Okay. Good morning, everybody. Welcome to the Goldman Sachs Communacopia + Technology Conference. My name is Jim Schneider. I'm a semiconductor analyst here at Goldman Sachs. It's my pleasure to welcome Seagate Technology and CFO, Gianluca Romano, to be here with us today. Thanks, Gianluca, for being here. Thank you very much. Maybe start off at the highest level. Help us understand where you think we are in the build-out of mass storage for AI infrastructure, and where do you see the biggest opportunities specifically for Seagate over the next, say, 12- 18 months? Yeah. Before we start, let me inform everyone that I will be making forward-looking statements today, and you can learn more about the risks associated with those statements on our website. Well, it's a very good question. I would say, if you look at the CapEx of our customers, the growth in their CapEx is signaling still being in a first part of the phase of AI investment. Therefore, for what we are concerned on investment in storage, in data storage, especially in the big public cloud, and more recently, I would say even more on on-prem data center with a fairly good growth on enterprise OEM. Okay, great. With your competitors, you've been able to significantly increase the amount of exabytes being brought to market without really significantly increasing unit production and by just doing the capacity additions rather than unit volume. The industry's been prudent on supply additions. Seems the strategy has really paid off for most of the players, yourself included. How do you think about striking that balance into next year and beyond? In general, I would say it's important for this industry to be disciplined with CapEx and with capacity addition. I think we have been very well-aligned to this discipline for two or three years at this point in time. The business is growing because of technology, not because of more units. We move up in technology with products that have more content inside the box, and that is generating, at the end of the quarter, more exabyte. Finally, this industry is selling exabytes, not units. So what we need to focus is, of course, always looking at supply and demand, and keeping a good balance between the two, and also now strongly pushing on our technology to continue to grow in exabyte year after year. What is your view on sort of the long-term exabyte growth for the industry? You've talked about 20% long-term growth as a target. Clearly, you've been outstripping that for a little while now. Is that still the correct long-term target, or you think we can kind of sustainably ship above that given the sort of current supply balance we have? Well, every quarter is different. Every year is different. We gave this mid-20% CAGR for a fairly long period of time. We said about three or four years. Of course, you need to look at the real exabyte growth, not only in percentage, but also the real number, in absolute number. And of course, when the base starts to grow, you add a lot of exabytes, maybe in percentage is not exactly the same of what you were doing two or three years before, but actually in exabyte is more. So that increased number of exabyte is actually what is impacting positively your revenue growth. So when the base change percentage, it could be a little bit misleading. So I always look more at the absolute numbers than percentages. But this industry, and Seagate in particular, I think, is growing very strongly in exabyte. As we said, this will continue because of the applications that are today and in the future impacting the need for more storage. If I look today where storage is, there is a lot of traditional application, and then there is the new input from video AI, from starting robotic AI. Or if you are here in San Francisco, you see a lot of autonomous driving. All those cars have a lot of camera, and all the data that they collect all day long gets stored. If you multiply San Francisco for the rest of the world, you can just imagine how much data autonomous driving will generate and the need for storage. And this is just one application. Even robotic AI is just the beginning. There is a lot of quality control that is done connected to AI, so that you get an input from AI on how to identify an eventual problem, and eventually how to fix the eventual problem. Some of that is in the form of video, and video consume a lot of exabyte. So there are a lot of new applications, but the common theme of those application is everything is based on data. And that data is very, very valuable. When you have valuable data, the cost of storage is minimal comparing to recompute that data. And that's why storage is growing at the pace that you have seen in the last two or three years. Yeah. You mentioned this idea of absolute exabyte growth for the industry. That's a very interesting notion. I don't think I remember you raising that before. Curious, is there a way to frame the industry growth in terms of absolute exabytes? No, I think you can look at the trend. Because we are growing fairly rapidly in terms of exabyte, the base is really growing. If you look at growing, I don't know, 25% or 30% this year comparing to three years ago, that is maybe a 50+%. If you look at the number of exabyte. When you look at the revenue growth, you need to look at the exabyte that we sell, and what will be the price for those exabyte, more than a percentage, because again, the base is very different, could be a little bit misleading. Okay. If you think about all the things you said that are driving demand for data, you have also been driving a lot of your exabyte growth through technology transitions as well, especially with HAMR, which we will get to. Do you think you continue to support all of the exabyte growth you expect through tech transitions alone? Well, today, this is our view. This is our objective, to go as fast as we can on technology. Technology can give us a fairly good growth in exabyte. When we go from a 30 TB drive to a 40 TB drive, we can have 33% more content. That, of course, is implying a huge increase in exabyte, even if, of course, we do not just produce one drive. There is a big mix. But when you can have that kind of growth through your technology, you can generate a good growth in exabyte overall. That is what finally we sell. We sell exabyte. And of course, growing exabyte and keeping a good balance between supply, demand is what is making this industry very successful. We do not see any reason today to change this strategy. It has given us huge improvements together with our pricing strategy. The exabyte growth through technology and the pricing strategy that we have applied for the last three years allow us to almost triple our gross margin without really impacting our customers too much. We are low to middle single digit of their CapEx. Yeah. If we are reasonable with the pricing strategy, that will allow us to apply this strategy for a very, very long period of time and continue to improve our performance from a financial standpoint. We have done that for 12, 13 quarters. Based on our PO that we already have in place for the entire of our fiscal year, we are at the beginning of the fiscal year. We said we see every quarter of this fiscal year having higher revenue and higher margin. Yeah. This strategy is really working well, and we don't see any reason today to change it. Right. Okay. To that point, you raised the topic of pricing. Maybe wanted to think about that for a second and zoom out for a second. Several years ago, we were talking about mid-single digit declines in price per exabyte. Then we went to flat, then we went to mid-single digit growth. Last quarter, you talked about 11% year-over-year price per exabyte increase. We're comfortably in the double digits now. How should investors think about the cadence of pricing growth over the next few quarters? Should last quarter be a good ballpark to use modeling forward for this fiscal year? No. We changed the pricing strategy about three years ago. I would say there are two reasons why this strategy is working well. The first one is, of course, the supply-demand balance is different than what was four or five years ago. The second is the value of storage is much higher. As I said before, when you have a data and that data has a value for you want to keep it. You don't want to recompute later, because recomputing later will cost you more. There is always that double-check between keeping the data or the cost of recreating the data later. Of course, at least today, there is a huge difference between the cost of storage and storing the data or recompute it later. Got it. Okay. You often reference total cost of ownership as a way to sort of approach the economics of higher capacity drives, at least from the customer perspective. How receptive have customers been to sort of these higher per drive and per exabyte prices? Is it really any different from prior cycles in terms of the way they perceive TCO? I would say the value of data is for sure growing. Our customers, of course, are pushing more and more on optimizing their structure. That means optimizing the storage and the compute, and how much storage to support that compute. Of course, they realize that the value of data is not the same today that was 10 years ago or five years ago. That, of course, is giving us opportunity also optimize our own business, and driving through technology to generate a little bit more exabyte every quarter, and of course, trying to get the target that we discussed before for the CAGR, but also extract some more value for us. Of course, increasing pricing is part of that strategy. As I said before, this is a huge contribution to our gross margin and operating margin at the end. Mm-hmm. Okay. It may seem really hard to imagine in the current environment, but let's say we find ourself in a situation someplace down the line where the industry is overshipped and demand, customers cut orders. What kind of risk in a downside scenario does Seagate see in that kind of eventuality, and what measures has the company put in place from a manufacturing perspective to sort of de-risk that? Yes. Today, we don't see that situation happening. As I said before, we already have purchase orders in place for the next four or five quarters. Yeah. Based on those purchase orders, we actually see revenue increase and profitability improving. We don't see that possible change in trend happening for the next many quarters. I would say now being disciplined with CapEx is, of course, something that will help you at a certain point if the trend change or if for some reason our customer, despite having a very high demand, maybe they cannot build all the data center that they would like to because of some constraint. It can be a power constraint. It can be a delay in building permit, it can be some components that is not fully available. There are many reasons why eventually, even if demand is very high, our customer could have the need to slow down a little bit, the building of the new data center. Pushing that demand out in time is not going away, it's just pushing that out in time. But if that happen, I think the fact that we are very disciplined with the CapEx and how we increase capacity through technology instead of through units, will allow us to eventually manage much better a possible change in cycle. Yeah. Fair. I want to actually, to the point, shift to the technology and product side for a moment. Following the qualification of Mozaic 4 with two hyperscalers you talked about last quarter, what further progress have you made with additional customers beyond those two, and what feedback have they given you on Mozaic 4? It's very good. HAMR is a fantastic technology. It is allowing us to really have very good results, not only in term of more exabyte volume, but also in term of financial performance. You will see more. The more we scale up in capacity per unit, so going from 30 TB, that we are already selling to all the hyperscalers in the world, all the big guys, to the 40 TB that we're already selling to the two biggest hyperscaler in the world, and that we are qualifying with few more, so we will be able to qualify fairly soon. Then we discussed at our earning release already the next product. That would be a 50 TB. You can see how quickly and how much we can grow in term of content per unit. The 50 TB will be more calendar 2027 or through the end of calendar year 2027. Very good progress. We are very happy with HAMR. I would say it took a long time to develop the technology. Now many years. It took a little bit of time to qualify the first product because it was new. New technology, new product. It has to work. We had to find the right configuration to work in the cloud. After that, everything went really well. Now we qualified the top eight, 10 customers in basically a year on the 30 TB drive, and we are already qualifying on the 40 TB, a good number of customers, both in U.S. and in Asia, and we will do the same with the 50 fairly soon. Yeah. You have also talked about getting volume crossover of HAMR by the end of this calendar year. Has anything changed that will allow you to even pull that in, or is there anything that would delay it at all? No, I think our plan is really solid. I think by December, so just a few months from now, we will be at that level for the 40 TB drive and for HAMR in general. I think in a couple of years from now, probably in the data center environment for Seagate, 80%-90% of the volume will be sold through HAMR. Now it is just a matter of time. Yeah. There is no way that the PMR technology can keep up with HAMR. There is no way. Now you can put how many disk you want inside the box, you will not have a 50 TB drive, you will not have a 60 TB drive, you will not have a 70 TB drive. That is the reality. Because in that environment, customers have a huge benefit from higher capacity per unit. Customers will want to buy those big drives, and those big drives can only come from HAMR. Yeah. How are you thinking about the cadence of HAMR adoption by your customers? Do you have any visibility into sort of any kind of lumpiness that might get created in customer demand? Or should we just expect the sort of HAMR ramp to be very gradual in terms of mix throughout 2027? Well, as I said before, all our customers, all the big customers are already buying HAMR. Everyone. Everyone has qualified at least the fourth generation HAMR. Some have qualified the second generation HAMR. So they're all buying hundreds of thousands of units every quarter. So I would say technology is not even a discussion with them anymore. The discussion is the capacity per unit. How you go from 30 to 40 to 50, how fast you can go, and then what happen after that, et cetera, et cetera. So I would say technology has been proven with the first drive, with the fourth generation drive. Right now it's just a product development. It's not anymore a really technology development. For us, it is a product development. Mm-hmm. Got it. You've also pointed to some of the advantages you see in terms of your vertically integrated supply chain, specifically lasers. As a key kind of innovation that you have. So as you ramp up HAMR production, do you see margin tailwinds from that internal production of lasers on the higher capacity drives? Well, partially yes. Of course, now the cost for us to produce the laser together with the head is much lower than buying the laser outside and then attached to the head later. There are a lot of benefit from a cost perspective, from a process perspective, and of course also the risk, a little bit, the supply chain. So, it's one of the improvements that we have done in the last few quarters. Can you help us understand the dual source or second source strategy for the lasers specifically? Is there any kind of supply chain impact or margin impact from any of that? The first generation of HAMR was only using external laser. Now, when we transitioned to the second generation, we started to have a mix. Some of the products are built with our internal laser, some are still using external laser. I think more and more we will go out in future, more the mix will go into the internal laser. And as I said before, there is a cost differential. Of course, it's one component out of a certain number of components inside the box, but it's of course one component where we can generate a little bit more profit. And then you talked about HAMR obviously getting bigger and bigger in terms of the mix. Longer term, how quickly, if at all, do you expect PMR to sort of rotate out of your product offering? Is there still place for PMR in your product portfolio for outside of legacy and sort of client type applications? Yeah. As I said before, I think in a couple of years from now, at least for us, the vast majority of products will be based on HAMR. There are different capacity for different segments. Inside the hard disk business, we always talk about the big drive, but don't forget that we sell hard disk drive from 2 TB to 40 TB today. In the future will be, maybe not 2 TB, maybe 4 TB to 50 TB, 60 TB, 70 TB. So PMR now is a very good technology for the lower capacity. But when you go into the public cloud and a certain point in time also for on-prem data center, when you go above the 30 TB drive, I think HAMR is the clear better solution that is available. Yeah. We've talked a lot about the data center market and AI, and we think we all know that's growing very strongly for you. Maybe talk about what's happening in some of your other segments, whether that be the client business, or even other kind of legacy video applications and things like that. What's happening in those segments? Do you expect those to kind of remain stable over time or do you expect those to fade a little bit? Yeah. It's very interesting. Our business has two major segments. Data center and what we call edge IoT. Data center is what we have discussed until now, big drive. Bigger and bigger drives give you a better revenue, a better financial result. This is today 80% of our revenue. 20% is lower capacity drive, so what we call edge. This is serving consumer, client, some part of the video surveillance. So those are drives that are between, let's say, 2 TB and now 10 TB, 12 TB, maybe 14 TB. In data center, the architecture of the data center separate storage from compute. Storage is hard disk. Compute start with an SSD. In a sophisticated data center, all the storage is hard disk, and then the data is physically moved from a hard disk into an SSD when you need to do the compute or the analytics of the data, and then the new data goes back into the hard disk. When you go to different segments, like consumer or some of the video surveillance, capacity is much lower. There is an overlap between hard disk and SSD, and therefore the volume and the price also depend from the situation to the NAND. Today, the NAND price is fairly high and this is giving the opportunity to hard disk also in those low capacity hard disk drive segments to actually have the opportunity to increase our price and actually to keep the volume fairly consistent. I would say even in those segments, demand is above supply, but we need to allocate. Because demand is above supply in every segment today. We give priority to our big customers, I would say, and the data center, because it's 80% of our business. We also allocate a certain volume to consumer, client, video surveillance. But we have recently in the last couple of quarters, we have changed a little bit our pricing strategies there because we don't have purchase orders in place. We don't have LTAs, we don't have specific big customers. With a different kind of business, only 20% of our revenue, so not huge. But today is giving us actually a very good result also from a financial standpoint. What will happen in the future? I would say if you look at the past, that business has declined a little bit in terms of volume and was also kind of declining in terms of pricing. Today, I would say the volume is fairly stable because we cannot allocate more, otherwise it could be even higher, but pricing is much better. Let's see what happens in the future. Again, it is not so material to our business in total because it's not the majority, but it is important. Yeah. On financial picture, I think it's fair to say that as we stand here, you've already prematurely outstripped the financial targets you provided just last year at your Investor Day. Maybe want to sort of understand where things could be going on that front. You recently kind of upgraded your long-term revenue outlook for the company. Maybe talk about that target, how sustainable and over what duration you can maintain that. Yes. I would say the situation from our Investor Day has continued to improve. Demand is much, much stronger than what we were seeing at that time. We are doing all what we can through technology to increase the exabyte and to support a good part of that demand. But of course, this is also giving us opportunity to now raise pricing a little bit more than what we were discussing at the Investor Day, and this is resulting in now better gross margin, better operating margin, of course, much stronger EPS. This is continuing. I don't see a reason why it should really change at this point. The trend is really going in one direction today, and the strategy is strong. It's giving us very good results. We are applying the strategy with a little bit more maybe emphasis on pricing. We are performing well, and I think you will see our results continue to improve in the next several quarters. Yeah. Then in terms of margins, I think you previously laid out the idea of incremental margins of 50%. You've obviously been dramatically outstripping that in recent quarters, as you just said. I think the 50% kind of bakes in a number of things that were true at the time. For example, the startup cost of your HAMR ramp, which was very early days before. That's probably no longer a big headwind for you. As you mentioned, pricing has been a big tailwind. Is there a new construct you can kind of share in terms of how we should think about incremental margins of the business? Well, I say if you look the last several quarters, our incremental gross margin, as you said, has been way higher than 50%. I would say in the 70+%. As I said before, the trend is continuing, so today I don't see a reason why that should change. For the next few quarters, I think that is a good way to look at the business. Yeah. Then on balance sheet and capital, you've basically been carrying a few notes with relatively high coupons. You've talked about retiring already $1 billion or more of those recently, and then getting back to a more normal cadence of capital return. After you kind of get done with the debt retirement, how are you thinking about how this plays out? How do you weigh the differences between, or the trade-offs between increasing the dividend versus share repurchase? Yes. No, very good question. I think we have reduced our debt already by a lot in the last one or two years, including this quarter. We are also doing a decent level of share buyback this quarter. After this quarter, we probably still have one note that I would like to repurchase that has a very high interest rate, and probably we will do next quarter. So starting calendar year 2027, I would say you will see an higher level of share buyback. Not that we are not doing today, we are doing it today and we will do next quarter. But I think now when we are done, completely done with the debt, we will have even more free cash flow available for share buyback. Dividend, usually we now review internally with our CEO around October, November timeframe on what to do in term of possible dividend increase. Generally, in a strong period of time like this one, we will probably increase the dividend. But I don't think dividend is actually the focus of our investors at this point. So we want, of course, to provide a good shareholder return, and part of that is dividend. A much bigger part will be share buyback. Yeah. And of course, the focus is on growing the company, growing the top line, and continuing to improve the profitability. Excellent. Maybe just to close on one last question before we go. If we're sitting here on stage five years from now and we look back, what do you think is going to be the one thing that really surprises investors about what Seagate has done over the, say, the past five years, which are the next five? Well, I hope they will be surprised by our financial results. I think we have all the opportunity to do it. As we discussed before, demand will be there. Now, you can have temporary changes, but the underlying demand, because of the new application that are coming out in the world, are all based on data, and storage has a lot of value in the data center business. Demand will be there. I think we will be able to grow through technology at a very good exabyte CAGR. You know what is our view on pricing at this point. I think there are a lot of opportunities for this company to grow, to become even more important into the data center ecosystem in general, and therefore now justify better results. Okay. Excellent. I think we'll leave it there. Thanks so much, Gianluca f or being here. We appreciate it. Thank you very much.