Seagate Technology (STX) investor relations material

Industry trends and demand drivers

• Data storage demand has shifted from low-capacity, underutilized drives to high-capacity, fully utilized drives in data centers, driven by AI and large unstructured data sets, especially video and real-time data ingestion.

• AI workloads are highly diverse and unpredictable, with rapid growth in exabyte demand expected through 2026 and 2027, fueled by expanding training and inference use cases.

• Build-to-order models are now standard, providing four to five quarters of demand visibility and improving revenue predictability, with strong customer demand for future capacity.

• Capacity expansion focuses on technology transitions (higher areal density per platter) rather than new factories, targeting mid-20s% CAGR in exabyte growth.

• Sovereign and neocloud data centers are emerging but currently represent a small direct customer base, with most demand still routed through hyperscalers.

Technology innovation and roadmap

• HAMR (heat-assisted magnetic recording) is a key differentiator, with millions of drives shipped and qualifications achieved at major cloud service providers for Mozaic 3+ and 4+ platforms.

• Technology transitions from 3 TB to 5 TB per platter are prioritized to maximize exabyte output and cost efficiency, with rapid qualification cycles expected for future Mozaic generations.

• Areal density improvements drive cost per terabyte down, supporting margin expansion as HAMR adoption crosses 50% of exabyte shipments by late 2026.

• Future innovation will build on HAMR with advances in photonics, lasers, and integrated circuits, with ongoing research in silicon and AI-driven optimization.

• Most R&D is organic, but acquisitions are considered if strategic technology opportunities arise.

Financial performance and outlook

• Revenue and margin predictability have improved due to build-to-order and strong demand, with gross margins approaching 50% and incremental margins around 70%.

• Pricing per terabyte has increased, driven by demand and limited supply, with customers willing to pay premiums for higher-capacity drives.

• Operating leverage is strong, with OpEx held flat and no immediate need for significant expansion, even as revenue targets $20 billion by 2028.

• Capital allocation priorities include restoring supply chain health, reducing debt, and returning 75% of cash to shareholders through dividends and buybacks.

• Flexibility remains for R&D investment and small technology acquisitions, but focus is on executing current technology transitions.