Perfect. Well, why don't we go ahead and get started? We'll stay on schedule here. So I'm Aaron Rakers with Wells Fargo, IT Hardware and Semiconductor Analyst, and pleased to have with us for a quick discussion Gianluca Romano, Executive Vice President and Chief Financial Officer of Seagate. So first of all, Gianluca, thank you so much for joining us this morning. Maybe before we go into my list of questions, I want to. Yesterday there was an 8-K announcement out. I'd like to. I've gotten a handful of questions from some investors. Can you level set us what the message is? I think David had made a comment about some trepidation maybe in terms of dynamics into the next quarter, but just level set us on the key points of that announcement. Yeah. Thank you, Aaron, for inviting us here. And before we start, I will be making forward-looking statements today, and you can learn more about the risk associated with those statements on our website. Yeah. So yesterday we issued the 8-K with two news. One is a very good news and refers to our qualification of the HAMR product in the cloud segment. It took a little bit longer than what we wanted, but we now have a very, very strong configuration of the product that can be used in the cloud. And we, of course, are going to qualify more and more customers between now and, let's say, mid of calendar 2025, so in the next couple of quarters, and then ramping a good volume of HAMR. So today we are the only company in the world with this technology. We are the only company in the world shipping today 30 TB drives, so we are very pleased with this achievement. You may remember we actually qualified HAMR in different segments in prior quarters. We started with video and image application, and then we qualified customers in the on-prem data center segment, and finally, we had the right configuration also for the cloud, so major achievement for the industry and, of course, for Seagate in particular. At the same time, we also talked a little bit about a manufacturing issue we had recently that is impacting our volume production in the March quarter, not in the current quarter, not in the future quarters, but for the March quarter, we have a lower WIP coming out, so it's reducing our opportunity to have a certain level of volume that we were previously expecting. So those are the two news that we discussed yesterday. Right. So just to maybe double-click on that a little bit, so the $200 million impact, are you guiding March quarter down? Is $200 million, that's a transitory issue. There's no follow-on effect into the June quarter, just. Yeah, but it's no follow-on impact in future quarters. We have not guided March quarter. I would say if you start from the current quarter, we have guided $2.3 billion. Usually, when you go into the March quarter, you have two different trends. One is on the nearline that is growing, as we now discussed in the past. We continue to see that growth. You also have a low seasonality for video and image application and the legacy business. So now you can estimate how much is a growth in nearline and how much is a lower seasonality in video and image application and the legacy. Now, if the two trends tend to offset each other, you will then have $200 million of impact from this lower production. Yep. Okay. And again, what that reflects is basically bringing equipment back online. So you've done a very good job over these last several quarters of implementing a build-to-order dynamic in the business model. That's very different than what we would have talked about a couple of years ago. But basically not having the ability to supply is more of a discussion about the upside opportunity, being able to capitalize on upside. Just characterize that. Yes. Yesterday Dave said, "No, we have enough volume to support what we have already committed with the build-to-order." Unfortunately, we will not be able to get the normal upside that we get in the quarter. So there is a fairly substantial volume that is part of the build-to-order. But every quarter we had a little bit of an upside that actually normally at higher price. So specifically into the March quarter, we will not be able to support that upside. So, on the flip side of this is that the actual maybe positive underlying factor is that it's more of a supply side discussion. It's not a demand discussion at all. It's just being able to fulfill. You'll be tight. The industry's tight. It's not demand. I guess some of that demand will shift to farther quarters out in the future, but again, no, demand is continuing to grow. This is why we have a little bit of this problem. If you look at nearline space, September quarter a year ago, we were shipping 55 EB in a quarter. Last September, we shipped 110, so we doubled. It's not so easy to put back that capacity in place, and we are chasing volume every quarter. This quarter, that segment will be even higher. Now, our guidance in revenue is higher, and all the upside is basically coming from nearline, so more volume this quarter compared to September, so we are still chasing volume, and so we have anticipated all our WIP and accelerated as much as possible to go to finished goods and support demand. But now putting back in line equipment has taken a little bit longer than what we were anticipating. So we have this little bit lower WIP that will impact then the March quarter. That's perfect. So it's read, it's heads, and wafer stuff. Okay. So moving past that, and maybe somewhat tied to it, but this characterization of demand, durability, visibility in terms of nearline, the persistent question is always like, "Well, how is this different?" Right? Do you really have good line of sight in terms of these drives that are obviously recovering from a demand perspective over these last couple of quarters, are getting deployed, and are we not concerned at all that there could be an inventory build that you have to another correction in front of us? Just talk about that. So we have this build-to-order methodology, and we have orders for, let's say, in the nearline space, I would say covering all the calendar year 2025. So we have good visibility, and that is a base volume. As I said before, there is always a certain part of the volume that gets added during the current quarter. So it's upside during the quarter. So I think the industry will have cycles in the future. Now, this is a technology industry. As any technology industry, you will have cycles. But it's very important to us to have visibility and able to anticipate a little bit of the cycle. So with the build-to-order, we should have that visibility, and at a certain point, we should see build-to-order start to decline in terms of volume, and so decrease the volume. And we can anticipate in our manufacturing how to reduce our cost, keep a very high level of profitability, and then go through the down cycle that hopefully will be not as deep as it was in the past because we can anticipate. So we don't need to move all the WIP we already have to our customers and pushing that extra inventory again to them. We can anticipate the cycle and then reduce the impact of the down cycle and then enjoy again the up cycle. So we'll not be a trend up forever, but data is growing forever. So the long-term growth is there forever. It's just that will not be linear. We'll have to go through cycles. So just to be clear, so you've got very good demand visibility through calendar 2025 based on your build-to-order. You're not necessarily saying we won't go through some cycles at some point in time. It's just how you manage through that is structurally changed. How much of your nearline business is split between cloud versus maybe traditional system enterprise OEMs? That has changed in the last maybe seven, eight quarters. So even before, I would say before going into the down cycle, the two segments were fairly similar. So now we were saying it's about 50/50. Not every quarter is the same, but in general, they were fairly similar. Right now, because cloud recovered faster than enterprise OEM, we're probably around 70/30. Now, we don't know exactly how this will play out in the near future, but in general, when you go longer, we expect cloud to continue to grow faster than any other segment in the storage business. Okay. So back on the supply side of the equation, maybe first I'll just put this out there. Remind us again of the lead times of a nearline drive. I think people maybe underappreciate how complex these drives actually are as far as production cycle. And basically what I'm going to ask you is with 109 EB of capacity shipped in this most recent quarter on, I believe, exabytes, you're getting back to peak level. I mean, so remind us again of how much you can supply today? And I think there's always this push and pull around bringing capacity on. Is that a good thing or a bad thing perception-wise from an investor perspective? So how do you think about that supply-demand balance? Yeah. I would say bringing capacity back, so meaning equipment that we already have, is probably good now because it's fairly cheap capacity. So you can have a very good financial return from those equipments that you are putting back. You already spent the money in the past. After that, we probably don't want to put more capacity. So we want to use what we have, but we don't want to go above that level. So we think we can go back to the level of exabyte we had before the down cycle, so around maybe 150, between 150 and 160 max. That is the right level with the current mix. Now, producing, the because what we produce is as a media. So with the current mix, we can produce as a media for a total of 150 EB, 160 EB. And then what is the mix? When we transition more and more from the current PMR technology to the HAMR technology that we have just qualified with the same number of SMR media, we can generate more exabytes. Our manufacturing footprint can remain exactly the same, but we can start to generate more exabytes. It's just a matter of mix, not a matter of adding capacity, more equipment, greenfield, more people. We don't need that. We just need to move more and more of our mix to HAMR. In terms of nearline, I think our peak was around 120 EB. Last quarter, we were not very far from that number. This quarter, as we guided higher and we said this increase in revenue is coming from nearline, we will be, of course, higher in volume. I would say we are already at the level of that peak. But now the industry has changed. As you know, this industry is always moving out from legacy and into the nearline space. So we continue to transition the same 150 EB-160 EB out from the legacy, more into the nearline space. That's perfect. The qualification on the HAMR drive, just to go down that path a little bit more. The 30 TBs, the 3 TB per platter drives qualified. I know that we entered this year, and I think everybody appreciates that the call took longer than what we thought. I think you entered the year with kind of the view that you'd ship a million HAMR drives first half of this year. Should I think about a million drives first half of 2025? Is that fair? Or is it now that we've got the call behind us, is that the volume ramp we should think? Yeah. I would say we have, of course, a certain level of inventory of HAMR because we have produced during this time. We have produced different configurations. So we have some volume in this configuration for the cloud, but of course, we are starting already to ship this quarter, and that we will ship much more next quarter. We also have different configurations that we didn't qualify for the cloud, but we qualified for other segments. So we will move into the video and image application, on-prem data center. Those customers are consuming a much lower volume. So that part of the inventory will take a little bit of time to go out, but it will go out along the next several quarters. For the cloud, we need to produce more because we need to produce this configuration. And so we will sequentially increase the volume in the March quarter, in the June quarter, and after that. Most important for us is to qualify more customers because at a certain point, we will not have enough volume of HAMR for all the cloud demand. But if it's only one customer, now we are limited to that customer demand. So we will sequentially increase demand. And around mid of calendar 2025, when we will have a certain number of cloud customers qualified, we should see a good step up in ramp because now at a point we will have several customers. So we can ramp much more, and they will, of course, be very interested in buying highest capacity drives. So with this call now announced, it was consistent with what you said on the last earnings call, which is the volume is mid-year calendar 2025. So not to put you on the spot, but a million drives, let's not throw out a number at this point. Yeah. We don't give numbers for several reasons, even for competitive reasons, but as I said before, we are shipping today 3 TB per disk, 30 TB drives. Only company in the world doing this, and next quarter, the volume will be much higher. June quarter will be higher, and after that, we will have a step up in volume, big step up, depending from how many customers will be qualified and how much volume we can produce of that configuration that is good for the cloud. Yep. Again, congrats on getting the lead guy qualified. Now, all of a sudden, you're going to have the perpetual question of what about cloud number two, three, four, etc.? What's the path to those guys? Is the learning curve now behind you and these other guys happen in short order? Is it the next two quarters where maybe cloud number two comes on? Any thoughts around that? Oh, more than one. Now, we said in the past, we started qualification with the majority of the cloud customers in the U.S. and China already in the September quarter. So this is why I'm saying between the September quarter when we started and probably mid of calendar 2025, I expect a good number of customers to be qualified. And therefore, we can ramp much higher volume of HAMR. I'm a financial analyst. A good number is something more than two? Absolutely. Okay. Okay. Fair enough. The 3 TB per platter drives, as we think about the scaling of HAMR, we think about not just 3TB because we don't stop there. We go to 4 TB per platter. How soon do we think about 4? And do you always stick with 10 platter stacks, or does Seagate have a roadmap that has 11 platter stacks? No. So we don't need to go to 11 or 12. It's an additional complication and also in terms of yield and manufacturing. So we think that 10 is a good number for us at least with HAMR because we can continue to increase the density of each disk. And so you will have, after this 30 TB drive, so 3 TB per disk, the new product, 4 TB per disk will be in about a year from now. So this time next year, we will have the product available. But we always talk about 3+ TB per disk because between now and the 4 TB, you will see an evolution of the current product. So today's 30 TB, every quarter, you will have some units that are higher capacity. So we are continuously increasing the capacity per disk. So, when we are ready to go to 4 TB per disk, it will not be a jump from 3-4. It will be maybe at that point 3.6-4, and you will have a mix of what we sell. Now, we will have some units at 3 TB, some units at 3.2 TB, some units at 3.4 TB, depending on how much we can produce, but it's a continuous evolution of the improvement of the areal density per disk. That's a function of leveraging shingled magnetic recording or SMR, or is that? No, that's different. That's a choice from the customer. So we will increase the areal densities per disk, so the capacity per disk in both versions, CMR and SMR. HAMR has no difference than the prior technology. You can sell HAMR disk in the CMR version or SMR version. It's a customer preference. If you want to run many different applications with a certain performance, you probably prefer the CMR. If you go on certain kind of application, you care more about the size of the capacity and less about the performance, you go with SMR. But the product is exactly the same. You basically just run a software at the end of the process to go from CMR to SMR. Now, we have sold millions of SMR drives in our history. I mean, it's something that now is nothing new, actually. SMR is 10 years old. It's a choice. So whatever the customer prefers, we will change the drive from CMR to SMR if it's what they want. So now that we're talking about HAMR and a volume ramp, the question that comes up almost every call, and I'm sure you guys prep a ton for this, is HAMR's accretion to gross margin. And so is it accretive at 3T per platter? Do we wait to maybe more of an inflection at whatever, 3.6? How do we think about the guide path of that accretion and gross margin that HAMR could bring? It is accretive right now, and it will be more and more impactful when we go up in capacity because the bill of material will not change so the 3T, 3 TB per disk, 30 TB per unit, has the same bill of material of a 4 TB per disk, 40 TB per unit so of course, there is a huge cost per terabyte reduction going from 30 to 40 so if you're already, the cost per terabyte is already better compared to PMR today at 30 TB so 3 TB per disk, just imagine how much better would be at four and then at five so of course, it will be much better in the future, but already right now, it is accretive to gross margin. It has to be up in volume. So we need to have a certain number of drives sold to see that in the P&L. Now, if you just sell 50,000 drives, it doesn't really make a change out of the 12 million drives that we sell or 12 or 13 million that we sell. So it has to go, we need to give the time to ramp the volume and sell it, but it is positive to gross margin. So back to that point of mid-year 2025, kind of that starts to be the inflection point on the accretion. I think so. I mean, I think every quarter you will see some impact. But of course, the higher the volume, the bigger is the impact. Okay. So I've been covering the hard drive industry for a long time, and I continue to tell a lot of people, I've never seen structural price increases. We've seen transitory price increases, I guess one time in my career covering the space. But how are you thinking about price increases and resetting, obviously, the structural gross margin level of not just Seagate, but it feels like the industry? I think the industry is focusing on the right things, which is improved profitability. It's not volume. It's not market share. It's working on producing the best product at the lowest cost and pricing it very well in order to receive a fair profitability. A year ago, I think on September last year, our gross margin was 20%. It's not fair for this kind of product, and I think the industry moved in a different direction, which was stop pushing on moving volume and start requiring a certain return from what we produce, and in four or five quarters, we increased our gross margin from 20% to 33%. And in the nearline disk, it's actually higher than that, it's a mid-30s%. So it's a good trend. It's still not where we think it should be, and this strategy is working well. That means every quarter or every time we renegotiate a build-to-order, we increase a little bit our price. Now, the like-for-like pricing for the same product is going up, and this is giving us and the industry in general a much better profitability, but we are still not even close to where we think we should be, and so we continue with strategy. Demand is strong. Supply-demand balance is very good, so we continue, and I don't think we are in any way disruptive to our customers because the industry strategy was to increase pricing, not in a very aggressive way. It's just a few percentage points every time you renegotiate the contract or every quarter when you can. It's not disruptive. We are a relatively small part of the CapEx of our customers, so this increase, I don't think, is disruptive to them. Just so I can kind of think about my model a bit, that 2%, who knows what it is, 1.5%, 2%, 3%, whatever number is that you just referenced. But that's on a per unit basis, not a per capacity basis. So the per capacity will come down. The mix? Now, when you mix up in capacity, in general, you have better gross margin, lower cost, and a little bit lower price. But it's a good thing for the industry to scale up in capacity per unit because gross margin tends to improve. In that envelope of price up, gradual, it sounds like you're going to correct me if I'm wrong. It It sounds like there's durability of that to continue to play out over the course of a handful of quarters still. Absolutely. The cost per terabyte is declining and will decline even more when we move more production to HAMR. And as I said before, the cost per terabyte is going the direction we like, which is when we renegotiate the contract, the like-for-like pricing is actually a little bit better. It feels to me like if you can execute on the cost down curve consistent, right, the price up, the delta between the two is really the incremental margin. That's a fair model exercise. I think it's a good one. Okay, so I'm going to shift gears real quick. We talked a lot about gross margin. We can all try and think about where that ultimately goes. OpEx level, you have some variable comp that's coming back into the model, but remind me again where we should think about that playing out. Yeah. I think OpEx, first of all, you need to look at resources, so headcount. I think we have the right level of headcount. We decreased our headcount a lot during the down cycle, mainly because we were able to at that point focus only on HAMR technology. In the past, we had basically two groups working on the PMR technology and HAMR technology. We don't have new product on PMR technology anymore, so we just focus on HAMR. So we have reduced our headcount in R&D and focused only on HAMR. So I think we are at the right level of headcount. In the past, we were as high as maybe $400 million a quarter in OpEx. We went down to about $250 million during the down cycle. $250 million, of course, was not including any variable compensation because during the down cycle, of course, we were not giving any variable compensation to employees. Right now, we have variable compensation, and we are at about $285 million. So I think this is a good level for our OpEx. When you go out into the future, I would say now the headcount will probably remain substantially the same. Of course, we need to consider the annual increase or the inflation impact, but not increasing resources. So I would say more or less this level should. That $285 million a quarter. Okay. So we can kind of think about what that means on an op margin and EBITDA basis as well. At that level with 3%-5% CapEx to revenue, I'm going to generate a good amount of free cash flow. Remind us again on it. Sounds like take the debt a little bit down, but to me, if I paint the scenario out, it looks like you're going to be in a pretty good position to kind of re-engage on a capital return strategy. Yes. We have not changed at all our shareholder return strategy. We have always focused on dividend first and then share buyback. For the dividend, we have increased our dividend during the up cycle and then protected our dividend during the down cycle, so we actually just raised the dividend after the October board, and we protected our dividend during the last couple of years of the down cycle. We also want to reduce our debt, as you say. We are now at $5.7 billion of debt. I would like to go to something around 5. We have a maturity in January for about $500 million that we will repay, and then we will address the other about $200 million later in the next few quarters. After that, with the free cash flow available, we will restart again on the share buyback. So not this fiscal year, but I think sometimes maybe during the next fiscal year. Next fiscal year, after June. So when we think about that, when you think about what you just laid out, what's the right mindset of your thought of how much cash you need to run the company? What's a right level of operating cash or liquidity, if you will? I'll say in terms of liquidity, we said in the past about $2 billion of liquidity, I think, is a good level for us. Of course, this includes the revolver, so cash and the revolver. Yep. Okay. With all of those dynamics in mind, I want to just ask you kind of on a news that we saw last night, not from you guys, but there was a system vendor we talked a little bit about earlier that announced a hyperscale win in flash. How do you think about the long tail of hard drive versus flash encroachment? I think I tend to agree that there's clearly a growth dynamic for both in the enterprise market. But how do you think about that? I agree with you. I think there are great opportunities for both technologies to continue to grow. They are used differently in the cloud. So the storage is on hard disk. And when you need to run the application, so the compute part, the analytic part, the AI part, you move the data from the hard disk into the flash. And in a different environment where you have the DRAM, the HBM, the CPU, the GPU, you run your application. When you have created something new with that application, if you like it and you want to save it, you send it back to hard disk. So in particular, for AI, there are two major benefits for hard disk in particular. The first one is you need the more data you can access, the better result you have using AI. So the retention period is becoming longer. Now, before, people and companies had some strategies in terms of their retention period for data, but it's becoming longer. That means more data stays on hard disk, and second, people and companies and government are just starting now to use AI, so when AI will start to produce a lot of new data for them and that new data is valuable, they will want to store it, so back to our hard disk, so this is why AI is very positive to us. There are two different impacts, but they're both very helpful to us. So the final thing I'm just going to ask you is it's been a while since you guys had an Analyst Day, right? I think it's February 2021. You guys set long-term margin targets at that point, correct me, 31%-33%, I think. And you made some changes, right? You accelerated some or extended some depreciation and stuff like that. But is the thought that it's time to kind of reset, recalibrate that long-term model? Is there an Analyst Day that you think? We will probably have a new model as the next Analyst Day. I would say right now, we don't really have a target. I think we have an opportunity to continue to improve our profitability. We think it's fair for us to receive a certain level of return from the huge investment that we have done in the past and we are continuing to do it. Now, this product is very complex. It's very high technology and is very much needed in the data storage and in the cloud space. So we are running our strategy, reducing our cost, trying to get the best price possible in the market, always being a good partner to our customers, so always not being disruptive. And this is working fairly well. So we are continuing to go in that direction. But now, at next Analyst Day, probably we will have a full modeling, not only in terms of gross margin, but also in revenue growth expectation, operating margin, and of course, finally, EPS, which is the most important. Okay. Gianluca, thank you so much for joining us. Appreciate it. Thank you very much. Perfect. Thank you.