Seagate (STX) Q3 FY26 earnings call: guidance and Q&A

How does Agentic AI specifically benefit HDD demand, and does it impact the mid-20% nearline exabyte CAGR target?

Agentic AI workflows frequently reference enormous datasets and create new unstructured data, such as video, which hits storage tiers hard. This contributes to rising demand, reinforcing confidence in the exabyte growth targets.

“When you do that, you may actually reference enormous data sets to draw your conclusion and you may actually create new data that needs to be propagated out in the world to the extent that that's unstructured data, video data, that's where it's actually hitting the storage tiers fairly hard.”

asked by Erik Woodring · answered by William Mosley

Discuss cost reductions, the HAMR transition, and expected blended cost reductions with the second-generation HAMR.

Cost reductions come from leveraging existing platforms and minimal changes in bill of materials for new HAMR generations, focusing on aerial density. The mix shift to higher capacity drives and full manufacturing utilization are key drivers. The transition to HAMR is faster than expected, with Mozaic 4 driving significant terabytes per unit increase without adding material costs.

“now that we have second generation HAMR now, we have a very good increase in terabytes per unit. And of course, this is the driver, not adding more below material to the hard disk, which is the main driver for the future cost reduction.”

asked by Asiya Merchant · answered by Gianluca Romano

Given strong pricing, why shouldn't pricing accelerate further as new contracts come into play through 2027?

Pricing trends are expected to continue, driven by rising market demand. The company's strategy focuses on locking in predictable pricing with customers through build-to-order contracts. Fiscal '27 contracts are finalized, and the company is confident in sequential profit and revenue improvement based on these agreements, without changing its pricing strategy.

“We have now finalized our build-to-order for our fiscal '27. So we see how the pricing is trending, how, say, there are no changes to our pricing strategy. We are continuing to execute the strategy that allowed us to increase profitability for the last 12 consecutive quarters.”

asked by Samik Chatterjee · answered by Gianluca Romano

How will the strong free cash flow be deployed beyond the next 12 months, and what is the status of pricing for fiscal '27 capacity?

The focus has been on debt reduction, with remaining convertible debt to be addressed soon. After that, the majority of cash will likely go towards share buybacks. The vast majority of nearline capacity for the next four quarters (fiscal '27) has pricing locked in, with a very high percentage allocated.

“We still have about $400 million of the convertible which is open, but we will probably address this quarter or next. So a little bit of a reduction in debt and then I would say the majority will probably go to share buybacks.”

asked by Wamsi Mohan · answered by Gianluca Romano

Is the mid-20% exabyte growth target achieved by increasing capacity per unit or increasing the number of units shipped?

The primary focus is on increasing capacity per unit (aerial density), not total units. This approach is more capital and manufacturing efficient given the complex supply chain and long lead times for critical components. Investing in aerial density innovation yields more exabytes globally than trying to increase unit production.

“Our people are very much focused on increasing the aerial density, the amount that comes out of the entire fleet, that's the way we believe gets the most exabytes into the world.”

asked by Krish Sankar · answered by William Mosley

What drives the gross margin outperformance (70% incremental vs. 50% target), and is 70% the right framework for fiscal '27?

The outperformance is driven by stronger-than-expected demand, better pricing, and a faster mix transition to HAMR, particularly the 40TB drive. While the company has executed better than planned, they don't commit to 70% incremental margins for fiscal '27, but see no reason why similar trends shouldn't continue.

“Now I say pricing was a little bit better. This was a mix transition, a little bit faster. So now we can leverage more on the 40 terabyte drive. So I'll say, yes, I'm looking at what we have done in the last few quarters, and I don't see a reason why we should not do the same in the future.”

asked by Amit Daryanani · answered by Gianluca Romano

Given reports of a Head supplier seeing 40% YoY growth from US HDD companies, how does this reconcile with Seagate not growing units?

Seagate is not growing total units. The increase in head demand likely reflects a higher average number of heads per drive, as higher capacity drives use more heads. HAMR cycle times are also longer, requiring more heads to maintain current unit levels, otherwise, units would decrease.

“So first order, Tim, no, we're still not growing units. I mean, inside of the mix, there may be more heads inside of the drive, right? So the average number of heads per drive, which we don't talk about very much, may be increasing.”

asked by Timothy Arcuri · answered by William Mosley

Is Mozaic 4 the model for 20TB HAMR drives, and when might Seagate pursue lower capacity HAMR products?

While Mozaic 4 could theoretically enable 20TB (5-disk) drives, the demand for high-end Mozaic 4 is currently so strong that pursuing lower capacity points is not economically attractive. Mozaic 5 will further change the economics, potentially allowing for more cost-efficient lower capacity products later.

“The problem we have is demand is so strong in the public cloud that we don't have enough volume to also implement this lower capacity base -- strategy based on the 4 terabyte per disk. So again, possibly, we will address a little bit later out in time.”

asked by Ananda Baruah · answered by Gianluca Romano