are stressed budgets in the CIO's world today. But I think some of the offerings are actually pretty efficient right now. So I do think for totally different reasons -- well, unless you consider macro being the underlying driver of everything, I think the on-prem enterprise is going to take six months probably as well. I do think that there's not too much inventory there. So we've got anecdotal evidence that, that inventory has been well managed. And so if there's an opportunity to break north into some of those investments, we could go necessarily quicker. C.J. Muse: Very helpful. And I guess as my follow-up to Gianluca, thinking about liquidity. You talked about intention to pay down the debt that's coming due in June. Curious how you're thinking about gross cash? And is there a plan today to draw on the revolver? Or that's TBD depending on kind of the free cash flow generation into June and September? Gianluca Romano: No. I think our cash balance will be fairly stable at the end of the quarter compared to the end of March. So I don't think we need to use the -- we don't need to use the revolver. Now sometimes, we use a revolver during the quarter to cover for a few weeks. But in terms of cash balance, I think, it will be fairly similar to what we had at the end of March. Operator: The next question comes from Krish Sankar of TD Cowen. Krish Sankar: My first one is for Gianluca. Just wanted to follow up on HAMR. How much of a drag is it on margins today? And when do you think it will improve towards the corporate average? Is it just purely a function of volume in eve that helps you improve HAMR margins? And then is the long-term gross margin target still 30% to 33% baking in HAMR? Then I have a follow-up for Dave. Gianluca Romano: Yes. Well, I would say right now, we are very happy with how we are progressing with HAMR. As we said in the prepared remarks, we are shipping products for Qual, so right now, we don't have revenue coming from HAMR. So it's not really impacting our gross margin. But we think, of course, in the future, 3 terabyte per disk or 3.5 terabyte per disk and 4 terabytes per disk, those are very interesting propositions for our customers, and we think will be actually a very profitable gross margin improvement for Seagate, which is why this product is so important to us. And in general, in the longer term for the entire industry. Krish Sankar: Got it. Got it. Very helpful. And then a follow-up for Dave. Sorry, just to come back to this SSD versus HDD dynamic. I agree with you that the NAND prices are unsustainably low. But if you look at like the last down cycle, the SSD prices are almost 8x higher than HDD on a per gigabyte basis. Now it's more like 2x to 4x. So that gap is definitely closing. So I'm kind of curious, when you talk to your cloud customers, is it a bigger -- how does that discussion progress? And is that a certain part of your weak pricing per terabyte? Or is it part of your weak demand from cloud customers? Or I'm just kind of curious about it. Dave Mosley: No, I would say when you get into mass capacity, the highest capacity points, I don't subscribe to the notion it's 2x to 4x. I think it's significantly higher than that. And we'll have an ability to continue to drive to better and better value propositions as we add more capacity per drive through the transitions that we're talking about. So what I would say is that right now, demand is low for everyone. And so what you see, the dynamics you see is just manufacturers trying to take some of their cash that they've tied up in inventory and turn it back into cash as quickly as possible. And if you start to look and say that's below cost or something like that, hopefully, people stop doing that and try to look for other options. And that's exactly how we're thinking about ourselves as well, right, to make sure you don't build. So I think in that kind of environment, it's really hard to extrapolate on trends, exactly to your point, Krish. I think some of these other things that we're comparing against are unsustainable. They're going to have to re-equilibrate at some point. I don't know exactly when that is. The more we push into the value chains, the more we push inventory in there, the more people will build buffers and then continue that. So I think that's one of the reasons why from our not hole in defense, we've continued -- we've decided to really pull back on our builds and reduce our footprint. Operator: The next question comes from Toshiya Hari of Goldman Sachs. Toshiya Hari: I had one for Dave and then one quick one for Gianluca as well. So Dave, I know it's a bit of a black box, but I was hoping you could give kind of your assessment of nearline inventory -- or customer inventory in the nearline market relative to six months ago, 12 months ago, what's your view there? And when you compare and contrast what you're selling into the nearline space versus what's truly being consumed, what's the percentage delta at the moment? Dave Mosley: Yes. It's actually an interesting thing because if I normally talk about inventory like distribution channel inventory, for example, I'll look at weeks of supply or something like that. But then that's -- is that based on the last four weeks or 13 weeks? I mean, if we base things on a couple of years ago, the demand is low and there's not too much inventory out there based on the run rates of number of drives that were a few years ago. Even on exabytes, the demand is fairly low -- or sorry, the inventory is fairly low. But I will say that most cloud service providers need to have some inventory around based on the data center populations they're -- the new data center buildouts they're doing and the refresh the spares that they need and things like that. So they normally need to have a few months of inventory anyway. It's more than a few months right now, but it's not significantly more. And the gross number of drives is not huge, I think. So that's the way I think about it. The exabyte growth will be substantial coming some time and what we've got to do is just make sure we're not pushing any more into those chains. But I don't know if a good way to think about it is really three months or six months like we might want to say because if you go back two years historically on the number of drives that were being pulled by people, that's -- it's not really six months. It's probably more like 3. Toshiya Hari: Got it. And then any view on sell-in versus end consumption? Or is that too hard to really see. Dave Mosley: Yes, here's what I'd say is that we see a lot of the new drives, the higher capacity drives going into replacing lower capacity drives, obviously, but the lower capacity drives get put into other purpose applications as well. So I think drives are living longer, but there's still going to be demand for higher capacity drives, especially just the efficiency that you get out of that in the data centers. And then there's new data center buildout as well. So I actually think that this is not a problem of not needing any product. This is a problem of reshuffling priorities inside of the data centers and getting ready for the next level of data center expansion. Toshiya Hari: That makes sense. And then Gianluca, on gross margins, longer term, obviously, you've had this target of 30% to 33%, if I'm not mistaken. You're obviously significantly below that today, but as you think about the path towards your long-term model over the next four-eight quarters, given the reduction to manufacturing footprint that you're executing to, what sort of quarterly revenue run rate would you need to be at to be at that, call it, 30% range? I assume it's lower than where you were about a year ago, which was about $3 billion, a little bit below $3 billion. Gianluca Romano: Yes, of course, depends also from the mix and other factors. But as you said, we are taking a lot of cost actions. So what we also said last quarter is when we go back to the prior level of revenue that we picked at about $3 billion, we expect gross margin to be actually better than what it was at that time. So we are still confident in the medium and long term. We are taking actions to be even stronger when we come out from this down cycle. And we are executing our road map. We are executing all our cost reviews, and we think we are ready for the recovery of this up cycle when it comes. Shanye Hudson: And operator, I think we have time for two more questions. Operator: The next question comes from Sidney Ho of Deutsche Bank. Sidney Ho: Great. So I have two quick ones, one on the HAMR side. It sounds like high volume is starting in early '24 to your plan. Can you give us any goalpost in terms of when you expect to hit a certain unit volume on a quarterly basis and maybe when you expect HAMR to be gross margin accretive, and maybe at what kind of volume level? And I have a follow-up. Dave Mosley: Yes. I think Sidney, our gross margins are going to come back based on demand. I don't know that we can really break it out based on HAMR transition right now because there's so many other dynamics. But we are aggressively filling the pipeline full of the product, working on the yields and scrap that we need to get down. Very, very confident in the technology. So thanks for the question. I would say we'll hit what I'll consider a significant volume ramp in early 2024. And then we're going to continue to ramp from there because we have that much confidence. Sidney Ho: Okay. That's helpful. Maybe a follow-up question is on the demand side. It seems like you're more optimistic about the enterprise market as compared to the cloud market. Do you expect further correction in the enterprise market, maybe -- or maybe just a U-shaped recovery, considering comments from some of the storage OEMs seem to be quite subdued and it looks like they are just going through the domain collection in their -- it's still in the early stages for them. Dave Mosley: Yes. I think the only subtlety to your comment is I would say that my comments earlier were about inventory. There's just not too much inventory out there in those chains. So when we did start to see some recovery, I think there's room for the inventory to repopulate. I know -- to your point, I know that people are talking about a fairly subdued summer at least, maybe no recovery until the back half in there, and so we are watching that. I do think there's -- unlike some of the other markets where we look at maybe too much inventory to be digested, I don't think that's necessarily the case there. It's been managed better. Operator: The next question comes from Ananda Baruah of Loop Capital. Ananda Baruah: Just two quick ones, I'll ask them at the same time here. One might be more of a clarification. Dave, when you talk about you believe -- and it was the question about, I think, sort of sequential growth at some point later in the year. When you say towards the end of the year, you think demand will pick up again. Is that to say you think December quarter could see exabyte up sequentially. I guess, does that also mean the implications you think the September quarter would be down sequentially? And then I have a quick follow-up -- I'll leave that there and I have a quick follow-up. Dave Mosley: Yes. I think -- Ananda thanks for the question. I think it's a little too early to guide. I mean I think we're still, frankly, digesting. We're just telling people what we're building. I do think at some point, exabytes pick up, of course, right? And if we want to think about the December quarter or something like that, that's fine because I think there should be some pickup, barring any other macro issues or something, but it's too early to guide, I think, very specific. What we're doing right now is curtailing the build. Ananda Baruah: And the quick follow-up is on the BIS dynamics, is there a revenue impact we should take into account now as well with that invested? Dave Mosley: No, no revenue impact. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Dave Mosley: Thanks, Andrea. As you heard today, Seagate's acting with speed and agility to manage through a tough near-term market environment. At the same time, we're executing our strong mass capacity product road map that positions us to serve our customers and improve Seagate's financial performance. I just want to close by thanking all of our stakeholders for their ongoing support, and thanks for joining us today. Operator: The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.

Operator: Good day, and welcome to the Seagate Technology Fiscal Second Quarter 2023 Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Shanye Hudson, Senior Vice President, Investor Relations and Treasury. Please go ahead. Shanye Hudson: Thank you. Good afternoon, 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 second quarter fiscal 2023 on the Investors section of our website. During today's call, we'll 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 that was filed with the SEC. We've not reconciled certain non-GAAP outlook measures because material items that may impact these measures are out of our control and/or cannot easily be predicted. Therefore, a reconciliation to the corresponding GAAP measures is not available without unreasonable efforts. Before we begin, I'd like to remind you that today's call contains forward-looking statements that reflect management's current views and assumptions based on information available to us as of today and should not be relied upon as of any subsequent date. Actual results may differ materially from contained in or implied those by these forward-looking statements as they are subject to risks and uncertainties associated with our business. Regarding the matter raised by the proposed charging letter from the U.S. Commerce Department's Bureau of Industry and Security, or BIS, Seagate maintains that it has complied with all relevant export control laws and regulations. We've been cooperating with BIS and engaging in discussions with BIS to seek a resolution. Please note that we won't be addressing questions regarding this matter on today's call, but we'll provide additional updates as appropriate moving forward. To learn more about the risks, uncertainties and other factors that may affect our future business results, please refer to the press release issued today and our SEC filings, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q as well as the supplemental information, all of which may be found on the Investors section of our website. As always, following our prepared remarks, we'll open the call up for questions. Let me now turn the call over to you, Dave, for opening remarks. Dave Mosley : Thanks, Shayne. Good afternoon, everyone, and thanks for joining us today. Seagate delivered on what we set out to do in the December quarter, and I'm proud of our team's accomplishments amid this tough business environment. Revenue and non-GAAP EPS came in slightly above the midpoint of our guidance range and free cash flow generation increased by more than 50% quarter-over-quarter. We are managing well what is in our control and executed on the actions we outlined on our October call. We retired more than $200 million in debt, strengthening our balance sheet. We lowered operational costs by realizing a meaningful portion of the expected savings from our restructuring efforts. We reduced capital expenditures by more than 40% sequentially while still accelerating the launch and development schedules for new mass capacity products, and we adjusted our factory production output to support strong supply discipline as demand recovers. These actions, we believe, put Seagate on solid footing to weather the near-term industry dynamics while continuing to make the technology investments to meet our customers' evolving needs and thrive over the long term. Relative to market conditions, three primary external factors have been impacting our business over the past several months. The COVID-related economic slowdown in China, the work down of nearline HDD inventories among U.S. cloud and global enterprise customers under a more cautious demand environment and macro-related disruptions primarily impacting our consumer-facing markets. These factors remained at play during the December quarter and weighed heavily on the mass capacity markets, resulting in a 10% sequential decline in mass capacity revenue. Having said that, we are already seeing some encouraging indicators. Within China, we believe first steps toward recovery are being implemented through government policies aimed at improving economic conditions including the faster-than-expected reversal of zero COVID restrictions and a show of confidence following the policy shift several major banks raised their 2023 outlook for China's GDP. We expect it will take time for consumers and businesses to work through disruptions related to the COVID policy pivot and for the economy to fully reopen. Based on our customer conversations, we anticipate regional sales into the VIA and nearline markets to remain subdued in the March quarter and gradually improve as the calendar year unfolds. We will continue to monitor demand signals and expect to gain a better picture following the Lunar New Year celebrations. Turning to the U.S. cloud and enterprise markets. Customers have focused on working down the HDD inventory levels that were built up during the pandemic as non-HDD component shortages created inventory imbalances. We believe some progress has been made in recent months supported by an improvement in non-HDD component availability. While inventory adjustments are customer-by-customer event, and ongoing macro uncertainties have led to more cautious near-term buying decisions, we expect nearline sales will improve slightly in the current quarter, particularly for our high-capacity drives. Our view is supported by the ongoing adoption of our 20-plus terabyte family of nearline products, which represented close to 60% of nearline exabyte shipments in the December quarter and is expected to trend even higher in the current quarter. Relative to our products, we are seeing a wider variety of nearline capacity points and configurations being adopted across our customer base, depending on their specific data center architectures, workloads and application needs. Seagate is well equipped to address these individual unique requirements with our deep customer relationships and broad technology portfolio, spanning traditional perpendicular recording technology or PMR drives to performance-oriented dual actuator products to TCO enhancing SMR technology. In addition to our device portfolio, Seagate's Systems business offers cost-efficient, scalable petabyte solutions for both enterprise and cloud customers. While system sales were down sequentially off of a very strong September quarter, we captured a record number of new customer wins with our CORVAULT products. CORVAULT offers features such as self-healing, autonomous drive regeneration, which increases productivity while reducing electronic waste. The momentum that we're seeing across the systems business supports revenue to move higher in fiscal 2023. Our strong product pipeline is underpinned by the technology advancements we're bringing to market. We are leveraging our technology leadership to scale drive capacities through aerial density gains rather than additional heads and disks. As a result, we can deliver our trademark TCO advantages to customers with attractive margin opportunities for Seagate. Our 20-terabyte product features 2 terabyte per disk capacities and we have started to ramp the volume of 22 terabyte products deployed on 2.2 terabyte per disk capacities. The 20-plus terabyte platform is based on traditional PMR technology. And some customers are choosing to enable SMR technology as an additional feature that slightly increases the drives capacity for certain applications. In the December quarter, about 35% of our nearline exabyte shipments were deployed as SMR drives. We are executing plans to deliver another 10% gain in per disk capacity for this PMR platform to offer drives in the mid- to upper 20 terabyte range. However, I'm most excited made on our HAMR technology. It was nearly four years ago to the day that I first shared our lab results demonstrating 3 terabyte per disk capacities. And today, we have demonstrated capacities of 5 terabytes per disk in our recording physics labs. In the current market environment, we've been taking advantage of our reduced factory utilization to accelerate cycles of learning around HAMR productization. We are meeting or exceeding all product development milestones and reliability metrics, and we will be shipping prequalification units to key cloud customers in the coming weeks. As a result of this progress, we now expect to launch our 30-plus terabyte platform in the June quarter, slightly ahead of schedule. The speed of the initial HAMR volume ramp will depend on a number of factors, including product yields and customer qualification time lines. However, we plan to use our systems business to quicken the pace of learning and time to yield. Our tremendous progress reinforces my confidence in HAMR products and our ability to execute. These innovations were only possible through the hard work and dedication of our global team, and I would like to thank them for their many efforts. Our multi-decade focus on HAMR R&D and our innovation across all facets of drive production have resulted in a development advantage that we believe is measured in years, and we're excited by our collaborations with cloud customers on HAMR capabilities. The technology innovations driving aerial density higher will deliver strong and consistent cost reductions at the highest drive capacities and enable future cost-efficient refreshes of our mid-range capacity drives. We believe these products serve as the foundation to expand our margin profile back into and possibly beyond the long-term target range. Wrapping up, Seagate is executing with speed and agility through the near-term macro challenges. We've made meaningful improvements to our cost structure and balance sheet while steadily advancing our product and technology road maps. With signs starting to emerge that market conditions could improve as we progress through the calendar year, Seagate is well positioned with an industry-leading mass capacity portfolio that we believe supports the return to our long-term financial model over time. Thanks, and I'll now turn the call over to Gianluca. Gianluca Romano: Thank you, Dave. Seagate is navigating through the near-term macroeconomic cross-currents and executed to plan in the December quarter. We delivered top and bottom line results that came in slightly above the midpoint of our guidance ranges, revenue of $1.89 billion and non-GAAP earnings of $0.16 per share. Our actions to reduce costs, strengthen the balance sheet and improve long-term profitability have yielded desired outcomes, including a continuation of positive free cash flow generation, without sacrificing investment necessary to extend our technology leadership. Total hard disk drive shipments were 113 exabytes in the December quarter, down 5% quarter-over-quarter, with HDD revenue declining 6% sequentially to $1.7 billion. Multiple factors led to an expected decline in the mass capacity business, including the inventory correction among cloud and enterprise customers, COVID-related disruption in China and Seagate own action to reduce production. Mass capacity sales were offset by a slight seasonal improvement in the legacy market. Shipment into mass capacity markets totaled 97 exabytes, down 7% quarter-over-quarter. Of this total, roughly 82% were derived from nearline products, shifting to cloud and enterprise OEM customers. Nearline shipments of 80 exabytes were down 6% sequentially and roughly 30% of our recent high. We believe the actions we have taken to quickly adjust our production output have aided customers to start making progress in working down their inventory levels. The degree of progress varied from customer to customer and notwithstanding the current macroeconomic uncertainties, we would expect it will take a few more months to reach more normalized inventory level across the customer base. On a revenue basis, mass capacity sales were down 10% sequentially to $1.2 billion, reflecting the nearline trend that I just described as well as lower demand in the VIA market. As we expected, the prolonged economic slowdown in China continued to impact sales of our VIA products, and we did not see the typical seasonal pickup in sales during the December quarter. As Dave mentioned earlier, the Chinese government is taking action to boost the country economy, including the rapid reversal of COVID policy restrictions. It will take time for these changes to take effect. And while still early, emerging customer dialogue support these encouraging leading indicators. As a result, we anticipate conditions to gradually improve over the next couple of quarters. Within the legacy market, revenue was $421 million, up 8% sequentially, primarily driven by a seasonal uptick in consumer demand, although a more subdued level compared to prior year. Finally, revenue for our non-HDD business was $224 million, down 15% sequentially, reflecting the expected decline in our enterprise system business following a very strong September quarter. Overall, we are making great strides in growing the system business, increasing sales of our branded channel products and building customer momentum with our CORVAULT self-healing technology. While we are continuing to navigate lingering supply constraint for a couple of system components, we expect non-HDD revenue to improve through the remainder of the fiscal year. Moving to our operational performance. Non-GAAP gross profit in the December quarter was $403 million. Embedded in that figure are the underutilization costs associated with lowering production output to support inventory reduction, both as a customer and on our own balance sheet. Underutilization costs of $79 million were somewhat higher than we had projected at the onset of the December quarter and translated into a 420 basis points of margin headwind. Accounting for risk costs, non-GAAP gross margin was 21.4%, down from 24.5% in the prior quarter. Based on our current outlook, we are planning to begin ramping production output in the March quarter, sometime after the Lunar New Year. Cost and efficiencies associated with restarting and ramping of production are expected to largely offset the benefit of lower underutilization costs for the March quarter. However, as demand recovers in the coming quarters, we expect both gross profit and gross margin to move higher. We significantly reduced non-GAAP operating expenses to $294 million, down $20 million quarter-over-quarter due to savings associated with our restructuring plans and proactive expense management. We expect quarterly non-GAAP OpEx to remain around the $300 million level through the balance of the fiscal year 2023. Based on the diluted share count of approximately 207 million shares, non-GAAP EPS for the December quarter was $0.16. Moving on to the balance sheet and cash flow. We executed planning action to strengthen our balance sheet over the near term. We ended the December quarter with a liquidity level of approximately $2.5 billion, including our revolving credit facilities, flat with the prior quarter. We believe these levels are sufficient to support our strategic plans and meet customer demand. We drove a significant reduction in inventory to approximately $1.2 billion, down $400 million from the prior quarter, reflecting our effort to work down strategic inventory and finished goods. We expect inventory to remain around this level over the next couple of quarters, but we'll continue to focus on aligning our supply chain and finished good level to the prevailing demand environment. We reduced capital expenditures to $79 million, down 41% quarter-over-quarter. CapEx is expected to trend lower through the second half of the fiscal year with total fiscal year expenditure below the long-term target range of 4% to 6% of revenue. Free cash flow generation was $172 million, up 54% sequentially with lower capital expenditure and a $51 million improvement in working capital. We expect free cash flow to remain positive throughout calendar year 2023 and more than sufficient to support our dividend program. We used $145 million for the quarterly dividend. And as previously communicated, we paused our share repurchase program, exiting the quarter with 206 million shares outstanding. We are not currently planning to repurchase any share for the balance of the fiscal year, consistent with our near-term focus on optimizing cash flow through the current macro environment. Returning capital to shareholders remains an important aspect of our financial model, and we will assess resuming our program in fiscal 2024, depending on business conditions. We lowered overall debt by approximately $220 million, largely through a debt exchange, requiring minimal cash outlay. Additionally, we successfully renegotiated our debt covenants to temporarily increase the leverage ratio to 5x. Our debt balance exiting the quarter was $6 billion, and adjusted EBITDA for the last 12 months totaled $1.6 billion, resulting in a gross debt leverage ratio of 3.8x. Interest expense in the December quarter was $77 million and is expected to be approximately $82 million for the March quarter, reflecting higher interest rate associated with the new debt. We continue to evaluate options related to debt structure and reducing interest expense. Turning to our outlook for the March quarter. The broader macroeconomic and geopolitical uncertainties continue to impact the business environment and shape of recovery. However, as indicated earlier, we are encouraged by the actions being taken to improve economic condition in Asia and the early indication with cloud and enterprise customer inventory levels are trending lower. As a result, we expect March quarter revenue to be in the range of $2 billion, plus or minus $150 million, up about 6% quarter-over-quarter at the midpoint. We project incremental improvement in the mass capacity business from cloud and enterprise customers and higher system sales to offset seasonally decline in the legacy market. At the midpoint of our revenue guidance, we expect non-GAAP operating margin to be in the mid- to upper single-digit range, which includes both underutilization costs and inefficiencies associated with the resuming production output. And we expect non-GAAP EPS to be in the range of $0.25, plus or minus $0.20. I will now turn the call back to Dave for final comments. Dave Mosley : Thanks, Gianluca. Seagate continues to demonstrate resilience in the most dynamic of times. We are executing on what is within our control, generating positive free cash flow and advancing our product road map. As I indicated earlier, we expect mass capacity market conditions to gradually improve as we progress through the calendar year, which supports stronger revenue and profitability in the back half of 2023. Longer term, we remain excited by the secular trends driving demand for mass capacity storage, and Seagate unique capabilities to capture these future growth opportunities. We are leveraging our aerial density leadership to increase capacity per disk, which we believe enables the most cost-efficient product solutions for mass capacity storage. We will begin shipping products based on 3-plus terabyte per disk capacities in the coming months, which is up to 35% more than comparable drive capacities available today. Amid a challenging macro and industry backdrop, I'm incredibly proud of the partnerships and hard work from our suppliers, customers and our employees. Earlier this week, we published our fourth annual diversity, equity and inclusion report, which highlights how Seagate aims to build and support its global team. The principles outlined in this report are foundational to Seagate's technology innovations and long-term success. I encourage you to read the report in full on our website. I will conclude by thanking our shareholders for your ongoing support. Our objective remains taking the decisive steps to best position Seagate for long-term value creation. Gianluca and I will now take your questions. Operator: [Operator Instructions] And our first question today will come from Thomas O'Malley with Barclays. Please go ahead. Thomas O'Malley : Hi. Good evening, guys, and thanks for taking my question. My first question is just on the nearline market. You're talking about a slight recovery from a unit perspective in the March quarter, you may refer to exabytes. I guess you could clarify that first? And then can you just talk about what you're seeing there that gives you the confidence that, that's inflecting. In the December quarter, clearly, you saw other mass capacity accelerate pretty robustly based on the numbers you gave. But what are you seeing on the nearline side? And what gives you the confidence that the March and June quarters are going to be sequentially higher? Thank you. Dave Mosley : Yes. Thanks, Tom. So it's a fairly tricky math, I think, is coming off of the back of last summer, where things we're going down, we actually turned off our factories and particularly biased ourselves against the older generation programs, and we're really more biased towards the higher capacity points of the 20 terabytes and so on, right? So there is -- I won't talk about units, but we'll talk about exabytes. We think that there's going to be some exabyte growth and that will flow through into revenue. It's still a fairly low time right now, historically, of course, but we are seeing traction, and we are having discussions with customers about what exactly they need. I think the way I think about the CSPs is there's very different business models across the CSPs. And even within each CSP, there's different application spaces and workloads and therefore, inventory, I'd say it that way. So it's fairly tricky. But what we really want to do is make sure that we're not building too much of the old products and really biasing towards the new products. I think to the extent that we have good visibility into the stuff that the CSPs are actually building through then that's what gives us the confidence towards a recovery in the second half of the calendar year. Thomas O'Malley: Thank you. And then my second one is for Gianluca. You described, I think, $79 million of underutilization cost in the December quarter. When you look at the midpoint, I kind of know where guidance is, I'm getting gross margins slightly up, but you would expect with a better revenue, maybe a little more leverage. Can you just talk -- you talked about some costs associated with ramping up the factory post Lunar New Year. Would those costs kind of offset the comedown in underutilization costs? Just walk me through the puts and takes there, so I understand the gross margin implication? Thank you. Gianluca Romano : Thank you, Tom. Yes, the March quarter is a bit complicated from a cost standpoint because we are starting the quarter with a fairly low level of production, so we will generate underutilization cost for the month of January and maybe also a little bit of February. After that, we will start ramping production. That is a good news. But for who is familiar with manufacturing, they know that ramping production has some inefficiencies. Now you need to restart the line, you need to recover those equipment, you have some additional scrap, lower yield. So for the first few weeks of a reramp has some costs associated. So when we put the two costs together, right now, we are assuming to come out fairly similar in terms of additional onetime cost of what we had in December. This improvement of the gross margin, of course, is coming from the VIA revenue and a little bit better level of production. Thomas O'Malley: Thanks. Appreciate it. Gianluca Romano: Thank you. Operator: And our next question will come from Krish Sankar with Cowen. Please go ahead. Hadi Orabi: This is Hadi for Krish. Congrats on the strong results. [Indiscernible] is more short-term. First, your yields on HDD exabyte shipments were down year-over-year and Q2 well below the structural growth rate of 30%. At what point do you expect year-over-year growth above this…? Dave Mosley: Sorry, Hadi, you're breaking up just a little bit. Could you repeat your question, give another try? Hadi Orabi: Your new HDD exabyte shipments were down nearly 30% year-over-year and Q4. At what point do you expect that growth rate to turn positive year-over-year? Dave Mosley: Okay, thanks. I think I understood, and we'll go forward here. The underutilization charges are the ones that are hurting us the most, I'll say, relative to turning of our factories and things like that. From my perspective, we're going to -- we took down the factories intentionally to make sure that didn’t build too much of the old stuff. So it's a 16 terabytes or 18 terabytes that where people are still consuming and then we're focused more on 20s and 22s and 24s and 30s and so on and so forth, like we talked about in the script. And that fills back up the factory. So I think that's the answer. You get more exabytes out and it's a better financial return as well. I think that answers your question. Hadi Orabi: Yes. And do you guys have any color on when we should expect HAMR manufacturing yields to become close to corporate average? Is second half of calendar '23 reasonable? Dave Mosley: Yes. I won't speculate on that right now other than I'll say that we're now in a position on HAMR that, that's exactly the problem we're working. No longer is it a question of whether or not the technology is viable, the parts that are out of the oven. And from our perspective, this is what we do really well as well, which has ramped high-volume production. We've got everybody and the team is focused on it, and we'll get there as fast as we possibly can. Operator: And our next question will come from Erik Woodring with Morgan Stanley. Please go ahead. Erik Woodring : Hi. Good afternoon, guys. Thanks for taking the question. Dave, just for you, great to see the continued confidence in the June HAMR launch. I'd love to know just kind of what the feedback is that you're getting from prospective customers. Clearly, we're in a more cautious macro environment we've heard the term like optimizing cloud spend more often. And so is this a technology and a capacity size that they're really pushing for now despite the slowdown that we're seeing in the market? Or are there other factors driving the timing of the launch? I would just love if you could unpackage that question. Thanks. Dave Mosley: Yes. Thanks, Erik. I would say that the onus is really on us. It's a control of ours to make sure that we can drive the transition exactly to Hadi's question about get the yields up and get the production capability to where we want it. I like to think that somebody making a decision to build out a data center would much rather have a drive with 3x terabytes instead of 2x terabytes. And because that's such a great TCO proposition for them over the long haul. We have deep customer relationships, obviously, on this front. This is not a surprise to them. The results that we're showing in our labs are not a surprise either. So they're very well connected with us on it. Where their spending profile might be muted, say, in the first half of this year because of all the issues that CSPs are going through, and they've shared some of those with us and they're the tough problems themselves. I do think that the secular demand for mass capacity in those data centers is still going to be huge. And we want to make sure that we're staging the absolute best value proposition for us and for them when we get there. So it's really ours to go drive. Erik Woodring : Super. That's really helpful. And then Dave or Gianluca, I'm not sure. Can you just remind us exactly how we should think about the potential margin impact of launching HAMR and ramping that platform just as we think about, again, the next 12 months? And that's it for me. Thanks. Dave Mosley: Yes. Thanks, Eric. I'll pass it over to Gianluca in a second, but it really does come down to yields and scrap. I mean, we're going to be targeting most of this at the highest capacity points, although there are opportunities in lower capacity points if we can take disks and heads out of already existing platforms in the 20s or teens, then we'll go do it. And we have to go work that through qualifications with our customers. That's how we get margin oxygen, if you will, back into the system. And so yields, scrap, our ability to go through the cycles inside of our factory, that those are the relevant parameters. Gianluca Romano : Yes, HAMR is a new product. So we need to go through a little bit of the learning curve, something different from what we have done in the last several years. But as Dave said, Seagate is very good in the operation, in manufacturing. And therefore, we are very confident now we can have very good results, results that at a certain point will be similar to the PMR, but exactly when it's a bit difficult to say right now. So we are going step by step. But we are actually growing faster than what we were expecting. And as Dave said, we are ready for launching the product in the June quarter, but is a little bit before what we were discussing just three months ago. Dave Mosley: Yes, I think the data coming out of -- just to pile on a little bit. The data coming out of the labs is really good, really encouraging. And to stave off some other comments or something that I would say that there's -- while there's added features in a HAMR drive versus a garden-variety PMR drive. Even PMR drives are fairly complicated themselves, there's no tectonic shift that causes major cost resets or things like that. There's things we have to go work, and that's what we do really well. We've worked these kinds of things over time to make sure we can stage other technology transitions, and we're all over this. We've been planning this for a long time. Erik Woodring: Great. Thanks, guys. Congrats. Gianluca Romano: Thank you. Operator: And our next question will come from Karl Ackerman with BNP Paribas. Please go ahead. Karl Ackerman : Yes. Thanks, everyone. Good afternoon. Two questions, if I may. As it relates to the March quarter guide, it's great to see an improvement in revenue in March because seasonality is usually down a few points. But of course, nothing is seasonal at this point in time. But I guess, as it relates to that, you spoke about improvement within nearline. And so two-part questions to that. I guess, are cloud customers increasing or LTA baseline orders today going into March? And then second, are you beginning to see cloud customers procure orders for HAMR, would say, new or existing LTAs because I'm also curious how you look for signposts regarding the uplift of HAMR demand in anticipation of your launch? Dave Mosley: It's a really interesting question, Karl. Let me try it this way. Usually, when supply is behind demand considerably, then you're having LTA discussions. But I think in the case of this, obviously, our suppliers have got challenges, we've got challenges. Even our customers have challenges. So I think it's really an entire supply chain that needs to co-plan together. And we've -- demand is low right now. There's plenty of supply. But I think we're all very mindful of cash and mindful of the financial outcomes that we want. Indeed, we are having LTA discussions still. The levels of the LTAs may not be reminiscent of what they were when you had demand for above supply. But I think the predictability is what we need to keep our factories running, to keep our people employed, getting paid and actually keeping the reinvestment so that we're out there with the right products and the right costs in those right times. Specifically to your HAMR question, I would say the answer is no at this point, but I think we could get there soon where we say HAMR is -- this is the volume ramp of HAMR at this customer, and then that becomes part of the LTA, but we're not there yet. Gianluca Romano : We will have to go through the call. And then after the call, we start discussing about volumes with customers and eventually doing LTAs. Karl Ackerman : Understood. Thank you. If I may ask one more. I was -- one of the impression, your SMR drives were closer to 25% of your mix, you're suggesting it's close to 35% of your mix today, which is quite impressive. So I'm hoping you could discuss what sequential improvement you've seen in SMR drives this quarter and whether you are seeing better economics within this area of mass capacity? Thank you. Dave Mosley: Yes, thanks. I think there's a lot of confusion in the space on this, so let me try this. We've been shipping SMR since I think 2014, into the cloud. We also have shipped hundreds of millions of SMR drives on the client side. So SMR is a great technology add. If you can adopt it for very specific cloud applications, it can be quite complex. And so some places, people choose not to do it. Redeployment of drives, for example, from application to application becomes limited or there's a lot of inertia around it if you try to do that. So we have great SMR solutions. We've been working on this for years and years and years. If customers ask and if their applications desire, then we'll go there for them. And so I really look at this as a customer by customer, sometimes application by application, specific ask for, say, a business unit or something like that, and we just react to it. And that's I don't think there's any big shift towards more SMR out of the Seagate portfolio. I think there are customers who, over time, are adopting more SMR, so that may be part of the reason for the trend that you talked about. But it's not something that's, I'll say, deliberately being pushed on our front. We look at it more as let’s just solve the problem for the customer. Gianluca Romano : Yes, I would say on a quarterly basis, the percentage change based on the mix of our customers. So depending in which quarter, one customer can be a bit higher than another one, we can have a little bit more SMR or less. But for us, as Dave said, we have both is actually a fairly easy way for us to convert the PMR into an SMR. So just a matter of where the demand is in the specific quarter. Karl Ackerman: Thank you. Operator: And our next question will come from Aaron Rakers with Wells Fargo. Please go ahead. Aaron Rakers : Yes. Thanks for taking the question. Two if I can as well. I guess the first question, you mentioned, obviously, in the numbers that you're shipping about 30% below what was the peak level seen a year or so ago. As we think about the efforts that you've made on rationalizing your production capacity, is there any way to gauge how we could think about what kind of fully utilization looks like on an exabytes ship basis as we move forward? Just trying to think about the trajectory based on that number relative to gross margin? What's kind of the capacity footprint that you guys have normalized to now? Dave Mosley: Yes. Hi, Aaron, I think there's a couple of different answers to that question. Obviously, from an equipment perspective, all the equipment is still there. As a matter of fact, as we go through transitions to say, 2.2 terabyte per disk or 2.4 terawatt per disk to a 3 terabyte per disk, we get a lot more efficient out of our parts that we have accessible to us and out of that same equipment, some penalties with process content. But generally speaking, our capacity footprint goes up. In the current -- to directly answer your question in the current state, we did have to scale back in our factories, and that will take just a little bit of time, not a lot of time to scale back up because that's about people. It's been a tremendously painful time for our people, for the people in the supply chain for the people and the customers for that matter. So I would say that our theoretical capacity is still as high as it is, but we can't react on a dime to go get there. We need to plan for it. And once upon a time, we did 165 exabytes. We could get back there fairly with all the technology transitions, we can also go beyond. Aaron Rakers : Yes, yes. That's helpful. And then as a quick follow-up. I think last quarter with the headcount reduction effort, you had talked about I think it was getting to realizing the annualized expense savings of about $110 million starting in this current quarter. How do we think about the effect of that on a net basis in this current fiscal quarter? Gianluca Romano : Yes. We realized a big part of that saving already starting in the December quarter, as we were discussing beginning of November. The majority of our restructuring actually happened at the beginning of November. So we had basically two full months out of the three where we could take the benefit of the cost reduction. And now in OpEx, there are always few other items that impact the cost of the quarter. In the script, I said we expect this quarter and even next quarter to still be around the $300 million. Aaron Rakers: Thank you. Operator: And our next question will come from Timothy Arcuri with UBS. Please go ahead. Jason Park: Hi. Thanks a lot. This is Jason on for Tim from UBS. I have a couple of questions. So the first question is on December quarter. Sorry if I missed, but I see that there's about $100 million purchase order cancellation fees in December quarter. Could you guys help us understand what that line item really is? And also, would there be any possibility of this repeating in a similar magnitude next couple of quarters if demand remains weak? And I have a follow-up. Thank you. Gianluca Romano : Yes. That is related through our reduction in production. Of course, we had some commitment with some of our suppliers that, of course, we want to comply with. So on those cases, we had to stay for take-or-pay products that we didn't need, and we decided not to take based on our focus on reducing our own inventory on top of reducing customer inventory. I think we have taken all those liabilities into the December quarter. So I don't expect at this point this those liabilities to come back in the March quarter. Jason Park: Got it. Thank you. Yes. My second question is on your debt paydown schedule and cash level. So on the back of your recent debt exchange, how are you guys thinking about the pace and magnitude of debt pay down in the next few quarters? And in light of that, how can we think about the new cash level you guys are comfortable operating under going forward? Gianluca Romano : Yes, we are generating still a fairly strong free cash flow. In the December quarter, we generated $170 million, I think this quarter will be higher than that. We have note that will mature at the beginning of June that we want to repay and we will not refinance, that is about $540 million. So we will use our cash. We have actions going on to optimize our cash between now and June. But I would say, right now, our focus is actually on reducing the debt and reducing the full amount of those notes. Jason Park: Thank you. Gianluca Romano: Thank you. Operator: And our next question will come from Sidney Ho with Deutsche Bank. Please go ahead. Sidney Ho : Great. Thanks for taking my question. Congrats on pulling in the launch schedule of HAMR drives. A couple of questions here. How are you thinking about the adoption of HAMR drives in the back half of the year into '24? Is it more broad-based? Or is it focused on a few customers -- and I know it's early, but do you expect -- when do you expect unit or exabyte crossover for HAMR drives? And lastly, on this subject, just to be clear, are you planning to dual track with PMR products in the 30-terabyte range? And then I have a follow-up question. Dave Mosley: Thanks, Sidney. Appreciate all the positive momentum that's going on. It really -- there's a lot of people inside of our company and outside of our company that deserve accolades here making this technology work believed in it for the last 20 years and so on. And I think it's great that the world is going to be able to double nasty points and things like that over time. I've got a lot of confidence based on where we sit right now. We're not talking about exactly what the schedule is going to be, but we're going to be as aggressive as we possibly can. Specifically to your question, yes, I think the first drives will probably go out into a couple of different channels, some we can control like we've talked about maybe using our systems business in the prepared remarks. And then some big customers are -- want to be early adopters so that they understand the technology and what to take. It's I would say at the highest capacity point, the integration always the trickiest because these are things that the world has never seen before. To the extent we can turn around and make cheaper capacity points that are midrange like 20 or 16 or whatever they happen to be because we have fewer heads and disks in them. That's a great answer for us as well, and we'll get working on that. So I don't think the once we get out the heads and disks, I think we'll be able to find homes for them, and we're going to be very, very aggressive on the ramp over the next few years. Sidney Ho : Okay. Maybe a follow-up question. You and your competitors have both in quite in terms of production cost in this down cycle. Curious if you're seeing any less rational behaviour in terms of pricing given the high level of inventory in the channel and the customers in the December quarter, but more importantly, going forward, do you think the pricing environment will still be okay? Thanks. Dave Mosley: Yes, I do think the way to control the long-term outcome, the best is to cut your production and make sure you're not pushing out too much of the wrong stuff. I'm encouraged to see the way that the industry is actually behaving on that front. I don't -- to your point, I don't look at things like market share and any individual deals as long-term trends at this point in time. I think it's more just what discipline does the industry have. And I do think that over the long haul, especially for Seagate, I can speak, having the ability to go add a better value proposition, lower our costs and so on and so forth. I think we use that to think about how do we get back into our margin range or beyond. Sidney Ho: Great. Thank you. Operator: And our next question will come from Vijay Rakesh with Mizuho. Please go ahead. Vijay Rakesh : Hi, Dave, and Gianluca. Great quarter and a good control on the inventory side. Just a quick question on how you see broad inventories in the channel. Like if you look at China and U.S. enterprise hyperscale, any thoughts on where inventories are broadly? Dave Mosley: Yes. I think we said that we -- from our vantage point, the inventories at hyperscalers generally went down or the right directions, and we were encouraged by it. I mean, obviously, we'd like to see it faster because we'd like to ramp our factories back up quicker. I think it would help us. And then, of course, our owned inventory, what we were able to do by not putting anything out, especially the legacy capacity points, I'll say, in the nearline space, we're not putting anything else out into the market that's encouraging as well. I think from a distribution weeks on hand, it's high, but not super high historically. And you all know that depending on how you're measuring it 4 weeks or 13 weeks, it could be it's really based on a baseline. And I think that, that baseline now has become this macroeconomic reality. I do think that as we started to see some kind of macroeconomic recovery in certain geos, Europe, Asia and so on. The absolute value of the inventory is not super high. And so it's not a whole lot of weeks on hand. And I think there, again, we could react to that. So I'm not super worried about the inventory there. Vijay Rakesh : Great. And you mentioned HAMR ramping here. Good to see that. A exit the year, any thoughts on what that mix would be of your mass capacity at nearline of revenues or units? Dave Mosley: Yes. We haven't really talked about it. I think this year, it will probably still be relatively low. And then the faster we can get the yields in scrap and all the costs that we can control down on the heads and media then the faster will be accelerating. I think that will happen in calendar year '24 and calendar year '25 will just continue to accelerate. The highest capacity points will be addressed, but also these midrange capacity points. And how successful we are with all that stuff we'll determine how broadly we can penetrate all those different individual market. Vijay Rakesh: Got it. Great. Thanks a lot. Operator: And our next question will come from Ananda Barua with Loop Capital. Please go ahead. Ananda Baruah : Hi, thanks, guys, for taking the question. Two quick ones, if I could. Just going back to Aaron's question, Dave and Gianluca on the utilization. So Dave, you said you're 30% below peak your gross margins are actually down 30% from that same peak. Is that a coincidence because pricing has been stable? Or is it really sort of that simple? And then I guess the ramp back up kind of higher cap drives sort of takes up more capacity. And so is it really as simple as on sort of the ramp back up sort of the same indexing on capacity ship, is like a little bit more of a slope up, just given the mix? And I have a quick follow-up after that. Gianluca Romano : Well, I would say, for sure, the majority of the gross margin decline is coming from the underutilization charges, so the lower level of production that we have. Last quarter, we were discussing it a bit about some price pressure in the low-capacity drive. But we have seen a little bit in the quarter of December. But in general, especially considering that we see a fairly strong down cycle. We are -- in terms of pricing stability, we see this as a positive. And we expect as soon as we are back into the same level of production and same level of revenue we had a year ago, we think our gross margin will be at the same level or even better. Ananda Baruah : Gianluca, is it -- can we kind of model the gross margin more or less calibrated with where we see capacity increases to be going forward? Gianluca Romano : I would say capacity mix, of course. Ananda Baruah : Okay. Cool. And then just a real quick follow-up. $300 million OpEx through the June quarter, how do you want us to think about modelling out past that, the puts and takes? Thanks. Gianluca Romano : But we are staring to discuss about the next fiscal year, but I would say part of the lower OpEx is coming from variable compensation that is very low in the current fiscal year. So you will have to think about adding some cost for variable compensation in the fiscal '24. Dave Mosley: Yes. I think Ananda, we reacted, obviously, very early on some of this when we saw it. And I think we're going to be asking the same kinds of questions throughout the course of this year, what's the new trajectory, the new normal, if you can. When some of the normal demand cycle comes back, where is the world from an economics perspective and we'll address factory footprint and things like that when those times come. Ananda Baruah: Cool. Thanks, guys. Gianluca Romano: Thank you. Operator: And our next question will come from Wamsi Mohan with Bank of America. Please go ahead. Wamsi Mohan : Hi. Yes. Thank you so much. Apologize, jumping across calls if this has already been answered. But I'm wondering if you could talk a little bit about the trajectory that you see in exabyte growth. It's kind of been a little bit all over the place given so many moving pieces with both demand slowdown as well as inventory and if you could maybe calibrate for calendar '23, that would be great? Dave Mosley: Yes. It depends also, if you where you reset to. I think we've taken a big step down, of course, and then we could talk way back on the 30% growth. I don't -- I think it's a little too early to tell that. But we do think that by the fact that we're putting out 24 terabytes and 30 terabytes and so on and so forth, that's going to help the exabyte growth substantially. I think a couple of years ago, we were at 80-some percent from nearline drive. So that was reflective of not only high great value proposition from 1 capacity point to another, say, maybe 25% bump in capacity point, but also the fact that a lot of people are investing at the time. I do think that the demand side for data is still there. There's AI, machine learning, a lot of new applications coming. I think we're going through something that's fairly temporary where people are just getting their legs underneath them and then they'll figure out what their investment profiles are. And our job is to go put a better value proposition from an exabyte perspective out there in front of them to kind of incentivize that. So we do think the back half of this year gets better from an exabyte perspective. I don't -- maybe a little early to tell exactly what the number is. Wamsi Mohan : And maybe you already covered this, but if you wouldn't mind, if you have covered it, then we don't need to go in. But I was wondering if you could address if there's anything abnormal that you're seeing within pricing in the competitive environment, is there especially within the channel, anything that you're seeing that might be abnormal? And when do you think if there is something when that would normalize? Dave Mosley: At a macro level, no, I think everybody is seeing about the same demand environment. People are reacting fairly similarly, making sure they're preserving their cash, not building things that they're uncertainty of going out into the market. And so I think the industry has actually done a pretty good job of scaling way back over the last three, four, five months on our production capacity. It's very, very painful for ourselves and our suppliers, of course. But -- and our customers, I think I said this earlier, our customers understand that. But at a macro level, I don't see that. I don't see people building too much of the wrong stuff and trying to get into the market. There may be little pockets. But again, big picture, I don't think that's super relevant. Wamsi Mohan: Okay. Thank you so much. Operator: And our next question will come from Kurt Swartz with Evercore ISI. Please go ahead. Kurt Swartz: Hi. Thank you very much for taking the question. Maybe just first, within the context of recent export restrictions and macro headwinds in China, I'm curious if you have -- if you can share any color on your TAM assumptions for the VIA market, both in the near term and longer term, which I believe you previously said the longer-term market outlook remains intact, but just curious on those dynamics? Dave Mosley: Yes, I'll start and I'll let Gianluca speak as well. I think the VIA market is changing quite a bit globally. There's a lot of applications A few years ago, we would have talked about surveillance. Now there's a lot of applications about consumer behaviour and inventory management. A lot of people are worried about inventory. And so -- the people are using all these new, say, smart edge applications in a very creative way. So globally, it's an exciting market. I think the drivers in China, in particular, over time that's been very muted for the last year, and we were kind of waiting for a recovery. And I think the recovery just hasn't come. I think it will recover, but it's going to be slow. And I think there's new opportunities around the world in various geos as well happening. Gianluca Romano : In the very short term, we see possibly a decline in the March quarter, mainly because of seasonality. March is always the quarter where we have the lower revenue from VIA and from some of the legacy markets also. So not a lot of increase in the short term. But in our view, the rest of the calendar year, we should see sequential improvement. And VIA is an important segment for us. And in a segment that is also generally generating a very good gross margin. Kurt Swartz: Great. That's very helpful. Thank you. And then maybe just a follow-up. Within the context of the operating margin target that you outlined last year, 18% to 22%, assuming this is still the right framework, can you just walk us through some of the levers and the time line for reaching that range and maybe thoughts on medium- to longer-term OpEx growth or intensity within that context? Dave Mosley: Yes. I think to find the long-term demand, we're still kind of assessing that. So I won't be -- I won't predict it just yet. But I will say that this management team's goal to get back in those models as fast as we possibly can. Obviously, demand is the fundamental driver to that. We've made operational improvements by cost reductions. And we've, unfortunately, had to cut some things that we're working on. So there is a reason to suggest that we have a little bit more oxygen than we had going into this thing. But I think fundamentally, it will still be the demand driver. And one of the reasons we're trying to transition products is as aggressively as we can is because we think we intercept that demand with a better value proposition that comes back to us faster, but we also go off and work our own internal operational metrics and then we get the best cost at the time, and that helps as well. Kurt Swartz: Great. Thank you very much. Operator: And our next question will come from Ashley Ellis with Credit Suisse. Please go ahead. Ashley Ellis : Hi. Thank you for taking my questions. Gianluca, could you discuss how you're thinking about working capital for the second half of the year? Our inventory days came down pretty substantially. Obviously, if you took production down. But they're still above the year ago levels. And then as you launch HAMR, is there anything we should consider within that number? And then I have a follow-up. Gianluca Romano : Yes. In the December quarter, our working capital was positive by about $50 million. We decreased our inventory by a lot, but we also paid a lot to our suppliers. So I think that is part of the positive working capital that will actually impact the March quarter. And after that, probably is fairly stable for at least a couple of quarters. Ashley Ellis : Okay. And then, Dave, you kind of touched on this in a prior question, but AI has become a much more common topic in the last few weeks. And I'm wondering how Seagate thinks about that opportunity, not just from data creation, but your product line-up? And is this coming up in customer conversations? Is it something that they're asking for your help on? Thanks. Dave Mosley: Yes. Thanks, Ashley. So it's underneath all of the demand for data growth that we see, I think this is 1 of the big trends that we're watching because it affects not only what's going on in the cloud, but it also affects what's happening at the edge. And so that -- I do think that over the long haul, we're very bullish on this. If you think about it, early days of AI or training models and things like that, that needed access to big data sets. But I think as time goes on, big data sets have to be very real time to make decisions that are relevant in the moment. And sometimes they need to be kept at the edge because you have a lot of video data, for example, at the edge to make good decisions on consumer behaviour or inventory, like I talked about before, all these new applications that are coming. So our customers are quite excited about it. The good news, and I've been saying this for the last couple of years is that I see a lot of innovation that's happening on that front because of the unsure footing that a lot of people have in the macro condition, people aren't really leaning into it, but I really look forward to the days that they are and these applications come online because I think it's going to contribute a lot to the data growth. Ashley Ellis: Thank you. Operator: And our next question will come from Tristan Gerra with Baird. Please go ahead. Tristan Gerra : Hi. Good afternoon. Just following up on some of the questions on pricing. I understand that controlling production is a way to get back over time to your utilization rates and gross margin target. But is the price decline in NAND that we've seen recently impacting some of the pricing that you're looking at for HDDs? Or is there basically a possibility of share shift toward demand given the pricing that NAND is undertaking currently? And how do you react to that? Dave Mosley: Tristan, I think that back in the day that the legacy markets obviously went through some transitions because of this. There may be some happening in the consumer markets, that's relatively small. The impact is relatively small. We still have a pretty good value proposition in the consumer markets as well. In the mass capacity markets not really. I mean I think the people running big mass capacity rigs either they understand both technologies and they use both technologies. They're not really making a trade-off of one versus the other. I think NAND, we can all see that the business is tough over there. I think everybody is in tough shape and I feel for some of those guys because the world needs their technology, I think we need their technology as well to make sure that they do their part and the layers they're relevant in, but I don't think it affects mass capacity long term. Tristan Gerra : Great. Thank you. Operator: And this will conclude our question-and-answer session. I'd like to turn the conference back over to management for any closing remarks. Dave Mosley: Thanks, Cole. As you heard today, Seagate is acting with speed and agility to manage through a tough near-term market environment. At the same time, we're executing our strong mass capacity product road map that makes us well positioned to enhance customers' value and Seagate's financial performance. I'd just like to close by thanking all of our stakeholders for their ongoing support, and thanks for joining us today. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: Good morning, and welcome to the Seagate Technology Fiscal First Quarter 2023 Earnings Conference Call [Operator Instructions]. Please note that this event is being recorded. I would now like to turn the conference over to Shanye Hudson, Senior Vice President, Investor Relations and Treasury. Please go ahead. Shanye Hudson: Thank you. Good afternoon, 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 fiscal first quarter 2023 results on the Investors section of our website. During today's call, we'll 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 that was filed with the SEC. We've not reconciled certain non-GAAP outlook measures because material items that may impact these measures are out of our control and/or cannot be reasonably predicted. Therefore a reconciliation to the corresponding GAAP measures is not available without unreasonable efforts. 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, should not be relied upon as of any subsequent date. Actual results may differ materially from those contained in, or implied by these forward-looking statements, as they are subject to risks and uncertainties associated with our business. To learn more about the risks and uncertainties and other factors that may affect our future business results, including expectations regarding any regulatory, legal, logistical, or other factors, 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, all of which may be found on the Investors section of our website. Seagate also filed an 8-K today disclosing that on August 29, we received a proposed charging letter from the U.S. Department of Commerce's Bureau of Industry and Security, or BIS, alleging violations of the U.S. export administration's regulations. We have responded to the letter and believe that we've complied with all relevant export control laws and regulations. We've been cooperating with BIS, and we intend to continue engaging with them to seek a resolution. During the Q&A portion of this call, we won't be commenting further on this matter, and we'll provide additional updates, as appropriate, moving forward. With that, I'll now turn the call over to you, Dave. Dave Mosley: Thanks, Shanye and hello, everyone. In our remarks today, we will discuss the September quarter performance in the context of an intensely challenging macro environment and outline the aggressive actions we are taking to manage the company during this tough period. Despite these near-term challenges, the underlying data demand drivers remain strong as does the opportunity for mass capacity storage solutions. I will outline why we're confident that as current conditions improve, Seagate is in an outstanding longer-term position. For the September quarter, revenue came in at $2.04 billion, which was inside the revised guidance range that we provided at the end of August. Non-GAAP EPS of $0.48 was well below our expectations, impacted by multiple gross margin headwinds that I'll touch upon shortly. As we shared in late August, three main factors were influencing our outlook, the impact of COVID lockdowns and the related economic slowdown in China, broad-based customer inventory adjustments, and weakening global consumer spending. Since the August timeframe, macro sentiment has further deteriorated, which has led to a more cautious spending environment and more significant inventory adjustments as we move through the final weeks of the September quarter. These factors incrementally impacted sales volumes in the economically sensitive consumer markets, as well as certain U.S. cloud customers. We currently expect customer inventory drawdowns will remain a factor through at least the December quarter. We reacted quickly to adjust our production levels to the current demand environment and our gross margin performance reflects the resulting factory underutilization costs that increased markedly through the month of September. It's important to note that consistent with some of the U.S. CSP comments, end-user demand for core data and analytics applications remain solid, which supports our view that the business will improve as elevated inventory levels are consumed. In the meantime, we continued to respond to the changing market conditions and further reduced production output across all product lines with the exception of our 20 plus terabyte products, where demand has held firm and pricing relatively stable. Our actions underscore our focus on maintaining strong supply discipline and we believe this will enable us to quickly return to a more favorable pricing environment across mid to lower capacity products as conditions normalize. Stepping back, today's highly uncertain macro environment stems from multiple factors outside of our control, such as rising interest rates, inflationary pressures and geopolitical dynamics. With that in mind, we are focused on managing what we can control and taking aggressive actions to appropriately respond to the near term market environment, and enhance profitability over the long term. In addition to adjusting our production output to drive supply discipline and pricing stability, we are implementing a restructuring plan to sustainably lower costs, including a reduction in our global workforce. These are very difficult decisions to make and ones that we do not take lightly. However, we believe they are necessary to align our cost structures with the realities of the near-term market, while still enabling us to support future mass capacity storage opportunities as demand recovers over the longer term. We are improving working capital by reducing our inventory levels over the next couple of quarters, and we are significantly lowering our fiscal '23 capital expenditures while maintaining investments that support the launch and ramp of the 30 plus terabyte product family based on HAMR technology. These cost-saving actions, together with our supply discipline enable us to drive increased leverage to earnings as conditions improve over the near term. Longer term, we remain confident in the secular growth of mass capacity storage and believe our technology leadership positions us to capture the significant future growth opportunities. Consistent with our focus on enhancing longer-term shareholder value, we are maintaining our quarterly dividend. However, we are temporarily pausing our share repurchase program to ensure we can continue to make necessary investments to support our current business and underpin our longer-term strategic plans. Let me now share some perspectives on the end markets, starting with VIA. The global economic slowdown has continued to impact VIA-related project budgets and installation time lines, which has led to a buildup of customer inventory. These trends have dampened the typically strong seasonality in the back half of the calendar year, particularly in the China market. Stimulus programs to help boost the local economy have been announced. However, timing for economic recovery is not yet apparent, while COVID lockdown restrictions remain in place. Our long term expectations for VIA demand have not changed. While we have significant direct customer exposure in China, end market demand is global and continues to expand, as smart video applications are adopted to address real-world challenges. For example, reducing traffic congestion is one area of focus for smart cities which cost U.S. drivers alone an estimated $53 billion in 2021. These savings can only be realized after capturing and storing large volumes of data and application best served by HDDs. In the nearline markets, we saw a double-digit percentage sequential revenue declines across both cloud and enterprise OEM customers, reflecting the broad-based inventory adjustments that I described earlier. Recall we had been anticipating the customer inventory correction to be largely complete in the December quarter. However amid intensifying macro uncertainties, customers have grown more cautious with their spending plans, which we believe will extend the recovery into calendar year '23. U.S. cloud customers are still reporting healthy demand tied to digital transformation, artificial intelligence and other applications that unlock data value and continue to rank among CIO's highest investment priorities. While enterprise CIOs continue to move workloads to the public cloud, according to a recent study, 80% of cloud users also have a hybrid cloud strategy, illustrating the desire to operate seamlessly across the network of public and private clouds. We believe these trends support our view for mass capacity exabyte growth to return to the upper 20% range as the broader markets recover. These same trends underscore the positive market momentum we are seeing in our enterprise systems business, which recorded revenue growth of over 45% sequentially. While we expect sequential sales levels to reflect some lingering supply challenges in the December quarter, our systems results illustrate how customers are still allocating budget dollars toward areas that drive business value. The data trends that rely on cost-efficient, higher-capacity storage solutions remain intact. As a leader in HDD technology, Seagate is well-equipped to address demand by continuing to execute our strong product roadmap. We are leveraging the current production slowdown to double down on our development actions and accelerate cycles of learning to continue delivering TCO value to customers. Sales of our 20-plus terabyte product family grew meaningfully quarter-over-quarter, supported by strong demand from cloud customers. 20-plus terabyte drives now rank as our highest volume in revenue platform, surpassing 18 terabytes as expected. We are extending this product family using conventional CMR technology into the mid-20 terabyte range, which also offers SMR capabilities into the upper 20-terabyte range. Development of our 30-plus terabyte platform based on HAMR technology remains firmly on track. In addition to HAMR, these drives incorporate many new technology innovations to reflect the years of development, design, and integration know-how that form the backbone of our future product portfolio. We continue to execute our development plans, meeting key milestones, including reliability metrics and aerial density gains that also position us to extend drive capacities well beyond 30 terabytes. As I shared in our July earnings call, customer revenue shipments are expected to begin around mid-calendar 2023. I could not be more pleased with our great progress this quarter. In closing, we are navigating through the macro challenges that are impacting our business over the near term. However, the long term growth trajectory for mass capacity storage remains solid, driven by the fundamental demand for data and the need for businesses to harness its value. We believe that the actions we have undertaken will ultimately strengthen our position over the long term. Looking ahead, as we incessantly push the technology innovation roadmap, we believe our customers will continue to value Seagate as their primary storage solutions provider. Gianluca will now cover the financial results in more detail. Gianluca Romano: Thank you, Dave. Revenue came in at $2.04 billion, reflecting the evolving macro landscape that Dave described in his remarks. Non-GAAP operating margin for the quarter was 9%, below our expectation at the end of August due to lower revenue, a less favorable market mix and higher underutilization charges, as we continue to lower our production output as we gain visibility into December quarter demand. We are taking decisive actions to reduce expenses, reserve cash and improve long term profitability, which include reducing production output to enable rapid inventory correction at our customers and on our own balance sheet, significantly lowering capital expenditures for the rest of the fiscal year, resulting in CapEx as a percentage of revenue to be below the long term target range of 4% to 6% of revenue, and executing a restructuring plan to sustainably reduce our cost by approximately $110 million annualized. We believe this action will put the company in a strong financial position when the global macro business environment begins to recover and expand operating profit faster than revenue growth. Moving to our end markets, as we have mentioned, intensifying macroeconomic pressure and more reserved customer buying behavior impacted our results across both mass capacity and legacy markets. In the September quarter, total hard disk drives capacity shipments were 118 exabytes, down 24% sequentially and 26% year-on-year. Mass capacity market made up 88% of the total with shipments of 104 exabyte, down 25% sequentially and 21% year-over-year. Average capacity per drive increased 3 percentage points sequentially to 11.8 terabytes, reflecting continued growth demand for our 20-plus terabyte product family, which represents over 40% of total mass capacity exabytes shipped in the September quarter. Nearline shipments totaled 85 exabytes, down 28% sequentially, reflecting the ongoing inventory adjustment at both cloud and enterprise OEM customers, which are expected to last through the calendar year end. On a revenue basis, mass capacity represented 78% of total HDD revenue at $1.4 billion in the September quarter. As a percentage of HDD revenue, mass capacity was down 2 percentage points sequentially and up 7 percentage points year-on-year. Consistent with our view at the end of August, VIA revenue was down quarter-over-quarter due mainly to the prolonged economic slowdown in China. Specific to our mass capacity market we expect the prevailing macroeconomic challenges will extend through the December quarter, negating the traditional seasonal uptick usually seen in the VIA market. That said, we remain confident in the long term growth of the mass capacity markets in both the cloud and at the edge. Within the legacy markets, revenue was $391 million, down 20% sequentially. Quarter-over-quarter, the pace of decline was more pronounced in the mission-critical market due to soft enterprise spending, particularly in China and deteriorating consumer spending. Similar to the VIA market, we do not expect to see a typical seasonal uptick in overall demand for legacy markets in the December quarter. Finally, revenue for our non-HDD business was $263 million, up 21% sequentially. The increase quarter-over-quarter reflects the improving component supply for our petabyte scale solution in our enterprise system business. Moving to our operational performance. Non-GAAP gross profit in the September quarter was $498 million, corresponding to non-GAAP gross margin of 24.5%, down more than expected quarter-over-quarter. Underutilization cost represented a 250 basis point headwind to gross margin impacted by the adjustment we made to lower production output throughout the quarter in response to market conditions. These impacts were compounded by a less favorable market mix, driven by a lower percentage of revenue derived from margin reach mass capacity markets and an increase in the non-hard disk drives business. Non-GAAP operating expenses were at $314 million, down $35 million quarter-over-quarter due to lower variable compensation and proactive expense management, which included strong control over discretionary spending and the pause in hiring. In the December quarter, we expect OpEx to further decline by about $10 million, including savings associated with our restructuring plans starting later in the quarter. Based on diluted share count of approximately 210 million shares, non-GAAP EPS for the September quarter was $0.48. Moving on to balance sheet and cash flow. We ended the September quarter with a total liquidity position of approximately $2.5 billion, including our revolving credit facilities, which is sufficient to support our strategic plans and meet customer demand. Despite lower than expected revenue for the September quarter, inventory ended fairly flat at just over $1.6 billion. We expect inventory to decline significantly over the course of fiscal 2023 as we align our supply chain and finished good levels to the prevailing demand environment. Reflecting the payment of previously committed amount, capital expenditures were $133 million for the September quarter. Free cash flow generation was $112 million, essentially flat with the prior quarter, as the improvement in cash from operations was offset by higher capital expenditures. We used $147 million for the quarterly dividend and $408 million for the purchase of 5.4 million ordinary shares, exiting the quarter with 206 million shares outstanding and approximately $1.9 billion remaining in our authorization. In light of current near-term priorities, we are temporarily pausing our share repurchase program, but we remain flexible and opportunistic as conditions develop. In August, we raised $600 million in capital through a new term loan due in fiscal 2028, resulting in total debt balance of $6.2 billion at the end of the quarter. Adjusted EBITDA was $2.1 billion for the last 12 months with total debt leverage ratio just below three times. We expect interest expense for the December quarter to be approximately $74 million. Looking ahead, we continue to face a challenging business environment, shared by macroeconomic and geopolitical teams. Seagate, like our customers, is diligently managing cash and investment amid the disrupted demand environment. We expect these factors and ongoing customer inventory corrections to weight on revenue in the December quarter. Please bear in mind our financial outlook for the December quarter is as follows: We expect revenue to be in a range of $1.85 billion, plus or minus $150 million. At the midpoint of our revenue guidance, non-GAAP operating margin is expected to be in the mid-single digit range, reflecting the impact from higher underutilization cost. And we expect non-GAAP EPS to be in the range of $0.15. That's from minus $0.20. I will now turn the call back to Dave for final comments. Dave Mosley: Thanks, Gianluca. Seagate's team is acting with determination and agility to rapidly adjust to a highly uncertain environment. I'm incredibly proud of their unwavering focus. Throughout our 40 plus year history, Seagate has successfully operated through many adverse conditions, and we are putting that experience to work. We're taking the right actions to strengthen our near-term financial position and optimize liquidity through this period. We're driving forward on our technology roadmap which makes us poised to quickly recover, as market conditions improve, as well as capture the significant future opportunities ahead. Finally, we continue to operate with a deep sense of commitment to all of our stakeholders, our people, our customers, the communities in which we operate, and, of course, to our shareholders. Gianluca and I would like to now take your questions. Operator: We will now begin the question-and-answer session. [Operator Instructions] And our first question today will come from Wamsi Mohan with Bank of America. Please go ahead. Wamsi Mohan: Yes. Thank you. Good morning. As you look into the December quarter, you've not reported a sub $2 billion revenue quarter. I went back and checked all the way since back in 2005. What is your view on the inventory levels? And how much below-demand levels are you currently shipping? And do you expect to exit the December quarter with a lower inventory level? If I could also ask just are you expecting higher underutilization charges in December? Or should we expect the same magnitude? Thanks. Dave Mosley: Thanks, Wamsi. I'll let Gianluca quantify the underutilization charges. I think the blunt answer to your question is, yes, we're expecting to get the inventory levels of our owned inventory and then of the customer inventories down this quarter. We'll watch the customers what they have at the builders, what's that flow-through hopefully. We would have hoped that it would have happened by now, but I think macroeconomic conditions are weighing on everybody a little bit that way. And we believe that by controlling our own build plan, which results in higher underutilization charges that we can actually get our owned inventory down as well. Gianluca Romano : Yes. During the September quarter, we reduced production twice at the beginning of the quarter and then again during September. And we actually increased even more through the end of September. So we had more than $50 million of underutilization charges in the September quarter. December will be higher. So we start already with a lower production than the beginning of the prior quarter in October, in November. And then in the month of December, we will, of course, look at the demand for the March quarter and see if we can start to ramp back production or we need to keep it lower. And I think Dave wants to add something. Dave Mosley: Yeah. I think also just to your other point about this is pretty low historically. It certainly is. There's still macro challenges ahead of all of us. I think in F Q2, the consumer is pretty weak. Channel inventory is still fairly high, not on an absolute unit basis but on a run-rate basis, certainly. And there's kind of muted to no seasonality at all this year in F Q1 or F Q2 for us. And we're not expecting the cloud recovery in F Q2. We just are watching the inventory levels. And China will also -- the recovery will be slow there. We've been predicting some sort of recovery for about three quarters. And there is a little bit of sentiment that things will start to get better, but we want to see that in hard purchase orders just to be really frank. So the recovery is all dependent on the pace of the customers working through these inventory levels. Wamsi Mohan: Thanks for the color, Dave. And if I could -- I mean, this is -- I know you guys said you really can't talk a lot about this export regulation area. But could you just give investors some sense on why you believe the shipments are not subject to export regulations? Does it have to do with the IP for the products and where it resides, or any color you can share about why you have confidence in your position. Clearly, you articulated that you do? So it's the why is, I guess, important from an investor standpoint. Thank you. Dave Mosley: Yeah, Wamsi, I think like Shanye said, we don't really think it's appropriate for us to be commenting on it at all at this time. I mean, we'll cooperate transparently, and we believe we have a really good compliance program in place with all the policies and procedures. So that's what builds our confidence. But like I said, we'll communicate transparently. I just don't think it's appropriate for us to be commenting. Wamsi Mohan: Okay. Thank you so much. Operator: And our next question will come from Krish Sankar with Cowen and Company. Please go ahead. Krish Sankar: Yeah, hi. Thanks for taking my question. Hi. The first one for Dave. I'm just kind of curious heading into 2023, how should we think about the pricing environment? Is there a way to quantify it or qualitatively see relative to the last downturn in 2019? And if we extrapolate how to think about revenue growth for FY23 or calendar '23? And then I had a follow-up. Dave Mosley: It's still a little too hard to call revenue growth. I'll let Gianluca quantify some of the pricing environment discussions. But I would say at the high cap, the 20-plus terabyte family, pricing was relatively benign. I think there was really competitive space, especially in legacy and the low cap nearline because those markets are so depressed right now. So it was fairly competitive. And I think this is just a sign of the times in the industry when factories aren't full people want to get as much demand as they can to keep running their factories. And we're all mindful of that right now. So I think we need to see supply and demand come back in the balance to see a better environment. Gianluca Romano : In the legacy market, we saw some pricing pressure, so the low capacity drives, maybe also coming from the very low price of the NAND right now. On the high-capacity drive, as Dave said, the price environment is still very favorable and say fairly stable. So I would say different from what we have seen in prior down cycles. Krish Sankar: Got it. Got it. Very helpful. And then just as a follow-up, clearly, your cloud customers, there's obviously very high levels of inventory digestion. There's pricing pressure. Have you seen any market share shifts in this environment, either in your favor or against you, especially among the U.S. hyperscalers? Dave Mosley: We're not really trying for market share, I'd say at this point in time. We're watching all these inventories levels. And we're saying, let's make sure we build the right absolute right stuff. So I think there various challenges that I can articulate at various hyperscalers. And they have different business models, different dynamics within them. Some have multiple business models. So there's macro implications as you're hearing from some of their comments. And there are also architectural transitions and there are still supply chain shortages. In some cases, some of the supply chain shortages led to situations where people bought too much of the wrong stuff, and then there's even overages in the supply chain. So I think it's really complicated as to how this inventory built. Fundamentally, the creation vectors for data and the consumption of mass capacity drives have not changed. There is an aging of the fleet going on. There's replacement of old mass capacity drives with the new ones which has TCO proposition, higher capacity drives are just better that way. And so all of the relevant trends still exist. We believe that the drives that are in the data centers today are being used. They're more full than ever. The data keeps coming at them because of all the hyperscaler product offerings that are incentivizing people to move to the cloud. So we think this is just a temporary environment. Gianluca Romano : Down cycle for me—in a down cycle, market share is not -- should not be the priority or -- the important is to focus on free cash flow. And keeping the free cash flow positive and also to keep the pricing environment as stable as possible, and this means reduced production, try to keep supply and demand in a good balance. And of course, preparing for the long term demand that we -- for sure, we still see very, very solid. Krish Sankar: Got it. Thanks Gianluca. Thanks, Dave. Operator: And our next question will come from Karl Ackerman with BNP Paribas. Please go ahead. Karl Ackerman: Yes. Good morning, Dave and Gianluca. Two questions for me as well, please. The first one is on HAMR. And so I guess as you think about ways to reach demand equilibrium, how are you thinking about transitioning capacity to HAMR during this softer period? I guess, does the transition to HAMR create the need for retooling head and possibly media production? And I guess as you address that question, could you also discuss the buy-in on HAMR from your cloud customers and some of the progress you referenced in your prepared remarks. Thanks. Dave Mosley: Yeah. Thanks, Karl. What I would say is that in the current environment where you have free capacity in your fabs, you use that to run more and more experiments to accelerate things. I mean, that's one lesson from numerous downturns in the past that I have. So we're definitely taking advantage of that to do all we can to accelerate not only HAMR, but get the yields up and the scrap down and get to better cost platforms and things like that. We're gaining so much confidence on HAMR that not only are we talking about the dates, but we're also talking about the ability to move capacity up beyond just introductory, say, 30-terabyte platform up to higher capacity points. That also allows us then to take componentry out of 20-terabyte drives, for example, so that we can address the market that way. So all of that is going on right now inside Seagate. And I would say it's not just about one small piece of technology HAMR. It's also about readers and certain mechanical subsystems and electronics and everything else is really being brought together. We're in full stage product development right now and like I said in the prepared remarks, very happy with the progress. Relative to CapEx, we've been planning for these transitions for a long, long time. So there's only a few tools that are tremendously complicated. The tools that we use that are making average recording heads and recording media. Those tools can be repurposed and they're pretty sophisticated. We know how to run them. So a lot of confidence on being able to hit the ramp that way. Karl Ackerman: That's very helpful. If I may squeeze one more in. Given the strength of your systems business this quarter, are there still match set challenges for you in that business? And are you still facing long lead times for other hard drive input components or have those challenges loosened and I guess, maybe back to what you would consider normal? Thank you. Dave Mosley: Yeah. I think from a hard drive perspective, it's an easy answer. We have plenty of inventory right now. So we need to bleed that off. Relative to the drive side, or sorry, to the system side, we have had shortages, and I think the broader industry has had shortages. And sometimes just individual $1 component, sometimes assemblies like power supplies or nicks or things like that. What I would say is that most of that is breaking free. It's not completely done yet. One of the reasons for the success of our systems business is the complexity is not very high. And so people are used to very bespoke solutions in that world, but they'll take what they can get and they're aggregating on less complex, simpler to achieve from a supply chain perspective designs. We see some smaller competitors really struggling for that, and that may even mean they have to exit the market. So I think we've had quite a bit of success in our channel business as well. So I think all of these trends are really supply chain trends. We believe by building very, very few SKUs and building them well, that we'll have a market advantage. Operator: And our next question will come from Timothy Arcuri with UBS. Please go ahead. Timothy Arcuri : Hi, thanks. I seem to recall that the term loan, I think, has some covenants, maybe 4x is the covenant on the term loan. And it seems like you might be breaching this over the next few quarters. So I guess the question is sort of how comfortable can we be with the dividend. Can you sort of talk through that? Gianluca Romano : Yeah. No, we are happy with the liquidity that we have. Actually, no, our cash balance is higher than prior quarter. As you have seen, we have increased our debt during the September quarter. We are, of course, looking at covenants, looking at debt structure. And if we have to take actions there, we will, for sure, do it. But now we are -- as we said in our prepared remarks, we are comfortable with the level of our dividend, but we are pausing on our share buyback for a while. Timothy Arcuri : So I guess just following up on that. So is the commitment -- I'm just trying to figure out in the continuum of the commitments for capital, is the dividend right at the top of the list? In other words, you would do what you would have to not cut the dividend. Is that a fair statement? Gianluca Romano : Yes. We want to protect the dividend. As you know, one of our priority is shareholder return. And dividend is an important part of that. And we know that and we want to protect the dividend. Dave Mosley: And we'll continue to invest in ourselves and all the other things that make us Seagate through these periods of time. We have to come up with a plan and execute the plan relative to all those things, and that's what we're out to do. It's one of the reasons why we're dipping into our inventory, getting working capital flowing a little bit more right now, not just to pause on the share buybacks, but we definitely want to execute this plan as aggressively as we can, as early as we can to make sure that we're safe. Timothy Arcuri : Great. Maybe as my follow-up, I had a question on this letter from BIS. And maybe can you help us -- I'm sort of trying to handicap the revenue, what the right normalized revenue would be if something were to come from this letter. I'm trying to handicap what the right normalized revenue is so -- Shanye Hudson: Hey, Tim. Tim, I'm sorry. This is Shanye. Sorry. We actually -- as I mentioned earlier, just sort of two things. Again, we believe that we've actually complied with all relevant export control laws and we continue to cooperate with BIS, as it relates to this matter, but we're not going to comment any further on this call. Timothy Arcuri : Okay, okay. Shanye, thank you so much. Operator: And our next question will come from Erik Woodring with Morgan Stanley. Please go ahead. Erik Woodring: Hey, good morning, guys. Thanks for taking my questions. I have two, if I may. Maybe, Dave, just first for you. Can you maybe marry the comments you had in your preannounced, the preannounced text today, with what you talked about at the beginning of September, meaning at the beginning of September, you mentioned for the first time that certain U.S. hyperscaler terminology, that's the cautious buying terminology. And then today talked about uncertainty worsening in the latter part of September. Does that imply that demand or purchasing habits from U.S. hyperscalers has incrementally deteriorated since the preannouncement or over the trends that you saw in September, still relatively in line with what you spoke about back in early September? And then I have a follow-up. Dave Mosley: I do think things have been changing through the course of the summer. So yes, let me give you a little bit of color in. And in some cases -- in many cases, we have LTAs that we're constantly negotiating to give us predictability. We need that predictability to kind of run our factories and communicate with our supply chain partners so that we can get efficiency and lower cost and so on. Typically, the customers had been in the past, pulling above the LTAs. What you saw through the course of the summer was a market change. And I think -- I won't say exactly when it happened because we have lots of LTAs. Some are longer than others. They time out at different times. They're subject to changes things come up for renewal. So it's fairly complex. But as we get close to some of them ending within a quarter at the end of the LTA, for example, we're negotiating the next one, we get a sense of the inventory, the data center build-outs that have happened or that are going to continue to happen, and that's what really changed this summer, if that helps for the color. Erik Woodring: Okay. That's helpful. Thanks, Dave. And then maybe, Gianluca, just one for you. Kind of, to think about the impact of your restructuring plan, is it the view that kind of your quarterly run-rate OpEx can be closer to, let's call it, $290 million starting in the March 2023 quarters after you go through this restructuring? Or does your current OpEx base incorporate some -- not just September, but then December incorporates some of the early parts of your restructuring efforts? Thanks. Gianluca Romano : Yeah. We are executing the restructuring plan in November so you will see already some impact in the December quarter. I would say $290 million is very aggressive. It's probably in the $300 million range for the next few quarters. Erik Woodring: Okay. Thanks so much. Gianluca Romano : Thank you. Operator: And our next question will come from Aaron Rakers with Wells Fargo. Please go ahead. Aaron Rakers: Yeah. Thanks for taking the questions. I've got two as well, if I can. With regard to going back to the LTAs and kind of just trying to establish better predictability in the overall business, I'm curious of how your discussions have gone over the past couple of months or how they've changed with the cloud vendors. And what you hear from them as far as assessing the level of inventory that they have relative to -- I think the comments in the call was that you've not seen any change as far as the demand drivers for the business. That degree of visibility that you're actually able to get at these cloud vendors of what they're holding, appreciating that each one is probably a little bit different. Dave Mosley: Right, Aaron, they are -- and it's a fairly complex space. But I will say that -- if you look at what's aging off, the exabytes that are aging off is actually pretty small. The exabytes that they're putting on is relatively large. So the -- we believe the growth in usage of exabytes is large, but we also believe there's a little too much inventory. I'm not going to say it's -- I'm not going to try to quantify how much that is. I think there's other reasons why some of the pauses in data center build-outs have happened. And depending on which customer you're specifically talking to, it's -- can be complexities in their supply chain. It's not necessarily their business models that are driving the problem there. So -- and it's a complex space globally. There's lots of different kinds of LTAs. We would just -- I would say that as they -- what I said before is as they've timed out, people have given us visibility to the next one and the next one is significantly lower. So then therefore, we're in a period of coming to reality on that relative to what we're building and making sure we're disciplined through it. Aaron Rakers: And then I believe in the comments in the call, you had suggested that the expectation was we return to kind of a high 20% growth rate in nearline capacity shipments at some point as we work through this, and we see recovery start to materialize. Correct me if I'm wrong, I think in the past, we've talked about north of 30% or even mid-30% growth. Is there something that's changed in your mind structurally as far as the growth underpinning the nearline business going forward? Dave Mosley: So there's a difference between mass cap and nearline. So mass capacity typically would run a little bit higher -- or sorry, lower. And then nearline would grow a little bit higher. So that's the reason for the difference. But I think our fiscal '23 will be an anomalous year for sure. And what kind of new trajectory we get into is -- obviously, as we continue to build exabytes in the cloud, the growth rate will come down over the next 10 years. But I do think that we believe the fundamental drivers are still there for data. We're pretty excited about answering that with more and more efficient drives as well, so which is why we're using this period to kind of get those drives into the factories to come out as aggressively as we can afterwards. Aaron Rakers: Yeah, thank you. Operator: And our next question will come from C.J. Muse with Evercore. Please go ahead. C.J. Muse: Yeah. Good morning. Thank you for taking the question. I guess first question, I was hoping to dig a little bit deeper into gross margins. You talked about further utilization cuts. Is there any math you could kind of provide how to think about kind of fixed versus variable COGS? And also as part of the restructuring, what kind of impact will that have on gross margins and on what time frame? Dave Mosley: I'll let Gianluca answer quantitatively for you. I would just say that a lot of it comes down to this fundamental premise, just don't build anything speculatively when you're trying to manage cash. So we're not managing a gross margin outcome as much as we are just watching and making sure that any start that we have, that we pull from stores and we use our cash that we're going to ultimately get paid for. We don't want our cash tied up at this point. We are going to make -- because of that, we're going to make a big dent in inventory, and we're very mindful of the impact of the factory workers in the supply chain and so on. But we just believe it's critical to resize the business for the future right now. So Gianluca, do you want to answer? Gianluca Romano : Well, on the utilization charges, as I said before, we had a little bit more than $50 million in the September quarter. When we go into the December quarter, we expect that to be higher and the revenue actually you expect to be a little bit lower. So the impact to gross margin percentage is, of course higher. On top of that, you need to look at the mix. In the September quarter, we had a lower mass capacity percentage compared to the total HDD revenue, compared to the prior quarter. And we also had higher system. And system actually have a little bit lower gross margin than hard disk in general. So it depends also how the mix will be exactly in December. But probably as you have seen from the guidance, we expect a further decrease in gross margin in the short term. But we are very comfortable with the long term, as soon as the microeconomic situation will improve, especially in Asia and then in China, and this inventory correction will be over, and we go back to our more normalized revenue level. We actually expect to have a strong gross margin, as we were doing just three quarters ago. And there is no reason why we should not be in that range again. C.J. Muse: Very helpful. As a follow-up question, I guess, specific to the VIA market and thinking around surveillance in China, and totally separate question from kind of the BIS issues you referred to earlier. But curious if you're worried at all about increased regulations coming out of the BOC and BIS as it relates to further entities in China being placed on the entity list or unverified list. Is that something that you're contemplating as a potential risk to that part of your business? Dave Mosley: Well, we still watch all of the regulations that come out and process them, not only for how it might impact our products, but how it might impact the broader market as well, right? It's not just demand, it's other parts of the market. And we've seen some impacts there over time for all markets. I think broadly speaking, there is a healthy diversity of different customers satisfying end demand. And I do think that ultimately, the demand is going to shift somewhere else because the demand for smart city applications, as we said in our script, is still there. People want efficiency, whether it's in traffic control, like we talked about, or healthcare or video surveillance around the world make people safer. So we think that market has been underserved probably for the last year, and we think ultimately, it's going to come back. So it's just -- we're not building or packing into the products right now because we want to make sure that we see the purchase orders. C.J. Muse: Thank you. Operator: And our next question will come from Shannon Cross with Credit Suisse. Please go ahead. Shannon Cross: Thank you very much. Gianluca, maybe could you talk a bit about beyond inventory and lower CapEx, any other levers you see that you could pull within working capital or other areas to drive incremental cash flow? And then I have a follow-up. Thank you. Gianluca Romano : Well, we focus on all we can manage in the working capital. But for sure, the inventory level is the main driver that we can use right now. Our inventory has grown from $1.1 billion before the start of the COVID to almost $1.6 billion in the September quarter. So we have opportunity right now to reduce our inventory. It of course, will not happen all in one quarter, but we will diligently reduce our inventory in the next couple of quarters. Dave Mosley: It's not as big, Shannon, but we can go with yields and scrap. And these are still material numbers that the team can use, the time, the excess capacity, and so on to do the right experiments to drive those on the right products. Shannon Cross: Okay. Thank you. And then, Dave, I don't know if you can talk a little bit about this, but it seems like this restructuring is very obviously headcount focused. But are there other areas where you're reducing costs? Because it seems like this is kind of a flex down given the macro environment and obviously, the challenges with inventory and that, more than maybe a structural restructuring, if I can say that? Or am I off on that? And there's some actual big structural changes you're making to the business? Dave Mosley: Yeah. I would say we'll still have the ability to flex up. Obviously, people impacts are the toughest parts of the job, and we're really sensitive to not only the people but the communities and the supply chain. There are big impacts happening right now. We are lowering output of some of the legacy products and completing product transitions to future products, which are more efficient products as well, just from a support perspective. So the complexity of the product line is coming down and resetting the factory footprint a little bit. We haven't talked about that very much. But there are demand realities out there what line we have, where it may actually impact the factory footprint. So there's OpEx support around that as well. That will all help as we restructure and then come out. We're very mindful of the fact that we do need to accelerate into the future with the right products as well because that's been the nature of this business. I don't think there's a massive structural change in mass capacity data that we're planning at this point in time. We're just dealing with the reality of the current environment. Shannon Cross: Okay, thank you. Operator: And our next question will come from Jim Suva with Citigroup. Please go ahead. Jim Suva: Thank you very much. You've been very clear about the restructuring that's going on in the December quarter. And given the September quarter, which just ended, and in your December outlook, do you think that's actually sufficient to right-size equilibrium supply and demand? Or do you think it's going to be like a more prolonged as you look at these ELAs and all the demand characteristics inputs from your customers? Do you think it would be a bit little bit longer prolonged recovery? Or do you think after the December quarter, we're going to be pretty free and clear then? Gianluca Romano : Well, it's a bit difficult to say right now. So what we are doing is keeping the level of production down for the month of October and November for sure. And then at the end of November, we will look at a more tangible demand for the quarter of March and also June and see if it's the right time to ramp it back or if we need to keep it down for a few more weeks. Dave Mosley: Yeah, I think, Jim, maybe this ties back to Shannon's question as well. Mass capacity was up almost 60% in fiscal calendar '20, mid-30s in '21. FY23 is likely going to be negative. That's the first time that's ever happened before. So it's not that data is not growing. It's certainly growing in all the application space. I just think that we've got to make sure we reduce our manufacturing build plans to maintain this healthy supply discipline. And we may see a pop back to some of those big spikes again. It may be a more muted growth. We don't know, but we're really confident in the long term drivers. And so we'll take this reset right now and then deal with the future as it comes. Jim Suva: Great. Thank you so much. Operator: And our next question will come from Sidney Ho with Deutsche Bank. Please go ahead. Sidney Ho: Great. Thanks for taking my question. My first question is on gross margin. So it sounds like your gross margin will be down quarter-over-quarter in December based on your answer to a previous question. But more importantly, how much are you under earning your gross margin versus normalized level? Maybe help us break down by the various components between underutilization charges, COVID costs, logistics costs, maybe revenue mix? Anything there would be helpful. And I've a follow-up question. Gianluca Romano : Well, based on the level of production that we have today, underutilization charges will be substantially higher than the September quarter because the period of time where we keep the production level low, will be at least two months. We still don't know exactly if we need even to go a little bit longer. But that is the main reason why the gross margin is declining. And of course, with the top line being lower or the percentage is impacted even more. So that is, I would say, the majority. In terms of the COVID cost, there's been fairly flat quarter-over-quarter. We don't think that part will deteriorate. Actually now on the freight, we know we are spending a little bit less because we ship less unit. So those are the main drivers. And then with the restructuring, when we go in the next -- in the March quarter, the restructuring will start to have some positive impact to our P&L, of course. Sidney Ho: Okay. That's helpful. My follow-up question is, you talked about customers' inventory drawdown through at least the December quarter. Are you suggesting that revenue will grow in the March quarter? And then to the -- follow-up to that, how do you see this cycle playing out for the nearline market compared to the previous cycles in 2020, 2018, 2016. Those cycles usually fixed by dropping two to three quarters, and then it comes back on maybe a quarter or two quarters later. Do you think that will be comparable this time? Dave Mosley: I think 2016 was kind of a double dip. So it was a real odd ball. I don't expect that's going to happen here. I think what we have is a phasing up of a confluence of factors between macroeconomics and architectural transitions like we talked about, some supply chain issues that people still have. I do think we'll see some people start to come out of it sooner rather than later and other people may be more conservative. So it's too early to call exactly when it's going to happen, but we're going to be watching it very carefully and then making sure that we use our cash to only build what's absolutely necessary for the market through that period. Sidney Ho: Thank you. Operator: And our next question will come from Ananda Baruah with Loop Capital. Please go ahead. Ananda Baruah: Hey, thanks, guys. Good morning. Thanks for taking the question. Yes, I'll ask two, real quick. One on gross margin and then one on the restructuring plan. On the gross margin, so is it -- are you guys -- I guess the question is are you guys adjusting your production capacity at all? Or are you holding pat and just absorbing the restructuring charges right now? And I guess, sort of the follow-on to that is sort of that would -- sort of suggesting that any pickup in gross margin is all production-related going forward? And then I have a quick follow-up. Thanks. Gianluca Romano : Well, I said this before, of course, the level of production will have the majority of the impact on our gross margin in the future, but also the restructuring. We are restructuring the company. This will give us some benefit and some financial benefit in the future. A part of this restructuring, a significant part of this restructuring is actually in manufacturing. So when production level goes back up to where it was before, and our top line will start to improve. As I said before, we expect gross margin to go back to where it was and even better. Ananda Baruah: Got it. So the restructuring it also involves production? Is it production capacity as well, Gianluca? I guess, could you give us any sense of how to think about the split of the restructuring program between that? Dave Mosley: I think, Ananda, as you know, there's many different types of factories that we have. So some are dramatically underutilized. Others will keep running relatively heavy because we're doing experiments to make sure that we can do product transitions and get the yields up on the products that are going to bring us out of this period. And some of those products are way more efficient as well. So we can use that not only the investments that we're making from an OpEx perspective but to guide ourselves toward what restructuring we need to do of our manufacturing footprint through this period. So I think they go hand in glove. Gianluca Romano : But longer term, Ananda, longer term, we will also have the benefit of our new technology. So with a 30-terabyte HAMR and future products based on that technology, we also expect that to be accretive to our gross margin. So there are many things that you need to consider when you start to model longer term. Ananda Baruah: And Gianluca, when do you think you're at run rate for the OpEx portion of the restructuring program, like what do you think is the run rate? Gianluca Romano : Yes. So if we execute the restructuring, as we had planned in November, I would say the March quarter will include the full benefit. Ananda Baruah: Got it. All right. Thanks, guys. Appreciate it. Operator: And our next question will come from Thomas O'Malley with Barclays. Please go ahead. Thomas O'Malley: Hey, guys. I just wanted to ask kind of an overarching question on the recovery here. Obviously, there's pretty limited visibility right now. Clearly, you're working through new negotiations with your customers, but could you just help give us a picture of how long and how deep this recovery may last. Obviously, you're guiding substantially down for December. As you look into the March quarter, obviously, customers are acting differently, but would you expect the total company revenue to be down again? Or do you think that you could see a recovery starting at the beginning of the calendar year? Gianluca Romano : Well, of course, it's difficult to predict the future, and we have been a little bit surprised recently, but I can tell you in our internal plan, we see an improvement in the March quarter compared to what we carry in December. Dave Mosley: And Tom, certainly on what we're planning on building and then moving, we intend to reduce our bills right now to make sure that the inventory gets properly adjusted. We said in our last quarter as well. I mean -- so we're watching the inventory that the entire market has. But we also do think that at some point, mass capacity is going to start climbing again. So we just want to get there with the right products and to make sure we control the bills. Gianluca Romano : Especially if the situation in China will start to improve compared to what has been in the last six months. That will be a major benefit to our business. Thomas O'Malley: Got it. And then my second one is just on the right mass capacity exabyte growth rate for the long term. So I think, Dave, you talked about conversations with U.S. hyperscalers right now, most of them are coming in kind of below what the long term agreement was. They were pulling above that previously. But you're really only taking the mass capacity growth rate down from like 30 to like the upper 20s range. Obviously, nearline has been running above that. But with all these LTAs or these conversations that you have with these cloud guys coming in below, like how do you get comfortable with the fact that that mass capacity is still at that high 20s rate? Like shouldn't it be normalized a little bit lower than that, given that these guys look to be ordering at a slower rate coming out of this higher growth period of time? Dave Mosley: Yeah, that's good. So this year it will be so far down, that the question is, does it snap back or like I made reference earlier in the call here to I think calendar '20, where it was 60%. So I don't expect that, just to be blunt, but this is exactly why we go work those LTAs, give people predictability, our sales predictability on what exactly the demands are for our factories, and then give the customers the predictability so that they can understand the pricing environment and so on and the number of exabytes we are going to need to pull. And so we are still having those conversations very seriously with everyone. I think what changed through the course of the summer was the fact that they were telling us about what's going on this fall. And we got this phase-up of all these different macroeconomic business, architectural transitions that were happening that are affecting us. Thomas O'Malley: Thank you. Operator: Our next question will come from Toshiya Hari with Goldman Sachs. Please go ahead. Toshiya Hari : Hi. Thanks so much for taking the question. I joined late, so apologies if you've already addressed these questions. First one on pricing on a per-exabyte basis for your mass capacity business. I think in the quarter, that number was down kind of mid-single digits on a sequential basis, down kind of low teens year-over-year. I think there was a 12 month stretch from mid-'21 through early '22, where pricing per exabyte was down in the single digits. Pre-COVID, it was down 15%, plus or minus. So should we expect pricing in your mass capacity business on an exabyte basis to be down low to mid-teens going forward? And kind of the benign conditions last year were kind of one time, if you will? Or should we expect pricing to improve as you come out of this inventory digestion phase? Gianluca Romano : No, I think the price will improve. Of course, in the September quarter, the mix is also very important. We shifted a lot of our 20 terabyte. So it's difficult to just look at the price in total. You really need to look at the price on the like-for-like for the same product. What I said before that maybe, no, you didn't get because you were not here. On the legacy part of the business, we have some pricing pressure. On the mass capacity, the mid capacity, there is some reduction, but on the high capacity drives, the pricing is very stable. Toshiya Hari : Got it. That's helpful. And then, Gianluca, on free cash flow, as you go through this inventory digestion phase and lower levels of revenue, should we brace for a quarter or two of negative free cash flow? I don't think that's happened with you guys in a very, very long time. Or do you think you have enough levers on the working capital side to stay positive free cash flow for the next couple of quarters? Thank you. Gianluca Romano : We think we'll stay positive. I said before, we also have a fairly high level of inventory that we are reducing. So this will help also with our free cash flow. So we don't expect so far any negative quarter of free cash flow. Toshiya Hari : Thanks so much. Gianluca Romano : Thank you. Operator: And this will conclude our question-and-answer session. I'd like to turn the conference back over to management for any closing remarks. Dave Mosley: Thanks, Cole. As always, I'd like to thank all of our stakeholders for their ongoing support. I'm confident Seagate will navigate through these near-term difficult conditions and be in a stronger position to meet our customers' needs for innovation and for cost-effective storage solutions well into the future. Thanks for joining us today, and we look forward to further engaging with our shareholders over the next few months. Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnection your lines at this time.

Operator: Good afternoon, everyone, and welcome to the Seagate Technology Fourth Quarter and Fiscal Year 2022 Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. And at this time, I'd like to turn the conference call over to Shanye Hudson, Senior Vice President; Investor Relations and Treasury. Ma'am, please go ahead. Shanye Hudson: Thank you. Good afternoon, 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 June quarter and fiscal year 2022 results on the Investors section of our website. During today's call, we will refer to GAAP and non-GAAP financial measures. Non-GAAP figures are reconciled to GAAP figures in the earnings press release posted on our website and included on our Form 8-K that was filed with the SEC. We've not reconciled certain non-GAAP outlook measures because the material items that may impact these measures are out of our control and/or cannot be reasonably predicted. Therefore, reconciliation to the corresponding GAAP measures is not available without unreasonable efforts. Before we begin, I'd like to remind you that today's call contains forward-looking statements that reflect management's current views and assumptions based on information available to us as of today, and should not be relied upon as of any subsequent date. Actual results may differ materially from those contained in our – in or implied by these forward-looking statements, they're subject to risks and uncertainties associated with our business. To learn more about the risks, uncertainties and other factors that may affect our future business results, please refer to the press release issued today and our SEC filings, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q, as well as the supplemental information, all of which may be found on the Investors section of our website. As always, following our prepared remarks, we'll open the call for questions. Now I'll hand the call over to Dave for opening remarks. Dave Mosley: Thank you, Shanye, and welcome to those of you joining us on today's call. Our June quarter financial results reflected near record of data center demand, contrasted with the impacts from a confluence of macro headwinds in other end markets, particularly in the consumer-facing legacy markets. We believe the secular data trends driving long-term demand growth for mass capacity storage and infrastructure remain intact, as I will discuss a bit later. However, the impacts from COVID lockdowns in Asia, non-HDD component shortages and global inflationary pressures intensified late in the quarter. Our resulting June quarter revenue and non-GAAP EPS declined quarter-on-quarter to $2.63 billion and $1.59, respectively. While macro events are weighing on our near-term performance, Seagate's financial achievements for fiscal 2022 were noteworthy. We grew revenue by 9% year-over-year, fueled by 24% growth in our mass capacity products. We expanded profitability even faster than revenue, leading to fiscal year non-GAAP gross margin above 30% and non-GAAP operating margin above 18%. And we achieved record non-GAAP EPS of $8.18. In fiscal 2022, we generated $1.3 billion in free cash flow, our highest level in 4 years and maintained our commitment to returning cash to our shareholders, funding $610 million in dividends and repurchasing 9% of our shares outstanding. We are also demonstrating technology leadership and executing our product road map to support the growing demand for data. We attained our fastest ever ramp with a 20-plus terabyte nearline platform, handily beating the projections that we made at the start of the quarter. We are on track to achieve volume and revenue crossover with the 18-terabyte drive in the current quarter. The 20-plus terabyte product family is based on our highly successful common platform design, which has enabled us to scale and ramp the yield quickly, as evidenced by the results I just shared. We have the flexibility to extend into the mid to upper 20 terabyte capacity points with minimal changes to our design, which allows us to meet customers' timing, readiness and offers an attractive cost profile for both customers and for Seagate. We have worked tirelessly over the last 3 to 4 years, improving the resilience of our supply chain, aligning our mass capacity product portfolio to our customers' needs and strengthening our financial foundation. Our operational execution, combined with structural changes that have taken place in the industry, namely the transition to mass capacity products and increased supply discipline, support our view that the company is fundamentally stronger today and better positioned for the future. Let us now turn to the current market environment. Despite the ongoing impacts of COVID lockdowns and supply challenges, mass capacity revenue was flat quarter-over-quarter, due in part to strong cloud customer adoption of our 20-plus terabyte nearline drives. U.S. cloud data center demand remained strong However, persistent non-HDD component shortages have led to inventory imbalances, precluding new data center build-outs from being completed. These, along with other supply disruptions have led to a buildup in inventory levels across a broad spectrum of customers, a trend that continued through the end of the quarter. As macro uncertainties and inflationary pressures intensify, we expect customers will increasingly focus on reducing their inventory levels, while maintaining the ability to address end market demand. At the same time, our Asia-based cloud customers are dealing with the impacts of COVID restrictive measures, which have had four reaching effects across all of the end markets that we serve in the region. In the VIA markets, recall that many of the major projects driving demand are in the Asia region, particularly in China, where lockdowns are impacting our near-term revenue. While the situation remains fluid, we are confident that mass capacity demand growth will resume once lockdowns ease and inventory levels normalize. Within the legacy markets, demand rapidly deteriorated at the end of the quarter, as lockdowns and surging inflation severely impacted consumer spending for PCs and external drives. Exiting the June quarter, the legacy business represented only 20% of our HDD revenue, which is a historic low. In response to the current business conditions, Seagate is taking actions to maintain strong supply discipline and a favorable pricing environment. We are reducing our manufacturing and production plans, while continuing to focus on driving efficiencies in the factory and across supply chains. We are maintaining prudent cost controls across the business and executing our product road map which also helps to support our customers' TCO objectives. While the current environment is challenging, the multiple secular drivers fueling long-term demand for mass capacity storage have not changed, and, in fact, continue to expand. Digital transformation is still in the early innings, according to leading cloud service providers who have estimated that only 10% of corporate IT has moved to the cloud. New AI applications continue to emerge with the AI engines requiring a massive amount of new data for training, data that must be captured analyzed, stored and moved across a more distributed and multi-cloud network. And as the digital and physical worlds begin to converge, enterprises are employing data-intensive digital twins to enhance decision-making and overall business efficiencies. These trends dovetailed into a view that businesses will need technology investment strategies to remain competitive in a data-driven world, which includes the need for mass capacity storage and infrastructure. Seagate is poised to benefit with a broad product portfolio of cloud and edge infrastructure solutions from mass capacity HDDs to enterprise systems to our live cloud and mobile service offerings. We are executing our development plans for the 30 terabyte plus product family based on our innovative and HAMR technology, which enables capacity points of 30, 40, 50 terabytes and beyond to support future data demand growth. Seagate's innovation extends beyond our HDD technology leadership. We're garnering recognition for our systems portfolio, capturing the coveted Product of the Year Award for Hardware Infrastructure at this year's NAB show for our CORVAULT storage system. CORVAULT has also gained customer attention with its unique autonomous drive regeneration technology, which combines our device and systems expertise to enable self-healing capabilities. These systems provide enterprise CIOs with peace of mind that their data will be protected, while offering a strong TCO value proposition. Additionally, technologies such as self-healing, distributed data protection and secure rates play a critical role in reducing the environmental impact of our products. Drives with these technologies can be repaired, reused or recycled rather than just discard it, thus helping to preserve the ears and precious resources. These efforts are critically important to Seagate and a key pillar of our product circularity strategy. We are also receiving very positive feedback from customers on a global basis for our work in this area. In closing, Seagate has a broad exposure to the strong secular tailwinds driving demand for mass capacity storage. These trends remain intact, which lends confidence that growth will resume as supply constraints and COVID lockdown impact ease. Seagate is fundamentally a stronger company today and is exceptionally well positioned to endure the current market environment. We have the right product portfolio, deep customer relationships and operational agility to optimize profits and fuel growth. I'll now hand the call over to Gianluca to discuss the financial results. Gianluca Romano: Thank you, Dave. While demand for our mass capacity products remain very healthy in the June quarter, the intensifying economic pressures buildup of inventory at our customers and COVID restrictive measures that Dave discussed earlier and the most significant impact on our results than we were anticipating, particularly in the legacy business. Despite lower-than-anticipated revenue level and extraordinary cost pressures, our non-GAAP gross margin expanded slightly to 29.3% in the June quarter with HDD gross margin remaining comfortably inside our target range of 30% to 33%. Our results are due in part to steady demand for our mask capacity products and a mix shift toward higher capacity drive. In the June quarter, total hard disk drive capacity shipments increased slightly to 155 exabytes, of which the mass capacity market made up 90% of the total, with shipments of 139 exabytes and 4% sequentially and 12% year-over-year. Our nearline products contributed 119 exabytes, up 1% sequentially and 17% year-on-year, most or by strong U.S. cloud customer demand for our 20-plus terabyte product family. With richer mix of high capacity nearline drives supported a record total HDD capacity per drive of 7.8 terabyte compared with 5.4% terabyte just 1 year ago. On a revenue basis, mass capacity represented 80% of total HDD revenue at $1.9 billion in the June quarter, less compared to the prior quarter and slightly higher than the prior year period. Strong U.S. cloud demand, combined with a sequential improvement in the VA market albeit of very weak March levels, offset lower-than-expected sales into the Asia south markets, which have also been affected by COVID lockdown. While we believe the end market demand disruptions are temporary, we are mindful of prevailing macro uncertainties, which influence how quickly the VA and other mass capacity markets will return to strong annual growth. Within the legacy market, revenue was $489 million, down 24% sequentially and 43% year-over-year. The decline was most pronounced in the client PC end markets, which now represent a mid-single-digit percentage of our overall revenue. Consumer demand also deteriorated more than anticipated, reflecting the sharp rise in inflation impacting consumer discretionary spending. Finally, revenue for our non-HDD business was $219 million, down about 8% sequentially and 21% year-over-year. We saw a sharp uptick in our system business as we were able to mitigate some of the component shortages we have been experiencing, which enabled us to begin shipping some of the record order backlog. However, component availability remains a challenge and impacted the SSD business during the quarter, leaving us unable to fulfill all the customer demand. We continue to work with our suppliers to support customer demand as constrained yield Moving to our operational performance. Non-GAAP gross profit in the June quarter was $771 million, corresponding to non-GAAP gross margin of 29.3%, up 10 basis points quarter-over-quarter. As noted earlier, the increased mix of mass capacity products and transition to higher capacity drives more than offset lower business volumes and higher component costs. Non-GAAP operating expenses were $349 million, slightly up quarter-over-quarter and in line with our expectation, as business drivers and sales and marketing activity in resumed. Our resulting non-GAAP operating income was $422 million, or 16.1% of revenue. We will continue to focus on managing costs and balancing supply with demand to position the company to expand operating margin back into the target range of 18% to 22 when top line growth resume, which we believe could begin later in the fiscal year. Based on diluted share count of approximately 117 million shares, non-GAAP EPS for the June quarter was $1.59. Moving on to the balance sheet and cash flow. Inventory increased to approximately $1.57 billion, as we ended the quarter with higher finished goods consistent with the rapidly changing business environment. We continue to maintain a higher level of critical components and use the ocean freight to reduce logistic cost and support future product demand. Based on our current outlook, we expect inventory to decline slightly as we move through the calendar year. Capital expenditures were $72 million for the quarter and totaled $381 million for the fiscal year or just over 3% of fiscal year revenue, expecting our focus on aligning supply and demand. Given the current business environment, we will continue to carefully manage our investment and supply. Free cash flow generation was $108 million in the June quarter, down from $363 million sequentially, due to a combination of factors, including higher inventory levels, the timing of sales and which was heavily weighted to the back end of the quarter. This impact should normalize in subsequent quarters. Overall, we are pleased with our free cash flow for fiscal 2022, which increased 13% year-over-year to approximately $1.3 billion. We currently expect continued growth in our annual free cash flow generation in fiscal 2023, depending on the pace of economic recovery. Consistent with our commitment to returning cash to shareholders, we used $152 million for the quarterly dividend and $486 million to reverse 6 million ordinary shares, exiting the quarter with 210 million shares outstanding and approximately $2.4 million remaining in our authorization. Over the past 2 years, we have reported more than 20% of Seagate share outstanding at an average price of approximately $71 per share. We ended the fiscal year with cash and cash equivalents of $615 million, and total liquidity was approximately $2.4 billion, including our revolving credit facility. Total debt balance at the end of the quarter was relatively flat with the prior period at $5.6 million. Adjusted EBITDA was $2.5 billion for fiscal '22, resulting in total debt leverage ratio of 2.2 time. As we enter fiscal 2023, we expect macro uncertainties and non-HDD component shortages to continue pressuring our end market over the near term. Drawing on our data of experience in managing the company through dynamic industry environment, we are taking action to carefully manage our cash and safeguard profitability, including managing our supply to restore healthy customer inventory levels. With that in mind, our outlook for the September quarter is as follow, we expect revenue to be in the range of $2.5 billion, plus or minus $150 million. At the midpoint of our revenue guidance, non-GAAP operating margin is expected to be slightly above 15%. And we expect non-GAAP EPS to be in the range of $1.40 plus or minus $0.20. I will now turn the call back to Dave for final comments. Dave Mosley: Thanks, Gianluca. Last quarter, I expressed confidence in the long-term growth trajectory of our business, and that view holds firm today. The multiple secular trends fueling demand for mass capacity HDD storage also catalyze growth for our system solutions and live services business and Seagate is well positioned to benefit. Our products are funded on our drive innovation, and we continue to execute our strong HDD product road maps. We are shipping the 20-plus terabyte family of nearline drives and high volume, and we are well down the development path towards launching our 30-plus terabyte family of drives based on HAMR technology. We expect to begin customer shipments of these HAMR-based products by this time next year. Seagate will navigate through the near-term market dynamics by focusing on what we do best, namely run efficient and predictable operations, partner closely with our customers, put in place prudent spending controls and align the supply with demand. We believe that these actions position us to quickly return to our long-term financial model once these macro pressures abate, delivering 3% to 6% revenue growth and operating margins of 18% to 22% of revenue, all the while maintaining our commitment of returning capital to shareholders. While the dynamic market environment is disrupting typical demand patterns, the underlying demand for data remains strong, which supports flat or even slightly higher revenue in fiscal 2023, depending on the timing and pace of the economic recovery. I'd like to conclude by expressing gratitude to our employees for their incredible efforts through the fiscal year. I'd also like to thank our suppliers, customers and partners for their contributions to our results and our shareholders for their ongoing support. Gianluca and I will now take your questions. Operator: Ladies and gentlemen, at this time, we'll begin the question-and-answer session. Our first question today comes from Aaron Rakers from Wells Fargo. Please go ahead with your question. Aaron Rakers: Yeah. Thanks for taking the question. I guess I want to go down the path on the nearline business. As you look back over this past quarter, relative to the 119 exabytes that you shipped, I guess the first part of the question is, did that play out largely as you expected? Did you see demand slow down at all through the course of the quarter? Any kind of changes relative to your initial expectations coming into the June quarter? And how are you currently kind of thinking about the demand profile of that end market, considering your comments on inventory as you kind of look at your current quarter guidance? Thank you. Dave Mosley: Hey, thanks for the question, Aaron. If I look at where we were two quarters ago, predictability of the cloud, 20-terabyte transition, those kind of tactics that you referred to. I think it's been fairly predictable through the end of last quarter. We do see, in particular, in China and some of the CSPs, some inventory overages. So what we're doing to try to compensate for that is to not make sure we don't pack into it, not building too many '16s and '18s, if you will, and hurting up the transitions to the 20s there. So it's more of a looking forward where I see issues. It's not really with U.S. CSPs. I mean everyone is having the same supply chain issues out in the world, but some people were navigating it differently. And I think there's a good market demand for mass capacity and especially in the cloud businesses. I do think there are some temporary issues that people are getting through given their supply chain points or COVID lockdowns or things like that. Aaron Rakers: Yeah. And any thoughts on how we think about the end demand? I know in the past, we've talked about kind of a longer-term growth rate in that nearline market being kind of in that 30%-plus range. Did you think that to kind of get back to that flat to slight revenue growth into - for fiscal '23, that, that's how we should kind of think about the demand profile into the back half of the fiscal year? Is that kind of how you're thinking about it? Dave Mosley: Yeah. So we're going to pause a little bit because you know, make sure the inventory flows through here in the front half of the year, but we'll eventually get back on that. And we do have products coming higher capacity points, which actually helps drive the exabytes demand as well as those customers wake up, maybe they were stuck on '16 before and now they're going to be a 20-year plus - 20-plus, right? So that will help the exabytes demand as well. Ultimately, we're going to be driving out of the back of this fiscal year, like we said, 30 terabytes. So we should get back to some healthy exabytes growth. But I think what we're seeing right now is very tactical. Aaron Rakers: Okay. Thank you. Dave Mosley: Thanks. Operator: Our next question comes from Wamsi Mohan from Bank of America. Please go ahead with your question. Wamsi Mohan: Yes, thank you. Thanks for taking my question. Dave, you mentioned a return to growth later in the fiscal year. I was hoping you might give us some color around how you're thinking about the trajectory of recovery, both in mass capacity, are you assuming that you basically have a 2-quarter sort of slowdown here as inventory gets worked down and the demand headwinds are made. And is gross margin going to be following a similar trajectory. So are we sort of at the bottom of gross margin or should we expect gross margins to contract further from here? Thank you. Dave Mosley: Thanks, Wamsi. I'll let Gianluca answer the gross margin point. From a demand perspective, the legacy was hit pretty hard as we talked about in the prepared remarks. And that's - there are a lot of legacy products that are - the inventory is too high. Now on things like PCs, it's - so de minimis as a part of our portfolio now that we're probably not going to pack anything into it, but some of the legacy products will suffer this quarter and then they'll come back a little bit. On - the stuff it's more salient for us now because 80% is mass capacity. There still are some things like the VA market that are not going through their normal seasonality gyrations. They're actually more impacted just because of COVID lockdowns and so on. But we do think that after we get through that period, whether that starts at the end of Q1 or Q2, we don't know right now. But we think there's a lot of pent-up demand that's coming. And so that's one of the reasons what we're doing is we're changing over from some of the more - the older products that might be going into life to some of our newer products like the 20-plus terabyte, some of the mid-cap nearline products is making sure that the inventory that we do have is more current and when those customers are ready for the strong poles again, then we have the best stuff out in front of us. Gianluca, do you want to talk about gross margins? Gianluca Romano: Yeah. Clearly, we are positive on our expectation for the business to recover soon and control sequentially. I think seasonality will be different than what we are seeing in the last year, for example. I would say mass capacity is actually strong already. We have done five consecutive quarters of record or near record revenue and volume. And gross margin, actually, the trend in gross margin is a bit different depending from which segment you are looking at. The legacy part and the non-HDD part has seen some decline in gross margin in the last four quarters. The mass capacity part has been very strong. So at the total level, we don't see a lot of change because the increase in mix to the mass capacity basically is offsetting the decline for the legacy and the nearline hard disk. But in future with a continued improvement in mainly mass capacity and the mix continues to go into the 80% plus of the total being mass capacity that should bring an improvement in gross margin. Wamsi Mohan: Okay. Thank you so much. Operator: Our next question comes from Krish Sankar from Cowen and Company. Please go ahead with your question. Krish Sankar: Yeah, hi. Thanks for taking my question. The first one is for Dave. You mentioned the U.S. CSPs are pretty strong. How do you think about the demand into the calendar second half of this year? Or do you think that is the next shoe to drop? And then quick question for Gianluca. You said you have like $2.4 billion remaining in the buyback, but your cash levels have come down. So how to think about the sustainability of the buyback over the next few quarters? Thank you very much. Dave Mosley: Thanks, Krish. I don't think there's another shoe to drop to be very clear. I think depending on which customer, there may be very specific challenges that they have in their data center build-out. But in general, they're the cloud storage demand growth continues and their CapEx investments continue. And so I think in some places, it's becoming very predictable with them. And so that's why one of the reasons why we've kind of established the businesses we have as we pivot our mass capacity. It's interesting right now, but I think most of the capacity transitions that we're talking about with 20 terabytes and beyond, are the – people we still have yet to transition are the people who are in the markets that are actually most impacted by some of the COVID shutdowns and things like that. So that's the way I think about it, if that's all – that helps. And then Gianluca, can answer the question. Gianluca Romano: Yeah. We are very committed to our shareholder return program, and so to both the dividend and the share buyback. As you said, we still have $2.4 billion of – as amount authorized for our share buyback. Our free cash flow in fiscal Q4 was lower than what we were expecting for the reason that I explained in the in the remarks. Of course, we expect free cash flow to improve, strongly improve in the next few quarters and that will help us to continue our shareholder return and also increase our cash balance. Krish Sankar: Thank you very much. Thank you. Operator: Our next question comes from Timothy Arcuri from UBS. Please go ahead with your question. Unidentified Analyst: Hi, thanks a lot. This is Jason on for Tim from UBS. Just a couple of questions. So my first one is, as you noted, there has been a lot of concerns around leaking consumer demand. I know consumer legacy market is still a much smaller portion of your business than nearline market. But how can we think about the trajectory of your legacy businesses in terms of exabytes shipments for the second half of this calendar year? Also, could you provide the same color on the DI margin in terms of exabytes shipment as well? And I have a follow-up. Thank you. Dave Mosley: Thanks, Jason. So on the legacy demand, the consumer facing. So for example, the USB drives and the like, been a strong market through the COVID work-from-home period. Right now, the consumers in the world have decided that they're spending money on other things. I think everyone knows this around - you can see these consumer spending patterns in many, many different markets, and we're not immune to any of that. I think that some of the stuff that we have to make sure we pull back and position the right inventory. Those markets, in particular, are not going away, they may be slowly going down, but they're not like the PC or notebook markets, which are effectively already gone. So we wouldn't have to divot those markets anymore because they're effectively gone. Mission-critical has been a little bit choppy through the COVID period. It is slowly declining as well, but it has a long tail, so that's another place where there's probably a little bit too much inventory. So when we lump in together in those legacy markets, they will have longer tails that we're talking about now because the ones that we're going to go to zero effectively already gone there. So Gianluca… Gianluca Romano: For exabytes we have a fairly low in the June quarter. We expect September as Dave was saying not to be a strong quarter for legacy. Now usually, it is the quarter where you see some improvement from seasonality. We don't see this happening this year. But in December north is a quarter where you will see some improvement. And then the second part of the fiscal year should anywhere. Unidentified Analyst: Got it. Thank you. And my second question is on the product road map. Your main competitor shared some color on their 20 and 22 terabyte product plans, where they're expecting the 20TB close over by the end of this year, going and so I was wondering if you could share any color or time lines on your product brands for 20 and 22 drives? Thank you. Dave Mosley: Yeah. We said in the prepared remarks that our '20 would cross over relative to our '18, if you will, this quarter. So the quarter we're in right now. So we're ramping the '20 very hard. We met the fastest growth target that we never had before. We said that a couple of quarters ago, and we've actually met that very happy with the 20-plus terabyte family. There's a lot of variants of this family. There are variants that continue to be CMR. There's variants that are SMR. Those drives are out there in the world in various places. As a matter of fact, I think I said last quarter that most of the 20s are actually being used above 20 because of some of these variants. So we're fairly happy with how that's latching on the world. It's already at high volume. And with small changes, we can continue that a little bit. To the conventional platform we don't need any major technology transitions with a bigger change to the heads and media and the recording channel and so on by the end of the year, we'll take that platform to 30 terabyte. So we're very confident in our product portfolio. We don't really talk about all the details of 2022, you know, '23, whatever people are using things out because I don't think that setting the right narrative, it's more just - we want to make sure that we have flexibility with our platform that we're on today and then launching the 30 share by platform in the future with all the technology that comes in there, we're confident and we're driving it as hard as we can. Unidentified Analyst: Thank you very much. Operator: Our next question comes from Patrick Ho from Stifel. Please go ahead with your question. Patrick Ho: Thank you very much. Maybe, Dave, first off, on the big picture basis, you talked about introducing HAMR technology at 30 terabytes next year. Given the common platform that you have that you mentioned about 20 terabytes to the mid-20s and the upper 20s, how do you correlate the demand trends from your customers in supplying these very attractive cost-efficient drives that you just talked about, along versus, say, the 30-terabyte HAMR drive, which I assume are going to be a little more costly in its initial ramp? Dave Mosley: Yeah. Thanks for the question, Patrick. So it is a question of what can you make in high volume, where do we get our scrap and yields? And since there are so many heads and disks and they are component, readiness for the ramp is critical in our margins. And then going to the 30 terabyte there are cost adders. There's a number of different technology transitions, not just to the right or the HAMR, if you will, the media has to change, the reader has to change. All of the platform things, the electronics sort of organic, everything that gets you to 30 terabit has to change. So we're very confident in that, but how fast do we make that turned, that's a good question. A lot of it is our ability to go to work the yields in the scrap and cost to the point where we need to be. I think from a customer perspective, that's a fairly big jump from one to the other. And the TCO benefits when you think about building a data center and running it for 5 to 7 years, you're willing to entertain the discussion and then the more positive feedback you see on those initial drives, the more you'll be able to drive it hard. We've had customers that have been working with us on these technologies for a number of years now. And I think when we launched the product, I think they'll be very open to those discussions because they see tremendous benefit as well. So I think balancing all these things is exactly the point of what we have to do in our operations, and that's what we're focused on. Patrick Ho: Great. That's helpful. And just as my follow-up question for Gianluca. In terms of the cost pressures from COVID elevated component costs, logistics costs, how much of an impact was it this past quarter? And how do you see I guess, those additional basis points pressure on a going-forward basis? Gianluca Romano: Yeah. In the June quarter, we had a lot of cost pressures, not only from COVID, but also for inflation, some of our component costs have increased. As we have seen, we were able to keep the gross margin stable, actually slightly up quarter-over-quarter despite a lower revenue. So we are we are taking our measure to offset the majority of those cost increase. Mix is also now, of course, very important to us. I would say for the future, the part that is coming from inflation is probably not going to a date very quickly, so we'll probably has the same impact for the next couple of quarters. On the COVID side, on the logistics side, we have seen a little bit of improvement in the June quarter compared to the prior quarter. But I think I said in the past that, the COVID cost was about 200 basis points of our gross margin for June it was probably around 150, this is not of course including all the extra costs coming from inflation. Patrick Ho: Great. Thank you very much. Operator: Our next question comes from Toshiya Hari from Goldman Sachs. Please go ahead with your question. Toshiya Hari: Hi. Thanks so much for taking the question. Dave, you talked about cutting production. I was hoping you could expand on this, I guess, specifically in terms of utilization rates, where do you expect to be over the coming quarters relative to the past couple of quarters. And I guess, given the production cuts and given how you're vertically integrated, I guess I'm a little positively surprised by how well gross margins are hanging in. I guess, what are some of the offsets that you're incorporating in your September quarter guidance? Dave Mosley: Yeah. Thanks for the question. I think I'll ask Gianluca to break down some of the - the F Q1 bridge, if you will, on gross margins. But let me give you a little perspective. Where we see too much inventory in the chain is in some of the markets that we were planning on building towards, and we don't want to do that. If I've learned one lesson in my life its when you see so much inventory, don't back into it. Its exacerbated a little bit by the linearity of last quarter was 4. And therefore, almost by definition, you go to the next quarter, and it's linearity is poor again. And especially in these times, when you get out to the back of the quarter, you don't have an opportunity to cross ship you know, because claims are choked and that drives costs. We're trying to put on a little bit more inventory so that we can use ocean freight, it becomes very problematic. And so that's one of the reasons why we're intentionally not packing into it. Relative to the build plan, so yes, by slowing things down on some lines that does have some financial impact. What we're really doing is pivoting over since the lead times, wafer lead times are quite long, product lead times are quite long for, say, 20 terabytes, pivoting more towards 20 terabytes beyond or pivoting more towards the new mid-cap nearline drive, we can do it. It just doesn't happen very quickly. And so the factories are still relatively full of that - that's help exactly your question. You don't see as much absorption hit net-net, even though you're taking down the old products as pushing out the new, but there's an intention around not pushing too much into the chains, not having to price that stuff to move eventually into customers that really don't need the product right now. And I would say this is where inflation is playing a role for everyone because you have the CFOs of those companies saying hey, slow down a little bit, and we ought to be able to help our customers do that. So Gianluca, you want… Gianluca Romano: Yeah, we will have some costs coming from the underutilization, but we also have an increase in the volume from our 20 terabytes sequentially, and that is positive for the gross margin. I also have to say the pricing environment, especially in the market part is still very favorable. So we don't see a - despite the decline in revenue, we don't see a major impact to our gross margin and profitability in general. Toshiya Hari: Great. As a quick follow-up, I guess, to your last statement, Gianluca, just on the overall pricing environment. Generally speaking, when demand softens and you've got excess inventory in the system, there's typically downward pressure on pricing. But at the same time, the industry overall has been very disciplined in the past, I guess, several quarters, if not a couple of years, you've got inflationary pressures as well. So I guess you've got an incentive to potentially pass through some of those inflationary pressures. So net-net, how should we think about pricing across the legacy markets and mass capacity over the next couple of quarters. Is there a possibility for you guys to raise pricing? Or is that difficult just given the demand backdrop? Thank you. Gianluca Romano: Well, first of all, we need to align supply and demand. And we see it now, what Dave was saying before, when there is extra inventory in the business, we need to reduce our supply so that demand and supply are were aligned. When we have that alignment, of course, the pricing environment gets better. And so right now, we are in the situation of transition from, let's say, in a high inventory to a more healthy business situation. And then, of course, during the rest of the year when demand comes stronger and we're aligned to our supply, we will take any possible action on pricing, but we will look at that later during the year. Dave Mosley: I think this is where the LTAs have served us pretty well over time to understand all of the macro economic inputs and like I always say that some of the procurement people that are sitting on the other side of the table from us are – they understand what's going on in commodity pricing and freight, just as well as we do. So we work together to come up with a predictable outcome. We believe in the mass capacity markets at least that there's going to be a strong rebound coming. And everyone factoring all these things in, I think it serves us well to know exactly what we're building, what we've qualified and what we'll apply. And so that's what we're trying to do right now is to change the – pivot the operations towards that future supply. Toshiya Hari: Great. Thank you. Operator: Our next question comes from Steven Fox from Fox Advisors. Please go ahead with your question. Steven Fox: Hi, thanks. Good afternoon. Two questions, please. First of all, Gianluca, any help on what you're thinking for CapEx spending this fiscal year? And then secondly, Dave, given that you basically were surprised negatively just a few weeks ago. I'm just trying to understand the biggest factors that make you come out and say that you should start to see a recovery in a couple of quarters. You've touched on a few things, but just maybe give us a sense from - about where that confidence is going at when demand holds up on the data center side and two, that you're not overbuilding into like what could be even a worse macro? Thanks. Gianluca Romano: On the CapEx side, as you have seen, we have already reduced our spending in fiscal Q4, probably for the fiscal year '23 I don't want to change the range. I think 4% to 6% of the revenue is a good range. But for sure, we'll be in the lower part of the range and similar to what we have done in fiscal '22. Dave Mosley: Yeah. And I think longer-term discussions with our customers, the bigger the customers there are, the more they're convicted they are on their ultimate need to add capacity because they're the ones that manage cloud storage. Some of the customers that are having, I mentioned a few people that are smaller CSPs that are having some of the inventory issues, we are working closely with them to make sure that we transition to the right products that so we don't build the wrong thing into it. And that's a very tactical thing. That's why we have a conviction that this thing is going to be over pretty soon. We're all cognizant of all the macro trends and watching them every day. So I don't want to gloss over that. But I think as far as demand for data products, I do think there's – there will be a rebound coming when all these issues abate. Steven Fox: Great. That's helpful. Thank you. Operator: Our next question comes from Erik Woodring from Morgan Stanley. Please go ahead with your question. Erik Woodring: Awesome. Thanks for taking the question. Maybe Gianluca, any comments you can just share on cash flow thoughts as we move into this next fiscal year after a strong 2022? Should we expect growth maybe similar to your comments on revenue or just maybe help us parse out how to think about that? And then I have a quick follow-up. Thanks. Gianluca Romano: Well, free cash flow, as you said, was good in fiscal '22. We increased about $400 million over fiscal '21. We gave an indication of what we expect for the revenue in fiscal '23, and now you bet comes through, free cash flow will continue to increase, would be the same level of this improvement in fiscal '22, maybe even it could be higher. Dave Mosley: Especially at these times, we'll manage cash very carefully, but we also see the mass capacity rebound is what we're projecting that we should be able to - to continue to grow cash flow. Erik Woodring: Okay. Super. Thanks for the help. And then maybe along those same lines, Gianluca, just obviously, a more challenging macro environment. But any comments you can help us better understand kind of how you're thinking about OpEx as the quarterly run rate is still kind of 350 or any puts and takes that you can help share there would be great. Thanks. Gianluca Romano: Yes. I think between 350 and 360 will be in the range through the fiscal year. We have done a strong control of the OpEx in the last two or three years already. So we think we'll start from a good point. September is demand where we have our annual salary increase. So we expect little bit of increase starting basically the December quarter, but still in the range, 350 to 360 should be the right range for us. Erik Woodring: Awesome. Thanks, guys. Operator: Our next question comes from Sidney Ho from Deutsche Bank. Please go ahead with your question. Sidney Ho: Thank you. I have a quick clarification. I think you - Gianluca talk about expecting revenue growth can resume later in the fiscal year, but you're not necessarily meaning the December quarter, which means - I guess is that right. But my question is when I look at the inventory adjustments and your customers, whether in the PC or elsewhere, what is your thinking about when they will get to the quivering point that your customers stop drilling inventory? And what gives you that kind of confidence? Gianluca Romano: I'll say, in general, no, we are trying to use this quarter to realign inventory. Of course, as you said, is not - it doesn't depend only from us, but we are reducing our production, and we are taking a fairly low revenue in the quarter in order to do this realignment, So I would say after that, we actually expect to increase revenue sequentially. So December should be better than September quarter and to achieve the revenue that Dave indicated in his prepared remarks, we need to have a fairly good level of revenue in all the three quarters after September. Sidney Ho: Okay. Great. Maybe I'll just jump into my second question. There's a lot of questions on the cloud already. But I'm curious on the enterprise OEM side of the nearline business. Last quarter, you mentioned you were limited by non-supply shortages. I'm just curious, are you seeing any changes in the demand on that side of the business? And does that business has also as covered as by the LTA as your cloud customers? Thanks. Dave Mosley: Yes, is the answer to your question - to your last question, it's a little bit more complicated than some of the cloud customers. But what I would say, for example, in our prepared remarks on the systems business, we talked about how we saw one of the components that we needed to go chase after revenue and we did that. That's because I think some of the supply-demand picture is changing very rapidly, the things that were constrained components six months ago may not be constrained anymore because of a lot of macro issues. It's not completely all clear yet. There are still component shortages that are affecting the enterprise. I think also the spending reductions by - again, I always see nervous CFOs, which are talking to the CIOs of the world, you know, that's, I think, impacting us a little bit right now as well. Look, long term, I believe that on-prem enterprise is going to be healthy because there's going to be hybrid clouds, not just - not just in the public cloud, but also in the private cloud as well. And so I think those will be strong businesses. They still - they are various challenges there supply-related still, and I think some of that will start to break free over the next six months. Sidney Ho: Okay. Thank you. Operator: Our next question comes from C.J. Muse from Evercore ISI. Please go ahead with your question. C.J. Muse: Yeah, good afternoon. Thank you for taking the question. I guess two questions. First, you talked on the call about excess inventory in the channel for your various end markets. I was curious if you could rank order perhaps works the best by end markets so we get a flavor of where things need to correct. And then I guess, specifically for U.S. data centers. You talked in your prepared remarks around a correction there. It sounds like it's a handful of players. Could you provide perhaps more color on what you're seeing there? And when you think that will start to recover for you? Thanks so much. Dave Mosley: Yeah, C.J., let me just picture, I got all this right. So the first one was ranked order. I think China generally is the biggest impact. There's impact in distribution channels worldwide consumer and disti so Europe, Americas, they're both down significantly year-over-year, and that's part of the macro malaise that we've been talking about. The China itself has not only that, but also the VM market and some of the cloud service providers. There's inventory challenges each place, I think, that we're steering at, working through it with those customers. Some of that is macro. Some of it is COVID lockdowns, there's kind of just trepidation in the market because some of the lockdowns happen and then they go for reopening, they pull inventory in and then they can't reopen. I think the world is going to get through these things, but we just have to kind of wait it out. Can you ask the answer - or ask the second part of your question again? C.J. Muse: Yeah, sure. In your prepared remarks, you spoke to what I thought I heard was inventory correction that select hyperscale plans. And so I guess, did I hear that correctly and then maybe if you could provide more color on your expectations for that to be cleared out? Dave Mosley: I don't think there's too much inventory problems as U.S. hyperscalers. I think everyone's having a supply challenges, not necessarily hard drives or whatever. There's - maybe the way I would characterize it is to say that there is pent-up demand for data storage in a lot of markets. And once the world gets through all of these supply challenges, whether they're power supplies or chassis or compute or memory or whatever it is for the each one individual, I think we'll be in a better place. People are working this very hard, and everyone's got their own challenges, but I think we're - that's the thing that the world is just not firing on all cylinders like it was maybe 3 or 4 years ago. And I think we will be able to get back to reach some kind of equilibrium over time. C.J. Muse: Very helpful. Thank you. Operator: Our next question comes from Thomas O’Malley from Barclays. Please go ahead with your question. Thomas O’Malley: Hey, guys. Thanks for taking my question. My question was just on the long-term agreements that you guys talked about on the call here. When Micron took down numbers, they were asked specifically about whether those long-term agreements were take or pay, and they kind of talked about the fact that they can't really force customers to take their product. What gives you guys the confidence that when you're looking at the back half of this year, your customers aren't going to walk away from those long-term agreements if the market looks a little bit worse than it does today? Dave Mosley: Yeah. Thanks, Tom. I kind of agree with what you said. We have to work with our customers on these things. I said, I think last quarter, I talked about co-planning more. It's just how many units do you need? What kind of products need to be qualified and it has to go out further because as we're making 20-plus terabyte products or even starting 30-plus terabyte products, we need to know exactly how many of the customers are willing to take and how much to use our factory - use inside of our factories. If something else happened then I think we'd have to work it through with the customers at the time. So it's not really take or pay. And that, from my perspective, the customers have been great working through that. Just trying to give us the right visibility and we hold each other accountable on both sides of the table there. It's working pretty well. Thomas O’Malley: Great. And then just my follow-up is, even if you do assume some accelerated growth in the back half, obviously, the inventory is working down so that helps a bit. Free cash flow does become a bit challenged. If you were to look at an environment in which free cash flow quarterly perspective goes negative. Can you just talk about or rank order of capital returns? Do you think that you would buy back less stock first? Or do you think that you would rationalize the dividend? Can you just talk about priorities there in terms of where you would be - where you'd be cutting first if the environment kind of persist like it is? Gianluca Romano: Tom, I don't see that coming through. I don't see any quarter where our free cash flow will go negative. So we have a capital allocation strategy. As I said before, we want to stay focused on shareholder return. I think our free cash flow will be strong in fiscal year '23. I don't see the situation you are - you are showing here? Dave Mosley: Yeah. The way I'd say it, Tom, is that we're going to go over the cash flow. We had some period very specific things that Gianluca talked about in Q4. I think we can go recover some of those things over time. And some of it is just too much inventory, like I said, before making sure we're building the right thing. So I think once we get through that period, I think we're going to be just fine from a cash flow perspective and even have an opportunity to grow it year-over-year. We have a lot of levers that we can still continue to control. Thomas O’Malley: Great. Thank you, guys. Operator: And our next question comes from Kay Cassidy from Rosenblatt Securities. Please go ahead with your question. Kay Cassidy: Thanks for taking my question. Yeah, just two quick questions. With all the long-term agreements you have in place, what are the lead times? Or what is the visibility that you're getting from your customers? Second is, are you seeing any change in the trends of lockdowns in China? Dave Mosley: Yeah. Thanks, Kevin. There's different kinds of LTA depending on the market, depending on which specific customer and their appetite in typically six months to a year, the visibility that we're working together. So - over the last few years, it's gotten longer, so that's good, just making sure we have the right product stage for what they're going to need at that point in time with the predictable economics with them and so on. And relative to China, I think I made a comment earlier, even our own factories have been impacted recently. So making sure that we're doing the right things for the employees, not working them in places where we don't need the materials and things like that is a challenge. I particularly – I personally, you think that things are already getting better, but I also think part of the problem is that we said that three or four , five times and people pulled inventory against a reopening, if you will. It's not even much of a matter of what you're capable of in your factory. It's also what your customers are ready for and whether you can get to just like in the front end of COVID, whether you can get people into build the data centers and all these other things that are going on. The thing I'm focused on the most is the small business aspect of talking to some of our customers about people who have to go actually go in and do the builds in the smart city builds, the smart buildings, hospitals, things like that. That's where any kind of lockdown just really throw that to a loop. And I do think that we're going to continue to see some of it, it will be able a little bit and then we're all looking for improvements in Q2, and it's going to have a break free at some point, so. Operator: And our final question today comes from Vijay Rakesh from Mizuho. Please go ahead with your question. Vijay Rakesh: Yeah, hi. Thanks. Hey, Dave and Gianluca, I know you guys mentioned slightly higher inventory levels. Just wondering if you could help us level set what the inventory levels were, let's say, in China versus or in Asia versus the U.S.? And is your expectation that the inventory normalizes within the quarter here because I think you talked about maybe December quarter revenues start to improve? Dave Mosley: Right. We're taking action to make sure it improves this quarter. Gianluca made the point earlier is I don't think it will improve all the way, but we'll get the lion share of what we do need to get done this quarter. And again, depending on the pace of some of these recoveries like COVID and some of the other pressures that people are feeling it will happen faster. And the important thing for us is that we make sure that we pivot the customer qualifications and our product towards the stuff that's more modern, higher margins for us that we can make with – that we can make that people actually want to buy that we don't have to go disrupt market anymore. Vijay Rakesh: Got it. And I think you mentioned utilization levels. I mean, I believe you indicated that the gross margins should be flat sequentially. Is that right, given that utilization still stay high with the 20-terabyte ramping, I guess, right? Even as you thought is on the supply back. Is that the way to look at it? Gianluca Romano: Well, we did not guide directly gross margin, but I was answering to a question. I said the negative impact in the December quarter because of some underutilization cost, but is also positive impact coming from higher 20 terabytes and I also said the pricing environment is also still favorable. So overall, we don't see major changes to our profitability. Vijay Rakesh: Got it. Great. Thanks a lot. Dave Mosley: Thank you. Operator: And ladies and gentlemen, at this time, I'd like to turn the floor back over to management for any closing remarks. Dave Mosley: Thanks, Jamie. I'd like to take the opportunity to once again thank our employees for their incredible efforts and recognize our suppliers and customers for their ongoing support this quarter. It's a challenging environment across the ecosystem, and we appreciate all of your partnerships. Likewise, I appreciate our shareholder community for your ongoing trust in Seagate. Seagate will continue to take actions managed through the current macro dynamics. However, long term, I'm confident that the secular demand for mass capacity storage and infrastructure remains high and remain excited by Seagate's opportunities to deliver value for all the stakeholders. So thanks for joining us, everyone. Operator: And ladies and gentlemen, with that, we'll conclude today's conference call. We do thank you for joining. You may now disconnect your lines.

Operator: Welcome to the Seagate Technology Fiscal Third Quarter 2022 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I'd now like to turn the conference over to Shanye Hudson, Senior Vice President of Investor Relations and Treasury. Please go ahead. Shanye Hudson: Thank you. Good afternoon 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 posted our earnings press release and detailed supplemental information for our March quarter fiscal 2022 on the Investors section of our website. During today's call, we'll 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 that was filed with the SEC. We've not reconciled certain non-GAAP outlook measures because material items that may impact these measures are out of our control and/or cannot be reasonably predicted. Therefore, a reconciliation of the corresponding GAAP measures is not available without unreasonable effort. Before we begin, I'd like to remind you that today's call contains forward-looking statements that reflect management's current views and assumptions based on information available to us as of today and should not be relied upon as of any subsequent date. Actual results may differ materially from those contained in or implied by these forward-looking statements as they are subject to risks and uncertainties associated with our business. To learn more about the risks, uncertainties and other factors that may affect our future business results, please refer to the press release issued today and our SEC filings, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q as well as the supplemental information, all of which may be found on the Investors section of our website. As always, following our prepared remarks, we'll open the call for questions. Let me turn the call over to Dave for opening remarks. Dave Mosley: Thank you, Shanye, and a warm welcome to those of you joining us on today's call. Before I begin, I would like to recognize the growing humanitarian crisis taking place in Ukraine. Our thoughts are with the people impacted by the devastation as we continue to hope for a rapid end to this conflict. As this crisis unfolded, distribution channels across the region were understandably impacted, adding to an already strained global supply chain. Specific to our business, we ceased shipments into Russia and Belarus at the onset of the invasion, which typically represents 1 to 2 percentage points of revenue on a quarterly basis. We expect these impacts to persist at least through the fiscal year. Turning to Seagate's March quarter financial performance. Revenue of $2.8 billion and non-GAAP EPS of $1.81 were within the ranges provided on our last earnings call and consistent with the revised outlook we shared last month. We continue to see solid cloud demand and that boosted revenue for our nearline products to a fifth consecutive quarterly record. The strong nearline performance was offset to a degree by demand disruptions in other end markets. These include non-HDD component shortages as well as new COVID lockdown measures that intensified toward the end of March, sharply impacting the video and image applications or VIA market. Rising inflationary pressures were an additional burden on profitability for the quarter as we continue to operate amid an unusual mix of external challenges. Our team is executing at a high level in this environment and that is best illustrated with a few key year-over-year comparisons. Relative to Q3 of fiscal 2021, we grew total revenue 3% and nearline revenue 24%. We improved margins and demonstrated strong financial leverage with operating income growth of 12%, significantly faster than revenue growth and we generated free cash flow of $363 million, up 32% year-over-year. These achievements reflect the resiliency of our financial model and our focus on driving profitability and cash generation in an environment where we are poised to capitalize on strong secular growth for mass capacity storage. While the underlying storage demand trends remain intact, the industry-wide supply challenges impacts from the ongoing conflict in Ukraine and COVID restrictions are constraining growth over the near term, which we factored into the June quarter guidance we're providing today. Throughout the past couple of years, our strong supplier relationships, combined with our vertically integrated business model, have enabled us to navigate supply risks to support HDD customer demand. All the while, we've remained highly focused on protecting profitability. In addition to maintaining strong expense discipline, we have recently started to adjust pricing to help combat inflationary impacts in future quarters. Finally, we continue to strategically manage production and execute our product and technology roadmap. These actions are intended to reduce our cost per terabyte and realize operational efficiencies, while delivering cost-efficient, higher-capacity solutions to our customers when they need them most. As we indicated on our last call, we leveraged the seasonal slowdown in the March quarter to begin staging our factories to support strong 20-terabyte demand. I'm delighted to report that we are shipping 20-plus terabyte products in high volume and expect unit shipments to more than triple quarter-over-quarter in FQ4 to well over 1 million units. This puts us on pace for the company to achieve crossover with 18-terabyte drives early in the new fiscal year. The ability to quickly ramp and yield higher capacity products is especially important considering the strong cloud data center demand for nearline drives. Recent CIO surveys confirmed that even in today's challenging macro environment, digital transformation, AI and machine learning remain among the top handful of IT investment priorities. With current non-HDD supply shortages impacting new data center build-outs, many of our cloud customers, particularly in the U.S., are operating at or near record utilization levels and upgrading to higher capacity drives in an effort to keep pace with demand. Seagate is addressing these needs by being the first to high volume with the 20-plus terabyte products, which represents the highest capacity drives commercially available today. With more than half of our cloud business currently covered under long-term agreements, we have visibility to healthy cloud demand into the back half of the calendar year. In the March quarter, mass capacity revenue increased 18% year-over-year and decreased 6% sequentially of a record December quarter. Strong double-digit sequential growth in cloud nearline sales partially offset the impacts of demand constraints in the other mass capacity end markets. In the enterprise and OEM market, some customers continue to grapple with non-HDD supply shortages that have impacted their ability to get parts and address their own in-demand. COVID lockdown measures are limiting near-term demand in the VIA markets. In the March quarter, new security surveillance and smart city infrastructure projects were delayed, due in large part to physical installations being hindered. This situation is similar to what the VIA market experienced in the early days of the pandemic. And based on input from our customers, we remain confident that these projects will resume once conditions improve, which we now expect to occur in the back half of the calendar year. At a high level, demand for video and image applications is on the rise, increasing adoption of high definition cameras, longer data retention rates and the use of AI and analytics enable end users to identify patterns for months of captured data and extract value. Analysts predict that nearly two-thirds of network video cameras will have embedded AI deep learning analytics by 2025, compared with about 15% in 2020. Indicative of these demand trends, Seagate offers purpose built VIA drives that support the heavier workloads and firmware to optimize video AI applications. Our strong customer relationships and breadth of knowledge in storage devices and systems and software and architectures have enabled us to develop product and technology solutions that address the evolving mass capacity storage and infrastructure needs. For example, Seagate's Lyve Cloud platform is aimed at meeting the growing need for a simple, predictable and cost efficient mass data storages and service solution. To-date, we've qualified nearly 30 ecosystem service providers offering capabilities such as backup and recovery that are interoperable with Lyve Cloud. We recently launched Lyve Cloud Singapore, our first platform in the Asia markets. We are continuing to responsibly build out our infrastructure and selectively work with new customer use cases. Overall, I'm really pleased with our progress and ongoing customer momentum. We look forward to sharing more in the year ahead. Looking ahead, Seagate remains well positioned to achieve our long-term financial and business goals. We are focused on driving profitability toward the upper half of our long-term margin ranges over the next few quarters. At the same time, we expect to extend our track record to a strong cash flow generation while executing our product and technology roadmap that collectively puts us on the right path to capture mass capacity storage opportunities and enhance value for all of our key stakeholders. We are taking aggressive actions that span cost management, pricing strategy, and operational efficiencies that target margin expansion and further strengthen our competitive position. I'll now hand the call over to Gianluca to cover the financial results. Gianluca Romano: Thank you, Dave. Seagate navigated its way through a very dynamic macro environment, and typically there's lowest seasonal period of the year, to deliver financial performance consistent with our revised expectation from the beginning of March. In the March quarter, revenue was $2.8 billion and reflected 3% year-over-year increase. Non-GAAP operating margin was nearly 17%, up 140 basis point year-over-year. Non-GAAP EPS was $1.81, up 22% year-over-year. The hard disk drive business ship approximately 154 exabytes, down 6% sequentially and up 10% year-on-year. Strong demand for high capacity nearline drives, boosted average capacity per total HDD drive to a record 6.7 terabyte, up 10% sequentially and 32% year-on-year. The demand for our nearline product supported mass capacity revenue of $1.9 billion, down 6% sequentially, but up 18% compared with a prior year period. Shipment into the mass capacity markets totaled 133 exabytes, down 3% sequentially and up 20% year-over-year. Our nearline product segment continues to grow with revenue outpacing the broader mass capacity business once again. In the March quarter, we increased shipment to 117 exabytes, up 6% sequentially and 23% year-on-year supported by the ongoing adoption of our 18 terabyte drives and initial volume shipment of our new 20-plus terabyte products. Our leading nearline portfolio coupled with a very agile supply chain resulted in record cloud market revenue in the March quarter. Consistent with our comment in early March, demand for the VIA market were lower than anticipated due primarily to delayed project spending in China, resulting from disruption related to COVID and shifting government priorities. We do expect demand to improve once COVID-related restriction begin to ease and project installation can resume. Within the legacy markets, revenue came in at $642 million, down 17% sequentially and 26% year-over-year. Quarter-over-quarter, the pace of decline was similar across each of the legacy end markets. However, the year-over-year decline was more pronounced in the PC market due in part to OEM continuing to balance component inventory. Non-HDD revenue was down roughly 19% sequentially to $237 million, coming off a record December quarter. Both our system and SSD businesses were impacted by key component availability, which left us enabled to fulfill all the customer demand. A trend that we expect to continue in the June quarter, despite these challenges non-HDD revenue was essentially flat year-over-year and demand remains solid, notably for the system business with a record order backlog exiting the quarter. Moving on to our operational performance, non-GAAP gross profit in the March quarter was $817 million, compared to $749 million in the prior year period. Our corresponding non-GAAP gross margin was 29.2% down 150 basis points sequentially, but up 180 basis points year-over-year. The ongoing transition to both higher capacity drives and cost optimized products provided some offset to the slowdown in the VIA market and continued elevated logistic and component cost. HDD gross margin was inside of our long-term target range of 30% to 33%. And we expect our HDD and total company gross margin to trend higher in the June quarter. Non-GAAP operating expenses were $345 million in line with our expectation. We estimate the OpEx will move slightly higher in the June quarter due to an increase in business travel and sales and marketing activities. Our resulting non-GAAP operating income was $472 million, which translates into non-GAAP operating margin of 16.8% and reflecting lower sequential business volumes and the temporary margin pressure discussed earlier. Based on diluted share count of approximately 222 million shares, non-GAAP for the March quarter was $1.81 within our original guidance range and consistent with our update in early March. Inventory increased by $192 million to approximately $1.5 billion, as we continue making strategic purchases of critical components, optimized use of ocean freight to reduce logistic cost and support future product demand. Given the current microenvironment, we believe inventory around this level is appropriate for the next couple of quarters. Capital expenditure were $97 million for the quarter, up slightly quarter-over-quarter. We expect to be at or below the low end of our target range of 4% to 6% of revenue for fiscal 2022, which is adequate to support our future product and services roadmap, while maintaining our focus on aligning HD supply with demand. Free cash flow generation for the March quarter was $363 million, up 32% year-over-year. Fiscal year today through our March quarter, we have generated nearly $400 million more in free cash flow as compared to the previous year, enabling Seagate to continue its strong return of capital to shareholders. In the March quarter, we used $154 million for the quarterly dividend and $417 million to repurchase 4.2 million ordinary shares, exiting the quarter with 216 million shares outstanding and approximately $2.8 billion remaining in our authorization. We ended the March quarter with cash and cash equivalent of $1.1 billion and total liquidity was approximately $2.9 billion, including our revolving credit facility. Adjusted EBITDA was $2.7 billion for the 12 month period ending in March with our leverage ratio declining slightly to 2.1x. Total debt balance at the end of the quarter declined to $5.6 billion, reflecting the planned repayment of $120 million in debt during the March quarter. In summary, once the March quarter was very challenging, we delivered top and bottom line results that were within our original guidance range with agile operational execution and ongoing focus on optimizing profitability and free cash flow generation. Entering the June quarter, the operating environment has remained challenging. We have not yet seen an improvement related to COVID shutdowns in China, but we anticipate in early March and known HDD component shortages and geopolitical dynamics have intensified. As a result, we expect these external factors to constrain demand growth over the near-term. With that in mind, we expect June quarter revenue to be in a range of $2.8 billion plus or minus $150 million. We expect the action that we are taking to mitigate external challenges combined with a more favorable product mix to support June quarter non-GAAP operating margin at the low end of our revised long-term range of 18% to 22% of revenue. Finally, we expect non-GAAP EPS to be in the range of $1.90 plus or minus $0.20, an increase of 5% sequentially at the midpoint. I will now turn the call back to Dave for final comments. Dave Mosley: Thanks, Gianluca. The fundamental demand drivers from mass capacity storage remain intact, while the external challenges discussed today are impacting our Q4 outlook. I am confident in the long-term growth trajectory of the business backed by the combined strength of our operational execution, technology roadmap and strong product portfolio. Demand for data continues to grow in both public and private clouds and at the edge with a broadening of VIA applications. These trends support mass capacity revenue TAM doubling every five years or so and reaching $26 billion by calendar 2026. Seagate’s leadership in mask capacity technology and strong product portfolio make us ideally positioned to capture these opportunities from the 20 plus terabyte drives we are shipping today to the 30 plus terabyte HAMR products under development, along with our cost optimized portfolio of mid-cap drives. We are taking actions to improve margin and cash flow as we move through the calendar year, barring any additional macro disruption, which is consistent with our priorities to drive profitability and free cash flow generation. Finally, embedded in Seagate’s culture of innovation and execution is our commitment to running a sustainable business, one that balances profitability with people and our planet. We marked Earth Day this year with the release of our 16th Global Citizenship Annual Report, an announcement of two important goals that reflect our deep commitment to sustainability. The first goal is to utilize 100% renewable energy across our global footprint by 2030. The second is to achieve net zero carbon footprint by 2040 done in collaboration with our customers to eliminate Scope 3 emissions and, in turn, support their environmental goals. We continue to see opportunities to partner more closely with customers for the benefit of sustainability as well as circularity. The world's precious resources are finite and we are working to expand programs focused on reducing our impact to the planet through efforts to recycle and reuse drives, components and raw materials. I'm very proud of the important work our teams are accomplishing. In fiscal 2021, we recycled more than 1 million drives and recovered over 1 metric ton of rare earth materials. I'd like to conclude by thanking our employees for their incredible efforts, our suppliers and customers for their partnership and our shareholders for their ongoing trust in Seagate. Gianluca and I will now take your questions. Operator: We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Wamsi Mohan from Bank of America. Please go ahead. Wamsi Mohan: Yes, thank you. Good morning. Can you talk a little bit about the demand trends in China more broadly beyond the video and image applications market? And any impacts that you might be seeing from the lockdowns from a supply perspective as well? And maybe also comment on demand trends at hyperscalers? And I have a follow-up. Dave Mosley: Sure. Thanks, Wamsi. Thanks for the question. A few things, I'd say, just mindful of geopolitical challenges everywhere. And I think the channels, to your question, the distribution channels are quite disrupted everywhere, not just in Europe, but all over the world. The COVID shutdowns obviously affecting major cities to the extent we have customers in those cities, the customers aren't – can't deal with their demand predictably, they can't install gear at the rate that they were thinking about because people are in lockdown and, of course, having issues. We don't really have any concerns over China cloud long-term and there is strong customer interest in 18s and 20s and dual actuators and all the other things that we make for the cloud. So that's actually a pretty good story for us still. The VIA markets, like you've mentioned, but also the distribution channel, what's really being impacted more, and that's where you get value-added resellers that just can't – they don't have access to either their end customers very well or they don't have confidence. So there's a lot of trepidation around the channel. They're not pulling a lot of inventory into which is from a disk drive perspective is actually – I don't think there's too much inventory in the channels. There are some other component issues to your question, so some people are having challenges getting smaller components. Relative to our logistics, the costs are up, but there is no real impact to our supply for HDDs. But we are mindful of the fact that they're – especially when we build the systems business, like in our script, Gianluca talked about some shortages we had in the systems business, when you get into smaller piece parts and more boutique parts that aren't high volume, it gets tougher, especially for all those people doing the integration. That's would affect – that's what's affecting demand. Wamsi Mohan: Okay, great. Thanks Dave. And then as a follow-up, given sort of all these macro headwinds and the changes in sort of the demand trajectory, at least in the near-term, how are you thinking about the calendar year? I know you had previously expected sort of a mid-single-digit growth in that. It feels as though the second half now needs to have significantly higher growth than the first half and compares are also a little bit tougher in the third quarter. So anything you can help us to think about the second half of the calendar year? Thank you. Dave Mosley: Yes, that's right. The lockdowns and some of the other things that are going on macro level have affected the first half. We still think that there is growth coming in the second half. There is another year of mass capacity revenue growth, which is plugging along nicely. There is healthy cloud demand we see further out. We do think some of these temporal things that I just referenced is – we'll abate at some point, but I think it's a little bit too early to call that number. So, we'll probably just talk to you about it on the next earnings call. Yes, Gianluca wants to add some. Gianluca Romano: Yes. I would say the COVID situation in China and Asia in general is probably limiting a little bit our visibility right now. So it's difficult to now have a clear estimate of the calendar 2022. But as Dave said, we are confident on a very strong second half of the calendar year. Wamsi Mohan: Okay, thank you so much. Operator: The next question comes from Tom O'Malley from Barclays. Please go ahead. Tom O'Malley: Hi, guys. Thanks for taking my questions. You mentioned a couple of times in the script that you're going to continue to take actions to help margins and cash flow. Can you talk about the pricing environment? Are you looking strategically at how you're pricing your product given the way that market trends have gone? I know like specifically outside of the COVID impact you've already seen, just talk about the broad market. And are you using pricing to your advantage as you see inflation and some other factors impact your supply chain? Dave Mosley: Yes. Thanks, Tom. I wouldn't say pricing to our advantage, but I would say that we're very mindful of all the trends that are going on. So there are freight and logistics costs, which we've talked about fairly openly. In the early days, we called some of that COVID impacts. We really didn't quantify it anymore, but there are other raw materials that the prices are going up. And the way we address those things are product transitions, complexity reduction, which is actually helping with some of the supply chain challenges, working with our customers to come up with more creative alternatives, say, for example, ocean freight, and the customers can help there as well. So we work in partnership, but we do need to be very mindful of the fact that as we go through product transitions to higher and higher content drives, we need to get paid for our investment as well. So pricing will be a factor in all of those things. And that's what we're driving with the discussions that we have with our customers. Gianluca Romano: Yes. The price environment in March was still favorable, so it's not that we see deterioration on that standpoint. However, now we need to improve our gross margin, part of the improvement will come from our mix with a much higher 20-terabyte volume, but we also need to work on our pricing in order to offset at least partially, all the cost increase that we – now we are getting from higher inflation and still very high freight cost so – and also a little bit of the impact from the VIA segment. VIA segment is a segment with a good gross margin for us. So having lower volume is, of course, impacting our financial performance. We think in the June quarter, the VIA segment will start to improve, but still not at the level we were expecting maybe three or four months ago. So all this together is driving our decision to work a little bit on the pricing side. And as we said in the prepared remarks, we expect the June quarter to have higher profitability for Seagate. Tom O'Malley: Got you. And then just as a follow-up. You've given some color on the VIA market. But just on the legacy market, in terms of exabytes, you saw a pretty substantial step down. I think you mentioned PCs year-over-year. What do you see that market doing in June? Obviously, that is probably external from some of the COVID and China impacts that you've seen. Where do you see that business trending into the June quarter? And could you just describe some of the factors that are moving that around right now? Thank you. Dave Mosley: Yes. I think the large – for the large part, Seagate is not really exposed to the PC market anymore. There is a little bit especially gaming PCs and some specialty PCs. There's a little bit in there still. The distribution channel still uses some PC drives as well, but the volume is very small compared to what it was historically. The other things like consumer, obviously, consumers impacted by inflation mission-critical, it's still in there because there's 100 million slot – SaaS slots out there in the world, some of them want replacement drives and things like that. So it's, I would say, generally flat. It is impacted by spending reductions that happened when things happen in the world, but what we saw in the frontend of the pandemic is it came back relatively strong, I don't expect consumer to come back strong, like the work-from-home trends created. I don't expect this part of the pandemic to create the same thing. But the legacy market is not going down very much anymore. So flat is probably the way I'd call it for a couple of quarters. Operator: The next question comes from Patrick Ho from Stifel. Please go ahead. Patrick Ho: Thank you very much. Dave, maybe if you could add a little more color in terms of the supply chain issues. You mentioned that it wasn't so much at Seagate, but your customers. Is there a possibility that it could be a large ramp-up when some of these supply chain issues abate where you'll have to ramp up to meet, I guess, pent-up customer demand? And how do you look at your current capacity in meeting that kind of potential surge down the road? Dave Mosley: Thanks, Patrick. Yes, a couple of things on that point. We talk to the customers deeply, trying to understand their forecasts and things like that for what they need. So we know there is pent-up demand out there. We always – all of us, the customers and ourselves are always asking is it double booking or something like that. But the way the orders are getting filled today when the supply does break free, I'm confident that there is some snowplow pent-up demand there coming. So that's a – that's good trend. It doesn't mean that it will be solved overnight. It's not one particular type. Like everyone talks about, semiconductor parts being the gate or something like that, I mean, from what we see, there is small piece parts, passives. There is even sheet metal. I mean, it's – a lot of it comes down to whether people can get people into factories, whether the suppliers can get people into factories to build all the parts, and that – that's where the shutdown start having some problems, but are creating some problems just like the frontend of the pandemic. I do think it's going to abate a little bit quicker this time. And so, we'll see. We're working with the customers. We are also building up a little bit of inventory right now. And so, we have inventory to answer the call for them. We're kind of happy with our balance of supply and demand today and happy to go into the back half of the year, but we do have a little bit of extra inventory should the customers need it. Gianluca Romano: We are ramping the 20 terabyte very, very rapidly. And as we said before, we will move an important volume in the June quarter, but we are still ramping production, so that we will have even a higher volume for September and December. Patrick Ho: Great. That's helpful. And maybe as my follow-up question for you, Gianluca, in terms of gross margins, I know there are a lot of moving pieces in terms of pricing, capacity, drives. But maybe just focusing on the cost front is – are freight and logistics costs the largest, I guess, headwind that is facing gross margins? Or are there other costs that are having a bigger impact at least in the near-term? Gianluca Romano: I will say in the near-term, for sure, freight and logistics is a major item. We also have some of the component costs that are increasing, not at the level of inflation, but they are increasing a little bit compared to what was maybe in September quarter and December quarter last year. And now, we are taking our actions to improve our efficiency internally, to move our mix as much as we can to higher capacity drive and some of the pricing action we discussed before. So we think already in the June quarter, we will have a better gross margin and operating margin. Patrick Ho: Great. Thank you. Dave Mosley: Thank you. Operator: The next question comes from Krish Sankar from Cowen. Please go ahead. Unidentified Analyst: Hey, hello guys. This is Eddie for Krish. Congrats on strong results and challenging environment. I have a question on gross margin, not asking for a second half but it seems like June implies improvement in gross margin. And the way I'm thinking about it as a video comes back and 20 terabyte continues to ramp. We should see improvement in second half for gross margin. Is it the right way to think about it? Thank you. Dave Mosley: Yes. Thanks Eddie. It is we – to first order supply and demand being balance is the thing that affects it the most to the extent that we can ramp the new programs and sell those. I think and they're yielding well and the scrap is low and everything else, which I'm very happy with. I think that's the best way to address the market. The 20 terabyte high volume that we talked about in the back half of the year will certainly be a great product from a margin perspective. But even though these midcap cost optimized drives that we've launched in the last six month, those are really hitting their stride as well. So I think we've got a good portfolio to go forward when all the demand comes back to Patrick's question, right. We've got a good portfolio to go forward. Factories will be full, so the margins should improve. Operator: The next question comes from Steven Fox from Fox Advisors, LLC. Please go ahead. Steven Fox: Hi. Good morning. Two questions if I could. First of all, can you just be a little bit more specific on your expectations for how the lockdowns in China impact the business relative in the June quarter, relative to where we're at right now? I'm just wondering what you're factoring in there. And then secondly, if I look at the margin guidance for the June quarter, it looks like the operating margins call it roughly flat on-site decline in sales on a year-over-year basis. Can you talk about the puts and takes versus a year ago in terms of the flat margins, what you're dealing with now versus a year ago and how the mix is helping each other? Thanks. Gianluca Romano: Yes. I’d say for the COVID, we expect unfortunately – no, this situation to last probably through big – major part of the quarter, maybe the entire quarter. As we have seen in the last two and a half year, those things usually don't go away very quickly. So this is part of what we guided. Then in term of gross margin or as I said before, we have items that we can work on in order to improve our profitability also in the short-term. And despite those cost increases that we are experiencing right now, we are very confident with demand on our 20 terabyte. I will say this is probably the major driver for our improvement in gross margin in the short-term. And as you know, every quarter we are able to improve our internal efficiency and get a little bit of the cost down despite all the external cost that we need to offset. Steven Fox: Great. That's helpful. Thank you. Gianluca Romano: Thank you. Operator: The next question comes from Erik Woodring from Morgan Stanley. Please go ahead. Erik Woodring: Great. Thank you for taking my question. Maybe just to start, Dave, do you mind just providing a few more details just on some of the pricing actions you guys are taking in this market and ways that you can offset some of this component cost inflation? Dave Mosley: Yes, obviously Erik, there's a distribution channel worldwide, that's the stuff that we can move fastest things that we have for example, long-term agreements or key OEM relationships where we're trying to drive predictably, that stuff that's moves slower. Sometimes the inflationary pressures come really quickly. Sometimes there are things that are affecting everyone. And so I think everyone gets it. We deal with procurement people who are experts themselves, they know what's going on. They know what we're suffering with. Again, our first answer isn't pricing, it's usually to try to help each other for ways around it. But ultimately, we have to get paid for what we do. So, I mean, there's different time horizons, I guess, is the best way to say it for what we can go implement. Erik Woodring: Okay. Thanks. And then maybe just as a follow-up to get back to one of the questions about legacy markets earlier, maybe can you just dig one little deeper and try to parse out, maybe how you guys are thinking about the supply challenges that your customers are going through versus any kind of impact to demand that they might be seeing that might compound those supply challenges or more than offset those supply challenges? That's it for me? Thanks. Dave Mosley: Yes. Not too much on legacy. I think it does – there's some interesting trends going on. I won't opine on this too much other than to say that as I talk to different customers, there are some people who are being forced through product transitions and sometimes that's a way to alleviate ultimately the supply challenge, but you go through a product transition to the new product to make it more efficient so that people can get more parts, but then there your legacy stuff, if you will goes into life and that becomes a challenge for you as well, because you need some of the legacy stuff to go make your product. So it's a complicated world, when supplies behind demand on all of these parts, because people are trying to get you more parts, but they're taking you through these product transitions and not everybody goes at the same speed through them. And we don't really have that issue too much in the HDD business, but we see it a lot outside of us. So we're mindful of that and we'll have to work with the customers on it. Erik Woodring: Great. Thank you. Operator: The next question comes from Aaron Rakers from Wells Fargo. Please go ahead. Aaron Rakers: Yes. Hey, guys, thanks for taking the questions. I wanted to go back to Wamsi's question at the beginning around kind of the full calendar year. I could appreciate that, there's a lot of move parts and you don't want to give a full year guidance, but I guess my simple question is, do you think this calendar year you can grow revenue? And the reason I'm asking is that, even on a flattish revenue basis, it would imply, seemingly healthier that ramped into the second half of the calendar year than we've seen over the last couple of years. So I'm just going to – any thoughts around that? I know you talk about visibility on the cloud side, into the second half being strong. Again, can you grow this calendar year? Dave Mosley: Sure. I'll give my take on it, Aaron, and then I'll hand it over to Gianluca. I think it all comes down to what are the dynamics that we're seeing tactically in the channels right now. I mean, I think the demand is out there and certainly from the cloud side, the demand is ultimately out there. And then even on the enterprise side, the nearline enterprise, if you will, there's demand, people kidding the entire – getting the entire kit apart is probably more of the issue. So like we referred to earlier, we're actually snowplowing some of that demand right now. To the extent, we can get all of that. We've got a great product set coming as well. So we're really happy about that. We do think there's going to be revenue growth in the back half of the year, but when you get into these compares, I think it just gets a little too early given exactly what we're going through right now. Gianluca Romano: Yes, I would say if you just look at demand, demand could drive revenue above what we did in calendar 2021, the point is how much of a demand we can really serve. And right now we don't have the full visibility to give you a clear indication. So we said before we are confident on demand. We are confident that the second part of the calendar year will be strong. But again, we are not today in a position to really quantify that because we don't know how much we can serve. Aaron Rakers: And as a quick follow up, and I appreciate that, thinking about gross margin, you've said for the last couple quarters, HDD gross margins been solidly in your 30% to 33% range, how do we think about the trajectory of the non-HDD gross margin as we look forward? Dave Mosley: Yes, it's actually an interesting question. We think that we were definitely snowplowing some demand on the system side. We made reference to that. That's where we had some of our component challenges that we couldn't get enough components. And so had we probably been able to attain that I think the margins would've been higher and I'll say at the same level as the HDD gross margins, per our plans. But if it were to drop too much than we might not do that business, but we think that on the system side, there's quite a bit of opportunity and the rest of the stuff in the consumer markets and SSD, we're opportunistic. We take advantage of the kind of current environment, user brand. I would say, think about it as flat. We were just challenged because we can get enough parts last quarter. Aaron Rakers: Thank you. Gianluca Romano: Yes. This quarter in SSD, we also had some component cost increase, so we didn't have a particularly high gross margin. So this is also impacting our total gross margin for the quarter. But on the hard disk side, as you said, we were well into the range. Aaron Rakers: Yes. Good. Operator: The next question comes from C.J. Muse from Evercore. Please go ahead. C.J. Muse: Yes. Good morning. Thank you for taking the question. Another gross margin question implied in your guide looks like roughly 75 to 100 bps increase in gross margins on flattish revenues. So curious, what the key kind of positive drivers are there, is that entirely higher pricing or is there a little kiss from VMX or is there something else in there that we should be thinking of? Dave Mosley: I think it's largely mixed. Not just VMX, but VMX is a little bit of it. I mean, we do see that market starting to recover like this. So there's a pent-up demand there that ultimately gets served if people find the right components, but 20 terabytes, the mid-cap drives that we talked about the cost optimized mid-cap drives, which are ramping as well. I'm happy with the yields, the factories are full, those are the things that really help us drive the margins. C.J. Muse: Very helpful. And I guess as my follow up, is there a way to put a number on what kind of demand from the BS side has been pushed out to the second half? And if you assume there's no demand disruption, what kind of incremental revenues that could look like? Dave Mosley: Tough question. I don't know that we've ever really thought of it like that. But I do think that I'll let Gianluca answer here. What I would say C.J. is that at a high level, there's big customers and small customers, the small customers in the channel are the ones that are the most disrupted. The business is being serviced around the world, VIA business is being serviced by individual operators. I call it a white van business sometimes. And so –and that's a fairly profitable set of channels for us. So I think that's what we're going to have to watch the recovery of in order to predict how it goes. Gianluca Romano: If I'm trying to quantify, last quarter, we said we were expecting fiscal 2022 to be between 12% and 14% higher than fiscal 2021. And right now, based on what we guided will be probably around between 10 and 11. So the Delta is mainly the VIA market decline. So this is what is probably pushing out more or less. Dave Mosley: Yes, it's not just the one big customer, two big customers though. The diverse channels are the ones that are really being impacted, I think. C.J. Muse: Very helpful. Thank you. Dave Mosley: Thanks. Operator: The next question comes from Kevin Cassidy from Rosenblatt Securities. Please go ahead. Kevin Cassidy: Yes. Thanks for taking my question. Maybe my question's around the same. The inventory builds that you saw this quarter, was that VIA products, did you say? And also how fungible is your manufacturing? Can you move from VIA to the more the nearline products? Dave Mosley: Yes. Thanks, Kevin. There is some VIA product that is actually nearline product. Yes. And to the extent that we’re ramping those cost optimized mid-cap to satisfy those markets, it’s the same product exactly. Not too much. Most of what we’re talking about is as far as inventory whip and raw materials is really driving 20 terabyte transitions and still selling what we had on the older products, but making sure we wind up for this big ramp that we’ve got on 20s. So that’s the big play there. There’s some small VIA, and there’s some small even legacy, just because the demand’s down a little bit. We keep the factories going and then we repurpose the factories towards more mass capacity later that we’ve been on that trajectory of transition if you will, for the last five years. Kevin Cassidy: Right. And maybe just what visibility do you have? I guess, what lead time are you giving your customers if they place an order today? Dave Mosley: Totally depends on the product, of course. But one of the reasons why we’re driving the discussions that we are with the cloud is because their volume is so high, not just in number of drives, in heads and media and things like that. We want to make sure we have the right thing for their transition. So those visibilities, if you will, the lead times could be six months. That’s from way for start to drive out. It’s longer than that for some of these big cloud drives. Other markets, we may have – we may want six or eight week visibility. Not too much of our businesses, I’ll call it highly transactional at the end, like it used to be. But if that helps you, different markets are different, the cloud being the longest. Kevin Cassidy: Okay, great. Thank you. Operator: The next question comes from Ananda Baruah from Loop Capital. Please go ahead. Ananda Baruah: Thanks guys for taking the question. Yes, a couple, if I could. Dave, what’s your – what you guys view on this cloud – kind of cloud demand this cloud cycle kind of going into calendar year 2023 at this point. And then I have a quick related follow-up. Thanks. Dave Mosley: Yes. I think there’s a lot – it is hard to manage data centers at high volume, I think like a lot of people are learning in the world. So as I think about some of the smaller providers around the world, it’s not easy to ramp and scale and things like that. So there are all kinds of distractions, especially with the supply chain things that are going on in the world. The bigger you get, the more you have to take offline some older stuff and refurb and upgrade. So it becomes an enormous operational challenge. And I really appreciate how hard that is for everyone to manage. And so therefore, you hear people going through various trends. My sense is right now higher capacity drives are in a hot commodity. I think that the world will go to more bigger percentage of higher capacity drives in the future. I think when we talked about these utilization rates being larger than they ever have been kind of record utilization rates in the cloud. I mean, people have really kind of squeezed as much as they could out of the existing data infrastructure. There’s not a lot of drives that aren’t working 24/7 or aren’t full or that kind of thing in that environment and data just keeps growing. So, from my perspective, directly to question, CY2023 will continue to grow in exabytes. And we’re on a trajectory here in five plus years to double the revenue out of mass capacity. And our products are staged really well for that. So the discussions – the long-term discussions that we’re having with everybody, again, everyone going through temporal problems right now in supply chain, but the long-term discussions are quite favorable for us. Ananda Baruah: That’s super helpful. And I guess, a follow-up to that is, you guys have talked – you did some – sort of had some conversation last year about increasing, so there’s a number what you consider to be sort of your larger cloud-related customers, I think to 15 or so from 10 or so. Are you seeing like what’s going on with supply chain and macro, et cetera? Are you seeing any impact to the pacing of the development of those customers? Dave Mosley: Yes. If you read that into my last answer, there’s definitely some of the smaller players that are trying to grow more quickly that are having their own issues with supply chain. And that’s a function of maybe just experience so far. They have aspirational goals to grow much bigger. We can try to help them, but they are going through various supply chain issues. And we think some of that will abate over time. And some of it actually, frankly, they’ll pick architectures that are much more common out there in the world versus trying to optimize their own architecture as well to satisfy application set just because of the supply chain problem. So that’ll probably help the supply situation as well. Ananda Baruah: All right. That’s really helpful. Thanks a lot. Operator: The next question comes from Jim Suva from Citigroup. Please go ahead. Jim Suva: Thank you. You’ve been very clear about the challenges in China on the video imaging. And also the visibility you have kind of in the second half of the year. The question I have is, is there a risk that if – and who knows, but if COVID continues to remain an issue and certain locations have kind of a zero tolerance policy that this actually could not come back in the second half of the year? Or is there – you have visibility that regardless of the demand for the video imaging in Asia will come back in the second half of the year? I’m just trying to understand that a little bit. Thank you. Dave Mosley: Right. I think Jim it’s too early to tell. But there is uncertainty. Yes. And you can tell that in our comments. Talking to our customer, the demand is out there. They continue to innovate on feature sets and smart city feature sets and surveillance feature sets. And these things are needed around the world. I mean, to make people safer and to drive all kinds of efficiencies. I’ve had some great conversations about consumer behavior and getting some efficiencies out of that that would help everybody’s margins. And so there’s all these ideas usually that comes with installing new NVR or DVR boxes at the edge, because that’s where a lot of the analytics are done. It’s just right now, I think these channels are fairly disrupted in worldwide, and the bars are – the integrators are not willing to stick their necks out too far because they don’t know exactly what’s going to happen next. And I do think that COVID is a significant part of that, especially in China. I think that once that abates then the new feature sets will be in demand. And I think we’ll start to see it come back. Gianluca Romano: In the last 2.5 years we have lived with a lot of uncertainties. So we think we have managed those fairly well. But of course, it depends from the magnitude and we don’t know what will happen next month and next quarter. But as Dave said, we expect that to start to improve hopefully soon and demand to come back quickly. Jim Suva: Great. Thank you. Dave Mosley: Thanks, Jim. Operator: The next question comes from Mehdi Hosseini from SIG [sic] SEI. Please go ahead. Mehdi Hosseini: Thank you. It’s actually SIG. I had one quick follow-up. I’m just curious how do you guys forecast nearline demand for more than one quarter and specifically for North American customers? Dave Mosley: Well, we – Mehdi, I think we talked about quite a bit of our LTAs that we have. It’s not really even forecast at some level, it’s strong discussions that we’re having with customers. When you start talking in the millions and millions of units, and staging the right product for what they need and filling hubs, even a 10% error is just something that we actually put in the hubs around. So, we’re not even forecasting, it’s more co-planning, I would say, the co-planning exercises that we’re doing now. Mehdi Hosseini: Got you. Thank you. Operator: The next question comes from Mark Miller from The Benchmark Company. Please go ahead. Mark Miller: Thank you for taking my questions. First question, can you give us an update on HAMR? And then the follow-up question is you’re talking about being at the low end of your capital spending for fiscal 2022. Do you anticipate you’ll have to add component production capacity in fiscal 2023? Dave Mosley: Thanks, Mark. So yes, HAMR, we started talking a couple quarters ago about being in product development. So if you’ve watched our companies long enough, you know what that means. We’re kind of in the final throws of development doesn’t mean that the product’s done by any stretch of the imagination, but confidence is pretty high. The gains that have been made in HAMR and reliability testing have been fantastic late. I mean, to the point where we have productizable components right now, we got to get the yields up. We got to solve all the other problems. It’s not just about heat assisted magnetic recording, it’s about all the other things that have to come together in a 30 plus terabyte drive. But we have confidence. We’ve been staging for quite a long time. We’re very communicative with our customers on this, because this is a jump that frankly, they want really badly because that helps their TCO proposition. And there’s a whole host of new features that come out on some other schedule that we’re working with them on as well. So we’re in the throws of product development, customer communications and everything else that will keep you posted on that. It’s going quite well. Gianluca Romano: I think the second question was on CapEx, I think. Yes. So for fiscal 2022, we are at the low – in the low part of the 4% to 6% range of revenue, of course. Now we don’t guide fiscal 2023 today, but I don’t see any reason why we should be out of that range also for next year. Dave Mosley: Yes. And if you’re implication, Mark was about components around HAMR, I think we’ve been planning for that for quite some time. So the tools that we’re using that we have to buy are HAMR compatible to the first order and we know how to integrate those. Mark Miller: I was also thinking about the ramp of 20 terabyte. Dave Mosley: Yes. Yes. It’s the same tool set, yes. Mark Miller: Okay. Thank you. Operator: There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Dave Mosley: Yes. Thanks, Jason. In summary, long-term growth drivers for mass capacity infrastructure haven’t changed and it’s all underpinning growing demand in the cloud and at the edge, it’s all about data. Seagate’s strong operational execution and product roadmap position, our technology, we’re really well positioned to capture these opportunities to expand profitability, enhanced value for all of our stakeholders. I like to thank our employees again for their outstanding efforts in these tough times, and thank our customer, suppliers and investors for their continued support. Thanks for joining us. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

Operator: Good afternoon, and welcome to the Seagate Technology Fiscal Second Quarter 2022 Financial Results Conference Call. My name is Brent, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. At this time, I would like to turn the call over to Shanye Hudson, Senior Vice President, Investor Relations and Treasury. Please proceed, Shanye. Shanye Hudson: Thank you. Good afternoon, 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 posted our earnings press release and detailed supplemental information for our December quarter fiscal 2022 results on the Investors section of our website. During today's call, we'll 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 that was filed with the SEC. We've not reconciled certain non-GAAP outlook measures because material items that may impact these measures are out of our control and/or cannot be reasonably predicted. Therefore, a reconciliation to the corresponding GAAP measures is not available without unreasonable efforts. Before we begin, I'd like to remind you that today's call contains forward-looking statements including our March quarter financial outlook and expectations about our financial performance, market demand, industry growth trends, planned product introductions, ability to ramp production, future growth opportunities, possible effects of the economic conditions worldwide resulting from the COVID-19 pandemic and general market conditions. These statements are based on management's current views and assumptions and information available to us as of today and should not be relied upon as of any subsequent date. Actual results may vary materially from today's statements. Information concerning our risks, uncertainties and other factors that could cause results to differ from these forward-looking statements are contained in our most recent Form 10-K and 10-Q filed with the SEC, our Form 8-K filed with the SEC today and the supplemental information posted on the Investors section of our website. As always, following our prepared remarks, we'll open the call up for questions. Now I'll hand the call over to you, Dave. William Mosley: Thank you, Shanye, and hello to everyone joining us on today's call. Seagate ended calendar year 2021 on a high note, delivering another solid performance in the December quarter, highlighted by revenue of $3.12 billion, our best in over 6 years. And non-GAAP EPS of $2.41, representing the highest level in nearly a decade. This performance is all the more impressive in light of the supply chain disruptions and inflationary pressures we are experiencing today and further demonstrates the consistent execution, operational agility and sharp focus on expense discipline that we have displayed throughout the year. To that point, in calendar year 2021, we achieved revenue of nearly $12 billion, up 18% compared with the prior calendar year. We expanded non-GAAP EPS by more than 75%, and we grew free cash flow by nearly 40%, truly an outstanding year of growth that shows we are capitalizing on the secular tailwinds driving long-term mass capacity storage demand. As we shared many times before, driving profitability and free cash flow generation remain 2 of Seagate's top priority and underpin our focus on enhancing value for our customers and shareholders. Since the onset of the pandemic, we have consistently executed our product road map and made investments to deliver cost-efficient, higher capacity drives that offer business value for our customers while also enhancing Seagate's financial profile. We extended our proven common platform drive family from 16 to 18 and now to 20 terabytes and beyond. We also address cloud customers' performance needs through our industry-leading dual actuator technology. We've made these advancements while notably returning more than $4 billion to our shareholders through our quarterly dividend and share repurchase programs. Our execution and product momentum position Seagate to deliver a third consecutive calendar year of top line growth. We currently expect calendar year '22 revenue to increase 3% to 6% with further growth beyond, consistent with our long-term model range. Let me spend a few minutes discussing the current business environment. In the December quarter, we again generated record mass capacity revenue with growth led by demand from cloud customers. We achieved our highest ever cloud customer revenue, supported by sales of our 18 terabyte nearline products, which significantly increased quarter-over-quarter consistent with our plans. HDDs are a critical enabling technology for the growing data sphere. As we shared a year ago at our analyst event and our results demonstrate, HDDs have a well-established place in the data center ecosystem, and we do not expect that to change over the next decade or longer. For the past couple of years, Seagate has been a beneficiary of increasing cloud data center investments to support remote work, remote education and the digital transformation trends that continue to take place. Analysts forecast another year of strong double-digit cloud CapEx growth in calendar 2022. Several powerful themes emerged from this year's CES conference that support our longer-term demand outlook. And underscore a clear business need to capture, access and analyze massive and growing volumes of data. New use cases highlight how data-intensive applications such as AI, autonomous vehicles or smart cities can improve business or social value and drive demand for mass capacity storage, both in the cloud and at the edge. We have previously shared how emerging use cases at the edge are driving meaningful opportunities within the VIA market. These applications utilize high-definition video and AI analytics to capture and extract data value. In the December quarter, sales of our VIA products remain healthy, and we expect the March quarter to be seasonally slower, consistent with historical trends. Longer term, we continue to forecast exabyte growth in the mid-teens, supported by expanding opportunities at the edge. Moving to our other markets. Sequential growth from the cloud in the December quarter was somewhat counterbalanced by lower revenue in the enterprise, OEM and legacy PC markets that we attribute primarily to the COVID-related supply challenges that dominated broader industry headlines. As we indicated last quarter, non-HDD component shortages are disrupting some of our enterprise and OEM customer shipment plans, which impact both mass capacity nearline and legacy mission-critical drives. We are mindful that these supply pressures and other COVID-related measures could further weigh on the typical March quarter seasonality that we anticipate in the VIA and legacy markets. However, customers are managing through the tight supply environment and expect conditions to ease over the next couple of quarters. Seasonality and temporary constraints aside, the long-term mass capacity demand trends remain strong. In this environment, we remain focused on exercising capital discipline to align supply with demand and continue to engage with customers on their longer-term demand requirements to ensure that our production capacity plans align with their future ramp time lines. With lead times for high-capacity HDDs of 6 months or longer, an increasing portion of our nearline drive revenue is under long-term agreements with momentum to expand even further. We are executing our innovative mass capacity road map and cost reduction plans to offer a compelling value proposition for our customers that is also financially attractive for Seagate. We are ramping 20-terabyte drives, extending our common platform to a third generation. For a couple of quarters now, cloud data center customers have shown very strong pull for these drives. The TCO value proposition for transitioning to higher capacity drives is compelling. Consider first that a move from 18 to 20 terabytes represents an 11% boost in storage capacity, and then layer on the savings realized across the data center buildout. At the system level, customers require less networking gear and other ancillary parts to support the same storage capacity. On both fronts, these gains translate to meaningful cost efficiencies, which may be further enhanced given the part shortages and inflationary pressures in today's market. All indications point to a very steep production ramp for our 20-terabyte products with the potential of surpassing the record-setting ramp we saw for our 16-terabyte drives. As a result, we are using the seasonal slowdown in the March quarter to stage our factory operations to support strong 20-terabyte demand as the year unfolds. Our common platform approach helps to facilitate this process by enabling us to quickly transition and ramp new products into the market. Our 20-terabyte drives highly leverage the head and media technology that power our 18-terabyte product family, making the production process well understood and haste in time to yield. This strategy also provides manufacturing flexibility and improves our overall cost efficiencies across the breadth of our common platform family, which currently spans 16 through 20 terabyte capacities for CMR products with some customers stretching to 22 terabytes using SMR feature sets. We are driving additional manufacturing and cost benefits by incorporating the same media and head technology to produce cost optimized drives, spanning capacities down to 2 terabyte drives. In addition to improving manufacturing flexibility, these cost optimized drives can require fewer heads and disks, which offset some of the near-term inflationary component pressures. In the December quarter, the revenue contribution from products using higher aerial density drives increased to nearly 40% of total HDD revenue. Wrapping up, we entered the March quarter amid a challenging supply environment. However, I remain optimistic for conditions to gradually improve. Importantly, our strong product portfolio and operational execution put Seagate in excellent position to deliver on our long-term revenue growth model and generate strong free cash flow in 2022 and beyond, underpinned by growing demand for mass capacity storage beyond 20 terabytes. I'll now hand the call over to Gianluca to cover the financial results. Gianluca Romano: Thank you, Dave. Seagate continued to execute well and navigate a complex business environment to deliver a solid financial performance aligned with our expectations. In the December quarter, we grew revenue to $3.12 billion, up 19% year-over-year. Delivered non-GAAP operating margin of nearly 20%, up 520 basis points year-over-year and increased non-GAAP EPS to $2.41, up 87% year-over-year. In our HDD drive business, we achieved the fifth consecutive quarter of record capacity shipments, totaling 163 exabytes, up 3% sequentially and up 26% year-on-year. Ongoing cloud demand for our nearline products supported mass capacity revenue of $2 billion, up 1% sequentially and up 25% compared with the prior year period. Shipments into the mass capacity market totaled 137 exabytes, up 4% sequentially and 41% year-over-year. Nearline remains our fastest growing product segment with revenue outpacing the broader mass capacity business. In the December quarter, we increased shipment to 111 exabytes, up 4% sequentially and 56% year-on-year, supported by the ongoing cloud adoption of 18-terabyte drives as well as healthy demand for mid-capacity products from enterprise and OEM customers. Our 20-terabyte product family is growing strong customer interest, and we are continuing to scale 18 terabyte shipments while also preparing for an anticipated steep 20-terabyte ramp in the coming quarters to support demand. Sales into the VIA markets remained healthy in the December quarter, following 2 quarters of rapid growth and near record revenue in September. We project a seasonal slowdown in the VIA market during the March quarter, but expect revenue to remain up on a year-over-year basis. Within the legacy market, revenue came in at $775 million, down 7% sequentially and 15% year-over-year. Seasonal demand for consumer drives partially offset weaker-than-anticipated PC sales due in part to ongoing PC component shortages and lower mission-clinical sales. As we discussed last quarter, component shortages are also impacting sales in our system business as customers delay some ordered product deals due to constrained supply of nondrive components. Despite these headwinds, non-HDD revenue increased 17% sequentially and 48% year-over-year to a record $294 million, boosted by strong SSD demand. While we continue to face near-term supply challenges for both the system and SSD businesses, we remain confident in growing the non-HDD business in fiscal 2022, particularly for our system solution, where we see ongoing demand and continue to capture new customer logos. Looking at our operational performance. Non-GAAP gross profit in the December quarter was $958 million. Our corresponding non-GAAP gross margin was 30.7%, down 30 basis points sequentially, but up nearly 400 basis points year-over-year. The ongoing transition to both higher capacity drives and cost-optimized products mostly offset higher freight and logistic costs and the less favorable product mix with a record non-HDD sales. Notably, HDD gross margin remain in the upper half of our long-term target range of 30% to 33%, flat with the prior quarter. We maintained relatively flat non-GAAP operating expenses at $337 million, lower than expected, reflecting our disciplined expense management and the timing of certain spending. We expect OpEx to be somewhat higher in the March quarter due to an increased R&D expenses and business travel. Our resulting non-GAAP operating income was $621 million, down 1% sequentially and up 61% year-on-year. Non-GAAP operating margin remained relatively flat with the prior quarter at 19.9% and at the top end of our long-term target range of 15% to 20% of revenue. Based on diluted share count of approximately 225 million shares, non-GAAP EPS for the December quarter was $2.41, which is $0.06 above our guidance midpoint. We increased inventory by approximately $100 million with days inventory outstanding of 54 days to support the upcoming 20-terabyte product trend. Capital expenditures were $95 million for the quarter, down 19% sequentially. For fiscal '22, we continue to forecast CapEx at the low end of our target range of 4% to 6% of revenue, which is sufficient to support our future product road map while maintaining alignment between near-term supply and demand. Free cash flow generation increased to $426 million, up 12% quarter-over-quarter and 36% year-over-year. We delivered strong performance in the December quarter and expect to improve free cash flow generation through the fiscal year, enabling us to continue to fund our strong capital return program. In the December quarter, we used $151 million for the quarterly dividend and $471 million to repurchase 5.1 million ordinary shares, exiting the quarter with 219 million shares outstanding and approximately $3.3 billion remaining in our authorization. We ended the December quarter with cash and cash equivalents of $1.5 billion. And total liquidity was approximately $3.3 billion, including our revolving credit facility. Adjusted EBITDA increased to $723 million in the quarter, our highest level in 7 years, and was $2.6 billion for the 12-month period ending in December. Total debt balance at the end of the quarter was $5.9 billion, and as we previously reported, we plan to repay $120 million in debt coming due in March. In summary, we delivered solid financial performance, maintaining our focus on driving profitability and free cash flow generation while navigating a dynamic business environment. Looking ahead to the March quarter, we expect a continuation of the healthy demand environment in the nearline market with anticipated seasonal decline in VIA and the legacy markets. As Dave noted, we are mindful of the ongoing impact related to corporate dynamics and will continue to manage through supply chain constraints and other inflationary pressures that we expect to persist through at least the fiscal year. We expect March quarter revenue to be in the range of $2.9 billion, plus or minus $150 million. We expect our operating margin to be impacted by COVID-related pressure, what I just discussed over the near term. However, we believe the structural changes in the industry combined with Seagate disciplined execution will support a higher operating margin over time. As a result, we are raising our long-term target non-GAAP operating margin range to 18% to 22% of revenue compared with our prior range of 15% to 20% of revenue. With that in mind, we expect our March quarter non-GAAP operating margin to be at the lower end of our revised long-term range of 18% to 22% of revenue. And finally, we expect non-GAAP EPS to be in the range of $2, plus or minus $0.20. Looking further ahead, ongoing demand for mass capacity storage, combined with our strong product pipeline, give us confidence to further raise our fiscal year 2022 revenue growth to be between 12% and 14%, up from our prior outlook in the low double-digit range. I will now turn the call back to Dave for final comments. William Mosley: Thanks, Gianluca. I'm very proud of the results Seagate posted in the December quarter and also our ability to deliver consistent performance during this unique period of transitory issues. Through it all, the trends driving explosive growth in data remain powerful. Longer-term demand tailwinds that will push growth in mass capacity stores in 2022 and for years to come. Seagate has the right product portfolio, operational know-how and partnership focus to capture these opportunities and lend confidence in our ability to deliver on the annual growth targets we've outlined today as well as achieve strong profitability and cash generation to fund our robust capital returns program. Seagate has been a technology company, innovation leader for over 4 decades. We are now leading the industry into a new era of technology with HAMR and multiactuator drives. The industry has undergone a positive structural change with the transition of mass capacity markets. These innovations are the result of years of intense focus and significant investments that bring value to our customers and to their customers by unlocking the power of their data. We are focused on capturing an appropriate return to continue fueling our mass capacity innovation engine, which we believe is healthy for Seagate and for the industry at large. In closing, I would like to thank our employees who deserve the credit for Seagate's outstanding performance this past year. We are a values-driven company, and last week, we published our third annual diversity, equity and inclusion report that captures the many ways we put our value of inclusion into action. Among the many positive measures in the report, I want to highlight an increase in the overall percentage of women in director and executive roles as well as an increase in minorities in our U.S. workforce. These are important areas of focus for the company and reflects positive progress in our efforts to build a more global, diverse and inclusive workforce, which we believe leads to better business sustainability. I would also like to thank our customers and suppliers for their continued support and our shareholders for their trust in Seagate. Gianluca and I are now happy to take your questions. Operator: [Operator Instructions] Your first question comes from Wamsi Mohan with Bank of America. Wamsi Mohan: Dave, Gianluca, when you look at the gross margins that came in slightly down quarter-on-quarter, 30 basis points, can you talk about the moving pieces there, not just for this quarter, but as you think through gross margin trajectory in terms of both price and the very strong inflationary cost pressures that everyone seems to be absorbing? You guys have done a great job on a year-on-year basis, but how should we think about the next few quarters? [Technical Difficulty] Operator: Your first question comes from Wamsi Mohan with Bank of America. Wamsi Mohan: Dave, can you hear me? William Mosley: Yes, I can hear you, Wamsi. Wamsi Mohan: Okay. Great. Dave, when you look at the gross margins coming in slightly down quarter-on-quarter, can you talk about the moving pieces there just in terms of price versus the inflationary pressures that we have seen over the last few quarters? You guys have done a great job on a year-on-year basis. But how should investors think through these moving pieces over the next few quarters? William Mosley: Appreciate the question. We've tried hard, as you know, to be as predictable as we can. There are a lot of near-term margin headwinds that we described in the prepared remarks. We still remain focused on and as prescriptive as we can over time. We don't view that our current range is some kind of ceiling or anything like that, but there are near-term headwinds. And I'll ask Gianluca to illustrate with a few numbers here in just a second. Big picture, what's going on in our industry is our drives are becoming more and more mass capacity, of course. And which means inside the drive, there's more heads, more disks, all the time. So I think for the last quarter, it grew yet again, and it probably will for the course of the next few years also. And so as we do that, those are long investments -- long-term investments and factories and the entire supply chain around heads and media. Those constituents of the BOM become more under our control, and I think it allows us to go drive for a little bit more predictable return on investment. But obviously, this is a challenging period. So Gianluca, do you want to highlight some of the challenges? Gianluca Romano: Yes. I would say, first of all, the change quarter-over-quarter is mainly coming from mix. If you look at the hard disk drive gross margin, is completely flat to the prior quarter. So we don't have any change in profitability for the hard disk. We have increased a lot our non-hard disk revenue, mainly in the SSD part of the business, and that is driving some reduction in the overall gross margin. But of course, it was also very helpful at the revenue level and the free cash flow level. Now when you look inside the hard disk, mass capacity was at a record high, fairly close to September as we were expecting about 1% higher, but still a good record high. Legacy was sequentially down in mission-critical, but as you know, is a high gross margin segment. And was actually higher in consumer that is actually a lower gross margin segment. So there is a lot of mix going on into December. But finally, the reality is hard disk in total, was flat gross margin compared to September and the increase in the non-hard disk part was driving the slight decline at the company level. Now when you go into the March quarter, where it's still a mix impact, it's a different kind of mix. This is more a seasonality impact. Some of the segments that will be seasonally low are fairly high gross margins like surveillance, like mission-critical. Other segments are actually fairly, let's say, not low but low at gross margin like consumer. And we also expect at this point, some decline in the SSD part of the revenue. So when you put all together, again, the mix is probably driving the gross margin in the March quarter, slightly down from the December quarter, but it's not coming from the business. It's coming mainly from the mix. As Dave was saying before, of course, we have also some cost increases, mainly in the freight and logistic cost. We thought 2 quarters ago to be at already the high level of the freight cost, but it continued to increase in September and again in December. This we expect to start declining in the next few months. But with our spending control, with the strong mass capacity business that we have, we have mainly offset those bad news coming from the cost leaving the mix impact, of course, impacting the total result. Operator: Your next question comes from the line of Karl Ackerman with Cowen and Company. Karl Ackerman: Two questions, if I may. One is a follow-up to Wamsi's most recent question. But Gianluca, you spoke about non-HDD component shortages disrupting some of your enterprise customer shipment plans. If I may, are you referring to mission-critical here? Or is this weighted toward mass capacity? And I have a follow-up. Gianluca Romano: No, I would say the shortages, we have experienced in 2 parts of the business. One is the PC and one is a system solution. Karl Ackerman: Understood. That's clear. William Mosley: So I think to break it down a little bit, Karl. There is some mission-critical and there is some nearline components to that, if that makes sense. Karl Ackerman: Great. I guess from an end demand perspective, to me, it sounds like most end markets may moderate in March, except for the nearline hard drives. But I was hoping you could discuss the visibility you have across your data center customers today for high-capacity drives, which some of these are -- some of these customers are sounding signing long-term agreements? And then second, just the visibility in the trajectory you have for the remaining areas of your business as you contemplate that 3% to 6% growth for calendar 2022? William Mosley: Right. Good. So as we said in the prepared remarks, the 20-terabyte demand is quite strong. And so we're using this period, this quarter, to transition between whatever components that are flowing through that are 18 specific. There aren't very many because it's a leveraged platform to the 20s and really get staged for high growth on the 20s. And the visibility is very good for those products. I think the customer demand has been -- customers are quite receptive to that. They see a TCO benefit. On all of the other markets we continue to watch and forecast and have, in some cases, we have very deep relationships with the customers that can also provide some level of confidence there as well. So in aggregate, I think it's going to be a very strong year for exabytes as well, and we'll translate that into revenue. There are some temporary problems that are going on right now because of supply chain issues that are affecting everyone. It's more affecting our demand than it is our supply, but we're mindful of that and paying attention to it. I think the demand picture for mass capacity data in particular remains strong. Operator: Your next question comes from the line of Tim Arcuri with UBS. Jungsuk Park: This is Jason Park on for Tim Arcuri. Our first question is how can we think about the June quarter if June is close to normal seasonal, which is usually flat or up a little than the implied second half of the calendar year has been pretty strong, like 53% of the year, which is about the strongest second half of the calendar year loading we have seen? So just wanted to ask what are the drivers there? And what gives you the confidence? Then I've got a quick follow-up. William Mosley: Right. I think you're on the right point, which is so if you look at the tale of the tape, we go back -- so when we entered this calendar year, we were talking about low -- sorry, high single digits for revenue. And then we said maybe low double digits. Now in these remarks, we said 12% to 14% and we're already more than halfway through the fiscal year. So exactly, you can start to look at Q4 and see that we are right now forecasting strength. Some of that's coming on the back of the 20 terabytes that I just talked about to the response to Karl. Some of it's also the transition to the cost optimized drives that we made reference to as we transition to that platform. We -- all the way from 2 terabytes, 8 terabytes, 10 terabytes, we can actually predict that market pretty well and have great conversations with customers there as well. So we feel fairly comfortable with that part of the guide. And then we talked about the entire calendar year as well as growing on top of last calendar year. So it's all baked into our forecast. Jungsuk Park: Got it. And my follow-up question is on the demand in China. So we just wanted to gauge your level of concerns in China as we think most of the nearline business is direct rather than to a channel. But there are a lot of concerns about demand weakness there due to some of the problem restrictions. So my question is, what are you seeing from the hyperscalers in particular in China? William Mosley: There have been pockets of build-out that's been pushed out, largely because of other supply chain issues, not necessarily mass capacity issues. I think those investments are still planned. Now some of that push-out may be happening because of component shortages. It may also be happening because of prioritization of budgets into COVID measures or other things that the end customer is actually prioritizing. But we're not really that worried about it long term. We have great relationships with the OEMs. And I think -- and in the cloud service providers. And I think long term, I think these continued build-outs are going to come. Not just in China, but I would say for all of Asia, there's a lot of new applications that are coming online, lots of smart city applications. We're quite excited about it. So we see -- that's all baked into our revenue forecast that we just gave. Gianluca Romano: Yes. I think we need to be careful on not confusing seasonality with lower demand. So when we go into the March quarter, our mass capacity -- part of our mass capacity will be impacted by seasonality, especially in the surveillance part of the business. But that is not because of a high level of inventory or unusual lower level of demand, it is a normal seasonality that we expect for that segment in the March quarter. And then in the June quarter, usually start to improve and get very strong in September and December. Operator: Your next question comes from the line of Tom O'Malley with Barclays. Thomas O'Malley: My question was related to the VIA business. You're describing some seasonality into March. But you made the comment on the call that from a revenue basis, it would be up year-over-year. Obviously, when you look at exabytes, March was extremely low for the business in terms of exabyte shipments in VIA. Can you just try to dial us in a little bit between those 2 field go posts there? When you look at what is traditional seasonality into that March quarter, what should that look like just because it's hard to get a gauge, given how weak March of '21 was? William Mosley: That's a great point, we compare it back to a year ago and I think anybody trying to forecast off of the pandemic kind of investment behaviors is going to be challenged. I would say that there's strength in smart city applications that are coming online. In Q2, things could have been even a little bit better. It was clearly better year-over-year, but it could have been even a little bit better. I think to the earlier question, there are reasons to believe that some of those buildouts are getting pushed out. And unfortunately, the COVID pandemic is still with us and some of those priorities are still being made this quarter. We do forecast over time that the market should strengthen. And as we talked about mid-single digit -- or sorry, mid-double-digit growth in the VIA markets. I think it all depends on applications and then the economics of the investment that will have to be made across the breadth of the compound supply chain. From our perspective, the demand for data products is quite strong in these markets. And so we should still see that growth and maybe even more as time goes on. Thomas O'Malley: Okay. And then my follow-up was just on the inventory side. There's obviously an uptick. You mentioned in your prepared remarks that, that was mostly related to a buildup in 20T. Are there other parts of that inventory that are climbing just because of the supply dynamics of the market where your not shipping product? I think you mentioned also that some of that was actually demand related, and that could be because of componentry, et cetera. But can you just dive into that inventory number? Is it all the increase due to 20T? Or is there some other pieces in there as well? That would be helpful to under. William Mosley: Largely, it's the 20T. We're able to use those parts against a broader portfolio than just 20s, of course, we can go to 18s, 16s or all the way, like we talked about, some of the complements are very, very similar, down even further. So at the end of the cost optimized drive. So that's the way we think about it is that, yes, there's some inventory buildup going on right now. Some of that's just staging for bigger growth in subsequent quarters after this quarter. And the components are very usable across multiple families. So we're really not worried about the growth. Gianluca Romano: In the last few quarters, we have built some strategic inventory, of course, to be a little protected by this supply chain situation, but not much in the December quarter. So I will say we have done it before. The increase that you have seen in the last 3 months is mainly related to the 20 terabyte trends. Operator: Your next question comes from the line of Katy Huberty with Morgan Stanley. Kathryn Huberty: The March quarter revenue is typically down mid- to high single digits, which aligns perfectly with your guidance. In your prepared remarks, you did mention that supply pressures could put some additional pressure. And I wasn't sure whether that could be incremental to downside to the revenue guidance? Or if that's something that you had baked in for the March quarter? And then just connected to that, the implied June revenue looks to be better than seasonal, up sort of 2% to 3%. Is that because you would expect some of these supply headwinds to resolve themselves as you go into June? And then I have a follow-up. William Mosley: Yes. Thanks, Katy. There are a number of different dynamics. And I think the latter part of your question first, yes. There are components that we've field will break free in the next few weeks. And so -- and yes, we've tried to bake that into our guide as much as we can for this quarter. There are some components that won't break free for quite some time, and you have to make sure that you're staging those well against your build plans. That goes maybe for our builds, but we're also trying to look at the broader tech ecosystem because we do know that there are customers, generally speaking, they are the smaller customers, but they've had trouble getting some of these complete kits. And so all of this is tough for the customers right now. We're just trying mainly to help them get through the periods. There are some things that will get better near term, and there are some other things that are going to stay for a little bit longer. Kathryn Huberty: Okay. That's helpful. And then maybe, Gianluca, if you can extend the discussion you had with Wamsi on gross margin into how we should think about the March quarter. Your revenue and EPS guide is really in line with the consensus. But on the gross margin line, consensus was I think you could hit north of 31%, which would be an improvement. Do you see the mix shift back towards HDDs helping you expand gross margin sequentially in March? Gianluca Romano: Well, in March, the main impact will be coming from the mix and surveillance. VIA market, in general, is a very high gross margin segment. So we will have some impact from that business declining and also mission-critical. So when we look at seasonality and look at the segments that are really impacted are segments that are fairly high gross margin. Of course, the continued increase in our mass capacity. So in the cloud, in the nearline and the OEM part of the nearline, that is all positive. And I think we will continue to see improvement in our gross margin after the March quarter when we go into less seasonal part of the business and, of course, even stronger when you go into September and December. So there is an impact that is due to seasonality and is normal for this industry. I will not look that as unexpected. Kathryn Huberty: So gross margin sort of flat to down in March seasonally and then improvement off of that base? Gianluca Romano: Yes, let me see how we guided, yes. William Mosley: Yes. The best that we can drive gross margins is to continue to transition to more mass capacity products to get more of the constituents of the BOM into the drives that are heads and media. Operator: Your next question comes from the line of Mark Miller with The Benchmark Company. Mark Miller: Just was wondering, you mentioned that some of your nearline people were facing some supply constraints. What about your own supply of chips, is that holding up? William Mosley: Yes. I think we have deep partnerships with our suppliers, we've been with them for a long time. I think there are a lot of dynamics that smaller customers have that we try to help them with. And then from my perspective, there's a certain amount of volatility with that. But like I said before, stuff is becoming more predictable over time even if it might not be the level of what some of those customers want. So we're getting better visibility as time progresses. Mark Miller: Is there anything -- you mentioned SSD sales. Anything else driving your other sales in terms of enterprise, there's been very strong growth over the last year? William Mosley: I do think there is demand for data out there on-prem and some of that's probably not being serviced, I mean, as well as it could be if there weren't some of the supply constraints, Mark. So yes, I think there's probably some underserved demand. But it may be part of other build-outs as well. It may have problem getting compute or they may have problem getting networks so they don't do the entire build-out. I think this is going to shake out over the next few months. Operator: Next question comes from Mehdi Hosseini with SIG. Mehdi Hosseini: I want to get your thoughts on nearline mix expectation for '22. And how we should think about the migration from 16 to 18 and then to 20, especially given your commentary that was focused on 20 terabyte. And I have a follow-up. William Mosley: Yes. Mehdi, we're largely transitioned to the platform that can actually give 18s or 20s if we wanted to or back to 16s, if we wanted to. So we mix according to what the customer demand is. We don't really build a theoretical mix. So we're talking to customers. Some people aren't ready for transitions to 20s. Some people want to stay on 18. Some people want to stay on 16 and so we're here to serve them. The fact that we have these new platforms what are changes tweaks that were to this common platform will actually put us in a little bit better cost position. And I would say relative to the aggressive ramp that we made, we referenced in our prepared remarks, the 20-terabyte ramp is going to be a very, very aggressive ramp. So -- and that's what we're staging for in this quarter -- last quarter and this quarter. But that will be transitioning over to the next -- over the course of this calendar year to higher and higher bonds. Mehdi Hosseini: Got it. And then just going back to the gross margin topic. I understand the mix impact. You also highlighted material cost that has gone up. And I want to better understand how you're able to pass on that incremental cost to your customer. Would it be fair to say that there is a really unusual pricing dynamic for different products. And in that context, would you be able to pass on that incremental cost increase to customers? William Mosley: Yes. To be specific, most of the cost increases, we said not all, but most of them are freight and logistics related, especially when we don't or the customers don't predict the demand perfectly. And again, it's a very hard -- difficult world to get the right kits in the right place at the right time that everybody is trying. And then you have to pay the freight and logistics fees to get the stuff there as quickly as possible. That becomes problematic. We don't necessarily look first to pass that along. We work with our customers who are supply chain experts themselves to find ways to mitigate those costs because everybody really wants. That's in the spirit of partnership now in the supply chain. There may be places where we will ultimately have to pass those costs along. And that will -- there's a time lag associated with that, of course, as we run the plays that we have. But from my perspective, we have deep discussions with our customers on this. They understand, and in some cases, they run massive supply chains themselves. They understand exactly what's going on. So we work together with them on it. Gianluca Romano: Yes. I would say that the favorable price environment is mainly related to the good alignment between supply and demand, not too much on transferring of cost from a supplier to the customer. William Mosley: But most of our investments are going to head some media for mass capacity now. They're really long lead investment cycles and things like that. So that's what we're focused on. Operator: Your next question comes from the line of Sidney Ho with Deutsche Bank. Jeffrey Rand: This is Jeff Rand on for Sid. How should we think about the trajectory of operating expenses as we go through calendar year 2022? I would assume you'll see an uptick in travel and labor costs, but perhaps a decline in some COVID safety costs. Gianluca Romano: It's a good question. I would say in the December quarter, OpEx came up a little bit lower than what we were expecting. Part of the reason is exactly what you were saying. We were not expecting the resurge of the COVID situation. So our travel was kind of limited again in the December quarter. We think this -- now will start -- this situation will start to improve possibly already in the March quarter and in the following quarters. So probably our OpEx will increase a little bit through the calendar year, still in the range that we discussed last quarter between the $340 million and $350 million per quarter, which is right now what we expect. Jeffrey Rand: Great. And then on the nearline side, how do you think about your gross margins of your higher capacity drives as you continue to increase capacity? Should the 20 terabytes have a similar gross margin profile to the 18 terabyte when fully ramped? William Mosley: Yes. I think there's opportunities, of course, to increase as we introduce any new technology node, whether it's 20 terabytes or the generations that come after it. A lot of that comes down to how fast can we get up the media and head yield curves and where our scrap bills are and things like that, but they're firmly under our control. So we transition according to what customers need. We transition according to how fast we can based on all of our internal metrics as well. And so I think there is opportunity to build that over time. Operator: Your next question comes from Ananda Baruah with Loop Capital. Ananda Baruah: Yes, 2 quick ones, if I could. I guess one for each of you. Dave, any change over the last 90 days in your perspective on sort of nearline demand either in terms of -- and you guys just gave a growth outlook. But I guess, either in terms of length of cycle or punch of cycle, would love any context there. And then just a quick follow-up. William Mosley: Ananda, against the big backdrop, I think, no. Going -- at the start of the pandemic, we knew that work from home and much of the challenges that people had getting IT professionals to work on on-prem solutions. All that meant people pushed into the cloud. That -- the cloud is growing faster than we thought because of a lot of that push. I think -- and it's not just storage, of course, there's compute, there's network and there's other parts that are really stressing those businesses as well. But the storage will come. And so we think it's been fairly predictable in the conversations with our customers about what kind of build-outs we want to do. we think there's more opportunities because the value of the data just gets better and better. So there hasn't -- even though there are temporary supply chain problems for a lot of people out there, I don't think there's been any real significant change shift in the mass capacity demand. Ananda Baruah: Okay. That's super helpful. And then just a follow-up for Gianluca. Gianluca, you sort of made mention briefly of ASPs a few moments ago. Like can you just describe to us how you view ASPs? And you had mentioned sort of pretty aligned supply demand. Could you also just sneak in some context about your capacity situation? And do you need to put on more capacity to meet the demand as you go through the year? Gianluca Romano: Yes, Ananda. As you know, we are spending a relevant amount of CapEx every quarter. So the fact that the supply and demand are now very well aligned. It's not because we are not investing is because demand is strong. And we put in place the capacity that is needed and try not to put more than what is requested. Of course, because there is some seasonality through the year, there are quarters where that capacity is not exactly matching demand. But in general, part of our job is to estimate demand and define what is the CapEx that is needed to match the demand and satisfy our customer demand without putting capacity that is not needed. That is the main driver for the pricing. And in the last several quarters, as we have seen, the pricing environment has been much better than a year ago or 2 years ago. And we think this industry deserves an appropriate return follows a significant investment that we are making and the industry in general is making. And all the value that we deliver to support the mass capacity growth. And this is what we are driving for. Operator: Your next question comes from the line of Patrick Ho with Stifel. Patrick Ho: Dave, maybe first off, it seems like you're getting really good traction and adoption for the 20-terabyte drives over the next few quarters. Can you give us your thoughts on the HAMR drive, whether the common platform could potentially delay adoption of HAMR or is that still on track? And how is customer acceptance of the next-generation HAMR drives? William Mosley: Yes. Thanks. So the HAMR has always been planned to go into the common platform. There will have to be some changes specifically for that. Exactly to your point, we plan to continue to do customer evals. So the customers know exactly what kind of behaviors they'll get. There will be higher capacity drives when they ultimately come with HAMR too. Very happy with the progress actually on HAMR. So I think we said a couple of quarters ago, this is happening right now. We're in an intense product development, engaging with customers. They're partnering with us on it. As far as transition goes, exactly to your point, a lot of people know fab. They know that you have to take some stuff offline to replace it with other stuff. And we'll do that as we see the yields come up and the opportunity there. We'll have to work with the customers as well on their adoption profile. But we're in the middle of all those discussions right now. Patrick Ho: Great. And as my follow-up question, maybe for Gianluca, in terms of the investments into the company. You've obviously invested a lot into HAMR and the common platform. Can you discuss some of the investments maybe on a big picture basis for stuff like your Lyve platform? How much investments are needed to kind of build up that business, additional solutions offerings that will come out of that platform over time? How much more do you need to invest as it relates to Lyve? Gianluca Romano: It's a very good question. The Lyve business is mainly based on hard disk, is a cloud storage that is based on hard disk. So it's not really requiring a lot of additional CapEx. It's part of what we use for our normal production that, depending from demand, we move between customer allocation and the internal need. William Mosley: Yes. These aren't big investments, Patrick. But what I would say is that we constantly look for ways that we can develop go-to-market chains in particular that can use the products that we're making into -- in different ways. So think circularity and recycling the product and having outlets for product. There's a lot of opportunities that we have in our systems business and also inside of the Lyve platform, and we think about this as a way to help us not only construct channels that are economic great benefit to customers. But also ultimately help us manage the panoply of different parts issues that we're going to see in the world given our scale. Operator: Your final question comes from the line of Jim Suva with Citigroup. Jim Suva: My question is on pricing of your products. It seems like the past -- geez, it must have been 2 years, has been much stronger than historical precedents for pricing. Do you foresee that happening? How much longer? Because you mentioned some of your components are going to be freed up here in the next few weeks. Then you mentioned some others are going to be elongated. So I'm just wondering for pricing how long do you think we'll be in this environment of much more historically stronger than what normal is? William Mosley: Right. Jim, I think it's right to point out that if you look back 5 or 10 years ago when we had so many client server drives that were in our factories, very different environments than when you have mass capacity with really long lead times and things like that. So as we've transitioned over the last couple of years to the mass capacity, then we can actually say these are the investments we're making. These are the starts we're doing, and we can get working on long-term agreements and just predictability within the markets in that. Of course, there can always be some disruption to the extent that there are more and more heads and media related that's under our control. If there are external piece parts, then like COVID has affected quite a number of suppliers of ours, but also customers and end markets, that's where things get a little bit more volatile. But I think if you -- from my perspective, generally speaking, as we go to more and more mass capacity drives as the drives have more heads and media in them, then things get a little bit more predictable because we have to get the return on investment. Operator: There are no further questions at this time. I will now turn the call back over to management for closing remarks. William Mosley: Thanks, Brent. As you can all see, calendar '22 is an outstanding year for Seagate, and we believe that our strong product and technology road map, combined with our ongoing solid execution position as well to capture secular growth opportunities for mass data infrastructure for years to come. I'd just like to once again thank our employees for their outstanding efforts and our customers and suppliers and investors for their continued support of Seagate. Thanks for joining us today. Operator: Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may now disconnect.

Operator: Good morning, and welcome to the Seagate Technology Fiscal First Quarter 2022 Financial Results Conference Call. My name is Julianne, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. At this time, I would like to turn the call over to Shanye Hudson, Senior Vice President, Investor Relations and Treasury. Please proceed, Shanye. Shanye Hudson: Thank you. Good afternoon, 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 posted our earning press release and detailed supplemental information for our September quarter fiscal 2022 on the Investors section of our website. During today's call, we'll 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 that was filed with the SEC. We've not reconciled certain non-GAAP outlook measures because material items that may impact these measures are out of our control or cannot be reasonably predicted. Therefore, a reconciliation to the corresponding GAAP measures is not available without unreasonable effort. Before we begin, I'd like to remind you that today's call contains forward-looking statements, including our December quarter financial outlook and expectations about our financial performance, market demand, industry growth trends, planned product introductions, ability to ramp production, future growth opportunities, possible effects of the economic conditions worldwide resulting from the COVID-19 pandemic and general market conditions. These statements are based on management's current views and assumptions and information available to us as of today and should not be relied upon as of any subsequent date. Actual results may vary materially from today's statements. Information concerning our risks, uncertainties and other factors that could cause results to differ from these forward-looking statements are contained in our most recent Form 10-K and 10-Q filed with the SEC, our Form 8-K filed with the SEC today and the supplemental information posted on the Investors section of our website. As always, following our prepared remarks, we'll open the call for questions. Let me turn the call over to Dave for opening remarks. William Mosley: Thank you, Shanye, and hello to everyone joining us on today's call. Seagate has an outstanding start to fiscal 2022, underscored by our September quarter results. Revenue of $3.1 billion was spot on with our expectations and reflects robust growth, up 35% year-over-year and 3% above a very strong June quarter. Non-GAAP gross margin expense to 31%, well inside of our multiyear target range and non-GAAP operating margin increased to 20.1%, the company's highest level in nearly a decade. Overall, our results reflect record demand for our industry-leading mass capacity products and solid execution on cost reduction plans and our ongoing focus on balancing supply with demand. We are confident in our ability to deliver excellent results for the fiscal year. And based on our current view, we are raising our fiscal 2022 revenue growth outlook from the high single-digit percentage range to the low double-digit range. Further, reflecting on our long-term confidence in the business, I'm delighted to announce that our Board has once again approved an increase to the quarterly dividend by 4.5%. I've been very proud of our team's ability to post consistent financial results through an industry environment that remains very dynamic. We are seeing a confluence of factors creating inflationary pressures and acute supply chain disruption. These include semiconductor component shortages and freight logistics challenges that are creating cost pressures and the impact in critical end product assemblies for certain customers. Notwithstanding these obstacles, underlying demand remains solid for Seagate's products, particularly in the mass capacity market, which is why we maintain a high level of confidence in our fiscal year growth outlook. Revenue from the mass capacity markets exceeded $2 billion for the first time, reflecting broad-based growth across each of the end markets. The cloud is the strongest contributor to the mass capacity markets and Seagate's revenue growth. Ongoing investments to build and equip new data centers have translated into stable healthy demand for multiple quarters now, and we expect this trend to continue. Over the past 5 years, the number of hyperscale data centers has more than doubled to nearly 600 worldwide with approximately 200 more on the way. Many of these planned data centers are being built by large cloud customers, but the timing of their investments and infrastructure buildup is not synchronized, which supports a more stable long-term growth outlook for hyperscale investment. Seagate's high capacity drives are essential to the world's largest data centers. We have very close relationships with our cloud customers to ensure our manufacturing and technology road maps continue to enable their investment plans and performance requirements at a favorable total cost of ownership. In the enterprise and OEM markets, we achieved a fourth consecutive quarter of sales growth, supported by increasing IT hardware spending. Over the near term, the broader supply constraints that I've highlighted may delay some of our customers' new product builds due to non-HDD shortages. However, based on customer conversations, we believe any pause would be temporary until shortages are alleviated. Demand for video and image applications increased significantly during the quarter, supported in part, by a broadening of use cases that extend beyond traditional security and surveillance applications. The combination of high-definition cameras and data analytics enabling productivity gains, cost savings and revenue generation opportunities are actually driving adoption by a wide range of industries, including retail, manufacturing and health care. High capacity HDDs play a crucial role in helping businesses economically manage and extract value from an ever-increasing growth in data across a more distributed enterprise. Without question, the HDD industry is being driven by long-term secular demand for mass capacity storage, a market that we expect to more than double by calendar 2026 to $26 billion, and Seagate is well equipped to answer the call. We continue to leverage our strong arsenal of innovative technologies, manufacturing agility and industry expertise to deliver attractive total cost of ownership solutions aligned with our customers' road map. Our common platform approach illustrates these points well. We have been able to seamlessly transition from 16 to 18 terabyte drives and are now offering multiple varieties of 20-terabyte drives to meet the breadth of customer demand. We began ramping 20-terabyte products in the September quarter, and I'm thrilled with the strong customer interest. I'm equally excited by customer reception for our MACH.2 dual actuator drive, which are now shipping at large scale. As we were anticipating a few months ago we are seeing greater adoption of our MACH.2 drives for core and edge applications, the benefit from the read and write performance gains that we deliver with these products. We expect dual actuator drives to become more mainstream as capacities increase beyond 30 terabytes to support both cost and performance requirements. I'm also confident in achieving 30-terabyte capacities and beyond. We continue to execute our research and development road maps and have recently achieved great camera test results in staging aerial density growth that supports future product launches. Based on these demonstrations, our product development plans are on track. But our product introduction strategy has not changed. We will leverage HAMR's aerial density gains to offer customer step function and capacity increases that deliver a strong TCO proposition and enhance value for both our customers and Seagate. Our focus on total customer experience is top of mind for the Lyve Cloud business. Our simple, secure and cost-efficient mass data storage as a service platform is resonating well among customers, particularly for backup solutions. Today, Lyve Cloud is certified with the majority of the vendors identified by Gartner's Magic Quadrant Leaders for enterprise backup and recovery software. This quarter, we announced a multiyear deal with leading video communications provider. I am excited by this partnership and recognize the trust all of our Lyve customers are placing in Seagate. We will continue to be deliberate in scaling infrastructure and developing an ecosystem to ensure that we delight our customers. Wrapping up Seagate continues to deliver consistent financial results underpinned by strong operational discipline, focus on profitability and growing demand for mass capacity storage. We believe these trends reflect the healthy structural changes that have taken place in the industry in recent years. Seagate is poised to benefit with our technology leadership position and strong track record of execution. I'll now hand the call to Gianluca to cover the financial results. Gianluca Romano: Thank you, Dave. Our September quarter results highlight solid growth across nearly all financial metrics and demonstrate site disciplined execution and ongoing focus on running profitability and free cash flow generation. Revenue was $3.12 billion, up 3% sequentially. Non-GAAP operating margin expanded to 20.1% of revenue, up 200 basis points quarter-over-quarter, and non-GAAP EPS was $2.35, up 18% sequentially and at the high end of our guidance range. We grew total hard disk drive revenue to $2.9 billion, up 5% sequentially and 24% year-over-year. HDD capacity shipments increased 4% sequentially to 159 exabytes, up 39% relative to the prior year period. Growth was driven by increasing demand for our mass capacity product, which contributed 71% of total HDD revenue and 83% of HDD exabyte shipments. Revenue from the mass capacity market increased to $2 billion, supported by growth across each of the underlying end markets, which include nearline, VIA and NAND products. Mass capacity revenue was up 8% sequentially and up 51% compared with the prior year period, while capacity shipments into this market were up 7% sequentially and 53% year-over-year. Based on our current outlook, we expect mass capacity exabyte shipments to remain strong in the December quarter, with financial year '21 annual growth slightly above our long-term CAGR forecast of about 35%. In the September quarter, nearline revenue demand was driven by improving enterprise spending and healthy growth from cloud data center customers. Nearline shipments totaled 106 exabytes, up 5% sequentially and 65% year-on-year, reflecting demand for our high capacity price, strong growth for dual actuator drive and ongoing market momentum for our common platform products spanning 16 through 20-terabyte price. Robust demand in the bear market led to sequential revenue growth that was above the average for the mass capacity market, and we expect solid demand to continue in the December quarter. The legacy market made up the remaining 29% of HDD revenue, holding relatively stable at $821 million, down 3% sequentially and up 5% year-over-year. Improving enterprise demand boosted sales for mission-critical drives, which partially offset the decline in consumer drives following a strong June quarter. We are starting to see a moderation in the pace of annual revenue decline following the significant market disruption brought on by the pandemic. While we could see some fluctuations in a given quarter, we believe the most pronounced impacts are behind us. Finally, turning to our non-HDD business, Revenue came in at $151 million, down 9% sequentially of record June quarter level. Our systems business has been partially impacted by some of the supply constraints that Dave discussed. We are working closely with our suppliers to mitigate risk, and we continue to gain new customer wins to support longer-term growth in the business. Overall, strong demand trends, combined with positive industry dynamics, led to non-GAAP gross profit of $966 million in the September quarter, up 8% sequentially and 57% year-over-year. Costs relating to freight and logistics are continuing to increment higher. While we will continue to take steps to reduce the impacts of these costs, we believe that we remain a headwind to the business through the fiscal year. Our resulting non-GAAP gross margin expanded by about 140 basis points to 31%, well inside our long-term target range of 30% to 33%, including higher freight and logistic costs and component prices. HDD margins are now in the upper half of the range, reflecting better alignment in supply and demand and the transition to higher capacity drives. We anticipate continued solid gross margin performance with opportunity to increment higher, as we ramp our cost-optimized products. Additionally, as COVID cost headwinds abate, we would expect margins to expand into the upper half of our target range, over time. Non-GAAP operating expenses decreased to $339 million, reflecting certain onetime savings. This is between expense management, combined with higher revenue and margin expansion, resulted in non-GAAP operating income of $627 million, up 15% sequentially and more than double the year ago period. Non-GAAP operating margin expanded to 20.1%, which is the top end of our long-term target range of 15% to 20% of revenue. Importantly, the September performance demonstrated our ability to grow profits faster than revenue, supporting our strategy of long-term value creation. Based on diluted share count of approximately 231 million shares, non-GAAP EPS for the September quarter was $2.35, the highest level in close to a decade. We have the inventory relatively flat with the days inventory outstanding at 50 days. We are working with suppliers and managing strategic inventory levels to mitigate the risk to the business, while we continue to monitor with dynamic situation. Capital expenditures were $117 million for the quarter. We currently expect fiscal year CapEx to be at the low end of our long-term target range of 4% to 6% of revenue, which is sufficient to support our future product road map, while maintaining expense discipline. Free cash flow generation increased to $379 million, up 7% quarter-over-quarter and more than double year-over-year. We delivered strong performance in the September quarter and expect to improve free cash flow generation through the fiscal year, enabling us to fund our growth opportunity and return capital to our shareholders. We used $153 million to fund the quarterly dividend and $425 million to repurchase 4.9 million ordinary shares, exiting the quarter with 225 million shares outstanding and approximately $3.8 billion remaining in our authorization. As Dave mentioned earlier, the Board approved a $0.03 increase to our quarterly dividend raising the quarterly payout to $0.70 per share. We ended the September quarter with cash and cash equivalents of nearly $1 billion, and total liquidity was approximately $2.7 billion, including our revolving credit facility. Adjusted EBITDA was $724 million for the quarter and $2.4 billion for the 12-month period ending in September. Total debt balance at the end of the quarter was $5.1 billion with a leverage ratio of 2.2x. In early October, we took advantage of the current attractive market environment to raise $725 million in capital through a new $600 million fixed year term loan and upsized our existing term loan during fiscal 2022. These actions are consistent with our growing business and provides the opportunity to repay $120 million in debt coming due in March. We reduced our average interest rate by 25 basis points and expect interest expenses for the December quarter to be approximately $66 million. Looking ahead to our outlook for the December quarter. We anticipate a continuation of the strong demand environment that we experienced in the September quarter. We expect revenue to be in a range of $3.1 billion plus or minus $150 million. We expect non-GAAP operating margin to remain around the top end of our long-term range of 15% to 20% of revenue. And we expect non-GAAP EPS to be in the range of $2.35 plus or minus $0.15. In summary, we had an outstanding September quarter, placing us on solid footing to deliver strong top and bottom line growth in calendar year 2021 as well as fiscal 2022. I will now turn the call back to Dave for final comments. William Mosley: Thanks, Gianluca. Fiscal 2022 is off to a tremendous start, and I feel positive about the current and healthy demand environment, which is reflected in our increased revenue growth outlook for the fiscal year. I'm equally bullish on Seagate's longer-term growth opportunities supported by secular demand for mass capacity storage. Our mass capacity innovation road map puts Seagate in excellent position to thrive in this environment and continue to deliver revenue growth beyond fiscal 2022, in line with our long-term target of 3% to 6%. We are in the right place with the right technology and innovative customers with whom we are partnering closely to enable their road maps. Further, our robust capital returns program, including today's dividend increase, round out what we believe is a compelling investment story. With the UN Climate Change Conference scheduled to begin in less than 2 weeks, I wanted to highlight Seagate's commitment to ESG. Starting in fiscal 2022, we have incorporated sustainability into our executives' long-term compensation plan based on the achievement of specific quantitative environmental and social targets. Our environmental goal is linked with established plans to reduce the company's carbon footprint in support of achieving our science-based targets. From harnessing renewables at our California and Northern Ireland campuses to installing solar capacity at our facilities in Thailand, Seagate continues to put our commitment to the plan and into action. We have also incorporated an executive compensation goal to increase gender diversity in our leadership as we strive to cultivate a more diverse, equitable and inclusive workplace. For a third consecutive year, Seagate is among best companies for women according to social media platform, Ferrygodboss as well as one of the best places to work for LGBTQ plus equality by the Human Rights Campaign. In closing, I'd like to thank the Seagate team for their tireless efforts, our customers and suppliers for their continued support and our shareholders for placing their trust in Seagate. Gianluca and I are now happy to take your questions. Operator: [Operator Instructions] Your first question will come from Karl Ackerman from Cowen and Company. Karl Ackerman: I have 2 questions, please, 1 for Dave and 1 for Gianluca. Dave, it's great. It's great to say that over 2/3 of your business has now transitioned away from consumer towards enterprise. As you know, which tends to be higher margin, yet influenced by data center CapEx. There have been some recent concerns by investors that cloud spending will moderate after being robust in the last 6 quarters. So I was hoping you could discuss how you see the demand trajectory playing out for nearline, both in the December quarter and also into the second half of your fiscal 2022? William Mosley: Yes. Thanks for the question, Karl. And I think if you -- if you have another one you could follow up with Gianluca Romano as well. The way I look at it -- sorry, go ahead. Karl Ackerman: Sorry, I was going to say for my second one then, Dave, the improvement in your profitability has been impressive. And our own checks indicate you have been successful in passing along these rising input costs. Some investors have been fearing that margins might moderate as enterprise is also moderate. But I was hoping you might discuss why that might not be the case for some high-capacity offerings and what initiatives you have at your disposal to support profitability regardless of demand. William Mosley: Okay. Good. Yes. Thanks. So Gianluca will catch that. Relative to cloud, the demand has been steady now since the beginning of calendar '20. So as we talked about in the prepared remarks, there's a broadening of the customers base, not just a few hyperscalers that's actually benefiting us tremendously as well as the transition -- the product transitions that we've talked about, the higher and higher capacity points, which have a better TCO proposition for the end customer as well. I think these macro trends, whether it's digitization, AI, multi-cloud, the move to the cloud, we're all accelerated tremendously during the pandemic, work from home and all the other things that cause people to push into the cloud. Not all these cloud customers are all synced up, but we think the demand picture right now is an aggregate of all of that behavior. And we, at the same time, we've had longer product cycles. So we have great visibility. We have strategic long-term agreements. We're showing people what we can do 2, 3, 4 quarters out, and then we're asking them what exactly they need. And I think the economics play is happening now well that way. And I think that's why we're seeing the kind of stabilization that we are and why we can reinforce the fact that the back half of this fiscal year and even into the next fiscal year, we'll continue to expedite growth and will turn that into revenue. Gianluca, do you want to... Gianluca Romano: Yes. On the profitability question, I would say we are executing well on our plan. We discussed few quarters ago how we could improve our profitability quarter-after-quarter. Even in the last quarter, we improved our gross margin by 140 basis points, and we are at the top of the operating margin range. So we are happy with the performance. But of course, we are always looking at the opportunity for improvement. As we were saying in the prepared remarks, there are some costs that are increasing, and we are looking into that, how to moderate that impact and continue to improve our gross margin and operating margin in the next few quarters. So we are positive, that we continue that trajectory, and demand is strong. So this is helping. When we have a good alignment between supply and demand, usually, we come out with a good profitability. So we are happy with the situation. Operator: Your next question comes from Wamsi Mohan from Bank of America. Wamsi Mohan: Congrats on the strong results and outlook. I had 2 as well. You're returning cash well above 100% of free cash flow, and you just raised your dividend as well. I know you spoke about very strong capital return program at your Analyst Day earlier. Just wondering, as you're thinking about the outlook here, anything that has changed in the market that from a pricing or demand standpoint, that is sort of bolstering the confidence. And secondly, last night, Intel spoke about China Cloud slowdown given regulatory pressures over there. Are you seeing any of that? And is that contemplated in your raised fiscal year guide? William Mosley: I think it's part and parcel with Karl's question, there's -- both of the your questions kind of tie back to that same visibility that we have. So yes, we do have a long-standing track record of returning cash to shareholders. And we remain committed to the dividend as a matter of fact we opted for the first time -- or for the third time in a row -- third year in a row. That is really confidence in our long-term free cash flow generation and that gets into our -- like Gianluca was just saying, our balancing supply and demand against the growth of data that's out there in the world. So we'll continue to be opportunistic on share buybacks. And you can look at the track record over the last 10 years or the last 10 quarters of the company, you can see who we are relative to returns. We continue to budget. So we'll look at investing in ourselves. We'll focus on optimizing the use of our capital to generate the best value we can over the long term. And we've been pretty good stewards of cash even in the tough times that happened in the pandemic. So I'm pretty confident in that. Relative to China and the cloud slowdown. I would say there's a couple of things. We have good customer relationships, and therefore, we get out in front of the 16s and 18s and 10 to 20 terabytes that they're going to need. And that's the same kind of question that Karl asked. I think also that the way I see it is not all infrastructure investments, that people are making, sync up necessarily when it comes to memory and compute and networking and storage. And so you may make one type of investment for a while and then pivot to another type of investment against an overall strong investment thesis that's going on in the cloud. So I think that may explain why certain people see different things over the next 2 or 3 quarters. And we don't really -- we don't see any inventory buildup substantial. We see that people when they need the disk drives to actually populate the data centers and get those -- that mass capacity storage online, we see that trend quite far out and the customers are being very predictable on it. So that kind of explains our confident. We don't really see the slowdown in exabyte growth at all. Shanye Hudson: Do you have follow-up, Wamsi? Operator: Your next question comes from Timothy Arcuri from UBS. Timothy Arcuri: I had a question about CapEx discipline and supply-demand balance. There's been a lot of structural changes in the industry that seem like they could be pretty significant longer-term margin tailwinds in some ways, maybe similar to what's happened in DRAM. And I guess my question is, as we sort of enter a new cycle of CapEx, how do you ensure CapEx discipline? And how do you think about that in the context of overall supply-demand balance? I mean the old axiom is that it only takes one supplier to sort of tip the apple cart. So I'm wondering if you can talk about CapEx discipline. William Mosley: Yes. I mean it is good to reflect back on where we've come from. So if I look at the peak of client server, the drive types that we're making typically had 1 disk and 2 heads in them, and there were a lot of those drives. So our factories, we're very focused on flexibility, back-end capacity for notebook drives, for example. And now that we have mass capacity drives that have a lot of disks and a lot of heads in them. So it's much more like a semiconductor process. I mean, there's significant differences in the processes themselves, but the lead times for wafer quite long, quite specialized for us. And that's where a lot of the CapEx is actually being deployed now. That pivot has happened over the last 10 years. We're now fully enjoyed, as you can see from our numbers in heads and media investment land not in drive -- not having overcapacity for drive anymore. So kind of interesting as we've made that pivot. We talked about strong secular demand for mass capacity storage going all the way through '26. It will keep going after that, of course, we pegged the TAM at $26 billion, 5 years from now. We are trying to balance supply and demand against that. And I think exactly to your question, the governors are the lead times for wafer and also the lead times for the capital equipment to actually increase. And so as long as we continue to make the smart investments, we should be able to keep supply and demand in balance. And you could read that as a form of our CapEx discipline. Obviously, if we see, for example, on the HAMR transition, we want to accelerate it at all, we can invest a little bit more. We have a lot of cash to be able to do that. But we'll continue to really watch that supply and demand balance well and deployed like that. And we're working a lot with the customers on their specific needs. That's why I talked about the LTAs when Karl asked his question. So we know what roughly the build-outs are going to happen over time so we can we can do that very judiciously. Gianluca Romano: Yes, Tim, on the CapEx, no, we have a guidance range of 4% to 6% of revenue. We have also said that for this year, we will be probably in the low part of that range. We are fairly happy with the supply and demand alignment at this point and the utilization of our factories. And of course, we want to keep this good alignment for the future. Timothy Arcuri: I guess as my follow-up, can you talk about channel inventory? Where does channel stand at this point? And did your pricing in your mass capacity segment, did that benefit at all from channel refill in the third quarter, calendar third quarter? William Mosley: I think simply put, the answer is no. So we have multiple channels. Of course, in this case, we're talking about distribution channel, largely for legacy products. There's some small channel for mass capacity. But I think a lot of people are focused on legacy products. And we love those legacy products. We love the customers there. But we're not really investing there. And so we make sure that we keep those channel inventories properly balanced. And the swings that we might have seen, say, 2 quarters ago due to cryptocurrency or something like that, that reequilibrated very, very quickly. And it doesn't impact the mass capacity channels at all. So from my perspective, all the inventory levels that we have are quite good. From -- inside Seagate, our inventory actually went down quite a bit, and that's a function of kind of how tough it is to manage supply and demand right now because the end customers are having trouble getting the right parts. And what we want to make sure we do is don't push too much into some of those temporary problems that they might have that they're trying to build the final kits, right? That it doesn't help us, I think, to your point of long-term economics and industry structure and things like that. So we have to make sure that we balance our supply and demand even tactically really well, and I think we're doing a good job with it. Operator: Your next question comes from Patrick Ho from Stifel. Patrick Ho: Congrats on the nice quarter and outlook. Dave, maybe first, a big picture question. it was really encouraging to hear about the efforts on the multi actuated run like the MACH.2. I was just wondering to get a little more color on the HAMR side of things. You mentioned the progress there that continues to be on track. But can you talk about, I guess, customer discussions and when you believe the inflection point will be when customers transition over the HAMR drives? William Mosley: Yes. Thanks for the question, Patrick. I think -- I'm glad you took away the optimism. The team is definitely feeling it with the results that we have. These are not just science projects anymore, this is product development, full boom product development now. And we've talked a lot about HAMR in the past. We've built a lot of parts. We've given drives to customers. They can see how those drivers behave in their infrastructures. And we're locked in with customers talking to them specifically about even the recent results that we have. But just to be super clear, HAMR is really the pathway to get to 30 terabytes and beyond, and we are very confident about that right now, and we expressed that in the prepared remarks. There's a lot of things we have to get together on so that you've got the manufacturing capability. There's other parts of the recording chain that we have to make worth the readback process, HAMR is usually about writing, get the media right, HAMR enabled to -- HAMR actually starts from a new material set in the disc, the ability to write dense bids comes from the media technologies that you're actually using. So we have to get all that right as well. But we're super encouraged by the results. And I think the best way to say this, I think the industry probably hasn't done a great job of making things really clear. But I think the best way to say it is that we are feeling confident in capacity points, not only at 20 and 22 and 23 and 24 or things like that, but significantly higher than that based on what we're seeing right now. And we are working really hard to make sure we get that done. Our customers know it. They've seen samples of that, and we're going to continue to race to get there. I don't want to really announce any new products just yet, but we'll let you know when they come. Patrick Ho: Great. That's helpful. And maybe as my follow-up for Gianluca. Obviously, your results highlighted strong execution. And given the supply constraints that are in the industry, today, again, the results were really strong. I was just wondering in terms of your Malaysia operations and just some of the labor constraints. Are you seeing that abating right now? And how did you manage through that -- how did you manage through the September quarter, given that there were some issues on that front in the country itself with COVID? What efforts did you take -- continue to deliver the strong results you delivered in September and the outlook for December? Gianluca Romano: Yes. I would say, no, first of all, thank you for the congratulations. I think the same quarter actually came a little bit better than how we guided at the beginning. But in terms of revenue it's very well aligned. And the profitability is a bit better. I would say in terms of the legacy part of the business, right now, we are seeing a better trend compared to maybe a year ago, 2 years ago. Of course, not all the segments are the same inside legacy in the last quarter. Sequentially, consumer was a little bit down compared to June, but June was an extraordinary quarter for the consumer business. Now we see consumers coming back fairly strong in December. But at the same time, we see compute a little bit weak. So it's always difficult to look in towards the details. But again, we see a better trend. And also when you look at the volume, not only the revenue, we think in the future, you will see maybe some more reduction and then a good stabilization of the business. And Dave, you want to add something? William Mosley: Yes, Patrick, just to your comment about supply chains and being disrupted, people -- supply chains are all about people after all. It's about making people safe, safe to come to work, safe at home, the neighborhood around. We've been working very hard on that with our employees and our suppliers and customers. And I think everyone has the right perspective on this up through the supply chain. And there have been challenges, indeed, like you said. But I think we're managing through them pretty well. I mean people want their factories to run as well. There's -- they have an economic incentive to do that. So we all have to stay in touch with each other, treat each other right and make sure we're managing for the long haul, certainly at the scale at which we need out of our supply chain. Operator: Your next question comes from Katy Huberty from Morgan Stanley. Kathryn Huberty: Dave, just given it's such an important driver of gross margins. Can you talk about what percentage of mass capacity is now coming from the common platform drives? And where you think that revenue mix might exit the year and how the margins differ for the common platform drives versus the rest of the mass capacity portfolio? Then I have a follow-up. William Mosley: Yes. Thanks, Katy. I don't know that I know the number off the top of my head. Actually, we -- to the common platform being 16, 18s and 20, there are some 14s and things like that in there as well. We also have the mid-cap nearline drives that are very strong performers right now, and we've just done a product refresh on, which is actually going to help us as well. So what I would say is that we continue to take cost out of the common platform, right? So even as we transition from 18s to 20s, there are ways that we can take cost out of component -- new components that are in there, and we continue to amortize over the tooling set for what we've already installed. So the -- all those things are serving us really well from a margin perspective. Gianluca Romano: Yesterday, I -- we said that 83% of the exabyte volume is in mass capacity right now. And I would say the majority of that volume is from the common platform. Kathryn Huberty: Okay. Great. And Gianluca, 3 months ago, you talked about gross margins improving every quarter of this year, even with some expected seasonality as you go into the back half of fiscal '22. Can you just talk about how, if at all, those assumptions have changed? Obviously, you're coming from a very impressive gross margin performance in September. So you're starting from a higher base. But just any update as to whether we should be modeling gross margin improvement every quarter and how you're thinking about revenue seasonality as you go into the March and June quarter? Gianluca Romano: Yes. I would say probably compared to what we were discussing 3 months ago or 6 months ago, I see the COVID cost a little bit higher than what we were expecting, in particular, for freight and logistics. At the same time, demand is maybe a little bit stronger. So our utilization rate is really good. This is helping our unit cost to decrease quarter after quarter. So until we can keep this good alignment between supply and demand, I'm fairly confident we can do further improvement in the gross margin as we were discussing. And every quarter is a bit different. So it's difficult to be very precise for the next few quarters, but we are confident we can do some more progress in the marginality. William Mosley: Yes. I think, Katy, the demand is obviously the main driver of what's happening, and we see that persisting with well through the back half of this fiscal year and even into the next fiscal year, the exabyte trends continue really well. I think, tactically, what's going on with some of the costs or freight logistics things, even if a customer said, I want to do a swap in 3 weeks at the end of the quarter, it might be really hard to get them the product, given where we are. But none of that's really going to contribute to any demand destruction. So if demand is a front-end driver for us, then we think that's the story we want. And the other thing I would say is that we believe that right now that as we get out into Q3, there's a little -- some lulls at the end of the year and Chinese New Year and things we typically see that should allow some people to start rebuilding their positions in supply chain. So that's yet another reason why we're confident. Kathryn Huberty: Congrats on the quarter. Operator: Your next question comes from Toshiya Hari from Goldman Sachs. Toshiya Hari: Congrats on the strong execution. I wanted to follow up on your fiscal '22 revenue guide, I guess, now low double-digit growth relative to fiscal '21. If we take that and your December quarter guide, I think it's pretty clear that implicitly, you're assuming a down quarter sequentially in March and/or June. Just curious what's embedded there? Is it seasonality in your legacy business? Is it something in nearline, conservatism, supply chain, all of the above? Any context, any color there would be helpful? And then I've got a quick follow-up. William Mosley: Yes. Thanks, Toshiya. So I think if you go back to last quarter, it would have been seasonality and it would have been more biased towards the legacy business. Obviously, the VIA markets are seasonal as well. And I would say now it's even more muted seasonality and some of the strength in the exabyte growth that we see in the cloud, particularly at the top end of the mass capacity markets. So that kind of explains what's changed, I think, in the last 3 months. Gianluca Romano: Yes, we see the nearline still very strong. And of course, every quarter, we will update on our visibility on the fiscal year. Toshiya Hari: Got it. That's helpful. And then my follow-up is on the long-term model, guys, and I realize it's only been, what is it, 8 months since you announced the update, and I certainly wouldn't expect you to update your long-term model every 6 to 9 months. But it does look like, from a gross margin perspective, from an operating margin perspective, gross margins despite all the challenges, you're comfortably in that range. Operating margins, you're guiding to the second consecutive quarter of you guys being at the high end of that range. So I guess my question is, should we be thinking about a positive bias to what you presented earlier this year? Or is this as kind of as good as it gets and we should expect some sort of normalization or reversion over the coming quarters? William Mosley: Thanks. Yes, we've been looking at exactly what you're talking about. I don't think we're prepared to say anything about it today. Although, I will say that it's all -- it all is predicated upon supply/demand balance and demand continues to be strong. When you look back at 8 months or 9 months or whatever, we were still kind of at the front end of the pandemic. There were a lot of challenges that were going on then, that we didn't have great visibility into. So I think the further time marches along, and we see how much data move to the cloud, and we see how much the edge is growing and all these new business models and things like that, we can look at demand versus our supply picture and see whether we update those models also. We'll keep you posted. Gianluca Romano: Yes. I would just add that we are encouraged by the gross margin level that we generate in our mass capacity part of the business. And no, we need to see how this will continue to develop in the next quarters and in the next fiscal year. But so far, we are very confident. Operator: Your next question comes from Ananda Baruah from Loop Capital. Ananda Baruah: Yes, I have 2, if I could. I guess the first is, Dave, you had mentioned in one of your remarks a little earlier about seeing demand sort of strength into fiscal year '23. And so I guess really where I'd love to -- well, I think we all would love to get from you is how are you guys thinking and how would you like us to think about sort of the context of this cycle? Does it need to fall off like past cycles have at times. And do you see it extending into kind of the second half of calendar '22, first half of calendar '23? And then I have a follow-up as well. William Mosley: Yes. I think that the fundamental trends for the secular growth, especially in mass capacity cloud are not changing from my perspective. If you think about it on a 20-terabyte drives next year, late in the year versus what people are buying 16 terabytes or 14 terabytes or whatever they were a couple of years ago. The TCO proposition for that and new data center built is still big and the replacement cycle is still big. That capacity point does matter. There's also other feature sets that are coming with these new drives that allow people to manage their data centers in a different way, more efficiently for power and reliability and all these other things, too. So it's a package that says that these investments that people are making will be a lot more programmatic. And we were having those kinds of discussions with customers worldwide. So that's what builds strength in our visibility. On the VIA markets as well, I think the application space at the edge is just propagating really quickly. So there's things like retail, consumer behavior, there's health care, which we all see and can kind of feel what -- how important mass capacity data is there. So there's a lot of edge applications that are just growing year-over-year as well. So that's why we continue to feel strength. And that's why we put out to the earlier question that Toshiya asked, we included that kind of revenue growth in our long-term models. Ananda Baruah: That's great context and super helpful. And then I guess just one on -- you guys have talked on sort of lead times. You guys have talked in the past on these calls about sort of what lead times have looked like to get sort of the highest capacity of the nearline drives. I think at some point, the implied event. I think in the spring, you were saying December, so kind of 6 months like that. And so would love to get just an update on what the lead times look like? How long it's taking to get those high cap drives out the door? And then along with that, a pricing question, is the -- like when you guys take orders in, the pricing that you guys end up selling the drives at, is it at the point of order taking? Or is it where the price would be, say, 6 months from now when you ship it? Would love context around those 2. And that's it for me. William Mosley: There's so many different types of customers that I don't think I'll comment on the pricing, but I will say that -- your first question was really about how do you know these long-term agreements. And some of it is exactly you remember the comment I made 9 months ago roughly, which was, a, if you want something for Christmas, you better tell me now. I mean that's the kind of lead time we're talking about. We're doing starts in our wafer factory right now for capacity points that are out there in time and we're saying to people this is how we were -- roughly we're going to be able to build in that time frame. Let's just make sure our plans are aligned. It's not just about capacity points, though, it's also about all the other things architecturally that they're changing to make sure that we have the best value prop to put into their data center that intercepts that architecture. And so it's a big planning exercise for our customers inside their supply chain. If you wanted 1 drive, then yes, we have 1 extra drive laying around. But if you want hundreds of thousands or millions or something, then we need to be talking with a lot of lead time. And that's -- I think that's what's bringing the stability to the business so that -- if that helps you. Operator: Your next question comes from Tom O'Malley from Barclays. Thomas O'Malley: Congrats on the nice results. Dave, I wanted to kind of double-click into the non-HDD business. Obviously, you're raising the full year guide here. Can you talk about the contribution of the non-HDD business has to that growth rate, what do you see that kind of growing this fiscal year? William Mosley: Yes. Tom, thanks. The non-HDD business has been a little choppy. I mean, there's certain places where we can use our brand for continued strength. But there's opportunities and we take advantage of them. And sometimes those opportunities wax and wane a little bit. I think relative to the profitability of the non-HDD business, it's actually climbing. So we believe we're using our brand appropriately to get some more revenue and it's not so dilutive as it used to be in the past. And especially on the systems business, you have to be a little bit careful because there are so many more components in such lower volumes than we're accustomed to dealing with in the HDD business that, that's where supply chain stuff gets really tough, and then those systems themselves are very large, right? So shipping freight logistics are a big challenge. And we still want to bring the same brand proposition to the customers, the same predictability that I just talked about on Ananda's question. So from -- but -- from a revenue perspective, I think there's more opportunity for us out there, but it's actually challenging to run some of those businesses as well, given the supply chain challenges. Gianluca Romano: Yes, I would say from a financial standpoint, even if the non-HDD business had a lower gross margin, it is a very good contributor for our free cash flow. So we are in keeping the effort on the non-HDD drive business. Thomas O'Malley: That's helpful. And then, Dave, to your point earlier, I just had a follow-up on the systems business. You called it out in your preamble as particularly being impacted by supply chain, and I think you just reiterated that. Could you talk about what products that is? Obviously, these are big complex machines that you're selling here -- the systems that you're selling here. Where are the constraints? Where are you seeing that supply chain hold up? Any kind of particular examples would be helpful. William Mosley: Yes. I think all things silicon, all things power, all things kind of the things that we typically don't control very much are tight. And I would say it's not only a matter of being able to actually procure something. It's also a matter of getting it through all of the factories that it needs to get to be finally consumed for us that's been the complexity. So we have tried really hard with our systems business over the years to reduce the complexity of our offerings so we can go a little longer on inventory positions and be more flexible for our customers, but it is a challenge right now, as you can well imagine. Operator: Your next question comes from Sidney Ho from Deutsche Bank. Sidney Ho: Great. I have 2 questions, too. The first one is on pricing. How would you characterize the current pricing environment? Maybe you can parse out the crypto impact. Also interested in whether you're able to pass on the high cost to your customers? How much of a tailwind is that to your gross margin forecast over the next few quarters? Gianluca Romano: For the pricing, I would say that the pricing environment is still very favorable, similar to the prior quarter, I would say. And no, we expect this to last even in the current quarter and hopefully even in the future. Parsing the cost, I don't think it's so automatic. We negotiate pricing based on demand and the alignment between supply and demand and not too much on parsing specific costs to our customers. Sidney Ho: Okay. That's fair. Maybe my follow-up question is on the technology road map a little bit. Obviously, you're starting to ramp up the 20-terabyte right now. But with HAMR, not likely being a high volume until it sounds like later, maybe 30-terabyte. How confident are you that you can accomplish the cost reduction improvement you talked about at your Analyst Day, not just the magnitude, but also within the time frame you talked about? William Mosley: Yes. Thanks, Sidney. So a couple of things. It's not only about the highest capacity point. If you think about it, we get to a point where we can take heads and disks out of the lower capacity points. That's a way to introduce margin back into the system as well. And then you fundamentally have more capacity that you don't have to install with CapEx, right, because you're being more efficient inside your own factories as well. So I know a lot -- we do a lot of focus on 30-terabyte capacity points, but there are a lot of opportunities to go back and sell 16 terabytes with fewer heads and disks. And that's probably the way to think about the march that we're on towards higher capacity points. It introduces that kind of cost oxygen back into the system for efficiency. If you compare ourselves, again, back to the ancient history of the peak of client server, when there's 1 disk and 2 heads you needed huge jump scenario density to make these cost jumps when you have 8 or 9 disks in a box and you can take 1 out and you hit the same capacity point or 2 out or 3 out to hit the same capacity points, that's a lot of cost oxygen relatively. And it's easier to transition through. So if that helps you think about it. Operator: Your next question comes from Aaron Rakers from Wells Fargo. Aaron Rakers: Congrats on the quarter. My first question is back to kind of the capital return strategy. The company has done a phenomenal job returning capital over these past several quarters. But we have seen the net debt position continue to decline. So I guess the question is, do you look -- how do you think about the appropriate level of either liquidity or cash on the balance sheet as we gauge your continued propensity to be -- after 1 share repurchase? Gianluca Romano: I think we discussed this a little bit at our last Analyst Day, and we said no, we are comfortable with the liquidity level at least of $2 billion, and this includes, of course, our great revolver. So we are still well above that level. And so we have great opportunities. First of all, because we generate very strong free cash flow. We were talking about that before. The last quarter was very good, almost $380 million. We expect free cash flow to continue to improve during the fiscal year. So this will give us opportunity for a further return to our shareholders. William Mosley: And I think, Aaron, there's a lot of other levers that we have at our disposal. You see us managing our working capital really well. If you look at our inventory positions against what our final objectives are, that's part of how we get done what we need to get done to maintain the liquidity, flexibility that we want. Aaron Rakers: Yes. And then as a quick follow-up, just kind of back on the pricing discussion. Maybe a longer-term way of asking it is, the HDD industry is not just kind of concentrated from a competitive landscape, but also now 65%-plus nearline capacity shift and maybe even more concentrated in the competitive dynamics in that vertical. It used to be thought of as kind of like a 10%, maybe 15% price per annum kind of decline -- price per gig decline in hard disk drive. Do you think we should think differently about that? Do you think we should think about a much more disciplined and flattening out price curve for hard disk drives as we think about the long-term model implications? William Mosley: I think as drives have changed towards content-rich heads and media, then I think the lead times of your investment are going to be longer. And so therefore, I think that you'll see less fluctuation in supply-demand misalignment. Now you could still have demand shocks like we saw at the front end of the pandemic. And then there may be other supply shocks as well. But from my perspective, the industry is doing a good job of managing supply-demand balance because the process content that's required to make a drive as a mass capacity drive at the front end of it is really has a lot of long lead times and very complex parts. So I think that's what's changing the behavior rather than anything else. Operator: Your last question will come from Jim Suva from Citigroup. Jim Suva: And I just have one question, and that is on your cloud business that you're seeing. Some suppliers to the cloud customers see very, very lumpy business, a really strong quarter then a couple of quarters of digestion. I'm wondering now that you're seeing such strong strength in cloud. Is it something that you anticipate some lumpiness or with the visibility you mentioned that they're kind of installing and using and ordering what their needs be? Is there just less lumpiness for your products compared to some other server switches compute products out there? William Mosley: It's interesting, Jim. I'll give you my perspective. I think we have to be very careful in the cloud of calling one size fits all because obviously, there are so many different types of business models and different application spaces, even inside individual customers, they have multiple applications. I do think like at the front end of the pandemic when everything shifted to the cloud and work from home and these kinds of things. We are seeing massive investment that was happening in what I would call transactional architecture. So very compute-intensive, very memory-intensive and so on. I think as -- that did not mean that mass capacity was not growing, but what it did mean was that the priority immediately for some of those type of customers was to make sure they could fulfill their service level agreements what their end customers who were pushing into the cloud. And that's maybe why as people look back over the last year, they start to talk about lumpiness, just getting it all right can be hard, right? And you may invest for one architecture or application and then see opportunities somewhere else and pivot over there. And so these are difficult problems, I'm sure that the people who have to build cloud data infrastructure and application layers are grappling with. Relative to mass capacity, I think the build-out has been much more thoughtful, frankly, over time. And it's not to say that there aren't changes in strategies and opportunities as they see ways to go gain more efficiency at other places. But I think the market is now diversified sufficiently and our predictability with customers has matured to a point where I'm comfortable and that we're seeing a stronger demand picture that's more consistent like we talked about. Operator: We have no further questions. I'd like to turn the call back over to presenters for closing remarks. William Mosley: Thanks very much, everyone. I want to thank you for participating in this call and really thank our employees for all their hard work up and down the supply chain and the suppliers and customers. Many thanks from the Seagate team as well. And again, thank our shareholders for their continued support in Seagate. We'll talk to you next quarter. Operator: This concludes today's conference call. You may now disconnect.

Operator: Good morning and welcome to the Seagate Technology’s fourth quarter and fiscal year 2021 financial results conference call. My name is Tabitha and I’ll be your coordinator for today. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question and answer session. As a reminder, this conference is being recorded for replay purposes only. At this time, I would like to turn the call over to Shanye Hudson, Senior Vice President, Investor Relations and Treasury. Please proceed, Shanye. Shanye Hudson: Thank you. Good afternoon 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 June quarter and fiscal year 2021 on the Investors section of our website. During today’s call, we will refer to GAAP and non-GAAP measures. Non-GAAP figures are reconciled to GAAP figures in the earnings press release posted on our website and included in our Form 8-K that was filed with the SEC. We’ve not reconciled certain non-GAAP outlook measures because material items that may impact these items are out of our control and/or cannot be reasonably predicted, therefore a reconciliation to the corresponding GAAP measures is not available without unreasonable efforts. As a reminder, this call contain forward-looking statements, including our September quarter financial outlook and expectations about our financial performance, market demand, industry growth trends, planned product introductions, ability to ramp production, future growth opportunities, possible effect of the economic conditions worldwide resulting from the COVID-19 pandemic, and general market conditions. These statements are based on management’s current views and assumptions and information available to us as of today and should not be relied upon as of any subsequent date. Actual results may vary materially from today’s statements. Information concerning our risks, uncertainties and other factors that could cause results to differ from these forward-looking statements are contained in our most recent Form 10-K and 10-Q filed with the SEC, our Form 8-K filed with the SEC today, and the supplemental information posted on the Investors section of our website. As always, following our prepared remarks, we’ll open the call for questions. I’ll now turn the call over to you, Dave. Dave Mosley: Thank you Shanye, and a warm welcome to everyone joining us today. Seagate ended fiscal 2021 on a strong note, delivering outstanding June quarter performance and fiscal year revenue that exceeded expectations. These results reflect broad-based demand across the mass capacity end markets and incredible execution by our global team, which together led to faster than anticipated progress toward our long-term financial targets. In the June quarter, revenue topped the $3 billion mark for the first time in six years and we delivered non-GAAP EPS of $2.00 per share, which was at the topmost end of the upwardly revised guidance range that we provided in early June. Additionally, we expanded non-GAAP gross margin to 29.6% and expect to be inside our long term target range of 30% to 33% ahead of schedule. The demand strength and favorable mix has accelerated the time frame to achieve better supply-demand equilibrium, which is supporting firmer pricing conditions. We are reporting these exceptional results at a time of optimism in parts of the world as vaccinations progress and economies begin to reopen; in fact, we are hosting today’s call from Dublin for the first time in six quarters. While the pandemic remains a difficult reality for many parts of the world and we have remained vigilant in continuing to manage the business through this period, it is clear at a macro level that recovery is underway in the markets that we serve. Seagate is entering this recovery period in a very strong position, helped by the fact that we executed incredibly well throughout the crisis. For fiscal year ’21, we generated nearly 2% year-over-year revenue growth, exceeding our expectations. We grew operating profits faster than sales and achieved operating margin of 15.4% for the year, showing the leverage in the business, and we returned substantial amount of capital to shareholders, including $2.7 billion in dividends and share repurchases, retiring more than 13% of our outstanding shares in fiscal 2021. In addition to recording strong financial results, our innovation engine has not slowed down. We extended our HDD technology leadership, as evidenced by Seagate being the first company to commercialize HAMR technology and the first to deliver dual actuator performance drives, which are now shipping in high volume to support multiple customers. We’ve leveraged our areal density gains to streamline our product road map, making us better able to meet changing customer demand requirements while maintaining an attractive cost profile. We also leveraged the strength of our common mass capacity platform to execute our 18 terabyte RAM plans to meet customer demand. We expect to begin shipping 20 terabyte PMR drives in the second half of this calendar year. Finally, we expanded our product and service offerings with the launch of Lyve edge-to-cloud platforms and remain on track with the build-out of our four live cloud metro edge locations by calendar year-end. A year ago, when the business challenges posed by the pandemic were very acute, I made the statement that Seagate would emerge from the crisis stronger than ever. With the financial performance and innovations that I’ve just highlighted, I believe that our team has delivered on that claim and that Seagate is stronger than ever. We are continuing to focus on unlocking more value for our customers and shareholders. For example, last month we introduced Corvault to our family of cost-efficient high density storage systems. Corvault combines Seagate’s internally designed storage system basis with our intelligent self-healing software and data security technologies, which results in a high reliability storage solution at petabyte scale, a deal for private cloud and macro edge data centers. We are also working directly with customer to unlock value. Many of our hyper scale customers already employ AI and machine learning to reduce the amount of human intervention necessary to maintain and repair their large fleets of storage drives. We recently teamed with Google Cloud to take data intelligence one step further. Together, we developed models that help predict drive failures before they occur. These models promise to lower operational costs and prevent potential problems to their end users, a clear win-win. Let’s turn now to the current market environment, starting with an area that has garnered significant interest in recent weeks. Storage center block chains such as those used by Filecoin for decentralized storage applications, or Chia cryptocurrency which is considered an environmentally friendly alternative to other block chains that utilize energy-intensive computational power to validate transactions, have significant interest. During the June quarter, we saw a meaningful increase in HDD demand due in part to the initial build-out of the Chia net space, which is comprised of both new and repurposed HDDs. By our estimation, new Chia demand represented at most a mid-single digit percentage of total industry exabyte shipments during the quarter, primarily into the distribution channel. This incremental demand served to tighten the HDD supply dynamics in an increasingly robust demand environment. While the future growth outlook in this space remains unclear, we are excited by the potential applications associated with innovations in decentralized file storage. For Seagate, strong growth in the traditional mass capacity market remains the primary driver of HDD demand. In the June quarter, mass capacity represented close to 70% of Seagate’s HDD revenue, supported by broad-based demand for our Nearline drives and the third consecutive quarter of sales growth into both cloud and enterprise customers. Cloud data center demand has remained healthy and steady for the last 18 months and current indicators suggest that that trend will continue. While it’s clear that the pandemic played a big role in accelerating digital transformation, hyper scale industry leaders expect the digital adoption curve to continue accelerating even as COVID recedes. At the same time, businesses are preparing for employees to return to the workplace, which is reinvigorating on-prem IT infrastructure investments and supporting ongoing recovery in the enterprise markets. We also experienced stronger than anticipated recovery in the VIA market during the quarter due in part to tighter supply conditions. We currently foresee relatively stable demand through the second half of the calendar year. Looking ahead, secular demand for mass capacity data combined with signs of macro recovery represent significant opportunities for Seagate and set the stage for continued strong financial performance and cash flow generation. These factors combined with our broad product portfolio underpin our forecast to grow revenue in the high single digit percentage range or more in fiscal 2022, which is well above our long-term financial model range. I’ll now hand the call over to Gianluca to cover the financial results. Gianluca Romano: Thank you, Dave. Seagate executed extremely well in the June quarter, delivering very strong top and bottom-line growth that was fueled by accelerating demand in the mass capacity market and distribution channel. Revenue was $3.01 billion, up 10% sequentially and 20% year-over-year. Non-GAAP operating margin expanded to 18.1%, in the upper end of our long-term target range of 15% to 20% of revenue, and non-GAAP EPS was $2.00 per share, up 35% sequentially and 67% year-over-year. Ongoing demand momentum for our mass capacity product supported a third consecutive quarter of record hard disk drive capacity shipments totaling 152 exabytes, up 9% sequentially and 30% year-on-year. More than 80% of total exabytes were shipped into the mass capacity market, which includes Nearline, VIA and NAS products. Mass capacity shipments hit a record 123 exabytes in the June quarter, up 11% sequentially and 36% year-over-year. We are continuing to leverage our manufacturing agility and drive operational efficiencies to meet our customers’ timing. Mass capacity now represents close to 70% of total HDD revenue. Further demand for our Nearline drive and strong recovery in the VIA market drove record mass capacity revenue of $1.9 billion, up 16% sequentially and up 29% compared with the prior year period. Sales of our Nearline product grew strongly quarter over quarter, reflecting the rapid uptick in demand from storage-centric block chains layered on top of healthy cloud data center demand and improving enterprise OEM customer TAM that we discussed last quarter. We attribute incremental sales of our mid to high capacity Nearline product in distribution channels to Chia. While our cloud and OEM customers consumed a majority of our high capacity supply, including our 18 terabyte size which are shipping in high volume. Overall, the airline shipments increased to 101 exabytes, up 6% sequentially and 28% year-on-year from record levels in each of the comparable quarters. Stronger than expected demand in the VIA market led to a sharp sequential increase in revenue as [indiscernible] got underway and customers invested to support in future demand. Looking ahead, we expect relatively stable demand into the second half of the calendar year. The legacy market end up well in the June quarter with revenue of $854 million compared with $864 million in both the prior quarter and the prior year period. Exabyte shipments remained relatively flat quarter over quarter at roughly 29 exabytes. Ongoing demand for our mission critical drives and better than expected sales of our consumer product partially offset the anticipated decline for PC drives. We expect relatively stable demand for both mission critical and consumer drives over the next couple of quarters, which would result in more moderate year-over-year revenue decline [indiscernible]. Finally, turning to our non-HDD business, revenue increased 16% sequentially and 42% year-over-year to a record $276 million. We continue to drive momentum in our system business, which offers simple and scalable petabyte solutions targeted for enterprise and private cloud customers. In the June quarter, non-GAAP gross profit increased to $892 million compared with $749 million in the March quarter and $686 million in the prior year period. We had $32 million of COVID-related costs during the quarter. Calendar year-to-date, the vast majority of these costs are attributed to unabated state charges, which we expect to persist through fiscal 2022; however, given the uncertainty around when or if these costs will abate, starting in fiscal Q1 we plan to stop calling them out. Our resulting non-GAAP gross margin expanded by 219 basis points to 29.6%, including slightly more than 1% headwind from COVID-related costs. Total HDD margins are already inside our target range of 30% to 33% and we now expect total company non-GAAP gross margin to be at the low end of the range in the September quarter, reflecting better alignment in supply and demand and the transition to mass capacity product that has taken place. Non-GAAP operating expenses came in at $346 million, up 5% sequentially, reflecting higher variable compensation associated with the strong performance. We are tightly managing expenses and expect to maintain opex at approximately the same level for the next few quarters. The combination of higher sales and margin expansion resulted in non-GAAP operating income of $546 million, up 30% sequentially and over 46% year-over-year. Non-GAAP operating margin was 18.1%, up 274 basis points sequentially and 330 basis points year-over-year and solidly inside our long term guidance range of 15% to 20% of revenue. Based on the diluted share count of approximately 233 million shares, non-GAAP EPS for the June quarter was $2.00 per share, the highest level since fiscal ’12. Capital expenditures were $124 million in the June quarter and just under $500 million for the fiscal year, which represents 4.7% of our revenue, in line with our long term target range. Through strong expense discipline and efforts to improve manufacturing efficiencies, we reduced capex by about 15% in fiscal 2021, exiting the year with better supply-demand balance. Inventory was $1.2 billion, down 6% sequentially with days inventory outstanding declining for the third consecutive quarter to 51 days. Our teams have done an outstanding job of working with our suppliers and partners to manage [indiscernible] inventory levels and mitigate supply chain disruption, including the recent COVID-related restrictions in Asia which we continue to closely monitor. In the June quarter, we increased free cash flow to $354 million, up 29% both quarter over quarter and year over year. Our focus on optimizing profitability and cash generation provides flexibility to invest in the business and return capital to our shareholders. We used $154 million to fund the quarterly dividend and $220 million to repurchase 2.6 million ordinary shares, exiting the quarter with 227 million shares outstanding and approximately $4.2 billion remaining in our authorization. We retired 34 million shares during fiscal year 2021 and returned a total of $2.7 billion through dividends and share repurchases. Based on our current outlook, we expect to maintain a robust capital return program in fiscal 2022 while maintaining a strong balance sheet and liquidity profile. Cash and cash equivalents remained relatively stable at $1.2 billion and total liquidity was approximately $3 billion, including our revolving credit facility. These levels are more than adequate to support our operation and business needs. As we enter fiscal 2022, the team and environment remain strong and we continue to execute our product and technology road map to deliver on our customer requirements when driving value for Seagate. Looking ahead to our outlook for the September quarter, we expect revenue to be in the range of $3.1 billion plus or minus $150 million. We expect non-GAAP operating profit to grow faster than sales, resulting in non-GAAP operating margin at the upper end of our long term range of 15% to 20% of revenue and we expect non-GAAP EPS to be in the range of $2.20 per share plus or minus $0.15, representing sequential growth of 10% at the midpoint. In summary, we continue to achieve outstanding results supported by our unwavering focus on operational execution and the strength of our product and technology portfolio. We are already demonstrating performance consistent with our financial targets and enter fiscal ’22 well positioned for top and bottom line growth. I now turn the call back to Dave for final comments. Dave Mosley: Thanks Gianluca. Seagate is executing well, delivering financial performance at or above our commitments, maintaining a relentless focus on total customer experience, and deploying capital to enhance value for all stakeholders. We capped fiscal ’21 with our strongest performance of the year and we expect that positive momentum to continue moving forward. We’ve demonstrated strong leverage in our business model to grow operating profits faster than revenue and in turn drive free cash flow generation. Our ability to consistently generate free cash flow provides the flexibility to fund future growth and employ a robust shareholder return program as well. Based on the current outlook, we expect to grow free cash flow appreciably in fiscal 2022. Our employees have been crucial to Seagate’s current success and key to driving our future. Over our 40-year history, Seagate has transitioned many times to address the evolving storage industry landscape; for example, we’ve recently pivoted our factories and technology to deliver mass capacity solutions and have emerged a leader. Now, we are focused on addressing the next mass data challenge with our Lyve product platform. To keep pace with these changes, we are investing to re-scale and re-deploy Seagate employees as needed to support our future growth and respond to the changing demands of the business. For example, we’ve launched a tool called Career Discovery earlier this year, which has already helped Seagate to establish networking and mentor connections as well as redeployment opportunities for hundreds of employees. Seagate has a broad bench of talent with decades of hardware and software experience, formidable supply chain management and manufacturing skills, and deep knowledge of chip design and data analytics. This expertise and strong customer relationships allows Seagate to understand the global mass capacity ecosystem and its architectures better than anyone. Tools such as Career Discovery are helping us deploy our diverse resources to support our future needs while enabling Seagate to maintain opex efficiency. We are confident that this focus on people will put us on a firm footing for continued growth and success. As we close, I want to thank both Seagate’s employees and those in our supply chain whose efforts enabled our ongoing leadership in mass data solutions. Our customers and our shareholders are equally deserving of thanks for their ongoing trust and support of Seagate. Gianluca and I are now happy to take your questions. Operator: [Operator instructions] Our first question comes from the line of Karl Ackerman with Cowen & Company. Karl, your line is open. Leni: Hi, can you hear me okay? My first question--this is Leni [ph] on for Karl Ackerman. I have two questions. My first question, what sort of feedback have you received from current [indiscernible] qualifying your 20 terabyte Nearline drive? I’m asking because you had previously indicated it is not a cost effective node, yet this is a critical step function until you reach the 24 terabyte HAMR. When should we expect 20 terabyte HAMR to reach fit crossover for Nearline shipments? Is that something that could occur in fiscal ’22? Dave Mosley: Yes, thanks Leni. I don’t think we ever said that 20 terabytes would be a crossover point for HAMR, to your point. We have a number of different 20 terabyte platforms coming - PMR, SMR, HAMR. There’s a lot of different flavors of them, and they are targeted to different customers so different qualification schedules for each. We’re very aggressive with the 20 terabyte qualification because the heads and media for the PMR version that we referenced in the prepared remarks is already in the high volume manufacturing for 18 terabytes and capacity points below, as well - 16 and so on, so we’re very confident in that and we’re ramping aggressively with customers, giving them samples, getting through qualifications, and I’m fairly optimistic about that for the back half of the year. Leni: Great, thank you. Just one more follow-up, if I may. On demand outlook and capex, how are you thinking about adding incremental heads in disk capacity relative to your fiscal ’22 outlook? Chia’s [indiscernible] currency has clearly led to a supply shortage of mid and high capacity drives for data centers, yet the fulfillment of the Jedi contract by the Department of Defense appears to meet the capex demands for the next few quarters. I’m hoping you may address your view of capacity and the outlook for data center demand over the next quarters. Dave Mosley: Yes, I’d say within the head factory, for example, which is the longest lead time part, we have well over 100 million heads per quarter going out, so we have the ability to mix--to change the mix as we see fit. Some of the demand changes that we saw are fairly easy inside of our portfolio, it’s just been really trimmed down, made very efficient, especially with the common platform, we have the ability to change from one to the other. We are always bringing on more capacity by putting more tools online to hit the new technology nodes, so that’s within our capex envelope all the time, and we’ll just continue to watch this. I think we can continue to grow more exabyte supply with technology transitions, more exabytes with areal density so to speak, and we’ll continue to watch and be nimble in the markets as well. Gianluca, do you want to add something? Gianluca Romano: Yes, we discussed in the last few quarters about the need to realign supply and demand, and we are getting closer and closer every quarter. For overall capex, fiscal ’22 we think we will have the same target as fiscal ’21, between 4% and 6% of revenue, so we will add capacity but we will also be looking at keeping this alignment within supply and demand. Operator: Your next question comes from the line of Katy Huberty with Morgan Stanley. Katy Huberty: Yes, thank you. As you walked through the various segments - Nearline, VIA, mission critical, consumer, you talked about stable trends across the board, yet the full year revenue growth guidance assumes that there will be a revenue run rate reduction from the $3.1 billion September guide, so can you just talk about what will drive lower revenue as you move through the year, and maybe what sort of the first half versus second half looks like? Then I have a follow-up. Dave Mosley: Thanks Katy. Yes, I think we are chasing the demand right now, obviously, and so we think the front half is a little stronger. In the back half, there will be more muted seasonality than what we’re normally accustomed. We do--you know, that’s three quarters away, there may be some variability there, so we do have good relationships with all of our customers across all these product sets now and they give us a pretty strong sense of what their demand profile is going to be through the year. I would characterize this as muted seasonality for now but significantly up, we said, at least high single digits in revenue growth year-over-year, so it’s still significantly up and we’re still chasing it. Gianluca Romano: Yes, we think we will have a very strong second part of calendar ’21. Last quarter, I think we said at least 10% increase year-over-year. Right now, we think it will be at least 15%, so for another couple of quarters very strong, and then as usual we have in our plans some seasonality for the legacy market and some of the mass capacity, like [indiscernible], but node could be different, as we have seen last year, for example. Dave Mosley: I think the other thing is we’re running--to the earlier question, we’re running in the high volume the heads of media that we already need to make more 18s or 20s, or whatever, so if some of the cloud markets were to take up above our plan, we could stretch there, I think, in the back half of the year as well. Katy Huberty: Okay, and then the pricing environment, as you said, has firmed up faster than you expected. What will determine whether those prices can hold, and what are you assuming for price change in that full year guidance for high single digit growth? Dave Mosley: Across the whole portfolio, it’s really the balance of supply and demand, so it’s not just about the exabytes at the highest capacity points. There’s strong demand in the VIA market, there’s strong demand for 8 terabyte families this quarter, strong demand for even some of the high end desktop products. I think we’re trying to balance all these things for the customers. They’re giving us predictability and they need predictability - in a time of disrupted supply chain, everybody is trying to get the complete kit to attack all these market opportunities that they have, so that’s really what’s firming it up. I’ll let Gianluca quantify it through the course of the fiscal year. Gianluca Romano: Yes, for the time being I’ll say [indiscernible] we have a fairly strong pricing environment, especially for the mass capacity. The legacy is still expected to decline a little bit, but in general, as we were discussing before, it all depends from base alignment between supply and demand but right now it’s fairly good. We want to give it [indiscernible]. Katy Huberty: Thank you. Congrats on the quarter. Gianluca Romano: Thank you. Operator: Your next question comes from the line of Sidney Ho with Deutsche Bank. Sidney Ho: Great, thanks. Thanks for taking my questions. My first question is on the Nearline drives. Given how strong Nearline’s exabyte shipments have been in the past two quarters - I think it’s up 40% in the past two quarters, I know crypto is a factor but you also mentioned cloud is strong as well. Are you concerned that we’ll see an inventory digestion space soon, or maybe asked slightly differently, do you have a sense as to how much inventory has built in the channel or at your customers, especially cloud and enterprise guys, at this time? Dave Mosley: Yes, thanks Sidney. I don’t think there’s too much inventory out there by any stretch of the imagination. It’s a little bit different if you looked at the enterprise channels - they’re relatively lower inventory, and we did see growth in the enterprise quite a bit quarter over quarter. As far as the cloud goes, worldwide I think it’s fairly healthy demand, it’s fairly well distributed. This is what we’ve been talking about for the last couple of years - we’ve always wanted a lot of different customers pulling at these levels, and we’ve seen that, so we’re fairly happy with the demand outlook and what we’ve got in the build plan right now for the next couple of quarters, because the lead time is so long, as we’ve said before. That’s really what builds our confidence, is these great conversations we’re having with customers worldwide. Sidney Ho: Great. Maybe a follow-up question on the gross margin side, you talked about gross margin to be within the long term target range of 30% to 33% in the September quarter. I’m curious if you have--if you had to unpack the gross margin guidance, what are some of the key components for this margin uplift? Is it pricing, product mix, yield improvement and whatnot, and how should we think about those factors playing out beyond the September quarter? Thanks. Dave Mosley: Yes, thanks, and I’ll let Gianluca chime in here too. The first thing I would say is that there were a lot of swaps during the quarter from maybe some of the things that we had planned into things that were actually moving faster. Like I said, when you have demand everywhere, those swaps actually reflect a better supply and demand balance than what we had forecast, and that’s probably the biggest thing. Inventories came down, our factories are very full. The heads of media factories, of course, are being staged for the next couple of quarters as well, so all that kind of fits us financially. There’s mid to up as well, and we’re going to more cost optimize drives in the next few quarters as well, so we’ve started into the family of 18s that we’ve talked about, we like the cost on. We have a lower capacity Nearline drive that’s actually mixing in as well that we’ve launched, so those are all the positives. There still are headwinds from freight, freight logistics around the world is still not--it’s still there, it’s still an overhang, and there’s obviously complement prices in various sectors that are happening because of shortages worldwide that are affecting us a little bit, so this is the headwind. Gianluca Romano: Yes, we had a very good quarter in FQ4, and we are already guiding FQ1 is higher levels. I would say one of the major reason is this pricing environment that is improving. The second reason is the mix that is shifting more and more to the mass capacity. In fiscal Q4, 70% of the revenue was already on mass capacity and we expect that to continue to increase. The other major reason that you will see throughout fiscal year ’22 is increase of our cost optimized drive, so the drives that are based on two terabytes on disk, and that will stay with us through the fourth quarter and will continue to bring improvement to our gross margin. Sidney Ho: Thank you. Operator: Your next question comes from the line of Wamsi Mohan with Bank of America. Wamsi Mohan: Yes, thank you. Dave, you said mid single digit percent of HDD exabyte demand from Chia in the June quarter for the industry, so if I map up to Seagate, it looks like Chia contributed maybe 60% of the incremental sequential exabytes. If you see this demand flatten out, how comfortable are you that supply-demand will continue to be tight enough to keep pricing favorable? Then I have a follow-up. Dave Mosley: Yes, thanks Wamsi. It’s really hard to forecast exactly what’s going on in Chia, and not just because of Chia itself because they are fairly transparent with their numbers, but because of the entire space that’s developing. We did say that on the growth of the NAS space that we’ve seen to date, there’s probably a fair amount of refurbished drives or drives that have been purchased one or two quarters ago, so it’s a relatively small contribution as of yet to Seagate’s overall revenue, and even in the exabyte growth perspective, I don’t think it’s very big, so we said maybe mid single digits, like you referenced. I think it’s a space to watch. We love it because it’s very innovative, not just in Chia and those applications but also in the IDFS applications that we talked about last quarter. The big takeaway is if it continues to grow and fast, it will have to grow with more new build, so that’s something for us to watch. But we’re not really forecasting very much of that into our guide right now because we’re going to wait and see a little bit, and we’ll react to customers who are trying to drive more demand in the channel as it happens. Mass capacity is still our business - that’s what I would take away, and that’s how we plan our exabytes and that’s how we have our customer relationships across the breadth of our portfolio. I don’t think Chia was that impactful from in that respect in the last quarter, and looking forward we’re not really forecasting it very much. We’ll just react to it. Wamsi Mohan: Okay, that’s helpful. Then as a follow-up, you’ve added gross margins for next quarter within your long term range. What would need to happen for you to fall out of that range as you go through the course of the year? Dave Mosley: I think that would be all about cost and maybe some kind of disruption to the overall supply-demand picture that we’ve been working on. If you go back six quarters, eight quarters, when we decided to make some of the investments that we did for the mass capacity platform on 16s and then transitioning to 18s and everything else, we put on capacity for that, we pivoted our lines for that. When the pandemic hit and the supply chain was so disrupted, that’s the thing that really hurt us. What’s allowed us to climb back into the model is the exabyte demand is prone. I think we’d be a lot more resilient this time at this higher level, but that would still be the watch item. We don’t forecast that, by the way - we think the exabyte curve is still going up and over the next few years, you know our thesis, it’s going to grow very big, and so we’re still fairly bullish on exabyte growth without this thing taking a backseat or a U-turn. But in these environments, we’re always--everybody is careful, so that’s the way I’d characterize it. Wamsi Mohan: Okay, thank you so much. Operator: Your next question comes from the line of Thomas O’Malley with Barclays. Thomas O’Malley: Hey guys, thanks for taking my question. I just wanted to follow up on Katy’s earlier question, talking about the seasonality for the year. Gianluca, I believe you said that the second half of the calendar year would be very strong, and I think you mentioned 15% year-over-year. That would imply a down December. Can you talk about what you’re seeing into the December quarter that’s weakening, or can you clarify that 15% year-over-year comment? Gianluca Romano: Yes, I said at least 15%, so I don’t think it’s implying really a decrease in the December [indiscernible] would be probably fairly close. I would say the seasonality that is expected is more into the March and June quarters, as it was the case in the last few years with the exception of fiscal ’21. We think in general, because the mix of mass capacity is continuing to improve, the seasonality will be more muted in the future maybe than in this calendar year, but there’s a little bit less visibility for us when we go into the March and June quarter. Thomas O’Malley: That’s helpful. My follow-up is around Nearline. I know that you guys don’t like to talk about share, but clearly you’re in a really nice leadership position here. Can you talk about that leadership position, how you feel like you’re maintaining that lead, and for the remainder of the year, do you think that from a competitive perspective, you’re going to see any change in that market? Thank you. Dave Mosley: Thanks Tom. We actually--well, we don’t manage for market share, we’ve been talking about that for quite some time. We’re very happy with this platform, 16s going to 18s going to 20s, and going beyond as well, and obviously that’s allowed us to be very flexible, so when people come in for a few more units, they want to swap something in their plan, they want to get on upside, we can actually get it done out of the factories and that’s probably the biggest reason for why we’ve done really well. And I think back on the 16s, we had that leadership just in total capacity available. As far as I’m concerned, we’re executing the plan. So, we’re out talking to customers, we tell them what do you need, we plan that way in advance. We talked about this last quarter, that if you want an 18 in December, you better tell me now because I’m starting the units for it now. That is, I think, really resonating with customers right now. We can be predictable like this. So that’s the way we’re planning the business and we’re fairly happy with the portfolio. Again, not driving really for market share or anything like that. I think that’s how our customers are managing us as well, which is be predictable for me and because these are massive investments that they have to make as well, so they need to know that the product is coming. Thomas O’Malley: Thank you. Operator: Your next question comes from the line of Steven Fox with Fox Advisors LLC. Steven Fox: Thanks, good morning. Just to follow up on those last comments, Dave, can you maybe talk about with now basically supply-demand balance, how you engage differently with some of those customers? What would be the incrementals that get you to add capacity going forward? Then I have a follow-up. Dave Mosley: Yes, I’ll tell you it’s kind of more of the same, really, because if you think about it, if you were buying 16s before and now you want to ramp to 18s or 20s, we’re still having the same discussion, it’s just a different drive. We’re confident in our yields and throughput and our ability to go hit those high volumes. There’s not much legacy business to take heads of media out of anymore, to your point, but there’s still, I said well over 100 million heads per quarter to be able to do some swaps. The issue is just lead time, so if the swaps are in the last two or three weeks of the quarter, there’s no way, right, so that’s what’s changing, I think, in the market. I don’t think we’ll go back into a point where we put over-capacity in for that. I think we just -- we get into the -- stay inside of our financial model, we’ll invest in the CapEx that we see for the demand, and then maybe if the demand goes even bigger than we can up our investment, we can do that one tool at a time. We don’t need to do it with a massive swing, I think. Steven Fox: That’s helpful. Then just secondly on the Lyve platform, it sounds like you’re getting some more technology validation, or at least proceeding like you expect it. Is it changing any of your thinking for ’22 in terms of the non-HDD business? Thanks. Dave Mosley: No, I don’t think so, but the non-HDD business did grow, as we talked about in the prepared remarks. So we’re fairly happy with the breadth of our portfolio and how it’s growing. Relative to the Lyve business, the market is clearly out there. There are people who are struggling with the data that they have on the edge, being able to move that into the cloud, find those temporary resting spots like we’ve talked about a lot with Lyve such that they can move it to its final destination in some cloud service provider or multiple cloud service provider instances, so I’m really encouraged by all the customer engagements that we have. We have to learn this market really well and then it will grow, so I’m really pleased with what I see and I hope to share that at some point in the future with everyone. Steven Fox: Great, thanks so much. Operator: Your next question comes from the line of Ananda Baruah with Loop Capital. Ananda Baruah: Hey, good morning guys, or good afternoon to you guys. Thanks for taking the questions. Dave, how would you describe your thoughts around the length of this hyper scale cycle at this point, and I guess what’s the personality of it as well? Then I have a quick follow-up. Dave Mosley: Thanks Ananda. It’s interesting because I think the front end of this cycle, if you will, is not really about adding too much mass capacity. It was more about just all the digital transformation that was going on during the pandemic. So it was networking and it was compute and it was making sure the applications can run with much, much heavier workloads than they were certainly designed for or were contemplated six months earlier. It was a tremendous stress on people. It’s been our thesis that the storage back end to that will come and it will come bigger, and I would say that even the signal we’ve seen that’s fairly steady growth of the cloud. I still think it’s going to grow even bigger, so it’s a very different cycle to your point. It’s not a matter of putting on excess capacity and then learning some kind of way to use that capacity better out into the market. I think it’s a matter of making sure you focus all your investment dollars on those applications, satisfying everyone on the front end, usually from a performance perspective, and then the data will grow. And the back end of the cloud is clearly going to grow from here, and so we’re very excited about that and making sure we have our portfolio as clean as we can by the time that -- the really big numbers come. Ananda Baruah: How do you want us to think about it as we get into the March-June quarters? Typically, the brakes would come off a little bit. Is that the appropriate way to think about it this time? Dave Mosley: Yes, we’ve said that there would be a more muted seasonality than normal, right, because we’re not in the PC business or the legacy business anymore now that the cloud is a lot more steady. But we’ll let you know - I mean, if we start to see more recovery around the world, then the next cycle will be pulled in, exactly to your point, right? Ananda Baruah: Got it, that’s helpful. And then just real quick on the capacity, you guys are saying supply-demand, and Gianluca, feel free to jump in here as well, supply-demand balance, but are you full capacity right now? What’s the right way in sort of traditional capacity vernacular to think about where you guys are, like in terms of full [indiscernible]? Dave Mosley: Yes, thanks - much more full than we were, but last year was painful in July, of course. But I would say no, we’re not full, and we can still do more. We can certainly still do more exabytes. I think the more we have to do, the more predictable we need it to be, and this last quarter we were actually challenged operationally to make a lot of these swaps, because we saw upsides in many markets and we were moving materials from one market to another. Over the long haul, we could do more exabytes right now, but it’d have to be even more long-term predictability, I think, in order to achieve the exabytes. And we’re excited about it and we’re telling everyone that’s the way we’re thinking about it. Gianluca Romano: Yes, last quarter we shipped a record of 152 exabytes, so we are still growing, so this means we have capacity, some capacity still available. Based on our guidance, you can expect another increase in exabytes in FQ1, and as we discussed before, we are still planning to add some CapEx, so some capacity through the year. Dave Mosley: And as we ramp to 18s and 20s and things like that, we’ll get more exabytes out obviously than the existing head media footprint that we have, so. Ananda Baruah: That’s helpful, that’s great. Thanks a lot, guys. Operator: Your next question comes from the line of Mehdi Hosseini with SIG. Dave Mosley: Mehdi, can you hear us? Operator: Mehdi, your line is open. Tyler: Hey, it’s Tyler on for Mehdi. Our question was answered, thank you. Dave Mosley: Thanks Tyler. Operator: The next question comes from the line of Kevin Cassidy with Rosenblatt Securities. Kevin Cassidy: Thanks for taking my question. Just around your discussions with your customers, are your long term agreements being expanded or are you adding more long term agreements? Maybe can you give us an idea of what visibility your customers are giving? Dave Mosley: Yes, I think the discussion around how things are going to go six months and nine months out are continuing, and it’s really good--I think everybody wants a certain amount of predictability right now. We certainly do, because we’ve got factories to run, parts to bring online, and things like that, but a lot of supply chains are tight and so people want to make sure that if they’re going to invest in those supply chains, they’re going to have the full kit together, so I think the entire industry is behaving quite well for this perspective right now. It’s helping us quite a bit to plan our business, Kevin. Kevin Cassidy: Okay, great. Maybe just as a comparison of hyper scale to enterprise, is enterprise coming back stronger, or maybe just relative to hyper scale, how is it performing? Dave Mosley: You know, we debate that a lot, and I would say it’s 50/50 - it’s always been kind of a toss-up. Sometimes one races ahead of the other. Right now, as we said in the prepared remarks, there’s clearly still growth in the cloud and then as people are coming back on prem, they’re realizing the investments that they want to make that perhaps they hadn’t made six or nine months ago, so they’re continuing those investments. I would say there’s growth in both and it’s not enough to knock it off the 50/50 split right now. Kevin Cassidy: Thank you. Operator: Your next question comes from the line of Aaron Rakers with Wells Fargo. Aaron Rakers: Yes, thanks for taking the questions. Congratulations on the quarter as well. I’m just curious, first of all, kind of a pointed question - do you still think that your Nearline capacity shift underpinning your fiscal ’22 expectations is still going to grow in that to 30% to 35% annual range? Dave Mosley: Yes Aaron, we do. Just as I answered Kevin’s question, two years ago it was 80%, so 35% last year was a little less, but we think 35% is a good model right now. The wildcard on the upside, of course, is if we get a little bit more cloud six months, nine months from now, and we’ll wait and see. We’ve got capacity for it, but--and we actually are going to build the parts, I think, anyways for that. I think 35% is a good number to model this year. Ananda asked this question - if the next cycle was actually pulled in a little bit, then it would grow pretty fast because we have 18s and 20s coming. Those are [indiscernible]. Gianluca Romano: We had [indiscernible] debate on the next two quarters, so to now give you exactly the growth for the entire year would be difficult. But as a model for the long term, we think that 35% CAGR is still very valid. Dave Mosley: And it’s all the same heads and media parts, I guess is the point, so we can be flexible. Aaron Rakers: Right, right. Then the follow-up question is, Gianluca, when you talk about the model and we now talk about 30% to 33% gross margin and confidence around that, I’m curious as to how you’re thinking about operating expense investments. You talked about opex remaining at similar levels these next couple of quarters, but should we start thinking about that you’d let that drop through above that and drive an above-20% operating margin, or would you start to reinvest that and cap off margin at that long term high end of the target model? Gianluca Romano: For the opex, we think the level of FQ4, we can maintain that level through the fiscal ’22. We are now [indiscernible] more, we are a little bit more [indiscernible] expenses. The performance is very good, so comparing to maybe prior year, we also have a little bit higher variable compensation. But this level, if we can keep it between $340 million, $345 million per quarter, I think we can do it. Dave Mosley: But if we were to outstrip, I think Aaron, the top end of the range, then we’d look at investments because we have a number of different markets that are growing well right now, so we’d look at what investments we have to make. I think we said this in the script, actually - we have a lot of flexibility inside of $340 million, $350 million, right, so that’s--you know, the first thing we would do is redeploy people inside of that, and we could still tolerate a little bit more investment if we grew north of the top end of the range. Gianluca Romano: Operating margin is already 18% right now, so when you model increasing revenue and this level of opex and the gross margin, you were mentioning before, you will see a very good result in terms of operating margin. Aaron Rakers: Right, thank you very much. Dave Mosley: Thank you. Operator: Your next question comes from the line of Patrick Ho with Stifel. Patrick Ho: Thank you very much, and congrats on the nice quarter. Dave, maybe first off, in terms of the ramp of your 18 terabyte drive, can you just give a little color of when you expect to see the crossover from 16 to 18, where you’re shipping more exabytes from the 18 terabyte ramp? Dave Mosley: I don’t think we’ve formally looked at it that way, so I don’t have an answer. But I think it’s pretty soon, it’s in the next few quarters. From my perspective, it’s the same product family, so the heads and media are already in the pipeline and some customers are asking for 16s, some customers are asking for 18s, but I think it’s very soon. Then the same heads and media will take us to 20 terabytes on that PMR platform that we talked about, so we may actually spend some of those heads and disks on 20s as well. But I do think we’re going significantly far north of 16 very, very soon. Patrick Ho: Great, that’s helpful. Maybe as a follow-up for you, Gianluca, or yourself, Dave, in terms of the Lyve platform, obviously we’ve seen now the rollout of several product iterations from that family. As it relates to opex, is a lot of that R&D spending done, or are you continuing to invest in Lyve where we’ll see future product introductions? Is that part of the, I guess, help in terms of maintaining opex at current levels? Gianluca Romano: Yes, it’s part of the opex guidance we discussed before, and we are investing more in Lyve. We think this is a big part of our future business. We are very positive on the possible outcomes from that business, so we will invest; but as I said, we will stay around that level of opex that we discussed before. Patrick Ho: Great, thank you. Operator: Your last question will come from the line of Shannon Cross of Cross Research. Shannon Cross: Thank you very much. I was just wondering, can you talk about the materiality of the dual actuator drives? It looks like you’ve expanded access to certain other customers recently, and I’m just wondering how we should think about it in terms of ASP and benefit as we look forward. Then I have a follow-up, thank you. Dave Mosley: Thanks Shannon. It’s growing quite nicely, actually, growing volume in the factories. It’s not a small volume product anymore, it’s becoming a large volume product. We’ll be talking about it more and more over the quarters. It is a 14 terabyte drive right now, so if people are making trades for 18 terabytes, they may want to go to the single actuator, but it’s very specific to a few applications out in the cloud world that people need the dual actuator already. Remember, fundamentally we believe that by the time you get to 30 or 40 terabytes, you can’t have all that behind one actuator, you need to have dual actuator at least, and we have to solve all the power problems and all the interface problems with our customers and things like that, to make that happen. We’re quite excited about getting the learning on the technology. The fact that we have the platform continuing in development - you know, parallel drives that as we launch the new high capacity drive, we have the same capacity points on dual actuator. Shannon Cross: Okay, thanks. Then just a clarification - I think during the script, you mentioned strength in high end desktops, and I’m not sure if that includes gaming but I’m wondering, are you seeing benefit from customers coming back to the office and needing to refresh desktops that perhaps are 18 months old now at this point in time? Thank you. Dave Mosley: Yes, I wouldn’t say it’s desktop PC anymore. There is gaming that’s happening, but I would say more it’s distribution channel around things like crypto applications and things like that. There are people who are looking just for the absolutely lowest cost per terabyte that they can find, and so that’s one of the reasons why the average drive capacity is mixing up. It’s going from two terabytes to four terabytes, last quarter we were over five terabytes, and I expect that trend will continue. It’s happening certainly in consumer channels and things like that. Shannon Cross: Okay, great. Thanks for the clarification. Dave Mosley: Thanks Shannon. Operator: At this time, I’ll turn the call back over to management for closing remarks. Dave Mosley: Okay, thanks Tabitha. Seagate’s delivering strong performance, demonstrating financial results consistent with our long term targets, and executing our product and technology road map to capture long term secular growth opportunities for mass data infrastructure. I’ll close by expressing my appreciation for our customers, suppliers, our employees and our shareholders for your ongoing support of Seagate. Thanks again for joining us today. Operator: Thank you. Ladies and gentlemen, that concludes the conference call. You may now disconnect.

Operator: Good afternoon, and welcome to the Seagate Technology Fiscal Third Quarter 2021 Financial Results Conference Call. My name is Gabriel, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question-and-answer session. As a reminder, the conference is being recorded for replay purposes. At this time, I would like to turn the call over to Shanye Hudson, Senior Vice President, Investor Relations and Treasury. Please proceed, Shanye. Shanye Hudson: Thank you. Good afternoon, 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 posted our earnings press release and detailed supplemental information for our March quarter on the Investors section of our website. During today’s call, we will refer to GAAP and non-GAAP measures. Non-GAAP figures are reconciled to GAAP figures in the earnings press release posted on our website and Form 8-K that was filed with the SEC. We have not reconciled certain non-GAAP outlook measures because material items that may impact these measures are out of our control and/or cannot be reasonably predicted. Therefore, reconciliation to the corresponding GAAP measures is not available without unreasonable effort. As a reminder, this call contains forward-looking statements, including our June quarter financial outlook and expectations about our financial performance, market demand, industry growth trends, planned product introductions, ability to ramp production, future growth opportunities, possible effects of the economic conditions worldwide resulting from the COVID-19 pandemic and general market conditions. These statements are based on management’s current views and assumptions and information available to us as of today, which should not be relied upon as of any subsequent date. Actual results may vary materially from today’s statements. Information concerning our risks, uncertainties and other factors that could cause results to differ from these forward-looking statements are contained in our most recent Form 10-K and 10-Q filed with the SEC, our Form 8-K filed with the SEC today and the supplemental information posted on the Investors section of our website. As always, following our prepared remarks, we will open the call for questions. I will now turn the call over to you, Dave. Dave Mosley: Thanks you, Shanye. Welcome, everyone, and thanks for joining us today. Seagate delivered an outstanding March quarter, executing well across multiple dimensions. We grew revenue quarter-over-quarter and year-over-year. We expanded non-GAAP operating margin into the recently increased target range, and we achieved non-GAAP EPS above the high end of our guidance range. We also continue to drive forward on our commitments of enhancing value for our shareholders, returning the combined $912 million during the March quarter through dividends and share repurchases. Fiscal year-to-date, we have repurchased approximately 12% of our common shares outstanding, the statement that demonstrates our confidence in Seagate’s long-term business prospects. Gianluca will share more details on the financials shortly. For the remainder of my remarks, I’ll focus on the business trends that we see unfolding this year, and how Seagate is well-positioned from a product and technology perspective, to unlock more value for our customers. Strong cloud data center demand and ongoing recovery in the enterprise markets drove our highest ever HDD sentiments of 140 exabytes, a record mass capacity revenue of more than $1.6 billion. These trends underscore the strong secular demand dynamics we are seeing in the mass capacity markets, and support our outlook for the TAM to more than double by 2026 to roughly $26 billion. While customers are helping drive this market expansion by investing in scale and infrastructure to support the acceleration in digital transformation in businesses worldwide, as well as growing demand for AI and data analytics. Seagate’s high capacity nearline drives are a vital component of these infrastructure investments, and we believe that our strong technology roadmap and focus around delivering the best total customer experience is helping drive broad adoption by the global cloud ecosystem. These factors were the driving force behind a number of new strategic partnerships and agreements formed last quarter with several of the world’s leading cloud providers. These multiyear collaborations are focused on delivering innovative and reliable mass capacity storage at exabyte scale. In the enterprise markets, we are seeing a continuation of the recovery trends that we discussed last quarter, as businesses increased investments in traditional on-prem IT hardware. Recent CIO surveys highlight increased 2021 budget growth expectations to support their post-pandemic application and infrastructure needs. We realize strong double-digit sequential revenue growth for both our enterprise nearlines and mission-critical products in the March quarter, and currently anticipate healthy demand through the calendar year. The record demand that I cited in the nearline markets more than offset anticipated seasonal declines for video and image applications. We see VIA market demand improving in the June quarter and sustaining through the calendar year, as planned smart city projects are slated to begin in the coming months. Video analytics extends well beyond public safety. As I discussed at our recent analyst event, there is a growing list of edge applications that leverage video image sensors in areas such as retail, manufacturing and healthcare to drive valuable data insights. These applications support our longer-term exabyte and revenue growth projections. Seagate is well-positioned to benefit from these trends, as we continue to lead the VIA market at all nature capacity points driven by product aerial density competitiveness and strong customer engagement. Finally, looking quickly at the legacy markets, higher enterprise mission-critical sales and relatively stable desktop PC demand led to better-than-anticipated revenue in the March quarter, despite this period’s typical seasonal slowdown. With a broader industry shift to mass capacity storage forming the foundation of our future revenue growth outlook, we have built a strong technology roadmap, streamlined product portfolio, and are growing a pipeline of solutions and services that make us ideally suited to address big data demand now and well into the future. Average capacity per drive increased 17% sequentially to pass the 5 terabyte mark, a milestone that reflects the growth in mass capacity storage and demand for Seagate’s high capacity nearline drives. Today, Seagate is servicing the vast majority of market demand for 16-terabyte and higher capacity drives. We’ve started to aggressively ramp 18-terabyte volume, and current demand suggests strong sequential growth through at least the calendar year. We’re also rapidly gaining traction with our industry-leading MACH.2 dual actuator technology. MACH.2 has been proven to address TCO and performance requirements for certain applications with heavy data traffic, such as content streaming. We’ve recently begun the high volume ramp of MACH.2 drives with a leading hyperscale customer and plan to expand shipments to additional customers later in the calendar year. And that brings me to HAMR. We believe HAMR is the technology to achieve drive capacities of 30 terabytes and beyond. Today customers are testing 20-terabyte HAMR drives in their production environments, which offers valuable feedback that we are factoring into our product roadmaps. I would highlight that through our innovation capabilities and our common platform approach, we have the flexibility to offer multiple versions of 20-terabyte drives to meet customer needs, not only with HAMR technology. We are focused on delivering solutions to customers that meet their roadmaps and lower their TCO and do so in a way that also drives value for Seagate. To that end, we plan to begin shipping a few versions of 20-terabyte drives in the second half of the calendar year. This quarter, we introduced new key components of our Lyve edge to cloud platform. We launched Lyve Data Transfer, enabling data movement on demand between the edge and the cloud. Lyve Data Transfer works seamlessly with Lyve Cloud, an object-based storage-as-a-service solution delivered in collaboration with Equinix and strategically located at the metro edge. In a recent survey conducted by IDC, a majority of respondents considered it increasingly important to colocate data, adjacent to applications or cloud services. We are progressing our build-out plans and are on track to have four Lyve Cloud sites up by the end of the calendar year. We are getting an ecosystem support and have now been certified with each of the leading backup software vendors. We’re very excited about the future potential for Lyve products and services, which open a large and growing market opportunity for Seagate estimated to reach about $50 billion by 2025. However, I do want to reiterate that we are still in the early innings. We’re being deliberate in how we build out the platform and capabilities to position Seagate for long-term success. We are listening closely to customers to make sure we’re designing and evolving our services to best serve their needs, particularly as the distributed enterprise itself evolves in the growing data sphere. In the March quarter, we hit a milestone that took four decades to achieve. Seagate has now shipped a cumulative 3 zettabytes of HDD capacity, shipping over 3.3 billion disk drives. For perspective, at the 140-exabyte rate we shipped in the March quarter, we would ship our next 3 zettabytes in about five years. That is an amazing commentary on the exploding global data sphere we live in today. And I think Seagate’s in an outstanding position to drive great future value for our stakeholders. I’ll now hand the call over to Gianluca to cover details of our financial results. Gianluca Romano: Thank you, Dave. Seagate continued to execute exceptionally well as demonstrated by our strong March quarter performance. We delivered revenue $2.73 billion, up 4% sequentially and above our guidance midpoint. We achieved non-GAAP gross margin of 27.4%, up 60 basis points sequentially, and we expanded non-GAAP operating margin to 15.4%, in spite the recently increased long-term target range of 15% to 20% of revenue. Strong demand for our mass capacity products supported record hard disk drive capacity shipment of 140 exabytes, up 8% sequentially and 16% year-on-year. Nearly 80% of our total exabytes were shipped into the mass capacity markets, which include nearline, data and image application or DIA and NAS products. Mass capacity shipments increased to a record 111 exabytes in the March quarter, up 21% compared with March 2020, which was our prior shipment record. Based on our current outlook, exabyte shipment growth should continue through the calendar year, consistent with our long-term CAGR forecast of about 35%. Ongoing demand for our high capacity nearline drives led to record mass capacity revenue of $1.6 billion, up 8% sequentially and up 5% compared with the prior year period. Mass capacity represented about 65% of total HDD revenue. Nearline revenue increased sharply quarter-over-quarter, driven by strong recovery from enterprise and OEM customers, as well as healthy growth from cloud. Nearline shipments were 95 exabytes, up 34% sequentially and 25% year-on-year. Average capacity for nearline drives increased 12 terabytes, driven by the strength of our high capacity drives. 16 terabytes and higher capacity contributed approximately 50% of our total March quarter exabyte shipments. Demand trends in the VIA market are playing out much as we expected due to [ph] seasonality. Revenue declined sequentially in the March quarter from the record demand we saw in the December quarter. We are already seeing demand improve as some of the smart city projects that Dave mentioned take shape. We support our outlook for stronger VIA sales in the June quarter and into the second half of the calendar year. The legacy market made up 35% of March quarter HDD revenue. This market held up well in the seasonally slower period with revenue of $864 million, down 5% sequentially and 11% year-over-year. Improving demand for mission critical drives and stronger than anticipated demand for desktop PC partially offset anticipated decline in consumer drives. We shipped a total of 29 exabytes into the legacy market, down 9% on our sequential basis, offsetting [ph] the lower mix of consumer drives. Looking ahead to the next few quarters, we expect the pace of year-on-year revenue decline to moderate, support relatively stable demand for mission critical and consumer drives. Revenue from our non-HDD business increased 20% sequentially to $238 million or 9% of March quarter revenue. The strong growth was driven by our system business, as we began to ramp revenue from our customer wins in the December quarter. We expect growth momentum to continue in our non-HDD business in the June quarter. In the March quarter, non-GAAP gross profits increased to $749 million compared with $704 million in the December quarter and included $24 million of COVID-related cost. We are currently planning to incur similar level of COVID-related cost throughout this calendar year, mainly driven by higher freight charges. Our resulting non-GAAP gross margin was 27.4%, including about 1% impact from these COVID-related costs. HDD margin expanded quarter-over-quarter driven by favorable mix, offsetting the sequential growth of our non-HDD business which carries lower gross margin profile. To-date, our mass capacity gross margin is already at the low-end of our target range of 30% to 33% that we outlined at our recent analyst event. We are on track for total Company gross margin to be at the low-end of our new long-term range by the end of fiscal ‘22, supported by the ongoing shift to mass capacity products, higher revenue contribution from cost optimized 2 terabyte disk drives, which make up less than 20% of revenue today, a gradual reduction in COVID-related cost and our continued focus on aligning supply with demand. Non-GAAP operating expenses came in at $329 million, up $10 million sequentially. The increase reflects higher variable compensation, associated with strong performance and increased R&D material expenses to support new product development. Comparing with the same quarter last year, OpEx was down $11 million, by supporting a slightly higher revenue level, demonstrating operational leverage and disciplined expense management. Looking ahead, we expect operating expenses to be a bit higher in the June quarter as we gradually resume normal on-site business activities and travel. Our resulting non-GAAP operating income was $420 million and non-GAAP operating margin was 15.4% of revenue, up 70 basis points sequentially and inside our recently increased long-term target range of 15% to 20% of revenue. Based on the diluted share count of approximately 237 million shares, non-GAAP EPS for the March quarter was $1.48, up 15% sequentially and exceeded the high-end of our guided range. The $0.18 outperformance relative to our guidance midpoint was driven mainly by higher revenue and operational leverage, while our share repurchase activities enhanced EPS by $0.04. Capital expenditures were $104 million in the March quarter, which represented approximately 4% of revenue and in line with our expectation for CapEx to be inside our long-term range of between 4% and 6% of revenue for the fiscal year. We will continue to focus on capital discipline to better align supply with demand through platform simplification and manufacturing efficiency improvements. We had inventory relatively flat at $1.3 billion, consistent with our strong mass capacity product demand outlook. Given the broader market dynamics and well-publicized component shortages, we’re continuing to carry higher level of strategic inventory to protect against potential future supply chain risks as well as towards managed state logistics. We believe these actions enable us to support customer demand, and we continue to monitor current market conditions. Days inventory outstanding reduced by 3 days sequentially to 59 days. We generated $274 million of free cash flow in the March quarter compared $314 million in the December quarter and $260 million in the year ago period. In the March quarter, we used $161 million to fund the dividend and $751 million to retire 11.3 million ordinary share, exiting the quarter with 230 million shares outstanding. The investment in Seagate shares underscores our confidence in the long-term business strategy and future cash generation ability. As a reminder, during the quarter, the Board authorized an increase of $2 billion to our existing share repurchase authorization. As of the end of the quarter, we had a $4.4 billion remaining in our authorization, subject to availability of distributable reserves. As we communicated at our recent analyst event, we expect to return more than 100% of free cash flow to shareholders in fiscal 2022. We will do this while maintaining a strong balance sheet and liquidity profile. Cash and cash equivalents were $1.2 billion, and total liquidity was approximately $3 billion, including our revolving credit facility. These levels are more than adequate to support our operation and business mix. Looking ahead to our outlook for the June quarter. We expect revenue to be in the range of $2.85 million, plus or minus $150 million, supported by continued strength from cloud data center and enterprise customers along with increasing demand from VIA market. We expect non-GAAP operating margin to be at the lower end of our new long-term target range of 15% to 20% of revenue. And we expect non-GAAP EPS to be in the range of $1.60, plus or minus $0.15, representing a sequential growth of 8% at midpoint. At the midpoint of our fourth quarter guidance range, fiscal ‘21 revenue would be $10.5 billion, flat year-on-year and aligns to the goal we set at the start of the fiscal year. In closing, we continue to deliver on our financial commitment and remain on track to achieve the fiscal 2021 goals we have set, while also demonstrating a clear path to meet the long-term objectives outlined at our analyst event. I will now turn the call back to Dave for final comments. Dave Mosley : Thanks, Gianluca. In summary, we had a great quarter. Our growing mass capacity markets are showing strong demand and enterprise spending is in recovery. We’re executing on our technology and product roadmaps, and seeing positive customer engagement with our newest mass capacity offerings. We currently expect annual revenue growth of at least 10% in calendar year 2021, as the shift towards the less seasonal mass capacity markets supports a more stable revenue outlook through the year. We’re also making deliberate steps to build out our Lyve platform, particularly Lyve Cloud and are excited by the early reaction from customers. All of this wins confidence to our positive outlook for the Company. And that confidence is illustrated by our active return of capital to our shareholders. In recognition of Earth Day, it is fitting the highlight that we published our 15th global citizenship annual report this week. We are proud of our longstanding commitment to build sustainable supply chains and products to conserve the world’s precious resources. In the most recent reporting period, we increased water recycling by nearly 9% and recycled the equivalent of 1,100 Olympic sized swimming pools. We reduced our production energy consumption by about 19% on a per exabyte basis. And we are executing plans to reduce our carbon footprint by 20% by 2025 and 60% by 2040, in accordance with science-based targets. Consistent with our core value of integrity, we will continue striving to balance our business decisions around people, our planet, and profitability. Prior to closing, I’d like to thank our employees for their extraordinary efforts, as well as our customers, suppliers and shareholders for their ongoing trust and support in Seagate. With that, Gianluca and I are now happy to take your questions. Operator: Thank you. [Operator Instructions] The first question will come from Wamsi Mohan of Bank of America. Please go ahead. Wamsi Mohan: Yes. Thank you and congrats on the strong results. Could you maybe help us think about gross margins in terms of utilization rates across components, and where you see the most room to improve? I appreciate the color you shared both around where you are with mass capacity, and when you’re getting to the low end of that long-term range. Maybe some -- some color around the main factors that can cause you to achieve that level a little faster, or maybe what would cause it to get first out would be helpful. And I have a follow-up. Dave Mosley: Hi Wamsi. I’ll let Gianluca go through a couple of details. But, I’ll just break it down real quickly. As we’re going through the transition to the common platform, we have the 16 to 18 terabytes and even beyond. We obviously control a lot of the internal concepts. We’ve said that we like the transitions for our ability to go control costs a little bit better, as well. So, that does help the margin. Probably the most important part relative to our manufacturing transactions is – transitions, is that obviously gross margins are still very impacted by logistics worldwide. And even if customers want products, immediately, we have to -- it’s pretty expensive to go get it. So, that’s the other headwind that we have right now. We do see that some of that abating over the next six months. Gianluca Romano: Well, I would say, first of all, we are fairly satisfied with improvement in [indiscernible]. We improved by 60 basis points. It is a fairly big jump in just one quarter. We are expecting further improvement. As we discussed at the Analyst Day, we are near target of 30% to 33% in just few quarters from now. We communicated today that our mass capacity segment is already in that range, and that it is also of course very important for us because as you know, we have 65% of hard disk drive that is in that segment. We need to look at the mix, for example, the normal hard disk part of the business has grown fairly materially in the last quarter. As you know, that part of the business has a lower margin percentage. But, it is a very good contributor to our free cash flow. So, it’s very important part of our business. As for the future, as Dave said, one big element is COVID; the second big element is the continued transition to mass capacity. We expect a fairly strong quarter in June in the nearline part and a good recovery in surveillance. That is more seasonal than other parts of the mass capacity segment. So, it was down in March, and we expect to recover in June. And then, continuous alignment between supply and demand. And as you know, we are building our CapEx in order to of course increase capacity but increase in a way that is quarter-after-quarter aligned better to demand that is coming fairly strong. We guided gross -- gross margin but you can extrapolate the gross margin for fiscal Q4. It has a slight improvement sequentially. I would say, potentially we can do better than what we provide the guidance. And now, we need to go through the quarter, but I’m optimistic on… Wamsi Mohan: No. That’s great. I appreciate the color. And if I could, it’s really interesting to see that the legacy exabytes have stabilized and you called out the higher mission-critical and desktop PC demand, holding that up. When you think about the sustainability of that, frankly, I mean, if you’re right on OEM, an on-prem demand increasing through the course of the year, and also desktop PC, potentially going through a replacement cycle with the folks moving back into the offices, and even a stronger PC cycle in the second half of this year. Would you say there is actually an opportunity for legacy exabytes to grow meaningfully in the second half of the year? Thank you. Dave Mosley: Yes. Wamsi, I would say it’s possible. But as you said, strong demand in a lot of these segments, obviously, over the long haul, we expect continued erosion, but mostly the big erosion’s already happened, to your point. And so, a lot of the systems that are out there, certainly mission critical replacement rates and PC business still exists. I think, they’re much more stable. And to the extent that some of the recovery that happens after the pandemic, in certain places in the world, may actually drive needs for that kind of equipment. There may be a temporary run on that stuff is possible. Wamsi Mohan: Thank you so much. Operator: Your next question comes from Katy Huberty of Morgan Stanley. Please go ahead. Katy Huberty: A couple of questions. I think, Dave, you’ve mentioned when you were talking about the mass capacity business and 18-terabyte that you expect sequential growth through at least this calendar year. Was that just for 18-terabyte or that was for mass capacity nearline and more broadly speaking? Dave Mosley: Right. All of the above. Katy Huberty: Okay. All of the above. And then, what were the drivers of material upside in the non-HDD business this quarter, and how should we think about the great growth rate of that segment for calendar ‘21? Dave Mosley: Yes. I think that there is some -- there is mass capacity in the systems business for example, which is largely boxes full of mass capacity drives. But, to the extent that there is incremental revenue from the boxes from the chassis themselves and controllers that we use and things like that, there is revenue in that. And there is high demand for that as well for mass capacity. And then, the consumer and the consumer SSD business doing quite well and strong demand. I think, our brand is moving a lot of product there as well. So, I think those are the big drivers there, and it’s a little bit seasonal to your point. Gianluca Romano: And we discussed last time of Goodwin [ph] is an important customer. And now relative to vaccine, it will add also during the June quarter. So, we expect a good result also in the June quarter. Katy Huberty: Okay. And then, just lastly, I think I asked you last quarter about supply demand dynamics and the potential for an improved pricing environment. There has been some more evidence that in some channels prices are increasing. Some of the hyperscalers are talking about having to pay a little bit more for drive. How would you characterize the pricing environment, both that you saw in the March quarter, but also what you expect over the next couple of quarters? Dave Mosley: I think, as you know, we have long cycle times. And so, therefore, we have long planning cycles with most of the big scale customers. And so, I think, the things on that front are fairly predictable. Everyone’s going through certain kinds of component shortages. I think that may actually -- it doesn’t really affect our supply, but it may actually affect the end demand, based on what everybody can get and sit together and things like that. So, I think it’s a relatively benign environment from that perspective. There are interesting trends that are going on out in the world about what people are doing with the mass capacity storage. I think there’s a lot of innovation vectors that are taking off, and especially as recovery happens. And these are things that we’re watching. And I think if you look through the distribution channels, you’ll see fairly strong demand for that as well. Again, it’s mass capacity demand. But some of the file sharing platforms that exist out there, IPFS is one that we’re watching it really carefully. It’s an interesting dynamic with a lot of kind of vibrancy. The guys just love to see a lot of creative professionals just coming up with new types of applications and these are driving demand as well. So, I think, that’s probably something you see if you look at those channels in particular. Katy Huberty: Okay, great. Thank you. Operator: And your next question will come from Aaron Rakers of Wells Fargo. Please go ahead. Aaron Rakers: Yes. Thanks for taking the question. I believe -- and I want to make sure I didn’t hear it incorrectly. But, Dave, at the end of your prepared remarks, you commented that you expect to see at least 10% year-over-year growth in calendar 2021. Can you just help us understand or appreciate how that has changed? First of all, is that correct? And secondly, how has your outlook kind of changed? What’s been the drivers of that change over the course of the last three months or so? Dave Mosley: So, obviously, looking back at 2020, there was supply and demand disruption. So first, when the supply was disrupted, people were shutting down factories, there was a lot of pulling of demand. And then, the demand realities in about July timeframe came to restrain. So that -- so we lived through that in 2020. I think 2021, there is still some kind of supply concerns that people have about components everywhere. And so, there are people pulling things in. From my perspective, mass capacity is relatively insulated from some of that, and we have pretty predictable relationships exactly to Katy’s question. So, we look at this year is not having as profound an impact as we did in 2020. And that’s where we get the 10% capacity. And it’s more of mass capacity, some of the VIA markets and things like that will be contributing as well, as largely the cloud and enterprise on-prem coming back. Gianluca Romano: Yes. We said two things, at-least 10% and we also said that we expect revenue to be maybe more stable throughout the quarter. So, we don’t expect relative seasonality. And I think that is important when you model your quarters off. Aaron Rakers: Yes. That’s helpful. And then, just as a real quick follow-up for second question. On gross margin trajectory, you’ve now got, I think 65% of your revenue coming from mass capacity. You had talked about that business now running at the low end of that 30% to 33%, guidance, long-term target model. How do you think about that longer term? Do you think actually that mass capacity gross margin can trend up at the high or even above the high end of that long-term model range that you’ve outlined? Dave Mosley: Simply put, yes. So, I think we have to get our -- all of our manufacturing capacity pointed in the right direction there. And as legacy comes down and helps us, and then there’s other opportunities as well, like platform commonality and things like that. We’ve kind of said that 16-terabyte was getting a little long in the tooth. That’s why we want to accelerate the 18 terabytes and then 20 terabytes. And in each one of those points, you get a chance to refresh, and maybe take some cost out as well. But, based on what new designs are in the factory -- and we get the leverage of the platform too. So, I hope that helps you. Operator: Your next question will come from Karl Ackerman of Cowen. Please go ahead. Karl Ackerman: Yes. Good afternoon. I guess, Dave, you’ve referenced this in an earlier question. In recent days, there have been reports of some significant price hikes in the retail aftermarket as hard drives are being used for new applications, like crypto mining. While you have less control over the retail market from a pricing perspective, I was hoping you could discuss how demand in the channel maybe impacting your factory utilization and lead times across your customer base? Dave Mosley: Yes. I would say that we always budget enough capacity for the channel. I mean, channels -- the customers in the channels are varied and important to us. And so, we always budget enough capacity to make sure that we’re sourcing the channels well. We do see the uptick in demand that you’re referring to. Like we said, we’re watching the different trends that are causing it. Some are really interesting vibrant trends. And we love that. What I would say is that it’s a little early in this to know how prolonged it is, how prolonged that will be. So, I think we’re even early in this quarter. So, it’s really hard to know exactly what the distribution channel reaction is going to be. I also think that getting people things immediately is a problem in the world today, because it’s affecting, to your question about the manufacturing capacity that we have. Even if we even if it came out of the back of our factory, getting it around the world to that channel location might be a problem, right? So, I think, we’ll have to look at all these dynamics, look at the lag or lead times, if you will on how that demand’s developing and figure out how we service it. Karl Ackerman: If I may, along the topic of crypto currency, I could be wrong. But, I believe you still maintain your stake in Ripple, it has over the last few years. And that’s appreciated 5x since you last reported. So, I guess, A, do you still maintain a stake there? And then secondarily, are there ways to monetize that stake today? Thank you. Dave Mosley: Yes. We won’t talk about the latter part. But yes, we do maintain a stake. These are, like I said, vibrant segments that we’ve been watching for quite some time. We have a fair amount of people that are -- because it’s all about data flow, and in the case of the recent trends, a lot of it’s about data storage in particular. So, these are things that we watch and determine how we make investments, not only in external investments that we might make, but also internally and what kind of technologies we’re developing. So, we’re maintaining a stake. Karl Ackerman: Thank you. Operator: Your next question comes from Thomas O’Malley of Barclays. Please go ahead. Thomas O’Malley: Hey, guys. Nice results and thanks for taking my question. Mine is really related to the VIA market. On the last earnings call, I think, Dave, you described environment that was like down mid-teens in terms of revenue. And at least with exabytes, which you guys break out, you saw it down like in the 40% range. So, do you see some of that snap back more violently in the June quarter, given how hard it fell off in March? And just, could you walk through -- what are the reasons why you saw it down so hard in March, and why should it come back in June? Dave Mosley: Yes. This is typically -- I’ll let Gianluca answer part of this as well. But, this is typically a seasonal market and it’s tied to I’ll say government spending and build out. Now, obviously, a lot of that has been disrupted in various places in the world right now. And then, I think if you go back four quarters ago, the edge markets were generally really depressed, because I think my comment at the time was nobody’s on-prem anyway. So, people just aren’t making on-prem. So, I think there has been a high degree of cyclicality this year to the point. I think, what we’re seeing right now is, not only replenishment of supply chains that were disturbed but also -- and early in the year, investment cycle in smart city applications. And some of that maybe, because of healthcare data or maybe because of buildings reopening, and they hadn’t been making investments for a while, but it seems to be relatively earlier and maybe a seasonal right now. Gianluca Romano: Yes. Inside the mass capacity segment, VIA is probably the only one that is seasonal. So, it was not expected. We knew that into the March quarter, we were going to have a decline. As I said before, June quarter will have to be a much stronger quarter for the year and we continue to increase in the September and December. And December is a stronger quarter for the year. Dave Mosley: And sorry, one other point too. Our central thesis is that the data at the extreme edge is not being properly utilized. As a matter of fact, a lot of times this gets deleted. And, we think there are people who are starting to answer questions about how do I store that for a little bit longer and then process the data with AI and make value-based decisions on the data. Maybe not necessarily in the next minute but it maybe a day later or a week later. And so, as that happens, we expect some of this seasonality to be more muted over time. Thomas O’Malley: Great. That’s helpful. And then, my follow-up was really around nearline. Obviously, you guys don’t really talk about share, but let’s just look at exabytes. If you look at kind of what the markets was forecasting for March, I mean, you have 50 plus percent share of that market. A better way to ask it other than share is, could you talk about the dialogues that you’re having with customers with nearline drives? What kind of success are you seeing over the next couple of quarters? And what kind of led you to the position where you are right now, where you’re maintaining this higher percentage of share? You can answer that however you want. But, I just wanted to dive in there. Dave Mosley: Yes. That’s great. I mean, I don’t really think about it as share, because to your point, we go out to the customers. We have -- since the lead times on the products are so long, we have good dialogues about not what you need in six weeks, but what do you need in six months? And I think that’s working quite well. Our customers appreciate that. We still have flexibility for them. But, we’re kind of co-planning in that respect. And I think that’s served us very well on both of them. So, the bouncing ball on share, if you will. I don’t have a great visibility into how that’s going to change. I just know what our demand is. That’s why I said. I do think there’s a little element in the last few quarters of -- at the end of quarters sometimes Seagate gets pulled a little harder than we thought, and there may be a competitive dynamic, or it may just be the customers were holding a little bit in their back pocket. But in general it’s become a way more stable environment than it used to be. And we’re not building things speculatively either -- ramp, we’ve been -- we are ready for that drive mid last summer. The customers weren’t really ready too, again growing up a very predictable ramp for that and keeping our factories full, the 16, while that was happening and having good dialogue too. So, I think, that’s just serving us well. We’re not in the era of building --having a hunch, building a bunch and then speculatively trying to move at the last minute anymore. Operator: Next question will come from Ananda Baruah of Loop. Please go ahead. Ananda Baruah: Hey. Thanks guys for taking the question. I appreciate it. Congrats on solid results and good execution. Just two quick ones if I could. Those are kind of clarifications. Dave, sort of going back to pricing, you said that things are fairly benign. I guess, does that mean that they’re -- really just trying to understand if there are things, if there’s an opportunity for pricing to improve as we go through the year, relative to maybe what you thought 90 days ago. And I just wanted to get your thoughts there and see if I lost anything in the translation. And then, I have a quick follow-up. It’s really on -- nearline pricing specifically. Dave Mosley: Yes. I would say, relative to 90 days ago, I mean, again, we’ve been fairly predictable in giving our customers what they need. And to the extent that that’s locked in with our manufacturer capacity, not much has changed on that front. I do think across the broader world, procurement people tend to be more concerned about supply. So, some of the discussions are being even more mature than we had thought 90 days ago. That’s the way I think about it. And we made reference to this in the prepared remarks about some of the long-term agreements that we’ve been able to establish in the last quarter. Ananda Baruah: Got it. And to LTAs, I mean, is it useful for us to think about their use in an increasingly structural sense kind of our 2012, which was an extreme case. But it was sort of material financial impact. Is it useful at all to think about it and instruct your sense like that or is this more on the margin? Dave Mosley: I think, that was much more profound back then. From my perspective, supply and demand is a lot more imbalanced than back in those days. As a matter of fact, supply disrupted last year and demand was disrupted as well, that we’re still feeling the reverb, and it’s very different than the 2012 environment. I would say that the biggest difference is the lead times on the products. I mean, the wafer starts that we’re doing right now, realistically are hitting -- for the mass capacity driver, hitting the back end of our testers probably around Christmas. And if you think about that that’s driving really good, healthy discussions with what people exactly need and what kind of flexibility they need. Ananda Baruah: Got it. That’s helpful context. I appreciate. That’s it from me. Thanks a lot. Operator: Your next question will come from Mehdi Hosseini of SIG. Please go ahead. Mehdi Hosseini: Yes. Thanks for taking my question. Two follow-ups. I believe that you guided to nearline exabyte growth of 35%. Is that correct? Did I hear that right? Dave Mosley: That’s right, Mehdi. That’s right. That’s what we’ve been saying, 35%. It’s been a little bit stronger from that for the last couple of years for us. But that’s we think the long-term growth rate is, 35% to 40%. Mehdi Hosseini: And it seems to me maybe you’re a little bit more on the conservative side. And I said that because if I just take the next sort of assumption for the June quarter, that would imply the acceleration into the back half of the year -- in the second half of the calendar year to get to that 35%? Dave Mosley: I think we do think that mass capacity is to going to continue to grow. I think we’ve talked about this a little bit. Cloud service providers around the world have to make tough decisions on exactly how they’re making investments. And so, not all of those investments are necessarily mass capacity related. We do expect, they continue to grow in that capacity into the back of the year, and that’s when Gianluca made the comment earlier about a seasonality that’s what he was talking about. Gianluca Romano: Yes. I think, that’s an important. We see strong cloud and enterprise OEM, but we also need to consider a sequential improvement in surveillance and the VIA market in general that is increasing in volume and in revenue through the calendar year. Mehdi Hosseini: And just to be clear, you’re referencing year-over-year growth or sequential growth? Gianluca Romano: Well, in the remarks, we said 10% year-over-year. Of course, the surveillance comment is sequential. If you’re looking at the second half of the calendar year compared to the first half or you’re just comparing year-over-year. Mehdi Hosseini: And just really quickly as a follow-up to your 20-terabyte commentary that you are going to have several different products. And especially in the context of lower CapEx, is this going to basically enable you to extend your market share from 18 to 20? Especially, it seems to me that HAMR may have been pushed out. So, now you have alternative technology. Is that how we should think about it? Dave Mosley: I don’t really think about as market share, I think more about what customers want, what technology portfolio that we have, and how we might service it. And I guess, it’s important to remember that the cloud, if you will, is -- mass capacity is not one size fits all. There are many different types of firmware load-outs, applications that are -- that require different performance levels that can tolerate different performance loads. Some are colder storage and some are very much nearline, right. So, those are very active 20%. So, there are going to be multiple flavors of the technology. It’s the same common platform. And I think -- from my perspective, I think we’re locked in pretty tight with customers. So, that’s why we’ve got confidence. And I think multiple flavors. That doesn’t mean one or two. Operator: And your next question comes from Patrick Ho of Stifel. Please go ahead. Patrick Ho: Maybe Dave, first off, it’s good to hear some of the commentary about your 18 terabytes growing through the rest of this year. Can you just give a little qualitative color, whether you’re getting that 18 terabytes demand from co-existing customers or low capacity points or are they from potential new customers that haven’t used Seagate over the last few capacity points? Dave Mosley: No. Maybe the way I would characterize it is there are some customers that were using 16 in translation, but there are also other customers that were not transitioning from previous 12s or 14s or wherever they were before. And I think we have fairly broad representation. I do think the markets are generally moving up from, like I said back, if I came back to the 6 or 8 terabyte days, people would be stuck on some of those lower capacity points, much longer. In general, people who are doing data center build outs around the world are using that mass capacity, leading edge, drive much more aggressively. So, from my perspective, 18 terabyte is very broad adoption. And I’ve already said, we like the platform quite a bit because we’re continuing to get cost leverage out of it. Patrick Ho: Great. And maybe as my follow-up question for Gianluca. You gave really good color in terms of the gross margin leverage, and what’s driving that. Can you give a little color also on the OpEx leverage? What’s driving that? Are you adding more with the increasing demand, and where some of the moving pieces there? Gianluca Romano: Yes. So, OpEx year-on-year was about $10 million lower. Sequentially, it was a bit higher. The increase sequentially was basically due to variable compensation and a little bit higher in R&D material spending. We said a couple of quarters ago that we have set our normal trend to be around $340 million per quarter. So, we are very well aligned to the expectations, and we think that probably will have a lot of revenues the next couple of quarters. Patrick Ho: Great. Thank you. Operator: Your next question will come from Shannon Cross of Cross Research. Please go ahead. Shannon Cross: Thank you. Earlier, you talked about challenges of shipping into the retail channel. But, I’m wondering if you could speak to how the current supply channel issues are impacting other segments of your business and how you sort of incorporated them into the model. And I have a follow-up. Thank you. Dave Mosley: Yes. Again -- sorry Shannon. So, not so much on the supply part for us. Although, I think everybody’s watching the same kinds of long-term supply issues. But, short-term, we hear from customers that they’re having problems getting the final kit. And so, usually what that does to us as it makes -- maybe that they’re already hit that revenue or secured that customer win for them. They may need it differently. And so, we’re having to be very flexible. Shannon Cross: Do you see it basically just pushing out demand out right as opposed to take it into your way from a long-term perspective? Dave Mosley: Yes. I think exactly to your point, I mean, I think the demand is there. It’s just that how exactly quickly it can be served. And then, obviously, some customers, they get service, somebody else won’t. So, there is a lot of those dynamics we have. Shannon Cross: Right. And then, my second question, and I realize it’s new. But, you mentioned you’ve had some positive feedback on Lyve cloud. I was wondering, which segments are seeing the most interest, and maybe if you can give a little more color on what you’re hearing from the customers. Thanks. Dave Mosley: Sure. I think if you think about Lyve Cloud as almost like an external storage or an external hard drive in the cloud, to the comments you made about retail. It’s very simple. There is no ingress or egress fees. There’s - it’s a scratch pad. That’s the way I think about it, and you could use it temporarily. You use it permanently if you want. I think, there are customers who are very -- or always aggregating data out certain locations to want to temporary landing spot before they find out exactly where they’re going to put their data long-term. And so, these are the kinds of customers that are giving us a lot of interesting feedbacks for continued development of the thing, and we’re not -- this is people tens of terabytes or even bigger. Shannon Cross: Great. Thank you. Operator: Your next question will come from Sidney Ho of Deutsche Bank. Please go ahead. Sidney Ho: I have two. The first question is, as Dave you talk about the 10% -- at least 10% revenue growth for calendar ‘21. If my math is right, that would imply the average revenue for calendar Q3, and calendar Q4 will be consistent on maybe slightly below calendar Q2. I would have thought the numbers could go to the keep going up on a sequential basis based on all the recoveries you’re seeing. I know you guys have at least 10%, but are there some things that we should consider here? Gianluca Romano: Yes. Of course, we don’t guide the individual quarter. I think, it’s fairly easy to -- for you to calculate that, at least 10% we are going to pay. How much more than 10%, which has at least 10% for the calendar year. And then, we will discuss that following quarter -- we have said driving to be very strong in the calendar year. So, I guess please wait for two more months and get more details on -- quarters. Dave Mosley: But Sidney, I would say that what we are trying to say is that I think things are relatively full and we expect -- a muted seasonality, if you will, as we look forward. That’s definitely true. Sidney Ho: Okay. That’s helpful. My follow-up question is -- relates to the 20 terabytes drives. I know you started shipping the HAMR drives back in November. And you’ve seen the thing that the TMR extendable to at least the 20 terabytes. Can you talked about having multiple products at that capacity from -- second half. I would think qualified multiple products at the same capacity point would increase the cost of your customers. Does it not make sense to say as a certain capacity point, you only offer one type of technology or are there other things that we should think about that may never get done? Dave Mosley: Yes. It’s interesting. There are different types of customers who want different performance levels. I think I made reference to that earlier. But to the extent that we already know that medium term, this platform family really well. We don’t have to turn that to medium. That’s one option, another option, SMR, like we talked about. So there’s lots of different bases that provide those customer solutions. Is it more complex for us? Yes. But we have this kind of platform. And so that common platforms can go multiple different directions and we feel very confident in that. And we’re not really worried about qualifications or anything like that. Sidney Ho: Okay. Thank you. Operator: We have time for one final question from Steven Fox of Fox Advisors. Please go ahead. Steven Fox: Hi. Good afternoon. Thanks for squeezing me in. Two kind of clarifications. First of all, on the video side, in terms of the recovery, I’m not sure actually I understood that it’s mainly surveillance still or were you, Dave, trying to imply that you’re also seeing some of these other edge use cases really take off, or if not now, can you maybe talk about when? And then, secondly, as you buy ahead on components, I understand building the safety stock. But given how the supply chain is changing, do you see that sort of delta increasing, decreasing, staying the same versus your actual needs? Thanks. Dave Mosley: Yes. I’ll take the latter question first. We do -- we have long lead times for our components internally, we got the factories every day, 91 days a quarter. So, to the extent that we know exactly what we want for this common platform and for all the other products that we’re building, I think we do make sure that we have enough stock for whatever contingencies we have. From my perspective on the smart city applications that we’re saying, they are very -- it’s not just, this is not just surveillance market anymore. So, we see there are many different types of edge use cases that are starting to develop. And even some of the building security types of applications are -- they have a lot more features that are being demanded of them now. So, they’re not just the same kind of security we’re all used to. There’s other kinds of features being put in. And so, therefore, if you’re buying a solution for a facility or calculating a facility, one of those features, I think that’s actually driving demand for higher capacities for us as well, so. And then, sorry Steven, what we said earlier was last year was so disruptive from supply-demand perspective on this front, people were investing in the edge. But, I think that’s why we’re seeing this kind of pull in the market this year, relatively. Operator: That’s all the time we have. I’ll now turn the call back over to the presenters for some closing remarks. Dave Mosley: Thanks Gabriel. And thanks to all of you for joining us today. Seagate continues to execute well and remains excited about the tremendous opportunities we foresee ahead, both in the near-term and longer term, driven by massive growth of data. I’d like to once again thank our customers, suppliers, business partners and importantly our employees for their ongoing support of Seagate. Operator: This does conclude today’s conference call. Thank you for joining. You may now disconnect.

Operator: Good afternoon, and welcome to the Seagate Technology Fiscal Second Quarter 2021 Financial Results Conference Call. My name is David, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question-and-answer session. As a reminder, this conference is being recorded for replay purposes. At this time, I would like to turn the call over to Shanye Hudson, Senior Vice President, Investor Relations and Treasury. Please proceed, Shanye. Shanye Hudson: Thank you. Good afternoon, 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 posted our earnings press release and detailed supplemental information for our December quarter on the Investors section of our website. During today’s call, we will refer to GAAP and non-GAAP measures. Non-GAAP figures are reconciled to GAAP figures in the earnings press release posted on our website and Form 8-K that was filed with the SEC. We have not reconciled certain non-GAAP outlook measures because material items that may impact these measures are out of our control or cannot be reasonably predicted. Therefore, reconciliation to the corresponding GAAP measures is not available without unreasonable effort. As a reminder, this call contains forward-looking statements, including our March quarter financial outlook and expectations about our financial performance, market demand, industry growth trends, planned product introductions, ability to ramp production, future growth opportunities, possible effects of the economic conditions worldwide resulting from the COVID-19 pandemic and general market conditions. These statements are based on management’s current views and assumptions and information available to us as of today, should not be relied upon as of any subsequent date. Actual results may vary materially from today’s statements. Information concerning our risks, uncertainties and other factors that could cause results to differ from these forward-looking statements are contained in our most recent Form 10-K and 10-Q filed with the SEC, our Form 8-K filed with the SEC today and the supplemental information posted on the Investors section of our website. As always, following our prepared remarks, we will open the call for questions. And with that, I will now turn the call over to you, Dave. Dave Mosley: Thanks, Shanye. Welcome, everyone, and thanks for joining us today. Seagate exited calendar year 2020 on a very strong note, delivering December quarter performance that exceeded our objectives. Compared to the prior quarter, we grew revenue 13%, expanded non-GAAP operating profits 31% and significantly increased the free cash flow to $314 million. We began executing our recently increased share repurchase authorization and retired over 18 million shares of Seagate stock, or approximately 7% of the shares outstanding beginning of the quarter. Through the combination of share repurchases and our quarterly dividend, we returned a total of $1.2 billion in the quarter. Despite the challenges of a global pandemic, Seagate grew annual revenue 2% in calendar year 2020, achieving revenue growth inside of our long-term financial target range. At the halfway point of fiscal 2021, our performance puts us well on our way to achieving our objective to deliver relatively flat revenue for the year. In the remainder of my comments today, I will provide an update on end market trends, share the progress we’ve made on our technology and product roadmaps, and offer some insight into how these advancements position Seagate with a strong secular mass data growth transit. Against the backdrop of the pandemic, 2020 was headlined by diverging end market trends. Strong cloud investments to support our remote economy and digital transformation were countered by significant disruptions to enterprise IT spending. However, during the December quarter, the enterprise markets began to recover for the first time since the onset of the pandemic. The improvement was most pronounced amongst large enterprise OEM customers, which led to strong sequential revenue growth for both nearline and mission-critical drives. We anticipate this positive trajectory to continue, which is consistent with analysts’ expectations for on-prem IT hardware investments to pick up in calendar year 2021. Cloud data center demand remains healthy, with the overall data demand drivers and tech. Analysts projected strong double-digit growth in cloud CapEx in 2021, which bodes well for Seagate and aligns with our expectation for cloud HDD storage demand to increase through the balance of the fiscal year and drive significant growth long-term. For a second consecutive quarter, we experienced stronger than expected growth in video and image applications or VIA markets, due in part to pent-up demand following the significant impacts incurred in these markets during the economic shutdowns early in the pandemic. Video and image applications are a key growth market within mass capacity storage. As the number of devices generating data explodes at the edge, mass capacity HDDs are vital to preserving and putting that data to work. For example, the rollout of 5G and rise of edge computing supports further growth in smart and safe city initiatives, as well as smart factory opportunities. Gartner projects, the number of 5G enabled outdoor video cameras to exceed 15 million by 2023, a six-fold increase from current levels. That will translate to as much as 1 exabyte of data generated each day and that’s to fill about 2 million security surveillance drives every week. Proliferation of video and image sensors and other IoT devices is expected to be a major driver of data creation at the edge in the coming years and will play a key role in the growth and evolution of the mass data storage industry. Finally, strong seasonal demand for our desktop PC and consumer drives contributed to double-digit sequential revenue growth in our legacy business during the December quarter. Overall, we expect demand for mass capacity storage to improve across the cloud and enterprise markets in the March quarter, more than offsetting an expected decline in the VIA markets and the typical seasonal slowdown in the consumer space. With the broader market environment continuing to firm, Seagate is executing well on its technology roadmap and hitting our committed milestones, highlighted by the shipments of our first 20 terabyte HAMR drive in late November. With HAMR, we could drive areal density compound growth rates of 20% or higher to support the scale of our customers’ infrastructure investments and enabling Seagate to maintain a significant economic advantage for mass capacity applications relative to enterprise SSDs, that is expected to persist over the foreseeable future. Seagate’s first to market dual actuator technology is gaining interest among a broader customer base, who require mass capacity storage with higher performance for certain applications, such as content delivery. We are increasing shipments of dual actuator drives today and expect to see higher volumes as drive capacities increase. We are also continuing to strengthen our PMR product roadmap anchored by our industry leading 16-terabyte drives based on our common scalable platform. We broadened the adoption of 16-terabyte drives in the December quarter, gaining new cloud customers globally. We have started to increase the pace of the 18-terabyte product ramp, which will continue through the calendar year consistent with the strong progress of our qualifications and customer readiness timing. As product capacities increase, the qualification process often takes longer and adds complexity. Our common platform approach is helping customers simplify the qual process. In fact, a number of leading cloud customers commented that the qualification of 80 terabytes has been the smoothest ever. Additionally, we expect to continue to leverage the quality and scalability of this platform, which is extendable through 20-terabyte on PMR technology. The strength of this platform offers Seagate the flexibility to meet customers’ timing and mass storage needs. For Seagate, the common platform strategy drives manufacturing efficiencies that allow us to ramp new technologies and production more quickly, and then use our systems business to accelerate the pace of learning and market adoption. We are maintaining solid momentum in our systems, securing multiple customer wins in the December quarter, including our biggest systems deal ever, a multi-quarter deal representing close to 8-exabytes of scalable storage. Overall, with our leadership in HDD technology and execution on our product roadmap, Seagate is in excellent position to capture the $24 billion mass capacity storage opportunity we forecast for 2025, which is driven by the burgeoning demand for data. However to capture value from the avalanche of data being created, CIOs must overcome cost, scale and complexity challenges associated with moving, analyzing and storing more data across the distributed enterprise. As a result, economics are forcing enterprises to keep proportionately less of the data that’s being created, which threatens business performance and competitive advantage. This dynamic is at the foundation of Seagate’s innovation agenda. We are enabling CIOs to address the key challenges of cost, scale and complexity to preserve and put the word more of the valuable data they are already creating. Our Lyve Storage Platform offers a simple, cost-efficient and secure way to manage massive volumes of data across the distributed enterprise. Lyve Mobile enables mass data transfer between endpoints, edge and core, and Lyve Rack powered by CORTX open-source objective software provides enterprises with the lowest cost per petabyte. CORTX software is the foundation the Lyve Storage Platform has maintained by a growing community of data scientists and enterprise storage experts, many of whom participated in our first ever and highly successful Hackathon event held last month at Lyve Labs Israel. We have a growing customer interest for the Lyve portfolio and continue to receive positive feedback on our existing engagements that span multiple verticals, including media and entertainment, and autonomous vehicle technologies. Driving platform level innovation and addressing the growing challenges faced by the distributed enterprise is a mandate that will help define our long-term growth strategy. We plan to share more details on the Lyve Storage Platform and the rest of our unfolding strategy on February 24th, when we will be hosting a Virtual Analyst and Investor event. I look forward to having you join us. With that, I will now turn it over to Gianluca to walk through the December quarter. Gianluca Romano: Thank you, David. Seagate continue to execute well and adapt to the rapidly changing business environment as shown by our strong December quarter performance, which was supported by the anticipated recovery in the enterprise market, record revenue for video and image application and seasonal demand for our consumer in desktop PC product. We achieved revenue of $2.62 billion, up 13% sequentially and above our guidance midpoint, non- GAAP EPS of $1.29, up 39% sequentially, exceeding the high end of our guidance range, and free cash flow of $314 million, up nearly 70% sequentially, reflecting our ongoing focus on operational efficiency. Additionally, we repurchased 18.2 million shares of Seagate stock. Our decision to invest in our shares in the current environment underscores our confidence in the long-term business outlook and future cash generation abilities. In the December quarter, we shipped a record of 129 exabytes of hard disk drives capacity, up 13% sequentially and 21% year-on-year. Roughly three quarters of our total exabytes were shipped into the mass capacity market, which include nearline, VIA and mass products. Mass capacity shipments increase to a record 97 exabytes in the December quarter. We shipped a total of 365 exabytes in the calendar year 2020, up 59% year-over-year, which is well ahead of the long-term CAGR forecast of about 35% for this market segment. Our current outlook for the March quarter support continuing exabyte shipment growth setting in terms at for calendar year 2021. On a revenue basis, HDD accounted for 92% of total December quarter revenue and mass capacity storage representing 62% of HDD revenue. Revenue from mass capacity storage was $1.5 billion, up 12% sequentially and 15% year-over-year. Nearline revenue increased sequentially, driven by stronger than expected demand from enterprise and OEM customers. Nearline shipments were 71 exabytes, up 11% sequentially and 45% year-on-year, reflecting ongoing demand for our 16 terabytes high capacity drives, as well as increased demand for mid-capacity nearline product as the enterprise market recovers. This dynamic resulted in every capacity per nearline drives staying relatively flat at 11.4 terabyte. We are continuing to expand the adoption for 16 terabyte size and expect 16 terabytes to remain the company’s highest revenue product over the next couple of quarters. We also continue to increase shipments of our 18-terabyte drives and make positive progress on qualification plans at multiple cloud customers with volume ramp aligned with their timing. In the VIA market, revenue was above our expectation for the second consecutive quarter as pent up demand from the COVID related cost in the first half of the calendar year led to strong recovery in September quarter and record revenue in the December quarter. Following this period of strong demand, we anticipate the March quarter sales to be sequentially lower and below typical seasonal trend. The legacy market represented 38% of December quarter HDD revenue, compared to 37% in the prior quarter and down from 47% in the year ago period. Revenue and exabyte shipment both increased 15%, sequentially, resulting in a total of 32 exabyte shipped into the legacy market. The growth was driven by a seasonal uptick for consumer drives and desktop PCs and improving demand for mission critical drives consistent with the recovery in the enterprise market, which also impacts demand for our mission critical drives. We currently expect ongoing enterprise market recovery to moderate the seasonal decline we typically see in the March quarter. Our non-HDD business made up 8% of December quarter revenue, relatively flat on a percentage basis with a prior quarter. As chosen partner for Microsoft Xbox expansion plan, Seagate benefits from strong holiday demand, which supported both double-digit growth for our SSD product and a sequential improvement in non-HDD revenue. Within our system business, we saw early signs of recovery at large OEM customers, which along with customer wins, Dave mentioned earlier, should benefit our system business in calendar 2021. In the December quarter, non-GAAP gross profit increased to $704 million, compared with $614 million in the September quarter. COVID-related cost increased slightly to $28 million, primarily due to elevated shipping costs. We are currently planning to incur similar levels in the March quarter, as we balanced customer demand timing with increasing higher freight cost and opportunities to derive lower cost, which sounds great. Our resulting non-GAAP gross margin was 26.8%, including about 110-basis-point impact from this COVID-related cost, as the margin expanded slightly quarter-over-quarter, offset by a less favorable non-SDD product mix. Non-GAAP operating expenses came in at $319 million, down $31 million from the same period of last year, reflecting ongoing benefit from working from home and overall operational efficiency. Looking ahead, we expect operating expenses to be a bit higher in the March quarter. Our resulting non-GAAP operating income was $385 million and non-GAAP operating margin was 14.7% of revenue, up 200 basis points sequentially and in the upper half of our long-term target range of 13% to 16%, despite the COVID headwind, I mentioned earlier. Based on diluted share account of approximately 251 million shares, non-GAAP EPS for the December quarter was $1.29, the $0.19 outperformance relative to our guidance midpoint was driven mainly by higher revenue and operational leverage, while our share repurchase activity enhanced EPS by $0.05. Capital expenditures were at $159 million in the December quarter, which represented approximately 6% of revenue. We expect CapEx to represent between 4% and 5% of revenue for the fiscal year, which is below our prior target of 6% to 8% of revenue. We believe this CapEx level will align supply with demand when considering the existing installed base capacity and continued demand growth for mass capacity storage. Days inventory outstanding reduced by eight days sequentially. Inventory value was relatively flat at $1.3 billion in anticipation of continuous strong mass capacity storage demand in the near-term, as well as the need to carry higher level of strategic inventory to better manage freight logistics and protect against potential future supply chain risk. We expect inventory level to gradually decline as freight cost return to more normalized level and we consume this critical component. We generated $314 million of free cash flow in the December quarter, up from $186 million in the September quarter and up 10% year-on-year, supported by our focus on operational efficiency and improvement in demand trend and a strong linearity. In the December quarter, we use $167 million to fund our dividend and utilized $1 billion to retire approximately 18 million ordinary shares, exiting the quarter with 240 million shares outstanding. We will continue to opportunistically retire Seagate stock and return capital to our shareholders. Additionally, we raised a total of $1 billion in capital, issuing two tranches of debt at a lowest average interest rate of any of our bond. Including the new notes, gross debt was $5.1 billion and the net debt was $3.3 billion. We expect the interest expense for March quarter to be approximately $59 million, including $9.5 million on the two new tranches. Cash and cash equivalents remained relatively stable at $1.8 billion. As the new calendar year begins, we expect strong cloud data center demand and continue enterprise recovery in the March quarter to more than offset the seasonal decline in some of our other end markets. While we are still facing headwinds from COVID-related cost, we expect this will gradually decrease over the next few quarters. Taking all these factors into account, our outlook for the March quarter is as follows, revenue is expected to be $2.65 billion plus or minus $200 million, non-GAAP operating margin is expected to be in the mid of our target range of 13% to 16% of revenue and non-GAAP EPS is expected to be $1.30 plus or minus $0.15. In closing, Seagate is executing well across multiple levels, delivering on our financial commitments, demonstrating the agility of our business model to address customer demand and maintaining our commitment to return cash to our shareholders. I will now turn the call back to Dave for final comments. Dave Mosley: Thanks, Gianluca. 2020 was a very challenging year and we have and continued to face hardships. We are encouraged by progress with vaccines and signs of recovery. Through the efforts of our extended team, Seagate exited the year firing on all cylinders and we are well-positioned to capture mass data growth opportunities in calendar 2021 and beyond. We are executing our technology innovation roadmap to continue delivering the lowest cost mass data storage. We are strengthening our mass data infrastructure portfolio by building on the positive momentum of our scalable common platform family of 16-terabyte and 18-terabyte drives and we are gaining interest for our Lyve Storage Platform, which expands Seagate market opportunities paving the way for future growth. Our success is founded on the dedication of our employees and the ongoing support from our suppliers, customers and shareholders. Employees remain the lifeblood of our company and we are focused on maintaining and strengthening our culture to provide an open, safe and respectful workplace, and ensure all employees are able to thrive. Earlier this month, Seagate released its latest diversity, equity and inclusion report. I am proud to see a strong track record and reputation for promoting inclusion both within and outside the walls of the company and recognizing diversity is a key to our ongoing success. We are equally focused on contributing to our customer success, which we believe will lead to higher revenue for Seagate and greater value for our shareholders. We collect data quarterly to measure overall satisfaction across the breadth of our customer base. The December quarter indicators were among our highest ever, which reflects the care we take in providing high quality reliable products for all of our customers. In summary, I am excited about Seagate’s growth opportunities, ability to generate cash and enhance shareholder value over the long-term. With that, Gianluca and I are happy to take your questions. Operator: [Operator Instructions] Your first question comes from the line of Karl Ackerman with Cowen. Your line is open. Karl Ackerman: Hi. Good afternoon, everyone. Thanks for taking my question. Dave, I have got a question for you to start. With on-prem still recovering, are you able to achieve 35% exabyte growth for your nearline business in fiscal 2021? I ask because I think you indicated in your prepared remarks that while customers are still suggesting 18 terabyte offers a very attractive upgrade past, maybe adoption timing is a bit elongated? And then second, I think, you noted that your 20 terabyte drive could facilitate exabyte growth of, I think, 20% or more a year. So if you could you just touch on your longer-term exabyte growth expectations as well, that would be very helpful? Thank you. Dave Mosley: Thanks, Karl. Thanks for the question. Yes. 35% is still in the cards to answer your question directly. There is -- what’s astute about your question is, there is a mix between the highest capacities and then the on-prem tends to be a little lower capacity nearline. So it could be 8 terabytes or 12 terabytes. But we think still the 35% is a good number through the fiscal year exactly to your point. Longer-term, I think, we’ve said 35% is fairly consistent. The cloud may actually grow bigger than that, but we have a wait and see kind of some of the reverberations after COVID. But I still think that’s a good number for bit growth in the mass capacity markets even further than just the end of the fiscal year. Karl Ackerman: Got it. If I may just hoping if you could touch upon shortages. I think, with shortages of semiconductor components and even diodes, does that preclude you from ramping your hard capacity drives even particularly your 20 terabyte drive? And then, second, are you able to extend your volume commitments within -- with data center providers given the shortages across the supply chain? Thank you. Dave Mosley: Yes. Two interesting questions. The first thing is one of the reasons we really like the common scalable platform is flexible and questions exactly like you just asked. So relative to componentry, we have long visibility. But if we were changing platforms over and over and over again then some of those things might be hard to chase. And the fact that we have more capacity inertia on those platforms, I think, gives us a lot of flexibility. But to your point, I think, across all the supply chains, people are witnessing some of these kind of constraints and people are managing way out in front of them. And I do think it’s forcing discussions to be a little bit more mature relative to what the mass capacity needs are, what the needs are of silicon. For example, I think, you made reference to and some of the other components and making sure everybody has enough for the growth of our customers, especially during recovery times than what they might need later on in the calendar year. Shanye Hudson: Thanks, Karl. Operator: Your next question comes from the line of Katy Huberty with Morgan Stanley. Your line is open. Katy Huberty: Good afternoon. Thanks for the question. Just with the improvement in demand that you have seen in a number of the end markets. Can you talk just qualitatively about where you are in terms of manufacturing utilization versus either a quarter ago or a year ago? And I ask, because we have started to hear that some hyperscalers can get all the product they want, we have seen some price increases in the channel. I’m just wondering how tight things got in the seasonally strong December quarter, and what that might mean for the next couple of quarters? Dave Mosley: Yes. Katy, thanks. So in some of the markets that we are tremendously disrupted, some of the legacy markets. For example, we had ample capacity throughout the period of Q1 and Q2, the COVID impact, pandemic impact and a lot of supply chains were disruptives as well. The cloud demand has been fairly strong and predictable for us. We are building what we had predicted. I think the way I think about our capacity constraints, our manufacturing constraints, if you will, is more of a long lead time stuff like wafer capital and some of those things, wafer process time of things, things like that staging for the future, that’s the stuff that’s full. At drive level, we still have some flexibility and we did last quarter. And so we were able to chase really aggressively the VIA markets, in particular that we are kind of racing ahead and there were some seasonality there, but some of it was just pent-up demand based on how the impacted -- the pandemic had impacted bullet all the supply chain. So if that’s helpful, the longer lead time upfront manufacturing capacity we have is building up to your point, which saw some flexibility to drive them. Katy Huberty: Okay. And then just to follow-up Gianluca. Can you just bridge how you are thinking about the March quarter gross margin relative to December. Just some of the plus and minuses sequentially on gross margin, which seems like it’s up slightly based on your guidance? Gianluca Romano: Yes. First of all, the December quarter margin has already improved sequentially. Especially in the RDs part of the business, we had maybe some negative impact on the SSD and system solution segment, but the hard disk starting to improve already in the December quarter. The mix is going in the right direction. As we said in the script, enterprise OEM was strong in December, cloud was still very healthy. And now when we go into the March quarter, we expect both segments to actually continue to improve sequentially. We will lose a little bit of the legacy segment, little bit of surveillance. We think mission-critical will be maybe less seasonal than what we have seen in the past and then I think the quarter and the gross margin in the quarter. So I think we will continue to go in the same direction. Of course, we will have some of the cost from COVID that will continue to be there. It was fairly high in the December quarter, a little bit higher than what we were expecting and we think March will probably be fairly similar. Katy Huberty: Great. Thank you for that and congrats on the quarter. Gianluca Romano: Thank you. Operator: Your next question comes from the line of Sidney Ho with Deutsche Bank. Your line is open. Sidney Ho: Thanks for taking my question. I had a kind of couple of them. Maybe first one on the nearline side, maybe two parts here. On the enterprise side, you talked about some recovery you’ve seen last quarter. How far do you think we are still below the trend line? The question is more on the on-prem nearline drive side, Q3 you talked about mission-critical? But on the cloud side, have you seen any kind of delays or pull-forwards and capacity transitions in some of your large cloud data center customers compared to what you think a few months ago? Dave Mosley: Yes. Okay. Sidney, I think, the kind of two parts. So first just the enterprise, if you will be on-prem that we said during the early days of the pandemic is probably the most impacted. That is recovering somewhat. I think it’s recovering slowly, because some of the on-prem dynamics are not -- have not fully resolved themselves and probably still long. But it is recovering slowly and it’s more predictable now, so that’s why we feel like we understand the market. This is kind of in line with the IDC numbers we quoted in the prepared remarks as well about traditional IT is going to be up 3% and I think that goes exactly to that point. On the bigger cloud service providers around the world, there is a lot of dynamics going on because there is no one size fits all cloud obviously. But I would say in general, they -- a lot of applications pushed into the cloud and people have to react there with the budgets that they have, with the technology they have, with the platforms that they and so on. And in some cases they prioritize away from whatever storage infrastructure they were building on and in other cases they prioritize too and so it’s fairly complicated right now. My opinion is that because of the dynamics we have just seen the cloud is going to grow even bigger than what we forecast, and so over the long-term we are projecting mass capacity to be $24 billion market in 2025. So we think there is strong secular growth coming in the cloud, but it is still choppy based on some of the dynamics that we just talked about. Sidney Ho: Okay. Maybe a quick follow up, I know I asked this question last quarter on Huawei, but given the current restrictions on the shipment to Huawei. Does that change the way you think about the total addressable market for this calendar year for nearline drives? Dave Mosley: Yes. So like I said last time, we don’t comment on these specific customers. I think that the market demand globally will not change on how it’s ultimately serviced. So if that answers your question. So the net demand for data storage products is out there and it will get serviced by one customer or another, by one supply chain or another and these are very, very complex supply chains. Sidney Ho: Okay. Thank you. Operator: Your next question comes from the line of Thomas O’Malley with Barclays. Your line is open. Thomas O’Malley: Good afternoon, guys. Thanks for taking my questions. My first one is really around capital returns. You obviously thought it was strategic to spend a decent amount in the quarter and take that from shares. Can you talk about what your view is on buying back more shares over the next couple of quarters and then obviously with the new debt rolled into the model as well? How have you viewed the pros and cons which we can take some of that down and also buying back the shares? Dave Mosley: Yes. Tom, obviously, there’s kind of two parts of the question is, what we just went through in the pandemic and the way we were looking at the market. But the bigger part is that looking forward I really believe in the long-term cash generation capabilities of the company. So our decision to invest in our shares is weighing current environment and long-term business outlook and cash generation capabilities. I do think that if this is helpful that we are kind of an inflection point in data growth. I mean we, from Seagate’s perspective, we had to do a lot of transition from client server businesses, the factory transitions and so on into mass capacity, we have kind of finished that and now we are seeing mass capacity growing just simply because the demand for data is growing with the edge opportunities and things like that, so. So I think that this is an interesting time relative to all that we -- we look at the opportunistic, the ability to retire stock, return capital. We look at the investments we have to make in ourselves, we had a fairly strong thesis on all this and it’s good to have cash generation capabilities to underpin it all, so we can make the trade-offs. Thomas O’Malley: Really helpful. The next one is just a high-level question and totally fair if you answer it from a very high level as well, but clearly, there is a lot of concerns about flooding the market with big capacity NAND this year. How do you think in a market in which the cost environment on the flash side is decreasing, particularly your legacy markets will react. Obviously, you mentioned some seasonality in the first quarter. But do you think that you will see greater than expected declines there. Or can you just talk through the pros and cons of what you may see happening throughout this year if that flash environment weakens? Dave Mosley: Yes. Sure. A few years ago, the narrative was very different when notebooks hadn’t transitioned over and now they largely have transitioned over to NAND. So I look at things like that as places where the two technologies are competing head to head and that doesn’t really exist anymore. People talk about for example mission critical drives and this is a little bit of inside baseball here. But mission critical drives for us, we haven’t really done a new platform in quite a few years, where continuous service market that’s out there. There’s a large number, tens of millions maybe even more than that of slots that are out there with SaaS interface on and have good value proposition. So we will continue to service those market, but I don’t think that is small change or even a fairly large change and the NAND price changes that dynamic. Because the new architectures are not SaaS architectures generally speaking, some of them are NVMe architectures and that’s where you need to be designing products or so. So the overlap, if you will, between the two markets is not super relevant. And in the mass capacity markets, its 9 day difference and mass data infrastructure, a small change in cost, thinking of large change in cost is not going to make a difference in the architecture decisions that people are making. Gianluca Romano: I think that, which is the important point in this segment that are really growing like cloud and enterprise OEM and even surveillance, but really overlap between hard disk and NAND at this point and we don’t expect that to happen in the next few years structure. Dave Mosley: Yes. The way I look at the data for social dynamics, there is a big growth in edge and cloud and there’s lots of different architectural components. NAND is definitely come of age and so it’s got a lot of opportunities that has to be -- design the right solutions for the customers and for mass capacity perspective, we have the exact same problem, we keep driving our roadmap and we are going to be just fine. Operator: Your next question comes from the line of Steven Fox with Fox Advisors. Your line is open. Steven Fox: I am just having trouble footing everything you said with the new CapEx advice of 4% to 5% of sales. I know you were thinking it might not be as high as 6% to 8% previously. But can you just sort of talk about what’s going into that decision and then I had a follow-up. Dave Mosley: Yes. I will let Gianluca take this one. Gianluca Romano: Yes. Basically what happened in the last couple of years, Seagate, and I think in general the industry installed more capacity than what was needed. So the fact that the growing demand is now absorbing that capacity is obviously good news for the industry and for Seagate in particular, but we can still see some of additional capacity not being fully utilized. So we don’t need to invest more in the short-term at least in order to absorb their demand and serve their demand. So we think that still investing a fairly high amount that is now 4% or 5% of our revenue is not small number is a big number, but that is the right level for us to align supply and demand in the next, I would say, two or three quarters. Steven Fox: And then just maybe Dave, if you can give a little bit more color on the 18 tb rollout. I know you have said consistently it is dependent upon when your customers want kind of some uptick, but is there any other color you can provide in terms of what may drive it sooner rather than later or later that you expect based on, et cetera. Dave Mosley: Yes. We did say in the script that the 18 terabyte qualifications have gone very well. To the earlier point, I don’t think from a mass capacity perspective, we are not in the era in the industry anymore of just roll the bunch, and then try to ship them in at the end of the quarter or something like that. You have to have real good relationships with the customers, know exactly what they want. So we over the last few quarters, we have been on a theme in communicating this with you that we know where 18 terabytes was going to be with the customers, who are going to be asking us for and so we were fairly clear that the rent has begun though. And so, and it starts by going back to wafer, which is many, many months ago and then making sure we are starting the right parts, we are making the transition to that product right now and we feel really good about it. We feel good about the quality levels, the yield levels, the ability to ramp, all the components that we need, because it’s a common platform. I think we have been signaling this pretty well. I can’t really comment on what the rest of the industry is or isn’t doing because I just don’t know, but that’s relative. That’s the way I look at our plans. Operator: Your next question comes from the line of Aaron Rakers with Wells Fargo. Your line is open. Aaron Rakers with Wells Fargo. Your line is open. Aaron Rakers: Sorry about that, guys I was on mute. I wanted to build on the last question with regard to kind of a visibility discussion. When I look at kind of growing your mass capacity at 35% loss this year, it seems to really imply a very, very healthy uptick in capacity shipment growth into these next couple of quarters. So as we think about the visibility in the business, the change in dialogue that you have had with kind of your key customers, how would you characterize visibility into that kind of demand profile, that pickup up of capacity ship into the back half of the year? And I do have a quick follow up. Dave Mosley: Yes. I think in -- it’s not just about the highest capacity point exactly what you are pointing out. We have good visibility on 16’s and what our customers needed. We have good visibility on 18’s because we talked to those customers about exactly what they need in multi-quarters out as well, but there’s also something going on at 8 terabytes and 12 terabytes and so on. So if you see that kind of transition based on the products that serve the lower capacity points of the mass capacity market if you will that’s where we start to see some significant growth as well. And that tends to be more global than isolated at a few accounts. But that gives us confidence. And by the way, the platform that we have or the platform transitions we are making, take cost and disks and heads and things like that out as we increased capacity, we can actually do that there. So, we are confident in our ability to go solution that better out the mix increases. So go ahead with your follow-up. Aaron Rakers: Okay. Yes. And this is a quick follow-up. Given the mix of business and kind of what’s transpired over the last year or plus, I am just curious. How do you think about the variables, the drivers that gets you back to that kind of what I think you have characterized as a normalized gross margin into that 29%, the 30% plus range? Dave Mosley: Yes. As Gianluca mentioned before, HDDs almost there. I mean, there is some other dynamics of other businesses. But exactly to your point, we have these new platforms coming that will necessarily take costs out. We have to make sure that there is -- we are actually getting with the customers what they need. But I do expect some demand growth recovery again in some markets, but also growth as well that will allow everything to equilibrate more and get us back into the ranges. It was a very competitive market in the times of COVID 2020 and people are trying to keep their factories full and things like that. Now, we are into a period of -- with this growth and recovery. Like Karl asked earlier, there is a lot of questions about supply availability, making sure you have the right supply at the right time and we are into those kinds of discussions as well and we expect that to stabilize. Aaron Rakers: That’s in the quarter. Gianluca Romano: Thank you, Aaron. I think the combination of different items, of course, the focus for us is always on cost reduction and I think we are achieving that level of cost quarter after quarter. The second very important item is this alignment between supply and demand that should bring a healthier pricing environment for the industry. And then, of course, there are those additional costs that we are incurring right now because of the COVID situation that we don’t expect to continue for forever, we think few more quarters and then hopefully, a little bit part of the cost will go away. Operator: Your next question comes from the line of Kevin Cassidy with Rosenblatt Securities. Your line is open. Kevin Cassidy: Thank you for taking my question and congratulations on the strong results. Maybe first, with the enterprise customers coming back, have they been qualifying higher density drives? Or is that going to just start now? And was there a delay and what are the expectations going forward? Dave Mosley: Yes. Typically, Kevin, some of the enterprise customers do lag. They don’t qualify the highest capacity point through the branded product as fast as some other people do. There are exceptions to that rule, but they do lag. There has not really been any slowdown in qualifications for any reason. I think, people even through the challenges, the logistical challenges of COVID, people have kept focused on what they need to do because they are seeing efficiency gains as well there. So -- but as we make some of those transitions, I think that helps us answer the enterprise demand the right way as the enterprise demand is starting to grow again. Kevin Cassidy: Okay. Thanks. And just as a follow-up. With the 16-terabyte and moving over to the 18-terabyte and the visibility you talked about, do you see a crossover of shipments anytime in 2021? Or is that more of a 2022 calendar year event? Dave Mosley: Yes. It’s not going to happen this quarter or next quarter just because of the sheer volume of the 16’s. But I do see it at some point, yes. And we are going to ramp really hard and it’s the same platform. So it’s not hard for us to ramp per se. There is also other efficiencies that we get by driving to the 18 platforms. So that’s why we are pretty excited about it. Operator: Your next question comes from the line of Patrick Ho with Stifel. Your line is open. Patrick Ho: Thank you very much and congrats on a nice quarter. Dave, maybe as a follow-up to Kevin’s last question about the 16-terabyte to 18-terabyte transition. Obviously, the 16-terabyte has been a big share gainer for Seagate and you mentioned the easy platform transition to 18 terabyte. First, how do you look at, I guess, new customer wins with 18 terabyteS? And maybe, secondly, on top of that question, do you see more incremental share gains when you get -- I guess when you move to 20-terabyte and above on the HAMR platform where there are, I guess, significant differentiation versus your peers? Dave Mosley: Thanks, Patrick. Yes. I don’t really think about market share per se. I think about talking to the customers about what exactly they need. Now to your point, there are people who were on 14, for example, or 12 and said, I am going to 18. And so they have been waiting the transition a little bit. And so we will work with them on those transitions and make sure that we have an ample supply for them. As we go even higher, I can’t really speak to -- I can only speak to the discussions that we are having. I have confidence in 20-terabyte ramps. We made comments in the script about peer market capabilities to get there. We have the HAMR capabilities to get there. I think we control those levers very carefully. So whatever a specific customer, who they want, performance wise or whatever, we can get them for their new architecture, old architecture because there is still a lot of legacy architecture. There is even replacement architectures we have to service and we will go out and do that. So, just not being flippant, but I just don’t think about share gains, rather I think about what do these customers we are talking to need exactly from us and making sure we are aligned. Patrick Ho: Right. And as my follow-up question for Gianluca. In terms of OpEx, you guys have done a really good job flexing OpEx during, especially these challenging times in 2020. How do you look at OpEx and especially R&D given now that they are starting to release HAMR-based products? Is there an ability to flatten out R&D in the near-term with maybe a lot of the heavy lifting related to HAMR? I don’t want them out of the way, but it leaves a lot of the initial ramp and start-up costs embedded? Gianluca Romano: Yes. Actually, we have done that already. So, you see the result already, at least, partially in our results of the quarter. And for the long-term, I think last quarter we said, probably a good model is around $330 million per quarter. And now we are little bit below. And now we will try to stay below as much as possible. Of course, we know we always look at opportunities for cost reduction, especially online now in the technology space where we have developed HAMR. So, we don’t have the need for maybe all the spending that we had in the past. Dave Mosley: Yes. It’s a really good point. Yes. It’s a really good point. There is these HAMR technologies, smallest laser ever shipped and the smallest waveguide ever shipped. And dialling it down to something 30-nanometer spot size or whatever it is. This is a really, really difficult technology, we have invested a lot to get to where we are really proud of where we are being able to ship some units and get the learning out there and start building the volume and everything else. We don’t have to go through that investment, again. And so that we get a lot of scale from here, so I appreciate your question. Operator: Your next question comes from the line of Ananda Baruah with Loop Capital Markets. Your line is open. Ananda Baruah: Happy New Year and congrats on solid results here. Still, if I could, first Dave, I guess sort of the 35% mass capacity exabyte growth for the year, actually implies that the June quarter and then the March to guide implies that June quarter is really the quarter where it kind of kicks up. And then you had made some remarks. I think in the prepared remarks about calendar ‘21. I don’t want to -- I would really act looking for clarification, you said sort of continues through the year. And so, I love. I’d love to get. Well, first of all, could you just sort of comment on if the June quarter does kick up in a meaningful way from the March quarter. And then what your thoughts are with September and December quarter as well. And then I have a follow up for Gianluca. Dave Mosley: Yes. Thanks, Ananda and Happy New Year to you too. So, yes, looking forward, we do see recovery in mass capacity. There was obviously the VIA markets that grew last quarter and they had their normal seasonal downtick, but the cloud will continue to grow from here and exabytes and so that underpins the forecast that we have right now. It’s still early -- haven’t seen through Chinese New Year. But things feel like very different than they did last year, where there was a lot of disruption during -- due to COVID. I think it’s time for some of the people who were say -- who put off investments, frankly to say, okay, now I need to make those investments. And our pivot to mass capacity are getting over to the same platform and everything, allows us the flexibility to really go address the markets with high volumes. So that’s what underpins our confidence. Ananda Baruah: Okay. Great. And then Gianluca. You guys are doing, sort of on the op margins you are doing sort of the higher end of the range right now or like so in the upper 50%, upper half of the range. And it sounds like you are also talking about a couple -- a handful of things as you go through the year that can cause the gross margins to go up couple of 100 basis points to 200 basis points. I am putting numbers on that. But I think you have had 200 basis point to COVID cost, then you continue to get mix, you get pricing, those pricing feels a little bit more normalized right now on nearline drives et cetera, et cetera. So what would you -- does it mean, how should we think about the -- I guess the normalized op margin range, if you get it, if you already sort of the upper 50% on the op margin range and you are going to capture 200, 300 debts on card -- on the gross margin. Would you show that in a normalized fashion or are there areas to go invest? And I guess that’s really what I am asking. Gianluca Romano: Thank you, Ananda and Happy New Year to you. If you look at our performance before COVID, our operating margin was already at the top of the range, we were already at 16% even it’s a bit higher. And then COVID happened, and it’s still happening, it’s still impacting our result. But we are right now in the 15%. So we are going back to that level even with the COVID situation. So, of course, we expect fairly quickly and based of course on the impact from the COVID additional cost to go at the level that we were before the pandemic situation and even better. And we are always looking internally at opportunity, now we discussed it with the gross margin before, we are going in the right direction in term of mix. We are seeing now the industry pricing is also going in a better direction compared to for example a year ago. So all those elements are of course pointing to better gross margin, better operating margin, and I am sure, we will discuss with more at our Analyst Day. Ananda Baruah: Gianluca, that sounds like 18% to 20% operating margins to make, by the way. Gianluca Romano: I didn’t say that. Ananda Baruah: Just saying. Thanks, guys, appreciate it. Good day. Operator: Your next question comes from the line of Mehdi Hosseini with SIG. Your line is open. Mehdi Hosseini: Just as a follow-up to the prior question, it seems to me that you have made some changes to procuring subcomponents and I want to see. I will get an idea when those cost savings would actually materialize and help you with gross and operating margin and I have a follow-up. Gianluca Romano: Yes. Mehdi with me, thanks. We discussed the biggest impact on the gross margins, was the COVID drivers and that’s largely freight and logistics-related. And I think the world is still got a lot of challenges on those, on those fronts. And so I think a lot of people are feeling that. Relative to components, I think we feel fairly solid about our company, supply chain. So it was tough in the early days of COVID. We had to make sure that, you know, people had the right factories open and we had to, you know, get in there and work with all of our suppliers, especially the ones that are positioned for some of the products that are continuing to grow, that they are making the right investments in times that are pretty lean, but we are confident about how we did that. So I don’t really, maybe be to the earlier question, I don’t really foresee any supply constraints, but it is forcing a different dialogue that we had, maybe to your implied in your comments. Mehdi Hosseini: And then looking at composition of a nearline, especially as you highlighted opportunities with video and surveillance, could there be increased diversification of nearline and into both cloud service providers as well as the like a surveillance and adverse surveillance moving into higher capacity, nearline and this way you give some diversification of end market demand drivers? Gianluca Romano: It’s interesting because if you read the script to the point about all these cameras generating all this data at the edge. And, you know, we expect that to be kind of a bellwether for smart cities, smart factory. You know there’s a lot of data some of video data, but there’s other kinds of data being created at the edge. A lot of that data today actually dies with the edge. It doesn’t make a back-up in the cloud. You do start to see the nascent -- the beginnings of models where people say, how do I get that data from the micro edge, all the way back up to the core -- for the core cloud, because the cloud has some of the great applications to be able to process the data, you just have to physically get it there. You know, I point to our live product strategy for -- that’s exactly what we are thinking there. And, you know, it’s not small. The amount of data that’s being created at the micro edge today and, like I said, probably either being overwritten or you have to make a decision once you process the data and you never get to make that decision ever again or never get to question that decision again. Things like autonomous vehicles, you want learning to go on. So, you need the data kind of resonant for quite some time, there’s a lot of different models that are very, very interesting to us right now. And it is forcing a symbiosis I guess that’s the right word for between micro edge and cloud and the same kind of drives to service level, yes. Operator: Your next question comes from the line of Jim Suva with Citi Investment Research. Your line is open. Jim Suva: Thank you. And I just have one question. It seems like on both gross and operating margins, every indicator ahead whether it be pricing looks better, COVID costs are peaking, shipping costs are likely to get lower, new innovations rolling out are helping. Am I right that just simply both operating and gross margins should just continue to trend higher through 2021 or there’s some actually negatives or headwinds that we should be mindful of as we go forward? Dave Mosley: No headwinds, Jim. The world is still fairly volatile place that everyone’s through COVID of course and still impacting communities quite a bit. So from our perspective, we have narrowed down our product portfolio to have the right products, made sure our factories, our supply chains already talk to the customers and things like that. The story is coming out and we do believe there’s data growth ahead, but we want to make sure that we are mindful of the realities that are in the economics today. That’s why to our comments we think we are positioned really well, but we will guide you quarter-over-quarter like we normally do. Operator: Your final question comes from the line of Nikolay Todorov with Longbow Research. Your line is open. Nikolay Todorov: Thanks for squeezing me in. I just want to go back to the CapEx question and maybe try to get a little bit more color. Can you tell us a little bit more where do you see that supply and demand now fully balanced from your perspective? I have a guess, but I wanted to hear from you and maybe can you try to quantify how much of a headwind is that under utilization to your profitability right now whether on the gross margin line? Dave Mosley: Yes. Nikolay, thanks. It’s a little bit of tough because if you think about what’s the demand environment that we were in calendar year 2020 and how disruptive it was? You have some of the legacy products that were impacted quite a bit. Some of them are going back a little bit, but some of them that capacity can be repurposed back into mass capacity as well. And then mass capacity itself the growth of 18-terabyte drives that requires, what we call technology transition capacity, the dollars that we actually have to spend. So blending all these things together, the world is through this demand disruption, supply disruption period that we got through early last year. And what we are saying is, we think that we can manage from here at the 4% to 5% range based on our modelling and that will be ample supply will be bringing online for what the demand is out there. Nikolay Todorov: Okay. And the way to quantify the headwind, do you see a meaningful headwind from that under utilization? Dave Mosley: Sorry, not really. Once the -- maybe way back to Kathy’s question, once the factories fill up, heads maybe drive, I think that headwind will be gone, and so that that will happen here in quarter two. Nikolay Todorov: Just a quick follow up, on the legacy price per terabyte declining for a second quarter in a row double digit year-over-year I think over the last four or five quarters in the mid single digit, a lot more benign, I just want to -- can you give us any color what drove that? Dave Mosley: I think that’s all about a mix. And segments, like consumer grew quite a bit, actually last quarter. So some of that work from home and play from home, the gaming, things like that. Mission critical obviously is was still recovering, but still light compared to what it had been previously, so I think that’s the next part of that question. Operator: That concludes the question and answer session. I will turn the call back over to management. Dave Mosley: Thanks David. And thank you to all of you for joining us today and we look forward to speaking with you again as Gianluca said on our upcoming Analysts Day on February 24 please join us there. I’d like to once again thank all of our customers, supplier’s, business partners and our employees for their ongoing support in Seagate. We will talk to you next quarter. Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.

Operator: Good afternoon, and welcome to the Seagate Technology Fiscal First Quarter 2021 Results Conference Call. My name is Jason and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question-and-answer session. As a reminder, this conference is being recorded for replay purposes. At this time, I would like to turn the call over to Shanye Hudson, Senior Vice President, Investor Relations and Treasury. Please proceed, Shanye. Shanye Hudson: Thank you. Good afternoon 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 posted our earnings press release and detailed supplemental information for our September quarter on the Investors section of our website. During today’s call, we will refer to GAAP and non-GAAP measures. Non-GAAP figures are reconciled to GAAP figures in the earnings press release posted on our website and Form 8-K that was filed with the SEC. We’ve not reconciled certain non-GAAP outlook measures because material items that may impact these measures are out of our control, and/or cannot be reasonably predicted. Therefore, reconciliation to the corresponding GAAP measures is not available without unreasonable effort. As a reminder, this call contains forward-looking statements, including our December quarter financial outlook and expectations about our financial performance, market demand, industry growth trends, planned product introductions, ability to ramp production, future growth opportunities, possible effects of the economic conditions worldwide resulting from the COVID-19 pandemic and general market conditions. These statements are based on management’s current views and assumptions and information available to us as of today and should not be relied upon as of any subsequent date. Actual results may vary materially from today’s statements. And information concerning our risks, uncertainties and other factors that could cause results to differ from these forward-looking statements are contained in our most recent Form 10-K and 10-Q filed with the SEC, our Form 8-K filed with the SEC today and the supplemental information posted on the Investors section of our website. As always, following our prepared remarks, we’ll open the call up for questions. With that, I’ll turn it over to you, Dave. Dave Mosley: Thanks, Shanye and welcome everyone, and thanks for joining us today. We began fiscal year 2021 executing well across several key objectives, keeping us on pace for our full year revenue outlook. First, we delivered on our financial commitments navigating challenging market conditions to achieve September quarter revenue of $2.31 billion and non-GAAP EPS of $0.93, both exceeding the midpoint of our guidance range. Second, we advanced our innovative product and technology roadmaps, which position the company for future data growth opportunities, including the introduction of CORTX, an open-source, object-storage software; and Lyve Rack, which offers a simple and cost effective solution for enterprises to manage their massive volumes of data, and in turn unlock data value. And third, to demonstrate Seagate’s long-term commitment of returning cash to our shareholders. The Board approved a 3% increase to our quarterly dividend and a $3 billion increase to our existing share repurchase authorization. These actions exemplify our confidence in the business potential and future cash generation capabilities. In my comments today, I will summarize a few highlights from the September quarter and share some perspectives on the current market environment, and then I’ll outline how we have been positioning Seagate to capture significant opportunities created by longer term data trends. The results for the quarter reflect good execution against the backdrop of continued macro disruptions that impacted several of our key end markets. These disruptions were most pronounced in the enterprise market as the anticipated slowdown in enterprise IT spending impacted sales of our enterprise nearline and mission-critical drives. Many enterprises reacted to the pandemic by prioritizing funding to support their remote workforce and accelerating their digital transformation plans. Accordingly, nearline revenue in cloud was solid in the quarter, although below the record levels of June. The adoption of cloud services and the rise of new virtual economy, digital remote and intelligent is driving ongoing cloud data center investments. According to IDC, 2020 may be the first year in which cloud infrastructure hardware spending surpasses traditional IT infrastructure hardware spending. However, they also project enterprise IT spending will pick up in calendar 2021, which aligns well with our outlook for gradual recovery in the enterprise on-prem market. Data center investments vary among cloud service provider and internet content customers, depending on the respective end market demand outlooks, expansion plans and architectural needs. Responding to these trends, HDD storage investments depend upon mass capacity transition readiness and installed base replacement timing. Taking these factors into account, we currently expect cloud data center demand to improve in the December quarter and throughout the fiscal year, which supports a more elongated cycle than we’ve seen in the last couple of years. In other markets, recovery is already well underway. For example, we realized solid double-digit revenue growth for our consumer drives reflecting both the return to seasonal patterns and strength of Seagate’s brand among prosumers and gamers. And in the video and image applications or VIA markets, revenue doubled quarter-over-quarter, following resurgence in on-prem security and smart video projects. Recall, these markets were heavily impacted in the first half of the calendar year by COVID-related restrictive measures that precluded installations from taking place. Over the long-term, the use of AI and other data analytics continues to drive new VIA edge use cases that extend well-beyond security, including smart cities, smart factories, healthcare, and even frictionless retail, all of which generate massive amounts of data and the need for cost effective edge storage. We now believe the September quarter marks the bottom of the COVID-related demand disruptions, and we expect the gradual recovery from this point forward, which along with the existing secular trends were exposed to underpin our outlook for flattish revenue in fiscal year 2021 and reinforce the relevance of mass capacity storage in both the cloud and at the edge. Seagate is a leader in mass data, and we continue to deliver innovative technologies and secure cost-effective data solutions that address our customers’ needs today and in the future. Building on the strong momentum of our 16-terabyte products, we are qualifying our 18-terabyte drives with multiple customers and progressing very well. We are aligning our volume production ramp to customers’ timings and HDD capacity transition readiness. We also remain on track to ship 20-terabyte HAMR drives starting in December, which is an important milestone, as we believe HAMR technology will be the industry’s path to scaling areal density and increasing drive capacities. Seagate will be the first to ship this crucial technology with a path to deliver 50-terabyte HAMR drives forecast in 2026. Higher capacity drives not only enable data centers to cost effectively store more data in the same footprint, but also to do so in an environmentally sustainable way. The power consumed by an 18-terabyte Seagate drive is actually lower than a 10-terabyte HDD on a per bit basis. That means by replacing 110-terabyte drive with our latest 18-terabyte product, customers can securely store 80% more data and do so more efficiently. However, the challenges for mass data storage posed by data growth extend beyond capacity cost and sustainability. Increasingly, businesses are challenged by data sprawl and data security, which impact their ability to harness the value of their data. Last month, Seagate hosted its inaugural datasphere event, during which customers, partners, and other industry thought leaders joined our team to discuss strategies for attacking these data management challenges. If you haven’t had the opportunity yet, you can still catch the videos on our website. Seagate’s Lyve platform leverages our deep knowledge of data storage and architectures to help enterprises address the complexity of securely managing data across a distributed enterprise. Lyve Mobile is a series of seamlessly integrated edge arrays and data shuttles designed to cost effectively and securely move data between endpoints, edge, and into core cloud environments. CORTX is an open-source, object-storage software with a growing community of developers. CORTX enables enterprises to easily and efficiently manage massive pools of storage resources across their distributed enterprise. Finally, Lyve Rack is a simple and easy-to-deploy solution pre-configured with CORTX software and up to 1.5-petabytes of storage in a 4U rack. Lyve Rack helps enterprises build their own mass capacity optimized private storage clouds with less cost and complexity than ever before. We see multiple use cases across a diverse range of edge-centric vertical markets that all have a common need for mass data management. For example, Raytheon Technologies is using CORTX to develop large-scale secure storage clouds for their federal and commercial customers. And two the world’s top automakers are evaluating this platform to efficiently move data across their fleets of autonomous vehicles. While Lyve is still in its infancy, customer reception has been tremendously encouraging, which together with our outlook for mass capacity storage makes me excited by the future prospects for Seagate. With that, I’ll now turn the call over to Gianluca and have him walk through the September quarter results. Gianluca Romano: Thank you, Dave. We achieved what we set out to do in the September quarter, delivering financial results consistent with our expectation in face of a dynamic and challenging market environment. Revenue was $2.31 billion, above our guidance midpoint and down 8% sequentially. This performance reflected strong recovery in the video and image application or VIA market. The strength in the VIA market, along with healthy demand from cloud data center customers, partially offset the anticipated weakness in the enterprise market, which impacted our nearline, mission-critical and system sales. Total hard drive capacity shipments were 114-exabytes in the September quarter, down about 2% sequentially. Mass capacity shipments were 87-exabytes compared with 91-exabyte in the prior quarter, and 64 in the year ago period, representing strong year-over-year growth. Our outlook for the December quarter support calendar year 2020 exabyte shipment growth that is well ahead of the long-term demand CAGR of 35% to 40% forecasted for this market. On a revenue basis, mass capacity storage represented 58% of September quarter revenue and 63% of hard disk drive revenue, no change from a percentage basis, with the June quarter and up from 47% and 51% respectively, in the prior year period. As anticipated, nearline revenue declined sequentially but remain healthy and within its historical range, centered around 70% of mass capacity sales. Nearline shipment was 64-exabytes, down from record levels in June, but up 36% year-on-year, reflecting growth massive demand for our high capacity nearline drives. We estimated about 16% of nearline capacity shipments are to replace existing drives, which equates to about 10-exabytes in the September quarter. We consider this a reliable revenue stream, but it should grow over time, along with the installed base. Average capacity per nearline drive increased 8% sequentially to 11.6-terabytes, supported by sales of our highly successful 16-terabyte drives, which have been the company highest revenue product for three consecutive quarters and the highest nearline product for four consecutive quarter. We continue to ship our 18-terabyte drive and make positive progress on qualification plans at multiple cloud customers, with the volume ramp aligned with their timing. Revenue for VIA, increased sharply in the September quarter a new security and smart video installation resumed following the COVID related cost we described in the first half of the calendar year. We anticipate healthy VIA sales over the near-term and view this application as a long-term growth driver for mass capacity storage, particularly as new use cases for smart camera system and analytical software emerge. IDC forecast revenue from video security camera is growing at a compound rate of nearly 13% through 2025, which is a strong indication of increasing storage needs at the edge. The legacy market represented 34% of total September quarter revenue, 13% as a prior quarter and down from 46% in the year ago period. Increased sales for consumer drives partially offset the decline in the enterprise mission critical market and sub-seasonal demand for PCs. Exabyte shipments into this market increased 5% sequentially to 28 exabyte supported by the uptick in the consumer products, which have average capacity of 2.7 terabyte for a consumer drive. We currently expect consumer demand to remain stable in the December quarter with some improvement in the mission critical markets consistent with gradually enterprise recovery by Dave described. Our non-enterprise business made up the remaining 8% of September quarter revenue flat on a percentage basis with the prior quarter. Non-HDD revenue is still below our pre-COVID levels. Sales of our SSD products trended lower due to challenging pricing environment, while we saw a slight improvement in the system business. I’ll point out, that many of our system customers are small to mid-size enterprises, which are still being impacted by the pandemic. Accordingly, we expect it will take a couple more quarters before demand fully recover. In the September quarter, non-GAAP gross profit was $614 million, which includes $25 million of COVID related costs. We are taking steps to partially offset cost associated with air freight by using more ocean freight. Our resulting non-GAAP gross margin was 26.5% including in 110 basis points impact from this COVID related cost as well as favorable product mix and underutilization of the factories. Consistent with our expectation, non-GAAP operating expenses came in at $320 million, reflecting ongoing benefits of working from home along with saving from our previously announced restructuring activities. Looking ahead, we now expect operating expense to normalize at approximately $330 million within the next one to two quarters as we continue to assess market position and investment. Our resulting non-GAAP operating income was $294 million and non-GAAP operating margin was close to 13% of revenue, which is the low end of our long-term target range. Based on a share count of approximately 259 million shares, non-GAAP EBS for the September quarter was $0.93. Capital expenditures were slightly lower in the September quarter at $111 million, which represented around 5% of revenue. Based on the investment made over the past several quarters, we believe the industry has sufficient capacity in place to address near-term market demand growth. As a result, we are focusing our investment to support technology transition rather than further capacity expansion. We’ve been successful in transitioning more of our shipments to ocean freight, which as I mentioned earlier, decreased the COVID-related impact cost on gross profit. We have also built strategic inventory for some critical components to protect against potential future supply chain risk. As a result, inventory increased sequentially to $1.3 billion, which was in line with our plan. We expect inventory level to decline as we consume these components over the next few quarters. We generated about $186 million of free cash flow in the September quarter, which includes the one-time impact of restructuring costs. While these levels are still relatively healthy, we expect free cash flow to return to historical levels over the next few quarter supported by our focus on operational efficiency and then improving demand environment. In the September quarter, we utilized $68 million to retire approximately 1.5 million ordinary shares, exiting the quarter with 258 million shares outstanding. We also used $167 million to fund our dividend. As Dave mentioned earlier, the Board approved a 3% increase to our quarterly dividend, raising the quarterly payout to $0.67 per share. The Board also approved an increase to our share repurchase authorization of $3 billion, which brings the total amount available to $4.2 billion. The share repurchase authorization has no specific expiration date. Timing of execution on our organization is dependent on several factors, including our financial position, available cash, distributable reserves, and capital requirements. Deduction illustrates the confidence in our business strategy and long-term cash generation abilities. We had cash and cash equivalent relatively stable at $1.7 billion. As we approach the end of calendar year 2020, we are encouraged by emerging signs of recovery in the larger enterprise market and improvement in VIA demand. We expect solid cloud data center demand to continue in the December quarter supportive of our view for a more elongated cycle. While we’re still facing headwinds from COVID related costs, we expect this will gradually decrease over the next couple of quarters. Taking all these factors into account, our outlook for the December quarter is as follows: Revenue is expected to be $2.55 billion plus or minus $200 million, up 10% sequentially at the midpoint. Non-GAAP operating margin is expected to improve sequentially in the lower half of our target range of 13% to 16% of revenue. And non-GAAP EPS is expected to be $1.10 plus or minus $0.15, an increase of 18% sequentially at the midpoint. In closing, Seagate is continued to execute well during this period of prolonged uncertainty. We are navigating the current market and executing a strategy to capture the significant opportunities associated with the secular demand growth for mass capacity storage, and then managing need to manage massive volume of data from the endpoint to edge to cloud core. I will now turn the call back to Dave for final comments. Dave Mosley: Thanks, Gianluca. As we conclude the first quarter of fiscal year 2021, we are encouraged by the recovery trends we’re seeing in key end markets, but still expect macro uncertainty to persist near-term. We have demonstrated the ability to manage through challenges in the past and with our team strong execution the resilient financial model, I remain confident that we will emerge stronger from this current situation. Our improving December quarter outlook suggests we’re on track to do it again. I’m proud of our pace of innovation, and how we’re attacking the critical customer needs posed by data growth, data sprawl and data security. We are delivering on our technology roadmap and developing cost effective solutions that addressed the secular demand growth for mass capacity storage, and data management. I am confident our business outlook for fiscal year 2021 due in parts of the tremendous momentum we have built with our highly successful HDD business, and I believe our new initiatives including our live platform, position us for even greater opportunities in the future. As a result, I’m more excited than ever about Seagate’s growth opportunities, ability to generate cash and enhance shareholder value over the long-term. Our performance would not be possible without the tremendous efforts of our employees, and the ongoing support of our customers, partners and shareholders. Thanks to all of you. With that, Gianluca and I are happy to take your questions. Operator: [Operator Instructions] Your first question comes from the line of Karl Ackerman from Cowen. Your line is open. Karl Ackerman: Hey, thank you for taking my question. First, Gianluca, you spoke during your prepared comments about shipping 20-terabyte HAMR drives revenue this quarter. First, could you quantify the number of design wins you’ve won to date for HAMR? And second, your earlier comments seem to suggest you won’t materially ramp 20-terabyte HAMR, perhaps because it’s cost prohibitive on a dollar per terabyte basis versus your existing CMR offerings. I guess is it possible to achieve 35% to 40% exabyte growth for calendar 2021 if the plan is to leapfrog to 24-terabyte HAMR drives, and how do we think about the margin mix associated with that? Thank you. Gianluca Romano: Hi Karl, like you said, it’s a new platform out there in the world, and so we’re going to introduce it this quarter. And we’ll be watching the customers that we are qualified with, which is pretty highly competitive. So, we don’t talk about that, but we’ll watch the performance and dial that knob accordingly. I would say that until -- to your point until we get to 24-terabyte, there’s not really a compelling transition, and so we have to keep continue working that drive, and we will work that over the course of the next calendar year. Dave Mosley: Yes. I would say that the important one for us is the technology milestone that we are achieving in the current quarter with the first shipment of HAMR. It’s not so important right now how many units we ship. The important is that the technology is working, and we are doing exactly what we said and start shipping 20-terabyte HAMR before the end of the calendar year 2020. Karl Ackerman: Great color, thank you. Operator: Your next question comes from the line of Katy Huberty from Morgan Stanley. Your line is open. Katy Huberty : Thank you. Good afternoon. Dave, given the higher-than-average margins in the markets that are recovering enterprise and video markets, why wouldn’t gross margins improve materially in the second half of your fiscal year? And then just a follow-up for Gianluca, how do we reconcile the modest share repurchases in September relative to the new $3 billion share repurchase authorization? Why not be more aggressive buying back the stock given the signs of recovery you see in the business? Gianluca Romano: Yes. Thanks, Katy. I’ll take the gross profit and gross margin points first. We do still have some COVID overhang, and then obviously last quarter, factories were relatively empty compared to what we can do from a demand perspective. So, we’re pivoting some of the capacity over from some of the legacy markets that are still challenged and into the mass capacity, exactly to your point. So, over the course of many quarters, we will see that recovery in gross margins if that helps you think about it. I’m very confident of the product portfolio that we have. It’s just a matter of re-equilibrating all the supply again – or the demand against our existing supply. Gianluca Romano: Yes. And maybe before answering to the capital allocation and share buyback, we said that last quarter and even the quarter before that calendar 2020 was going to be impacted by the additional cost of COVID in terms of gross margin and operating margin. So, we think that when the COVID situation will improveour gross margin, because of our mix and because of the reduction of the COVID costs, we will start to improve. So, we expect some improvement in the second part of the fiscal year. In terms of share buybacks this quarter, as you know, we discussed that even during the last earnings release, during COVID, we want to be a little bit more conservative in terms of cash preservation. But the board authorization, it is a more strategic and long-term authorization, it is not something for the very short-term. We will think about how to use and how to maximize the impact of this new authorization and with Dave, we will decide in the next weeks and months. Katy Huberty : Thank you. Operator: Your next question comes from the line of Aaron Rakers from Wells Fargo. Your line is open. Aaron Rakers: Yes. Thanks for taking the question. Back on maybe the gross margin, I know in the prepared remarks you had alluded to taking on some strategic supply inventory. I think there’s been a little bit of questions out there around some of the component pricing dynamics that maybe, you guys have been seeing, being at spindle motors or also maybe on the substrate side. So, can you help us understand exactly what you are seeing in the component supply chain and whether or not you’re seeing some inflationary pressure and how you’re managing that? Thank you. Dave Mosley: Yes. Aaron, thanks. Certainly through COVID where factories were so strained and there were people that needed help. And so, we were out aggressively addressing that to make sure we had continuity of supply. And that’s the comments that we made in the prepared remarks about the strategic inventory buys that we’ve done just to make sure that we have the right inventory placement. Relative to the management, I think that’s the supply chain, I think that’s really starting to equilibrate now, and I’m fairly happy with where we are. We’ve got our suppliers in line with our capacity planning again, and they’re not getting turned off because of some of the COVID-related stuff, and I think it’s very manageable from here. That’s the way I look at it. Gianluca Romano: And I know you’ve seen from our guidance in the current quarter and how we guided the full fiscal year. Now, we expect this quarter and the next couple of quarters to be a strong quarter, so we don’t want to be limited by one component or two components. So, we decided to beat a little bit of strategic inventory, but we will use in the next two or three quarters. Aaron Rakers: Great. Just as a quick follow-up, can you just give us an update on how we think about the capital expenditure plan, whether or not you’re going to have to increase some of the wafer capacity or just any update on CapEx spending as we move forward? Dave Mosley: Yes. So, mass capacity has such strong growth for many, many quarters now and probably many years to come as well. We’ll be continuing to pivot more of our capital allocation against that and we’ll watch the legacy markets very carefully. Some, like we’ve mentioned, consumer markets were still fairly strong, others may be reaching a new normal as they continue to ramp down. We’re not investing in those, and so we can pivot the capacity, whether it’s wafer capacity, or media capacity, or drive capacity or whatever, we can pivot that capacity over that. And by the way, that goes against the supply comments or the suppliers’ comments that you’ve made as well. I mean making sure we work all the way upstream in our supply chain with the suppliers to do that also. What we said specifically in the script is that we believe the industry has enough capacity in aggregate for that. We make those pivots. We’ll still be needing to invest in what we call technology transition capacity. So, the ability to make the new 18-terabyte and the HAMR drives and things like that. But that’s not adding capacity, if you will, that’s just investments in that technology transition. Aaron Rakers: Perfect. Thank you. Operator: Your next question comes from the line of Ananda Baruah from Loop Capital. Your line is open. Ananda Baruah: Hi, good afternoon, guys. I appreciate you guys taking the question. Yes, two, if I could. I’ll ask him at the same time. Dave, I believe last quarter talked about fiscal year 2021, nearline growth of I believe it was at least 35% exabyte. Is that still the case you’re reaffirming the flattish revenue guides for the year? And then also just on mass capacity, just had this quick calculation. I don’t know, and I’d love some context on this, this is like kind of get dirty count. But the difference between overall mass capacity exabyte chips and nearline chips was the largest ever, and it ties to the largest ever and the largest Delta for the December quarter. And you’re talking about pretty substantive growth anecdotally, I think, coming quarters, and then you said, kind of years, any context around sort of what’s going on with that market? Obviously, there’s sort of supply chain stuff, and challenge related stuff, and there’s congestion and pent-up demand. But is that something that can – we’re talking about potentially 35% year sort of nearline exabyte growth, and then plus meaningful mass capacity growth sort of through fiscal year 2021, just with less than contacts, because it clearly came back super strong? Dave Mosley: Yes, yes. Thanks, Ananda. So, the first thing you were on was the 35% to 40%. We believe we’re still on track to outstrip that this year. We’ve been talking about that even as mass capacity was struggling earlier this year, because of surveillance market and so on. These VIA markets came back really strong and that’s the answer to your – the second part of your question. So that was definitely back in its normal traditional representation, maybe, even a little bit greater, given all the disruption that’s going on, the VIA markets were quite strong last quarter. We can expect that to persist as well going on. It’s logical recovery I would say, and it’s some of the new applications that are coming there, whether it’s smart city applications or hospital applications, things like that. So, we see a fairly healthy demand profile for that segment of mass capacity throughout the remainder of the fiscal year as well. So that’s why we have a lot of confidence in those mass capacity numbers being so high. Ananda Baruah: And so just to quickly clarify, is it nearline growth sort of greater than 35% fiscal year, and then mass capacity will be whenever it is coming back, but that’s the – I’m sorry, not mass capacity video related, it’s going be something in addition to that. So, we could see much more significant mass capacity growth in addition to the 35% to 40% nearline growth? Dave Mosley: Yes. Sorry. So, I wouldn’t say nearline right now, because of the – remember the on-prem discussions that we had last quarter. and so on-prem is still recovering, but it’s just not strong. So yes, the 35% to 40% is mass capacity all-in to your point. Ananda Baruah: Got it. Got it. Thanks. Operator: Your next question comes from the line on Steven Fox from Fox Advisors. Your line is open. Steven Fox: Thanks. Good afternoon. Just to follow on those questions, real quick. Can you just sort of go into why you think we’re at a bottom in terms of the enterprise, on-premise spending that you talked about in your prepared remarks? And how strong that comes back, say over the next few quarters to get to your full-year outlook? And then in a similar manner, can you talk about the video markets obviously, they came back strongly like, what’s – is it a different shape of business that you’re doing now post-COVID versus pre-COVID? How would you compare sort of mix now versus then? Thanks. Dave Mosley: Yes. Thanks, Steven. So on-prem, I think, on a hindsight now, which is, we have really good visibility, I would say what happened with the early COVID supply reactions by a lot of customers caused pull-ins. And then the demand reality came later than that when people couldn’t get back on-prem. So that’s the bullwhipping, if you will, that caused a little bit too much inventory and the change. We’re still recovering from that frankly. I don’t expect it to recover to the prior levels, because some of those markets, some of those on-prem markets, like mission critical, we’re actually in decline anyway. So, we think that’ll come back to maybe, the prior declining run rate, if that helps you think about it, the nearline piece of the on-prem will actually come back, because that’s moving up in exabytes as well and there’s still a lot of value in nearline on-prem storage. Relative to the VIA markets and how they recovered so strongly, I think, when people could – generally speaking, when people could get back on-prem, they – we’re looking for new applications, some of them may have been facial monitoring, but some of them may have been temperature monitoring, and some things like that, and when you do those installs those upgrades, if you will to install, you don’t have to upgrade your entire network, you’re upgrading typically the box that’s the brain in the back room, and that has hard drives associated with it. So that’s why we think that I was so strong, very global, as well. So, it all happened at the same time. And again, we expect these kind of smart building Smart City applications to be continuing to be a good investment theme. Such that, if I look back year-over-year, we’ll definitely get back to where we were year-over-year, we did last quarter, and we’ll probably will, going forward as well. The muted frontend of this calendar year, we don’t know perfectly about the backend of the year, but we think that the VIA markets will be significantly stronger than that muted demand. Steven Fox: Great. That’s very helpful. Thank you. Operator: Your next question comes from the line of Patrick Ho from Stifel. Your line is open. Patrick Ho: Thank you very much. Dave, maybe just following up some of the comments you made earlier about capacity expansion and how you’re transitioning to the nearline drive capacity demand that’s out there. I know, typically, CapEx is you’re looking at a longer period of time on demand, where you’re – where your products are going. As you begin transitioning to HAMR 1, how do you feel about the capacity in place as the 20-terabyte HAMR drive gets released? And then secondly, over the next two to three years, do you believe you’ll need capacity expansion to meet the demand for HAMR over the next few generations? Dave Mosley: Yes. Thanks, Patrick. So, a couple of things, we have quite a bit of capacity that as part of our installed base, and we’ve been thinking for many years about those tools, those tools that they needed to make the HAMR transition, they are not too many incremental tools. So, we feel like we can manage the transition quite well. We do need a little bit of what we call technology transition capacity to do that. To the first part of your question, the bigger issue is really how we forecast what’s going on in legacy markets and how much we pivot to mass capacity. So, we’re going to be watching those legacy markets and what they’ll do over the course in the next year and it also started wafer, which is relatively long lead time. So, we’ll approach this judiciously. I do think over time, we will need more technology transition capacity as HAMR continues to ramp. So, I think that’s a fundamental limiter, if you will, and then the market goes bigger than we can react very quickly, I think on CapEx and especially with back in test capacity or media capacity to react if the market goes big. Patrick Ho: Great. Thank you. Operator: Your next question comes from the line of Kevin Cassidy from Rosenblatt Securities. Your line is open. Kevin Cassidy: Thank you for taking my questions. On the video and image market, you say that’s coming back strong. Can you say geographically which area of the country world is it coming? Dave Mosley: Yes, Kevin. I would say the areas of – almost everything was depressed and almost everything’s coming back. The distribution channel came back quite nicely in Asia, Southeast Asia, in India and a little bit less so in Europe, just last quarter based on timing, but we are seeing it come back everywhere. And I think it was a fairly healthy quarter for us widespread geographically. Kevin Cassidy: Okay, great. And going forward, you’re expecting us to continue to grow and can you give an estimate of how much of a capacity it is or how much of your exabytes? Gianluca Romano: Well, we’re talking about as our capacity volume. And we also informed to stay to above the nearline. So, I would say the difference between the two is mainly video and image application. Dave Mosley: Yes. There’s a little bit of NAS in the non-nearline, if you will. But we said that I think 70% is nearline on the call. So, if you think about that other 30% is the bulk of that 30%, although NAS is a nice contributor as well and growing in exabytes. Kevin Cassidy: Okay, great, thank you. Operator: Your next question comes from the line of Sidney Ho from Deutsche Bank. Your line is open. Sidney Ho: Great. Thanks for taking my question. Maybe, two questions. First question is related to Huawei. Just want to confirm that, can you talk about whether you are continuing to ship to Huawei, and what is included in your December quarter guidance? It looks like a competitor may have stopped shipping, maybe back in middle of September? And do you think you’re seeing some benefits of that in your December quarter? Dave Mosley: Well, I would say Sidney; we don’t talk about individual customers. I think if I go back, five or six quarters, now we’ve been talking about how demand has been fairly disrupted, particularly in China and there’s a lot of reasons for pulling in or pushing out demand, different projects that people are doing financial planning that they might be doing. We really focus on the end-market demand. And what’s that how we construct our guide? I do think that relative to some of the products that we’re talking about, there’s fairly healthy demand – healthy supply inventory in the chain, if you will. And that gets to the mission critical question and whatnot. We’re a global tech company. We have a broad network of suppliers and customers. We continually monitor and remain in compliance with all the rules and regulations around. I think, relative to some of the legacy markets. I think we’re just watching too much inventory out there. So, I don’t think it’s material, but it’s all factored into our guide about what’s going on in the markets. And then our long-term view is that mass capacity storage will find multiple routes to market and that’s what’s growing and that’s the way we’re positioning ourselves. Sidney Ho: Okay. Well, maybe switching gears to talk about the nearline side. Dave, you talked about the timing of 18-terabyte drives; it will really depend on the customer’s frame. Do you have any insight as to when you will see maybe, a unit crossover with 16-terabytes? And maybe, going forward with when I start thinking about beyond 18-terabytes? Do you think – do you expect the market to do from 18-terabyte next year going straight to the 24-terabyte HAMR? Or do you think there’s somewhere in between, say the 20-terabyte period, where 20-terabytes is picking up? And how do you address that opportunity? Dave Mosley: It’s interesting. Our 16-terabyte is a very, very strong platform for us. So, the unit crossover, we don’t really think about it as units. It’s actually such a similar bag of parts, as we’ve talked about before that it’s really a transition slightly in head capacity from our wafer fabs and some – a little bit of media turns and a couple of other piece parts. So, it’s not a hard transition for us to make. We’ve been saying for multiple quarters. Now, we really like our 18-terabytes good quality drive. It’s failing through the qualifications at the right level. So, it’s really about aligning with what the customers need from a volume perspective and I don’t think it’s going to cross over the next couple of quarters. We could drive it harder if we want to, but there’s no real reason to do that, especially against the demand certainty that I think everybody needs. To the other point, I think I do think that ultimately, 18-terabytes becomes a big volume. I don’t think people will wait for 20’s although, if an individual customer wants to do that, we’ll go there with them. We’re not going to talk about what our plans are there competitively, but I think there will be 20-terabytes in the market. I don’t think everyone will wait from 16 to 24, though, I think, the TCL proposition about re-qualifying an 18 or 20, or something like that is significant. And I think people will do that. So, we’re in deep conversations with all of our customers about this, these qual cycles take a long time. So, we’re locked and loaded with them on all this stuff, and making sure we give them what they need a high volume. Gianluca Romano: I would say for this calendar year, 16-terabytes is for sure the leading product in high capacity and we expect that in kind of 2021 to transition more and more to 18-terabytes. And then as you know, we are developing the fourth generation and the second generation of HAMR, that will take a little bit longer time to transition, but we think we have a very stronger roadmap. Sidney Ho: Okay. Thanks, Dave. Thanks, Gianluca. Operator: Your next question comes from the line of Mark Miller from The Benchmark Corporation. Your line is open. Mark Miller: Thank you for taking questions. I’m just wondering, what’s your outlook for gaming, in terms of sales in the gaming application, solid state memory has been showing up more and more, and what’s your feelings about that? Dave Mosley: Yes. Thanks Mark. So, gaming has been very strong as part of our consumer business for the last two quarters. Now, I think that’s part of the work from home, learn from home and play from home too. The interesting thing that’s happening there is that not just the PC space, where some of the interesting titles are getting, the maps are getting bigger and bigger, but also the refreshes that are coming in the consoles, which we’re tremendously excited about, we’ve been talking to this customer for quite some time about. It says that consoles are going to get bigger, faster, more powerful. experience is going to be awesome. We’re very supportive of that. I think, when it comes to porting information from the old generation to the new generation, we think that we have a tremendously relevant role to play there. And then helping the architecture of a lot better performance and a lot higher capacity, we have a lot to offer there as well. So, we’re super-excited to always happen. Admittedly, I’ve heard people talk about this segment before and not really know where it’s going. And so maybe, say to come to the wrong conclusions that’s starting to become a little bit more obvious as people are going through these transitions. But we’re super-excited about gaming, obviously, and I think it’s a representative of what’s going to happen to the edge over the next five years. Data has to get bigger, faster to be able to satisfy all the applications. And we believe this is kind of one of the lead dogs on that hunt. And so we’re very active in participating in it. Mark Miller: You talked a little about the inventory – inventories were up, which you say they’re going to be coming down, if you could just put more color about what’s going on with inventories and your belief? Dave Mosley: Yes. like we said, we’ve said in the prepared remarks that we’ve done some strategic – the time when the market was relatively low. We wanted to make sure we didn’t get into any situations, where we had any losses in our factories, because we couldn’t get parts and a lot of suppliers, I think, we need to appreciate that a lot of suppliers and sub-suppliers were having issues in their supply chain, because of COVID and things like that. We didn’t want to get into any of that. So, we pulled a little extra inventory and we’ll bleed that out over the next couple of quarters via COVID. Mark Miller: Thank you. Operator: Your next question comes from the line of Jim Suva from Citigroup Investment. Your line is open. Jim Suva: Thank you very much. As many of the questions were asked, and you gave great details on, I’ll pivot and ask one more about the stock buyback. It’s kind of interesting to note the timing of it when you still had over $1 billion, if my math is right about $1.2 billon left. And I believe in your prepared comments, you mentioned you’re kind of doing opportunistically or kind of as you go. So, I’m just kind of thinking about that comment about why announced a big $3 billion in addition to the $1.2 billion you have left or are you meaning to imply you’re going to put the capital to use a little bit sooner, because of the current cadence you have. It would still be well over a year to exhaust the $1.2 billion that you have. So, I’m just kind of triangulating about the timing and what you meant, and the site, which is very impressive. Dave Mosley: Yes. Just referencing our past authorizations. Our last one is in October of 2018, by the way it phases-off of our October board meetings that’s part of our process to address these things, the dividends as well. The last one was $2.3 billion of new authorization in October of 2018. The previous one before that was April of 2015, I think we – to your point, we had $1.2 billion left, we wanted a little bit more flexibility there, so we look out over the long-term and make those decisions. Jim Suva: Okay, thank you very much. Operator: Your next question comes from the line of Mitch Steves from RBC Capital Markets. Your line is open. Mitch Steves: Hey, thanks for taking my question. I kind of wanted to turn back a little bit to the gross margin discussion there. It sounds like the higher end companies or customers are starting to purchase more products. So I guess why isn’t there going to be a year-over-year improvement in gross margin, particularly in calendar 2021, assuming that some of these operational issues kind of fade away due to COVID all that stuff that happened this year, plus the mix shifts of the high-end and it gets away, we’re seeing that kind of flow through more next year? Dave Mosley: Well I think we’ll flow through more next year, I think we’re just in the tier point, we’re in the – still in the throes of having factories that are underutilized and moving a lot of capacity from some of the legacy markets which are under representative into mass capacity. We just can’t do that, that fast. But – so we’ve got a little bit of overhang where we just been through. But I have confidence that we’ll fill up the factories with the right product after that and be able to get solidly back into our margin range. Gianluca Romano: Yes. When we talk about the COVID costs and the impact, we just communicate the direct impact. And I bet a lot of other negative impacts that we have, for example, the underutilization that Dave is mentioning, is not for sure including what we communicated at COVID impact in total, so that is more parts of it. So we think in the next two or three quarters debt will improve. And this is also aligned to our CapEx discussion that we just said. So we expect gross margin and operating margin, which is more important to us to improve in the next two or three quarters hopefully. Mitch Steves: Okay. Then just as a follow-up on that, just assuming that you’re able to operate as usual, meaning that there is no distancing or in fact out of the factory, et cetera. Can you maybe help us understand what type of margin bridge you would normally see? So what I’m trying to get out here, as you probably found some operational savings, just given the work from home environment and probably make some reductions there or adjustments there. So how do we think about the, I guess, organic gross margin number, if we didn’t have this kind of one-time impact? Dave Mosley: Yes. For those organic gross margins, we’d be in a range, I think based on the full utilization, if you will. You know we focus more on operating margin, and we’ve been tending towards the high end of our range. The reason we’re at the low end of our range right now really is, to your point, it’s the gross margin issue with the under absorption of the factories. But I think, we’ll continue to manage the operating margin range to try to get back to the high end of our range as quickly as we can. It’ll happen as a function of the footprint that we need from an OpEx perspective, which we benefit from no travel and everything else, everybody else – everyone else is talking about just spending control, but also the gross margin that you’re asking about. Gianluca Romano: The last quarter before COVID impact, we were actually above our long-term range of 13% to 16% in terms of operating margin. So the mix today is even slightly better, I would say, in term of profitability. So expect to go back to that level and even higher than that, when the pandemic impact will start to decline and go away. Mitch Steves: Okay, perfect. Thank you so much. Dave Mosley: Thanks. Operator: Your next question comes from the line of Nick Heisler from SIG. Your line is open. Mehdi Hosseini: Yes, this is actually Mehdi Hosseini from SIG. I have one follow-up question, and I want to go back to your mass capacity excluding nearline, it did double on a Q-over-Q basis. Is that driven by surveillance, especially in the APAC region? Dave Mosley: Yes, Mehdi, it is. I mean especially APAC I’m not sure – I’d say especially APAC, because I think it’s picking up around the world. But it was so underrepresented around the world the quarter before, because to our point before nobody could get back on-prem. Surveillance came back quite nicely, we reacted well to it. Some of that we were predicting, and some of that we had to react to it. So there is recovery in every market, some markets are recovering faster than our projection, some are not as fast as our projections. But we had such confidence, especially later in the quarter, that’s why we – kind of we’re communicating that. And surveillance was a strong part of it. Mehdi Hosseini: And I have a question on the object-storage efforts, I could see why it would fit into your long-term strategy. But maybe you can help me better understand how you can avoid alienating your existing customers as you pursue this strategy, and essentially, it seems like moving up a stack. Dave Mosley: Yes. I don’t look at it as alienating simply, because there really isn’t an object store that’s designed specifically for mass capacity. So many object stores – they’re fantastic object-stores that are out there. Some of them are very proprietary, others have come and gone. But a lot of them have been progressed for many other reasons, not just mass capacity. And so we’re the ones designing the drives, we’re the ones designing this object-store, we’re opening up the community, so other people can help us. And that we’ve been getting great response for the community. So thanks for pointing it out. I look at it as a great opportunity for mass capacity storage, whether it’s on-prem or in a cloud or something like that, and we want partnerships. And we think of that tailored to all the features that we need for our drives, whether it’s MACH.2 drives or HAMR drives or any other features that we want to get developed. And I think this will be the fastest route to market, the fastest – the best TCL proposition for people using it. And then we’re open to any partnership with anyone, I don’t think it’s going to be a threat anyway. Mehdi Hosseini: Got it. Clear. Thank you. Dave Mosley: Thanks. Operator: Your last question comes from the line of Nikolav Todorov from Longbow Research. Your line is open. Nikolav Todorov: Yes, thanks. Dave, I think in your last – that you guided to CapEx to grow as a percent of revenue, and I believe at the time understanding that your capacity mix between legacy and mass capacity was optimal. Now you’re alluding that there is someone underutilization because of access legacy capacity. I guess, can you give us some color on what inning are we in that transition? I mean, I understand that this is a continuous dynamic, but when can investors expect for you to optimize that capacity mix? Dave Mosley: Yes. It’s a good question. And what inning are we in, it’s kind of hard to say, because we’re going to have to wait a little bit longer until we see the recovery out of COVID of all the representative markets. But it’s exactly the way we’re thinking about it, what you described, before we could have said, these markets will transition according to some game plan, these legacy markets will go out in five years or four years or whatever we were expecting, there is been some changes to that, because of COVID, we either have to know to get back on that curve or maybe that curve is a permanent downshift, and then we can transition with practice or making that investment. And I think the key point is that from our perspective in the industry, I think everybody’s going to have to go through this relative footprint. And we like our chances relative to that, we’re just telling you that we’ll probably be below art 6% to 8% range that we would have talk about in that Analyst Day, because of the impact of COVID. Nikolav Todorov: Okay. And related to that, I think you guided to mass capacity exabytes growing that 35% to 40% for fiscal year 2021. I guess, are you willing to give us a number for total capacity for fiscal year 2021 growth, including legacy? Dave Mosley: Yes. We’ve never really done that before. I mean, we’ve been very focused on the growth market of mass capacity, and now that it’s surpassed legacy significantly, I think that’s the growth drivers. The legacy markets, to be very frank, we’re still studying them, because like I said, things like consumer were maybe ahead of where we thought they would be because of COVID and other markets may be under represented. Nikolav Todorov: Okay. And if I can just squeeze one more, you mentioned different demand profile by cloud customers. Can you maybe talk about that in terms of geography, particularly interested in hearing your take on the China cloud demand and maybe where is the volume in terms of capacity with those customers? Dave Mosley: It’s a very complex question, it’s a very good question, it’s something that we struggle with as well, there is many different types of applications. There is not just one kind of cloud service provider, one kind of application, one kind of drive, if you will. So from our perspective, the investments that the cloud customers are making depend upon all these different strategies they might have, from our perspective, we had a great portfolio lineup, we can transition from products in our factory and from one customer to another, given enough lead time, and we have good relationships with all those customers. So I do think that there is some things in the cloud depending on where you are geographically, where there are logistics challenges to grow. I mean we said this a little bit last quarter, you can’t build data centers or you can’t get people on-prem to build them. So there are priorities being made for service level agreements, where people in the cloud may have real strain on them at the front end with compute or networking or something like that. And that may push off some of the mass capacity in install, we’re working with customers on that too. So we know the demand is coming, we just have to make sure we’re tight with the customers about what they need exactly. Gianluca Romano: June quarter was a record quarter for cloud. September was not at the same level, but was very healthy, and we expect December quarter to be still very strong. Nikolav Todorov: Got it. Thank you. Operator: There are no more questions, I’ll turn the call back to management for closing remarks. Dave Mosley: Thanks, Jason. Seagate continues to execute well through the current business environment. We’re very encouraged by the improvements that we’re seeing in some of the end markets and then we expect gradual recovery throughout this fiscal year. Longer-term, we see no change to the secular growth in mass capacity data. And we’re very excited by the opportunities that we can foresee ahead. I’d like to once again thank all of our customers, suppliers, business partners and our employees for their ongoing support of Seagate. Thanks, everyone for joining us today. Operator: Thank you everyone for joining today’s call. That concludes the conference call, and you may now disconnect.