Seagate: Fiscal 2Q23 Financial Results

Comments

This quarter, the company was deeply impacted by the very large decrease of the WW HDD market in the last 3-month of 2022.

Revenue at $1.9 billion came in slightly above the midpoint of guidance range ($1.85 billion, ±$150 million), down 49% Y/Y and 8% Q/Q.

Stock soar 10.9%, closing at $69.01.

Relative to market conditions, 3 primary external factors have been impacting business over the past several months. The Covid-related economic slowdown in China, the work down of nearline HDD inventories among US cloud and global enterprise customers under a more cautious demand environment, and macro-related disruptions primarily impacting consumer-facing markets.

These factors remained at play during 2FQ23 and weighed heavily on the mass capacity markets, resulting in a 10% sequential decline in mass capacity revenue.

HDD products trend

Total HDD shipments were 113EB in 2FQ23, down 5% Q/Q, with HDD revenue declining 6% sequentially to $1.7 billion.

Mass capacity sales were offset by a slight seasonal improvement in the legacy market. Shipment into mass capacity markets totaled 97EB, down 7% Q/Q. Of this total, 82% were derived from nearline products, shifting to cloud and enterprise OEMs. Nearline shipments of 80EB were down 6% Q/Q and roughly 30% of firm's recent high.

On a revenue basis, mass capacity sales were $1.2 billion, reflecting the nearline trend, as well as lower demand in the VIA market.

20+TB family of nearline products, which represented close to 60% of nearline exabyte shipments in 2FQ23 and is expected to trend even higher in 3FQ23.

20TB product features 2TB/disk capacities and Seagate have started to ramp the volume of 22TB products deployed on 2.2TB/disk capacities. The 20+TB 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 2FQ23, about 35% of nearline exabyte shipments were deployed as SMR drives. The manufacturer is executing plans to deliver another 10% gain in per disk capacity for this PMR platform to offer drives in the mid- to upper 20TB range. It was nearly 4 years ago to the day that the firm first shared our lab results demonstrating 3TB/disk capacity.

It has demonstrated capacities of 4TB/disk in its recording physics labs. In the current market environment, it been taking advantage of its reduced factory utilization to accelerate cycles of learning around HAMR productization. It will be shipping pre-qualification units to key cloud customers in the coming weeks. It now expect to launch its 30+TB platform in the June quarter, slightly ahead of schedule.

Within the legacy market, revenue was $421 million, up 8% Q/Q, 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 enterprise system business following a very strong September quarter.

While system sales were down sequentially off of a very strong September quarter, the company captured a record number of new customer wins with its Corvault products.

HDDs from 1FQ16 to 2FQ23

FY ending in June
* in $million

Earnings call transcript