All right. We're going to get started here. It's 10:45 A.M., so welcome to day two of the TMT Conference. My name is Erik Woodring. I lead the hardware coverage here at Morgan Stanley. Before I get into our speaker, let me just read this disclosure. Please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your sales representative. So I'm delighted to be joined today by Seagate CFO Gianluca Romano, a kind of constant at the TMT Conference, been around Seagate for over half a decade now. But, Gianluca, thank you for joining us today. Thank you. 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. Easy enough. So, let's, let's start from the top. It's been about five weeks since you reported December quarter earnings. You guided to about 10% sequential revenue declines for the March quarter, and we'll get into some of the factors behind that. We're about two-thirds of the way through the quarter now. Can you, can you just maybe give us an update on, on how the quarter's shaping up versus your expectations? Any of the kind of underlying drivers of the quarter changing from a revenue perspective? And we'll go from there. Yeah. No, the quarter is shaping out as we were expecting. As you know, we have some limitation on the supply, so that was limited a little bit our opportunity to have a higher revenue in the March quarter, so it's coming out as we were expecting. I'll say as the midpoint of our guidance range in terms of revenue. The problem, as you know, has been solved, so we will not have this supply impact in the future quarters, so we are anxious to move after the March quarter. Okay. Perfect. And then, how about just the margin side of things? You know, you've talked about gross margin expansion, in the March quarter. Is that still how we should be thinking about profitability? And kind of any guardrails you'd be willing to put around how much sequential expansion we could be thinking about gross margins, this quarter? Yeah. No, we said at the earnings release, we expect gross margin to be slightly better in the March quarter compared to December, no, despite the lower volume. Of course, when you have lower volume, you have a negative impact on your cost side. But we also said the cloud is actually growing in March compared to December, so the mix is going the right direction. The pricing action is still going in the right direction. So when you put all together, plus and minuses, we still believe we will have a slight better gross margin. Okay. And then, maybe last one on the quarter, just, OpEx, kind of $290 million quarterly run rate, nothing changed. I think OpEx maybe will come out a little bit lower. Easy enough. You know, I'm gonna circle back to maybe some things around the June quarter, but you know, let's stay on March, which is, you know, you and your competitor guided to sequential revenue declines in the March quarter. You know, a big kind of point of feedback or pushback that I get is, you know, that elicits concerns about the cycle, so to speak. Mm-hmm. What gives you enough confidence to kind of sit here and say, really, what you're seeing, what Seagate is seeing in the March quarter is transitory, this'll dissipate, you know, after we've seen multiple quarters of sequential, nearline growth? I think that's kind of like one of the key concerns on investors' minds. I would say for us, cloud is still growing in the March quarter compared to December, so we have not seen a change in the trend. The other segments, of course, are more impacted by this lower supply. Maybe we could have done even better in the cloud, but it's still growing sequentially. Then when you go longer, as we discussed in the earnings release, we have, of course, a visibility in terms of the book-to-bill, especially in the nearline space. This gives us confidence for an estimate of a better sequential revenue through the calendar year and also, of course, a better profitability. All right. Perfect. So, I realize that you, if you want to, you can, but you might not wanna guide for the June quarter quite yet. But do you have any better visibility now that we're into March about how we should be thinking about that kind of $200 million of customer demand that you were unable to fulfill in the March quarter because of the supply issue? How do we think about the recapture of that $200 million? Any kind of more solidified ways in thinking about that for us? I think the majority of that demand is still there, so we'll probably move into future quarters. As you know, especially in the cloud space, demand is above supply. So say supply is more the driver for the volume that we ship and I think the industry ship in that segment. So no, again, we are positive looking at our build- to- order plan, that we can grow sequentially through the calendar year, mainly because with the transition to HAMR, we will be able to produce more exabyte with the same units, and that will give us opportunity to take a little bit more of a demand between now and the end of the calendar year. Maybe to that point, again, looking beyond kind of March and June, again, to reiterate, you've guided to sequential growth and kind of revenues, margins, earnings power through calendar 2025. I realize build-to-order is probably the primary factor that impacts that. I guess my two questions are there any other factors that you can speak to that help give you the confidence to come out and kind of guide that way loosely as we sit here in early March? Second, when it comes to build-to-order, can you help us all understand kind of like how much of your capacity shift is really build-to-order that you have visibility on through, say, calendar 2025 or however you can frame it for us? Yeah. I would say the confidence is coming from the fact that, you know, we see the demand and we see our opportunity to produce more exabyte sequentially, again, without adding unit capacity, but just with the transition from high-capacity PMR to MR. And with that transition, we will be able to produce a little bit more exabyte, and this is giving us the confidence to give indication of what we expect for the next, you know, three or four quarters. In the short term, you have a higher level of book-to-bill, of course, and then when you go a little bit longer, that amount tends to decline, but it's still a fairly high level. So, the confidence is, I would say, high on the calendar 2025. Okay. Calendar 2026, we will discuss more maybe in a quarter or two. Okay. But still, you're talking about calendar 2026 and. Yes. The middle of calendar 2025, so. Yes. Okay. You know, another kind of big point of pushback or investor concern is just thinking about the longevity of the cycle, right? In 2019, and I'm really focusing on the nearline market here first and foremost, you know, that 2019 cycle lasted about 13 quarters. There was maybe a pause halfway through, related to COVID, and you could make maybe some arguments that it got copied towards the end. Obviously, that's what led into the subsequent down cycle. You know, right now, again, we're six quarters through kind of the inflection off the bottom. Where are we on this cycle? Does this cycle, because of build to order, because of what you're hearing from your customers from a demand standpoint, is there more longevity to this cycle than prior cycles, just kind of given the supply-demand imbalance? Or, why would this cycle look different maybe? In theory, you are right. No, we are not taking all the demand that is available today as an industry because supply is below demand. In theory, this demand just shifts out in time and keeps the cycle going longer. I would say in general, all the technology industries have some kind of cycles. The fact that you can push this demand out in time should reduce at least the level of the cycle. You push a little bit out the peak, but you reduce also the trough of the cycle. Right. And how do your customers resp ond to that? And really what I'm getting at is if I'm a customer and I say, "This amount, I need this amount of capacity," sure, you can get it through build to order, but if I can't get enough of it, you know, is there a level of frustration that you hear coming from customers, or how do they respond to maybe some of the actions that the industry has taken to, again, elongate the cycle, focus on profitability and cash flow? I don't see a lot of frustration. No, I think demand is above supply, but it's not so much higher than, you know, drive frustration. And you know, we are part of the CapEx of our customers, so they buy hard disk drive to install in data center that will be used also in the future. Now, you have a part of what they buy that are used to refresh current data center, and they're used basically immediately, and some that are used for new data center, so they need to build the data center, install the drive, and then have the utilization rate coming up. So I don't see frustration. I think a good environment in terms of supply demand. So far, we are not concerned about reaction from customer because there is not enough supply in the industry. I think it's just a matter of pushing some of that demand a little bit out in time. Okay. You know, I realize that a couple days of market volatility doesn't necessarily impact the way any customer thinks, and obviously build-to-order helps to protect you. But when you speak to customers or when they speak to you, you know, is the mindset shifting at all for them when it comes to data center build-out, when it comes to the need for, you know, addressing the needs of storage growth? No, I don't think that what is happening, what recently happened, in the market is due to a change in view of how data will grow and how high the need for data storage will be. No, I think they are completely different issues. No, data is growing very rapidly. AI will be an additional driver to that growth, on top of all the other applications that you already have. I don't think there is any relation between the two. Okay. Okay. Let's shift the conversation to pricing. Again, with this kind of build-to-order approach, you've been able to take pricing for several quarters now, you know, on a like-for-like basis, realizing there'll be mix shift towards higher capacities. But on a like-for-like basis, you know, do we still think we're capturing sequential growth in pricing in calendar 2025? And if I were to say that's low single-digit sequential, is that a fair characterization of how to think about the pricing environment? We are not changing our, you know, pricing strategy. No, as you know, we started almost two years ago at this point to increase slightly our pricing every time we were renegotiating a build to order. This is still going on. I don't see a reason to change this trend. The industry is very focused in improving profitability. Profitability was fairly low about two years ago. The industry refocused. Now right now we are getting the benefit from that action and, you know, focus on producing only what is needed. Right now, you know, with the demand that is above supply, you know, you can produce all what you can, and you are still a little bit short. No, I don't see any reason for the change. As we said in the past, we don't go for very high price increases. They are actually fairly small, not very impactful to our customers, and this is what we want. No, we don't want to impact them. We want them to be successful, but we also want to improve our profitability. Right. If we think about, kind of going back to the, the cycle and your point on, on kind of the supply factors here, you know, there, I think the peak for you guys was about 150-160 exabytes per quarter. You know, Dave has said publicly, you know, mass capacity exabytes can grow something like mid-20%. My question really is, is it possible to achieve that rate of growth with kind of capacity constraints and really just driving exabyte growth primarily through mix shift? Like, is there a dampening effect to that, or, you know, is there enough visibility and, and your customers willing to take on these higher capacity drives? Realize HAMR has an impact on the story such that that's still a fair way of thinking about mass capacity exabyte growth. Yeah. I don't. I think this model of mid-20% growth for nearline is a good model, is a good way to think about the industry in the next, you know, two, three, five years. Technology can drive that growth or very close to that growth, especially with HAMR. No, HAMR will allow us to go from, you know, 3 TB to 4 TB to 5 TB and continue on that growth. So we can, depending from, you know, how you move your mix, you know, how much of your units you move on the highest capacity drive, you can generate a good increase in exabyte that we produce with the same units. So we think we will be fairly well aligned. Now, every year is a bit different. No, if you have, you know, if you look the last two years, the industry grew much more than 25%. But of course, it's part of the cycle. Right. Okay. Let's shift over to everybody's favorite topic. Obviously you anticipate this one, HAMR, so you've already qualified your first cloud customer. Where do we stand with qualification for the remaining hypers, major hyperscalers and any hiccups you've encountered during the process as you've worked with them that would kind of elongate the process as you've previously described it? No, the qualification is going well. As we said, we will have multiple customers qualified by the middle of this calendar year, so just a few more months, and then we will ramp HAMR volume, and you will see a much higher volume of HAMR product, even a different capacity of HAMR product, starting the second part of calendar 2025 and, of course, even more in 2026. We also said that by the end of this calendar year, we will have a 4 TB per disk product, so potentially 40 TB drive, available to start qualification, so very little bit of compression between the 30 TB and the 40 TB, mainly because the 30 TB was qualified a little bit later than what we were expecting. Right. But we never stopped working on the 40 TB. So there are different teams working on different platform. So right now we have this transition that is happening fairly rapidly. Probably in future we will not go so fast. But no, for this year and next year, you will have a fairly quick transition. Right. And so, we'll get back to kind of that shift in areal density. But you know, again, a point that I hear back is, you know, sure you've qualified HAMR with your first cloud customer. You know, it's still kind of low levels of adoption. I get questions about yields. And so maybe my question for you is what are you hearing from your customers, be they qualified or going through the qualification process, about the potential adoption of HAMR drives? You know, do you start small and build over time? Do they need dual sourcing? These are all the kind of questions I get, and I'd love to maybe reframe that question. No, for them there is a better TCO if they can buy a higher capacity drive. So HAMR is the highest capacity drive. So they want to qualify HAMR technology, not because of the technology, but because it's a higher capacity drive. They want to move as fast as they can to buy the highest capacity drive that is possible and that is available in the market. The point is how much we have available and when we ramp. Because, you know, we have a certain advantage on this technology, you know, we want to qualify a certain number of customers before we ramp high volume. No, we don't want to have the risk that we ramp a product and then remain in inventory for, you know, two, three, four months. So we have the time to do it in, you know, in a good way. Of course, qualification is a main focus, but we already qualified in all the important segments. We are qualified in the cloud. We are qualified in enterprise OEM. We are even qualified in video and image application. Mm-hmm. We have the right configuration for all those segments, and we just need to go through a normal call with customers. Then, because we already have build-to-order in place, the only change is the mix. When they are qualified on HAMR, they can buy a certain volume that we will produce on HAMR. What we don't produce, they need to buy on PMR. So, let's get back to the technology innovation point that you were talking about. So, we've qualified. Correct me if I'm wrong, but low 30 TB disk drives. Again, can you kind of go through the timeline for all of us? I know at earnings you talked about 36 TB, but the timeline from low 30 to 36 to 40 and beyond, how to think about that either from a shipment or a qualification timing perspective. Yeah. So we have qualified the low 30s, and we are sampling 36, and we also said, very quickly by the end of this calendar year, we will have the 40 TB out to start qual, so as I said before, very compressed schedule. Customers are qualifying different capacity depending when they go through the qual time. You will see this even with a 4 TB per disk, so we are not jumping from 30 TB to 40 TB to 50 TB. There are products in the middle. Mm-hmm. But the platform, the only change in the platform is from 3 TB to 4 TB to 5 TB. But when you have the 3 TB per disk and you have like a year or two years' time before you go to the new platform, you have development on that platform. So you go from 30 to 32 to 36, and then you move to 40. This is why we call that, you know, 3+ or 4+ or 5+ because there are multiple products, multiple capacity on basically the same product. Right. So we are doing this with the 3+, and we will do the same with the 4+. Okay. Okay. Let's bring the topic of AI into the fold here. You know, you've talked about your mass capacity business being an enabler and a beneficiary of the AI trends. I think the concern would be mixed shift to SSD, just questions about power consumption, performance, I/O speeds. You know, how do I think about AI in the context of that mid-20% mass capacity, CAGR? Is that incremental? Just, I know it's hard to parse between an AI workload and a non-AI workload, but how do we think about the incrementalism of AI relative to how you've kind of already told us the world looks like from a capacity growth standpoint? As you said, it's difficult for us to understand where the data is coming from, you know, the data that is going into our hard disk because AI or a different application, they require the same kind of hard disk drive. So we don't ship a certain drive specifically to AI where we can, you know, we can separate the two. It's actually the same drive. There are high, very high capacity drives. We believe that knowing that, mid 20%, there is of course, a good volume coming from AI, but that percentage could go up if the adoption of AI is really strong and is a little bit happening faster than what we are expecting. Now, we are maybe a little bit prudent on the time of the adoption. We are not prudent on the impact that AI will have on storage. But we have seen in the past with new application there was an expectation that the new application immediately is adopted by everyone. And actually it was not the case. So we are a little bit more prudent on time, but the impact will be huge. And the storage that will be associated to AI and that will end up on a hard disk is also very, very important. Okay. I wanna make sure that we bring a number of different topics here into the fold outside of just kind of capacity growth. So first one, gross margins, obviously a critical part of the story. They're at a 10-year high. You're kind of guiding to gross margin expansion through the remainder of calendar year 2025. What is helping you get to these gross margins at your lower revenue rates? I know that you've told us that you can do that, but what are the underlying specifics of how you're able to accomplish that? Maybe let's start there. I'll say mix is very important, not differently than in the past when you move up in capacity and you move your volume to that higher capacity. You have the opportunity to increase profitability. Pricing, of course, the pricing action that we started almost two years ago is going on and is continuing, so the combination of the changing mix and the improved pricing is, of course, driving a lot of that gross margin improvement. And now that we start to get ready in terms of full supply, we don't have anymore the unused capacity additional cost that we suffered for a certain number of quarters in the past. So all this is actually going in the direction of generating better profitability. And we see this continuing, at least for this calendar year where we have visibility. And again, when you say back half this calendar year, it's, you're just not willing to talk to calendar 2026 quite yet. Yeah, we will wait until we have more of a better visibility. Yes, and maybe I'll ask a question beyond just calendar 2025 and give it a go and see what you have to say. Just when we take all these factors, mixed pricing, supply, yields, underutilization costs, internal cost efforts, you know, how do we all think about the incremental room for gross margin upside? Your old target or your kind of pre-existing gross margin target is 30%-33%. You know, is there a new target that we should be thinking about for gross margins at this point? Obviously, your competitor has come out and kind of staked their claim in the ground. How should we think about it for Seagate? I think our objective is continuous improvement. We don't have a specific target. You know, we want to continue to improve our profitability. No, we have a good understanding of what other components in the different applications can generate in terms of profitability. We think we are very important components in the data centers, and so we deserve a better profitability, and we, we are still continuing to go in that direction. I'm gonna pose a hypothetical to you before we get into kind of the last handful of questions, which is, you know, let's say that the cycle turns and things turn a little nasty. I'm not saying that'll happen, but hypothetically, work with me here for a second. If there were potentially, you know, share losses or anything to that degree, you know, how would you respond to that? And I think I know the answer, but I just wanna kind of confirm, which is, you know, historically there might have been some action taken around pricing to regain that share. Would your focus remain on primarily maximizing profitability and cash flow? Is that kind of like the change? I wanna call it a change in mentality, but I don't wanna put words in your mouth. Is that how we would think about it? The short answer is yes. The build to order should give us visibility of, you know, eventually when the volume, you know, in the cycle could start to decline. When we have visibility, we can, you know, prepare our manufacturing, reduce our volume, avoid to enter into the lower part of the cycle with a lot of WIP, 'cause when you have a lot of product in your WIP, you need to move them out. Mm-hmm. And try to move product to customers that are already full, of course, has an impact on pricing. So this is why for us it's important to have the book-to-bill visibility not only for the upcycle, but even for when the cycle eventually turns. So we can reduce manufacturing in advance, produce less volume. Right. But keep the pricing and manage the cycle in a different way. Right. Okay. Let's go back to OpEx. I know, I know you touched this. So March quarter slightly below 290. How do we think about beyond March? Can you remain below 290? I know there was some variable comp that was stepping up. So as we just think about maybe the remainder of calendar year 2025, what's the OpEx run, quarterly OpEx run rate we should think about? Yeah, I think between 280 and 290 is a good range. Easy enough. You know, something, something that is changing in the world is just the global minimum tax and what companies are gonna be forced to pay. Historically, you have a very low effective tax rate. You know, help us understand where that tax rate has to go in light of global minimum tax. I assume, you know, FY 2026 is when we maybe need to think about it starting, but what does that rate go to or what's the how should we all be contextualizing? Yeah. So the global minimum tax is 15%. So as you said, starting FY 2026, now even Seagate will be subject to that global minimum tax. So we expect to align more or less to that tax rate. Okay. Super helpful. Then, let's move to capital allocation. You know, you've said the goal is to get to kind of $5 billion of gross debt. Then we can kind of think about buybacks returning to the model. Two questions: is, has that viewpoint changed at all? I assume not, but making sure I'm checking on that. And then second, how do we think about the timing of that kind of delevering and then the potential of buying back stock? Yeah, we did a, you know, a big step forward with a new level of debt in January. You know, we reduced our debt by about $500 million. So we still have about $200 million to go. Probably, you know, next quarter or the following quarter, we will take care of that debt. No, probably, you know, in the second part of FY 2026, we will look at restarting the share buyback. Okay. In general, no, during the upcycle, we also have dividend increase. As you know, during the downcycle, we protect the dividend. During the upcycle, we tend to increase the dividend. So I do not exclude that, you know, usually at the October board meeting is where we, you know, go through the request and the authorization for increased dividend. So that, of course, assuming the cycle is continuing as we believe, you know, could have, could happen again. Okay. And any thoughts you can share on maybe longer-term leverage targets? So getting to $5 billion is kind of near term. Where would you like to bring leverage, whether that's the absolute value of debt or a leverage ratio? Yeah, maybe we will discuss better to be more, as the analysts say. In the past, we have not had a specific target in terms of leverage. Of course, if you look at our EBITDA level today, and the run rate of that EBITDA compared to, you know, $5 billion of debt is a very low leverage, and probably we go even lower in the near future, but we will think that it'll be more about having a target. Mm-hmm. But again, today, when we think about the $5 billion is a number that we believe we can manage in any part of the cycle. Mm-hmm. During the upcycle, during the downcycle and therefore, no, it's more a dollar target than a leverage target. Okay. Before we end, I want to make sure we kind of touch on one of the recent proposed acquisitions of Intevac, a key supplier of yours. You know, can you just walk us through kind of the rationale there and what the benefits of that deal would bring from you and any implications for the broader HDD landscape? Yeah, I don't think without implication for the broader HDD space. That is a supplier that was mainly working with us. Right. For a certain number of years, so it was making sense to us to integrate that operation inside Seagate. How about, you know, I refer to the industry as an oligopoly, but that there's clearly two leading players. If the HDD industry has kind of structurally become more profitable and predictable, is there the potential for any newcomers, or new entrants into this market? How do you think? I would say it's very difficult to enter into the hard disk market. First of all, the production, the manufacturing is complicated. You know, you have head production that is in a form of wafer fabrication. You have the media production. You have the substrate production. You have a lot of components that you need to buy through the supply chain, and technology has evolved, so if someone is trying to enter into the hard disk and develop a PMR drive, they probably don't go very far, and to develop HAMR takes many years, so I think it's very, very complicated. Okay. Okay. Maybe, with the remaining time, again, we went through a lot, but maybe what's the closing message you wanna send everyone right now, as we think about Seagate? Anything that might be underappreciated or not, or not fully understood by the market? I don't know if it's not understood, but I think it's a reality that the industry has changed compared to, you know, several years ago. I think there is a clear focus on improving profitability that was really way too low in the past and that the technology is important, that hard disk is a main component, especially in the high-capacity applications. So especially in the cloud, in the data center, even for other segments, but I would say mainly for those segments, and therefore it's a component that is extremely important to our customers because finally our customers are selling storage to all of us and to all our companies and to government agencies, and they cannot do it without having hard disk. Perfect. We'll leave it there. Thank you. Thank you so much. Erik