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    STX
    Earnings call· Mar 2025(Q3 FY25)

    Seagate Technology Holdings plc STX

    Apr 29, 2025 Source

    Executive summary

    Seagate Q3 FY25 — Strong Profitability and HAMR Ramp

    Seagate delivered strong Q3 FY25 results, driven by robust mass capacity demand and strategic operational improvements, including a build-to-order model. The company expanded profitability and free cash flow despite sequential revenue decline from prior supply constraints. Seagate is actively ramping its HAMR technology and expects continued demand strength into calendar 2026, while navigating potential tariff impacts and optimizing its manufacturing footprint.

    Highlights

    5

    • Revenue increased 31% year-on-year to $2.16 billion.

    • Non-GAAP gross profit dollars grew 81% year-on-year.

    • Non-GAAP gross margin expanded for the eighth straight quarter to 36.2%.

    • Non-GAAP EPS reached $1.90, at the top of the guidance range.

    • Free cash flow generation increased to $216 million from $150 million in the prior period.

    Concerns

    3

    • Revenue declined 7% sequentially to $2.16 billion, limited by temporary supply constraints.

    • Operating expenses are expected to be higher in the September quarter due to a 14-week period.

    • Potential for secondary impacts from tariff policies, though minimal direct impact is currently forecast for Q4.

    Guidance & targets

    7
    CategoryTargetConfidence
    June quarter revenue
    $2.4 billion, plus or minus $150 million
    high materiality
    High
    June quarter non-GAAP operating expenses
    approximately $285 million
    medium materiality
    High
    June quarter non-GAAP operating margin
    expand into the mid-20s percentage range
    high materiality
    High
    June quarter non-GAAP EPS
    $2.40, plus or minus $0.20
    high materiality
    High
    Fiscal 2026 tax rate
    mid-teens
    low materiality
    High
    Free cash flow generation
    improve sequentially
    medium materiality
    High
    Debt reduction
    continue to address the debt level
    medium materiality
    High

    Segment performance

    5
    SegmentRevenueYoYQoQMargin
    Hard Drive Business
    Revenue declined sequentially, with a slight decrease in volume shipments.
    Volume shipment: 144 exabytes (compared with 151 exabytes in December quarter)
    		$2 billion—down 8% sequentially—
    Mass Capacity
    Despite a sequential decline in revenue and shipments, mass capacity showed strong year-on-year growth.
    Shipments: 133 exabytes (down 5% sequentially, up 50% year-on-year)
    		$1.7 billionup 48%down $145 million sequentially—
    Nearline
    Nearline volume, a significant portion of mass capacity, saw strong year-on-year growth despite a sequential dip.
    Volume: 120 exabytesShare of mass capacity volume: roughly 90%
    		—up 55%down 5% sequentially—
    Legacy Products
    Decline primarily reflected expected seasonal trends in consumer markets.
    		$254 million—down 8% sequentially—
    Other Businesses
    Includes systems, SSD, and refurbished drives, showing stable revenue.
    		$157 million—relatively flat—

    Operational metrics

    13
    Non-GAAP gross profit
    $781 millioncompared with $825 million in prior quarter and $432 million in prior year period
    Q3 FY25

    Non-GAAP gross profit for the March quarter.

    Non-GAAP operating expenses
    $274 milliondown 5% quarter-over-quarter
    Q3 FY25

    Non-GAAP operating expenses for the March quarter. Benefited from timing of R&D-related material expenses and certain one-off items.

    Adjusted EBITDA
    $563 millioncompared to $591 million in the prior quarter and $278 million a year ago, doubling year-on-year
    Q3 FY25

    Adjusted EBITDA for the March quarter.

    Non-GAAP net income
    $407 million
    Q3 FY25

    Non-GAAP net income for the March quarter.

    Non-GAAP EPS
    $1.90top end of our guided range
    Q3 FY25

    Non-GAAP EPS for the March quarter, based on diluted share count of approximately 214 million shares.

    Inventory
    $1.5 billionremained flat
    Q3 FY25

    Inventory level at the end of the March quarter, as the company prepares to support future demand growth, including HAMR products.

    Capital expenditures
    $43 million
    Q3 FY25

    Capital expenditures for the March quarter, reflecting continued capital discipline.

    Liquidity
    $2.1 billion
    Q3 FY25

    Total liquidity at the end of the March quarter.

    Debt balance
    $5.1 billionafter retiring approximately $536 million of debt during the quarter
    Q3 FY25

    Debt balance at the end of the March quarter, consistent with intent to reduce debt.

    Net leverage ratio
    2.1x
    Q3 FY25

    Resulting net leverage ratio, with further reduction expected in coming quarters.

    Average nearline drive capacity
    sizable uptick
    Q3 FY25

    Driven by the richer mix of 24- and 28-terabyte PMR products and initial volume ramp of HAMR-based products.

    24- and 28-terabyte PMR platforms exabyte shipments
    up roughly 60%quarter-over-quarter
    Q3 FY25

    These platforms continue to ramp aggressively.

    Diluted share count
    approximately 214 million
    Q3 FY25

    Used for non-GAAP EPS calculation.

    Industry KPIs

    9
    MetricValueDetails
    Capital return FCF$152MUSD
    Unit shipments ASP—
    Gross margin drivers36.2%%
    Exabyte bit shipments144exabytes
    Long term supply agreements—
    Component supply constraints—
    Capacity roadmap qualification3TB
    Ai server orders revenue backlog—
    Revenue mix by end market segment$2.16BUSD

    Orderbook & backlog

    2
    Nearline exabyte demand visibilitystrong through calendar 2025, and into the first half of calendar 2026Q3 FY25

    Based on build-to-order agreements with several customers.

    Build-to-order agreementsnegotiating into calendar 2026Q3 FY25

    Reflects improved visibility and predictability of supply.

    Risks & headwinds

    3
    Tariff policiesQ4 FY25

    minimal impact to fourth quarter financial performance

    Mitigation: monitoring 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.

    Temporary supply constraintsQ3 FY25

    limited Q3 FY25 revenue by 7% sequentially

    Mitigation: operational issues have been fixed

    Higher operating expenses due to 14-week quarterSeptember quarter (Q1 FY26)

    expect to incur higher operating expenses

    Mitigation: will provide further clarity on July earnings call

    What to watch in Q4 FY25

    5

    HAMR product shipments

    Coming quarters (H2 CY25 for broader cloud customers)
    CurrentRamping volume to qualified customers, one major CSP almost complete, several in flight
    TargetAppreciable increase in shipments

    Why it matters

    HAMR is pivotal for meeting exabyte demand and extending TCO advantages, crucial for future growth.

    We expect an appreciable increase in HAMR product shipments over the coming quarters as these future qualifications conclude.

    Q&A highlights

    6

    How did Seagate achieve upside despite Q3 supply constraints, and is the Q4 guidance impacted by pull-forward demand or would it have been the same a month ago?

    The upside came from fixing operational issues that caused Q3 constraints, and the Q4 guide would have been the same a month ago, reflecting predictability from the build-to-order process. There is no pull-forward risk.

    “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.”

    asked by Erik Woodring · answered by William Mosley

    2 min read6 chapters

    Detailed Narrative

    01

    Operational Transformation & Profitability

    Seagate's Q3 performance reflects a transformed operating model with a focus on profitability and cash generation. Supply discipline, a build-to-order strategy, and strategic pricing actions contributed to an 8th consecutive quarter of gross margin expansion and the third-highest operating margin in company history. This agility is crucial in a fluid business environment, allowing the company to navigate challenges effectively.

    02

    HAMR Technology Ramp

    The company is actively ramping its HAMR-based Mozaic drives, which represent the industry's only 3 terabyte per disk products. Volume shipments to qualified customers are progressing, with a broader range of cloud customers expected to begin shipments in the second half of calendar 2025. One major CSP qualification is nearing completion, and several others are in flight, indicating an appreciable increase in HAMR product shipments in coming quarters. HAMR is considered pivotal for extending TCO advantages for hard drives and meeting exabyte demand through technology innovation.

    03

    Mass Capacity Demand & AI Tailwinds

    Nearline cloud demand remains robust, with revenue and exabytes up nearly 10% sequentially and almost doubling year-over-year in Q3, despite prior tight supply. Hard drives continue to store approximately 90% of the bits in large-scale data center deployments, which are vital for AI workloads requiring access to massive datasets for training and inference. Emerging text-to-video applications are anticipated to revolutionize content creation and significantly increase storage demand, further benefiting hard drives.

    04

    Market Visibility & Build-to-Order Strategy

    Seagate has strong visibility for nearline exabyte demand through calendar year 2025 and extending into the first half of calendar year 2026, driven by ongoing build-to-order agreements with several customers. This predictable demand, coupled with the company's ability to fulfill commitments through a blend of HAMR and PMR products, supports sustained profitable growth and allows for efficient operational planning.

    05

    Tariff Mitigation & Supply Chain

    While current tariff announcements are expected to have minimal direct impact on fourth-quarter financial performance, Seagate is actively monitoring the situation. The company is evaluating strategic solutions, including geographically shifting certain manufacturing processes and aligning supply chains, to mitigate potential long-term risks associated with trade policies and maintain operational resilience.

    06

    Capital Allocation & Debt Reduction

    Seagate retired approximately $536 million of debt during the March quarter, reducing its net leverage ratio to 2.1x, with further reductions expected in the coming quarters⏳. The company's capital allocation strategy prioritizes continued debt reduction, followed by share buybacks, while maintaining its quarterly dividend. Capital expenditures remain disciplined, representing roughly 3% of fiscal year-to-date revenue.

    AI-generated summary of the company’s earnings call. Not investment advice.