Skip to content
    STX
    Earnings call· Dec 2025(Q2 FY26)

    Seagate Technology Holdings plc STX

    Jan 27, 2026 Source

    Executive summary

    Seagate Technology Q2 FY26 — Record Profitability and HAMR Ramp

    Seagate delivered a record Q2 FY26, driven by strong data center demand and successful HAMR technology ramp. The company exceeded top and bottom-line expectations, achieving record profitability and exabyte shipments, while maintaining supply discipline and improving its financial position. Management anticipates continued sequential improvement in revenue and profitability throughout calendar 2026.

    Highlights

    5

    • Record-breaking quarter with financial results exceeding both top and bottom line expectations.

    • Non-GAAP gross margin expanded to 42.2%, up 210 basis points sequentially, driven by pricing strategy and high-capacity drive mix.

    • Non-GAAP EPS reached a record $3.11, up 19% quarter-over-quarter.

    • Exabyte shipments were 190 exabytes, up 26% year-over-year, with average nearline drive capacities rising 22% year-over-year to nearly 23 terabytes.

    • Strengthened financial position by retiring $500 million in gross debt and generating $607 million in free cash flow, the highest level in 8 years.

    Guidance & targets

    10
    CategoryTargetConfidence
    March quarter revenue
    $2.9 billion, plus or minus $100 million
    high materiality
    High
    March quarter non-GAAP operating expenses
    approximately $290 million
    medium materiality
    High
    March quarter non-GAAP operating margin
    approach the mid-30% range
    high materiality
    High
    March quarter non-GAAP EPS
    $3.40 plus or minus $0.20
    high materiality
    High
    Fiscal Year 2026 Capital Expenditures
    4% to 6% of revenue
    medium materiality
    High
    Other income and expenses
    remain relatively flat
    low materiality
    High
    Net leverage ratio
    trend lower
    medium materiality
    High
    Revenue and profitability
    sequential improvement
    high materiality
    High
    Mozaic 3 HAMR qualifications
    all global CSPs qualified
    medium materiality
    High
    Mozaic 4 product ramp
    begin the ramp later this quarter
    medium materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Data Center
    Supported by ongoing demand momentum from global cloud customers and sequential growth across the enterprise OEM markets. Cloud and enterprise customers are transitioning to higher capacity drives.
    Shipment volume: 87% of totalExabytes shipped: 165 exabytesExabytes shipped QoQ growth: 4%Exabytes shipped YoY growth: 31%Average cloud nearline capacity: nearly 26 terabytes
    		$2.2 billion28%5%—
    Edge IoT
    Supported by anticipated seasonal improvement for consumer products in the VIA client market. Project broader VIA market to grow over time, with largest growth from VIA nearline products captured in data center end market.
    Revenue mix: 21% of total
    		$601 million———

    Operational metrics

    22
    Non-GAAP gross profit
    $1.2 billionup 14% QoQ and 44% YoY
    Q2 FY26

    Significantly outpacing revenue growth.

    Non-GAAP gross margin
    42.2%up 210 bps QoQ from 40.1%
    Q2 FY26

    This improvement reflects the ongoing execution of our pricing strategy and the growing adoption of our latest generation high capacity products.

    Non-GAAP operating profit
    $901 millionup 18% QoQ
    Q2 FY26

    Driven by strong top line growth and significant financial leverage.

    Non-GAAP net income
    $702 million
    Q2 FY26

    With corresponding non-GAAP EPS of $3.11 per share.

    Tax expenses
    $129 million
    Q2 FY26

    Used in calculating non-GAAP net income and EPS.

    Diluted share count
    226 million
    Q2 FY26

    Including the net impact of 2028 convertible notes.

    Incremental margin model
    50%
    long-term

    Presented at Investor Day, company has done better every quarter.

    Revenue per terabyte
    relatively stable
    Q2 FY26

    Reflecting the effectiveness of our pricing strategy.

    Overall unit capacity
    relatively flat
    Q2 FY26

    While exabyte shipments increased, overall unit capacity remained flat.

    HAMR shipments
    exceeded 1.5 million
    CY25 end

    Continued to ramp, solidifying HAMR technology as a long-term enabler of mass capacity storage.

    Capital expenditures
    $116 million
    Q2 FY26

    Maintaining capital discipline while transitioning and ramping HAMR technology.

    Cash and cash equivalents balance
    just over $1 billion
    end of Q2 FY26

    With ample liquidity of $2.3 billion, including undrawn revolving credit facility.

    Gross debt balance
    approximately $4.5 billion
    exiting Q2 FY26

    After retiring $500 million of exchangeable senior notes due 2028.

    Net leverage ratio
    1.1x
    Q2 FY26

    Improved from prior period, expected to trend lower as profitability and cash generation increase.

    Adjusted EBITDA
    $962 millionup 16% QoQ and 63% YoY
    Q2 FY26

    Used as basis for net leverage ratio calculation.

    Shareholder returns
    $154 million
    Q2 FY26

    Part of capital allocation strategy.

    Exchangeable senior notes retired
    $500 million
    Q2 FY26

    Serves to limit further dilutive impact and optimized cash deployed for future share repurchases.

    Non-GAAP operating expenses
    $290 millionrelatively flat QoQ
    Q2 FY26

    In line with expectations.

    Operating expense as percent of revenue
    10.3%
    Q2 FY26

    Rapidly trending towards our long-term target of 10%.

    Tax rate
    about 16%
    March quarter guidance

    Used for non-GAAP EPS calculation.

    Diluted share count
    230 million
    March quarter guidance

    Used for non-GAAP EPS calculation.

    Nearline exabytes growth
    mid-20%
    long-term

    Expected in financial model.

    Industry KPIs

    8
    MetricValueDetails
    Capital return FCF$607MUSD
    Unit shipments ASPapproaching 23terabytes per drive
    Gross margin drivers42.2%%
    Exabyte bit shipments190exabytes
    Long term supply agreementsfully allocated
    Capacity roadmap qualification7 terabytes per disk
    Revenue mix by end market segment87%%
    Revenue per terabyte cost per exabyterelatively stable

    Orderbook & backlog

    4
    Nearline capacity allocationfully allocatedQ2 FY26

    Through calendar year 2026.

    Orders for H1 CY27begin acceptingcoming months

    Expected to begin accepting orders for the first half of calendar year 2027 in the coming months.

    Long-term agreementsin placeQ2 FY26

    With major cloud customers through calendar '27, strengthening demand visibility.

    Demand growth projectionsdiscussingQ2 FY26

    Multiple cloud customers are discussing their demand growth projections for calendar '28, underscoring supply assurance as highest priority.

    Product announcements

    3
    ProductTypeDetails
    Mozaic 3 HAMR drivesmilestone
    Mozaic 4 productsroadmap
    7 terabytes per disk capabilitymilestone

    What to watch in Q3 FY26

    5

    Mozaic 4 HAMR product ramp and qualifications

    Coming months
    CurrentQualifications progressing well, ramp expected later this quarter
    TargetMultiple CSPs qualified

    Why it matters

    Successful ramp and qualification of next-gen HAMR drives are crucial for continued exabyte growth, cost reduction, and market leadership.

    We expect to begin the ramp of Mozaic 4 later this quarter and have multiple CSPs qualified in the coming months⏳ in line with our plans.

    Q&A highlights

    6

    Given strong supply-demand dynamics, how should investors model incremental gross margins, and is it possible for pricing per exabyte to be flat or even positive year-over-year?

    Management stated that flat to slightly up pricing is certainly possible, dictated by strong demand. They are exceeding the 50% incremental margin model presented at Investor Day and expect continued sequential improvement in profitability.

    “I think flat to slightly up is certainly possible. And that's the way we're really managing it as we talk to our customers. The value proposition of the new drives as they go up 5, 10 terabytes at a time is pretty strong.”

    asked by C.J. Muse · answered by William Mosley

    2 min read5 chapters

    Detailed Narrative

    01

    HAMR Technology Leadership and Roadmap

    Seagate's Mozaic 3 HAMR drives are now qualified with all major U.S. CSP customers, with global CSP qualifications on track for the first half of calendar 2026. The second-generation Mozaic 4 products are progressing well, with ramp expected later this quarter and multiple CSPs to be qualified in the coming months⏳. The company recently demonstrated 7 terabytes per disk capability in labs, aligning with its long-term areal density roadmap to 10 terabytes per disk by early next decade, reinforcing its competitive moat.

    02

    Strong Data Center Demand and Supply Discipline

    The data center end market is experiencing exceptionally strong demand, particularly for high-capacity nearline drives from global cloud customers, with improving trends from the enterprise edge. Seagate's build-to-order pipeline indicates these positive demand trends will continue, with nearline capacity fully allocated through calendar year 2026. The company expects to begin accepting orders for the first half of calendar year 2027 in the coming months⏳, reflecting strengthening demand visibility.

    03

    AI Applications Fueling Storage Growth

    Emerging AI applications, especially agentic AI, are driving a significant increase in data generation and storage requirements for inferencing, continuous training, and model integrity. Hard drives are positioned as essential components in modern data center tiering architectures, anchoring the mass capacity data tier. This ensures optimal balance of performance, capacity, and cost efficiency at scale for the vast majority of exabytes.

    04

    Profitability Leverage and Pricing Strategy

    Seagate achieved record profitability metrics, including a non-GAAP gross margin of 42.2% and non-GAAP operating margin of 31.9%. This was driven by the execution of its pricing strategy and an improving mix of high-capacity drives. The company's financial model demonstrates significant profitability leverage, with non-GAAP gross profit increasing 44% year-over-year, significantly outpacing revenue growth.

    05

    Financial Strength and Capital Allocation

    The company strengthened its financial position by retiring $500 million in gross debt and generating $607 million in free cash flow, marking its highest level in eight years. Capital expenditures for fiscal year 2026 are anticipated to remain within the target range of 4% to 6% of revenue, supporting HAMR transition while maintaining capital discipline. The net leverage ratio improved to 1.1x and is expected to trend lower.

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