Seagate at Bank of America Conference: Bullish on Cloud Demand

On Tuesday, 03 June 2025, Seagate Technology PLC (NASDAQ:STX) participated in the Bank of America Global Technology Conference 2025. The company expressed a positive outlook, driven by strong demand from the cloud sector and strategic technological advancements. Despite uncertainties in AI demand timing, Seagate remains optimistic about revenue and profitability growth. However, the company also faces challenges like managing potential inventory buildups.

Key Takeaways

• Seagate anticipates revenue and profitability improvements throughout 2025.
• The data center sector accounts for over 80% of Seagate’s exabyte consumption.
• HAMR technology is expected to drive cost reductions and margin expansion.
• Seagate plans to restart share buybacks soon, with a new $5 billion authorization.
• The company aims to maintain CapEx within 4-6% of revenue.

Financial Results

• Exabyte and Revenue Growth Alignment: Improved alignment due to strong demand and reduced oversupply.
• Data Center Contribution: Over 80% of exabyte consumption comes from data centers.
• Incremental Margins: Seagate targets 50% incremental margins when revenue surpasses $2.6 billion.
• Operational Expenses (OpEx): Long-term target set at 10% of revenue.
• Capital Expenditures (CapEx): Expected to stay within 4-6% of revenue.
• Debt Management: Close to achieving a debt target of $5 billion.

Operational Updates

• Build-to-Order (BTO) System: Provides visibility for the next three to four quarters, helping manage demand cycles.
• HAMR Technology Transition: Progressing with 30TB, 36TB, and 40TB drives, aiming to lower costs and expand margins.
• AI Deployment: Utilized for quality control, manufacturing, and R&D.
• Internal Laser Production: In-house laser production for HAMR drives to stabilize supply and reduce costs.

Future Outlook

• AI Impact on Demand: AI is expected to significantly boost exabyte demand, though the timing is uncertain.
• Revenue and Profitability Growth: Seagate anticipates sequential revenue growth and profitability improvements each quarter.
• Exabyte Share Enhancement: Focused on increasing exabyte share with higher terabyte per unit products.
• Industry Profitability Focus: Committed to enhancing profitability across the industry.

Q&A Highlights

• HAMR Pricing Strategy: A cost-per-terabyte discount will be offered to promote adoption.
• Competitor Landscape: Competitors are expected to introduce similar products in the coming years.
• Downturn Management: Plans to reduce manufacturing output early using the BTO system to mitigate downturn effects.
• Debt Reduction and Share Buybacks: Actively reducing debt and planning to restart share buybacks soon.

For a deeper dive into Seagate’s strategic insights and financial outlook, refer to the full transcript.

Full transcript - Bank of America Global Technology Conference 2025:

Wamsi Mohan, IT hardware supply chain analyst, Bank: First day here again this year in San Francisco. I’m Wamsi Mohan. I cover IT hardware supply chain for the bank. Delighted to welcome Seagate again to our conference again this year. We have EVP CFO Gianluca Romano, who most of you are already familiar with, if not all of you.

Thank you so much Gianluca for taking the time to do this.

Gianluca Romano, EVP CFO, Seagate: Thank you very much, Wamsi. It’s always nice to be here with you.

Wamsi Mohan, IT hardware supply chain analyst, Bank: Fantastic. Yeah, likewise. So you just hosted a pretty bullish Analyst Day and I would say, looking at some of your targets, they were materially about the last time you had spoken about any of these numbers. And so maybe for context, it would be helpful to hear from you what has changed in the industry from your perspective that is enabling this kind of financial profile?

Gianluca Romano, EVP CFO, Seagate: I would say in general, the change is a better alignment between exabyte growth and then revenue growth or something that we have not seen in the past. In the past, we have always seen a good increase in exabyte. We had few slides indicating the past growth. Every year exabytes were growing, but we didn’t have the same increase in revenue. Main reason was an oversupply situation in the industry.

Moving from a peak level of client business into a very important cloud business, but starting from a very small exabyte number. It took a certain number of years. And of course, when you have oversupply, all the benefit that you get from your technology transition generating more terabyte per unit is actually mainly moving to customers, it’s not really staying with the company. A few years ago, we had this crossover between the cloud business and the client, but client was still big, was still 50% of our business. Right now, data center is above 80% of the exabyte and we don’t have oversupply.

The industry doesn’t have oversupply. I would say demand is strong. Demand is above supply at this point in time. And this allow us to better align what is extra byte growth and revenue growth for the future.

Wamsi Mohan, IT hardware supply chain analyst, Bank: No, that’s great. And as you’ve noted, right, like a significant part of your bids are now coming from the airline and you noted sort of this demand dynamic that continues to remain very strong. A lot of investors we speak to sort of talk about how long this has persisted. So maybe can you give us some context on how many quarters you’ve seen this? Is that even the right way to look at this because you’re also coming out of an unprecedented downturn that we’ve had.

So maybe just some context to help people think through the sustainability of demand.

Gianluca Romano, EVP CFO, Seagate: I’ll say the business starting to improve maybe nine quarters ago. So it’s been a long improvement, a long cycle. The main reason is demand in the data center continues to grow. And as I said before, because demand is above supply, the industry is pushing some of this demand out into the future. And this is keeping for the cycle going longer.

We have started a build to order two years ago. This is giving us very good visibility for now maybe three, four quarters. The build to orders are strong. We said already in January based on what we already have in our orders, we see an increase in revenue and we see an improvement in our profitability for the entire calendar ’25. And of course, now that we are almost in the middle of calendar ’25, we’re already negotiating contract for next calendar year.

So everything is progressing as we were expecting and as our customers were telling us, build to orders are good and we continue to move our product roadmap through higher capacity drive and this will continue to improve our profitability.

Wamsi Mohan, IT hardware supply chain analyst, Bank: That’s great. In the past also, I think outside of the oversupply situation, there was also maybe not just from an exabyte, but also from a unit perspective, there has been more cyclicality, so to speak. And can you help us just think through the next couple of years, the increase in to keep up with the increase in demand? What is your thinking around how that supply keeps up with that level of demand growth?

Gianluca Romano, EVP CFO, Seagate: Yeah, I would say if you look at the number of drive that we sell in the last several quarters has been fairly stable. What is changing is the content per unit. Now we increase the terabyte per unit. This is mainly coming from HEMR, especially now in the next several quarters. We think that moving from the last product of PMR, that was a 24 terabyte in the CMR version to the 30 terabyte HAMR, to the 36 terabyte HAMR, which is intermediate between the three terabyte per disk and the four terabyte per disk and then the 40 terabyte that we start qualifying next quarter.

This technology transition will be enough at least on our side to generate that increase in exabyte that keep up with the increase in demand. We don’t see an increase in unit for the industry. That’s why I know when they ask me, oh, talk to us about market share. But we are very different market share. But it’s unit market share, there is exabyte market share, there is revenue market share.

Now I think because demand is strong, all the units will be sold in the industry. The exabyte generated by those units can be different depending on which company is moving to which level of terabyte per unit. So depending what product you have developed, what product is qualified, you can sell a little bit more or a little bit less of exabyte. So the exabyte market share can be a little bit different than the unit market share, but I still believe all the units will be sold. And then the revenue is more related to exabyte.

So that part depend more from the technology transition and the product development. The unit market share, I have not seen changes in the past. I don’t see changes in the future.

Wamsi Mohan, IT hardware supply chain analyst, Bank: Okay, great. If we think about the exabyte growth that you highlighted at your Analyst Day, can you maybe help us just think through decomposing that a little bit? Like how much of that would you say is what has been historically traditional demand versus maybe incremental coming from AI or any other way that you want to construct that?

Gianluca Romano, EVP CFO, Seagate: AI will be a big part of the increase. It’s difficult for us to time exactly when the big volume will happen. Often refer to what we were talking several years ago about autonomous driving. Many people were saying, in five years no one is going to drive. Well, it takes a little bit longer.

But it’s true. In the future, probably we will use an autonomous car. AI is the same. It’s probably taking a little bit longer in terms of adoption or compared to what other people are thinking. But now they believe in one quarter everything can happen, the full transition of AI.

It will take longer, but it is huge and it’s going to change how we work, how we live, how businesses are running their business in general. So it will be a huge part of the increase. We are maybe a little bit conservative in what we have in our model right now, because now we want to see more evidence, but it is going to happen. It’s going to be a huge part of our exabyte sold in the future.

Wamsi Mohan, IT hardware supply chain analyst, Bank: Maybe just to digress for a quick second on AI, like how is Seagate actually deploying AI internally? Any color you can share there?

Gianluca Romano, EVP CFO, Seagate: Yeah, we use AI in many parts of our business. We use AI for quality control. We use AI in manufacturing. We use AI in other parts of organization. Investor relation is using AI.

Accounting is using AI. Of course, in our R and D, all our coding, there is a lot of AI. But this is still relatively small compared to what will be in few years from now where the vast majority of our business, all our jobs will have a part of AI. It will not be full, but a big part will be AI. Simplification, going faster, being more accurate, or we need to give the time to AI to improve, not to do the learning if you really want to use and trust the AI results.

Wamsi Mohan, IT hardware supply chain analyst, Bank: Great. So now maybe just coming back to the business and thinking about the margin guidance you gave around incrementals of hitting 50% incremental margins when your revenue goes over 2,600,000,000.0 So what are some of the underlying dynamics that create that incremental margin for you?

Gianluca Romano, EVP CFO, Seagate: I would say the two main drivers will be the transition to higher capacity mix. So continue to move up in the product that we sell in term of capacity per unit. When we go up in capacity, our cost per terabyte of cost decline and we keep a good part of that cost decline to improve our profitability. So that is one of the main drivers. The other one is pricing.

We are starting a certain pricing strategy about two years ago and now it has worked well. As you know, we didn’t really increase pricing too much. Was a very reasonable increase every time we renegotiate the contract with a customer for the same product, we ask a little bit higher price. Is very predictable. I know we don’t think it’s disrupting at all for our customers, but it’s giving us a little bit more profit every time we go into the negotiation.

So those two drivers are the more important. Now in the past, of course, when the volume was very small, the growth of gross margin was even faster. But we had a lot of unused capacity and utilization charges. So when the volume goes up, you have that improvement in the gross margin percentage. But of course we don’t want to go back there.

It’s not a good place to be, but it gives you as a growth in gross margin, gives you a little bit of boost. Right now, of course, we are full so we don’t have that benefit anymore, but we still have the benefit of the technology transition and of the pricing strategy.

Wamsi Mohan, IT hardware supply chain analyst, Bank: Okay, that’s great. So just to step back for a second, right? I mean, the demand is largely coming from cloud. You’re saying that you have good visibility because of BTL. So how does this change the way that you will manage or the industry can manage through any deceleration in demand patterns?

Gianluca Romano, EVP CFO, Seagate: We are a technology industry and there are cycles in the industry. We always think about that. The important is how you can manage the cycle. If you are surprised by the cycle, it’s very complicated because you enter into the down cycle with a lot of volume in your inventory that you are producing expecting a certain demand that finally doesn’t realize. And when you need to move that volume to customers that they don’t really need it, of course you have a pricing impact.

So this is the second benefit of build to order. We will have visibility of when those orders will start to decline in term of volume. So we can reduce our manufacturing and get ready. If you enter into a down cycle with a lean organization and a lower level of inventory, of course you will have the impact of the volume decline, but at least you will avoid the impact of the price decline. And that is a much better way for the industry to manage the cycles that every technology industry we will see in

Wamsi Mohan, IT hardware supply chain analyst, Bank: the future. Maybe just on the build to order. So this has been ongoing now for several quarters. You also noted some visibility even as far out almost a year from today. So when you think about the pricing around for the visibility that’s been provided out, like how are you thinking about that pricing trajectory?

And then maybe you can also comment on for HAMR in particular, as you ramp HAMR units, how should investors think about the dollars per terabyte for HAMR?

Gianluca Romano, EVP CFO, Seagate: Yeah, at our earning release in January, we talked a little bit about the calendar ’25 and we said, based on the build to order that we already have, we see revenue increasing sequentially every quarter and we see profitability to improve every quarter. And we have confirmed that in any meeting after that. And we will talk about CANDA ’26 in the near future. But of course, the bill to order are usually two, three, four quarters, the majority are between three and four quarters. So of course we start to have visibility on the first part of the calendar ’26.

Hammer will not be different than other products. For our customers finally, the benefit comes from buying one unit with more terabyte because that is a TCO improvement for them. So they need to spend some money and put some resources in qualifying a new product. So generally we give a little bit of the cost per terabyte discount to them. So we incentivize customers to move to the next product.

But the vast majority of that saving that is coming from our development and our improvement and our investment, it has to remain with Seagate.

Wamsi Mohan, IT hardware supply chain analyst, Bank: So as you think about the relative sort of margin profile across your nearline drives, across PMR and HAMR, and obviously your HAMR is also progressing from 30 to 36 to 40 over time. When you think about the relative margin profiles between these, how accretive can HAMR be? And you just mentioned TCO. So can you give us some indication of like, how much of that sort of cost down can you actually share with your customers?

Gianluca Romano, EVP CFO, Seagate: Yeah, we had a slide at our investor day showing actually the cost per terabyte decline going from our last PMR product to the 30 terabyte MR product to the forty, fifty, 60. So you can look how big will be the decline especially when you move from the 30 to 40 and the 50. But it’s already a price decline, sorry, cost per terabyte decline going from TMR to the 30 terabyte. But the improvement comes actually much bigger later when you go from 30 to 40. You have basically the same drive with the same 10 disk, but with the same number of disk, with the same number of heads.

Basically the same bill of material in term of units, but you add 10 terabyte per unit. And so that is 30% more capacity per unit. And then when you go from 40 to 50, now you have the same and you have a 25% improvement. So there is of course a huge cost decline. Of course, not all the mix move immediately from PMR to 30 terabyte and from 30 terabyte to 40 terabyte and 50 terabyte.

No, but it’s always a different mix on what we sell. Now every segment has a different requirement in terms of capacity. But that is the cost decline we can get with the top product. As I said before, need to incentivize a little bit customers to move and to spend the money for the whole. But we will keep a very good part of that cost decline to improve our profitability.

Wamsi Mohan, IT hardware supply chain analyst, Bank: That’s great. One of the questions we often get is just as you think about and you comment a little bit about share, but given sort of where you are with HAMR relative to your primary competitor, shouldn’t investors think that you should have materially higher exabyte share as you go through the next year and a half or so supposedly at the time when maybe your competitor also has a 40 terabyte hardware drive. Why would be a reason that that would not happen?

Gianluca Romano, EVP CFO, Seagate: Well, as I said before, no, I think demand is strong and therefore I think all the units will be sold. So I don’t see a big change in the unit share, but we will have the product with a higher terabyte per unit. And those additional terabyte that we can produce and put in our units will probably generate an improvement in the exabyte share and therefore not in the revenue share. But no, our main competitor is saying they will have a similar product in the next maybe couple of years. So again, at a certain point, maybe that share will realign.

It’s absolutely not a problem for us or for the industry, I think, because demand is above supply. So all the units will be sold anyway. And of course it’s better to have an higher capacity and we strongly compete on product development. Everyone wants to have the best product, the product with the highest capacity per unit because that gives you a little bit of boost in term of revenue and exabyte. But it’s not really impacting the result of the individual company, I think.

Wamsi Mohan, IT hardware supply chain analyst, Bank: What would you say around just sort of the sustainability of going back to cloud demand because it is such a material part of the story. How can you get comfortable that there isn’t a lot of inventory that is sitting somewhere that we’re going to get caught surprised by?

Gianluca Romano, EVP CFO, Seagate: Well, as I said before, the build to order should be the main way for us to look if customers are needing for more volume or less volume. And as I said before, the build to orders to this kind of 25 are growing. So we see a need for more volume, not less. So we don’t have the impression they are building inventory. And when in the quarter we eventually have a little bit more production available and we put in the market, that production is sold very, very quickly.

Even if actually the price per terabyte is higher than what we have in the bill to order. So if there was inventory, I don’t think our customers were buying that volume at a higher price. They were maybe sticking with a bill to order because it’s an order, but they were not buying more. But every time we have a little bit more, they buy and they spend more money to buy that volume.

Wamsi Mohan, IT hardware supply chain analyst, Bank: How should we think about like from an OpEx perspective, noted that in your longer term model or your like two year out model, 10% of revs. And when we think about where you are today, what is it that gets you? Is it absolute OpEx dollars in certain areas that you’re targeting? What are the areas where you’re investing maybe? Like how’s that mix shifting over the next few years in terms of to get you to that?

I understand the mathematics of it. Like obviously it’s a lower percent of sales at higher revenue, but anything else that you’re doing under the covers?

Gianluca Romano, EVP CFO, Seagate: I think in general, in terms of resources, we are where we want to be. We went through a restructuring during the down cycle, not only because it was a down cycle, but also because we were already at the end of the PMR technology. We already had developed the last product in PMR and we had developed the HAMR technology. So for many years, we had basically two teams, one working on PMR, one working on a HAMR. When we decide to stop doing the PMR, we move some people from the PMR group into the HEMR group, but we also reduce the size overall of our R and D.

And we have what we need. So we are now, we don’t need to develop a new technology. We just need to develop a new product with the same technology, very similar to what we were doing in the past. So I think we have the right resources in R and D. I think we have the right resources in general for our SG and A.

So in term of number of people, in term of headcount, I think we are good. Of course, every year you will have the annual salary increase. And then every year the company will perform in a different level compared to the expectation we have internally. So the variable compensation can be higher or lower. But in terms of, let’s say, the base headcount, I don’t see a need to increase.

Wamsi Mohan, IT hardware supply chain analyst, Bank: Okay, okay. That’s really helpful. What about on the CapEx side of things? Do you foresee any changes in there?

Gianluca Romano, EVP CFO, Seagate: Not really. No, we have this target of 4% to 6% of revenue since many years. We have been in that range always, sometimes even a little bit lower. I don’t think we need more than that. Now we need to replace some of the old equipment that every year they go end of life and we need to replace with new equipment.

We don’t need more units as we said before. We are happy with that. So we produce ads and media. So the disc, we are happy with our capacity. Don’t think we need more.

Now we think we can produce more exabyte because those heads and media moving into HAMR and moving into the three terabyte per four terabyte per disk, five terabyte per disk will generate more exabyte with the same number of disk and heads.

Wamsi Mohan, IT hardware supply chain analyst, Bank: Can you just also talk about, I think at your Analyst Day, you shared a lot of detail about aerial density improvements, what goes into that and some of the technology improvements that you’re making underway. How far along are you around those technology improvements and is there potential, like what is the potential to do incrementally more around some of integration of some of those underlying components and can that be also a margin driver incrementally?

Gianluca Romano, EVP CFO, Seagate: Yes, we will have improvement in the future as we have done with PMR. There are some more theoretical assumption on what will happen and then there is a reality and the reality is people learn more and AI will help. So even with the same manufacturing processes, you always find a way to be a little bit more efficient. The yield can be a little bit better. Maybe the number of steps can start to reduce.

There are improvements that are now not in our forecast that I think eventually will happen in the future. One of the improvement that we have recently done was the internal production of the laser. Now John, our CTO explained how technically is not done on the wafers. It’s very complicated. We are happy with progress and we will have a good part of our MLDRIZE that we’ll adopt it.

We also have an external source for the laser. So it’s good to have two sources. So we will have a mix of production, some using our internal laser, some using the external laser. I would say of course our internal production has a lower cost. So from a financial standpoint, I’m happy when we sell a drive with our laser, but it’s also very important to have supply stability and being also in charge of supply chain, I’m very happy and very focused on keeping supply stability and business continuity.

Wamsi Mohan, IT hardware supply chain analyst, Bank: Can you maybe just also talk a little bit about, in the context of what you mentioned about downturns earlier, you said hopefully the volatility around that comes down a little bit because you have a better line of sight and you can adjust your output earlier. Could you just talk about this from a financial model standpoint too? Because one of the things that I think people are worried about is just it’s still a cyclical industry. When you go into a downturn with some leverage, both operating and financial leverage, it creates a lot of anxiety for investors. And so what can you do to sort of eliminate at least, I mean, it sounds like at least on operational part of leverage, you’ve got more confidence in handling that.

What about the financial side of leverage and what’s the right sort of debt levels for you over time?

Gianluca Romano, EVP CFO, Seagate: Well, as I said before, almost every technology industry has cycles. So we expect some cycle also in our disc, possibly not as bad cycles that we had in the past because of what we discussed before. I think for a long term investor should not be a problem. You stay through the cycle, you know that every cycle you get better. And that is a reward for our long term investors.

If you are a short term investor, well, you need to choose where, when you enter and when you want to exit. It’s your choice. I don’t think it’s a great solution, but you can always do it. We will manage better because we will have visibility and therefore we can avoid some of the additional costs we had in the past and some of the additional pricing pressure we had in the past. So that we are very focused.

I think to be successful, you always need an industry going in the same direction, having no similar focus. And now I would say in the last several years, this has been the focus of the industry. We compete very strongly on the product, but I think we have a focus on improving profitability for the entire industry.

Wamsi Mohan, IT hardware supply chain analyst, Bank: That’s great. I know we’re almost coming up on time and these sessions this year are only thirty minutes. So it’s really not a lot of time to get into the weeds on a lot of stuff. But maybe if you could just, Gianluca, wrap it up, right? As we think about your guidance and we map that and say, all right, let’s say you grow mid teens and then you put the margin profile that you’ve given us, you can get to $16 plus over earnings power by looking at even your new higher tax rate.

And so as investors think about that and the fact that these cycles are diminished, really have historically traded at a pretty inexpensive multiple, so to speak. So given all that, why shouldn’t you, it feels to me that Seagate is an extremely attractive investment at these levels. Why wouldn’t you lever up maybe a little bit or even not lever up, but do a little bit more of buybacks and sort of do that ahead of when you get all the realization of all this benefit over the next few years?

Gianluca Romano, EVP CFO, Seagate: Well, we will do share buyback. As we said at our investor day, have an authorization, a new authorization. So up to $5,000,000,000 that we can use whenever we think is the right time to use it. I also said, no, we need to take the opportunity right now also to strengthen our balance sheet. And we are almost there.

Now we wanted to reduce the debt. We enter into the prior cycle with more than $6,000,000,000 of debt, was a bit too much. And so we are now fairly close to our target of 5,000,000,000. We did a couple of transactions in the quarter, so we should be very close to the $5,000,000,000 to where we want to be by the end of the quarter. During the prior cycle, we also had to stress a little bit our working capital.

So we took the opportunity in the last three or four quarters to rebuild the working capital. And I think we are almost there. So I would say, as I said, one week ago, ten days ago, I think fairly soon is probably the right time to restart with a share buyback.

Wamsi Mohan, IT hardware supply chain analyst, Bank: Okay, amazing. Well, we’re just about out of time. So John Luca, thank you so much for all your time and insights. Really appreciate it.

Gianluca Romano, EVP CFO, Seagate: Thank you very much, OMS.

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