For joining us here again, day one of Bank of America Global Technology Conference. I see a lot of familiar faces. Glad that you could all make it. I'm Wamsi Mohan. I cover IT hardware and supply chain here at Bank of America. Today, we're delighted to welcome Seagate to our fireside. We have EVP and CFO, not ex-VP, but EVP and CFO Gianluca Romano. Gianluca, welcome. Thank you so much for taking the time to be with us here today. Thank you for inviting us. I feel like every year when we talk, there is something new to talk about, but at the same time, I feel like your message has been very consistent, and in some ways, that consistency has really played out very well for you guys. Maybe to start, I think one of the questions that we get often is just on sustainability of trends and where we are in the cycle, because this industry historically has been quite cyclical. Would love to get your perspective on, is this a elongated cycle? How do you think about it? You have a lot of things that have changed from a historical perspective in terms of market exposure, in terms of your customer base. A lot of things have changed. Maybe just to put some perspective around where we are in the cycle question. Yeah, very good question. Well, before I answer, let me remind everyone that I will be making forward-looking statement today, and you can learn more about the risk associated with those statements on our website. Well, I would say, for sure a different cycle than what we have seen in the past is now 13 quarters of continual growth. Every quarter, we increased revenue. Every quarter, we have improved profitability. Now we just discussed at our earnings release based on the orders that we have in place already, we see this happening continuously and sequentially for the next four to five quarters. That is exactly the time of our purchase order. I'll say the trend is not changing. Demand is probably higher than what we were expecting a year ago or six months ago. Maybe that is a little bit of a change in the trend, but still now same trend in terms of improvement for both pricing and profitability and revenue. I'm not saying that we will not have a cycle anymore in this industry because of course there are a lot of factors that could drive a cycle, probably mainly externally to our business, more microeconomic cycle, not data storage cycle. Now the world is going more and more into digital applications that are driven by data that need a lot of storage. Of course you can have no macroeconomic cycle. We don't see it happening right now based on the orders that we have. Every quarter we have bigger orders with more revenue, more profit, and so far we don't see it. Yeah. Maybe just on that visibility point. You guys have obviously been working with your customer base to get improved visibility. How would you characterize that? What are some of the maybe parameters of that visibility in terms of capacity, in terms of the SKUs you're shipping, in terms of how much forward-looking capacity people are committing to and the variability of that? For the next four to five quarters, we have orders in place, and an order has a precise mix, precise exabyte volume, precise price, and time to deliver. This is why now we have high confidence on what is going to happen into that period of time. When you go longer, so year two, year three, customers are very interested, and they need to know how many exabyte we can allocate to them because they decide today what data centers they will need two years from now. Now they need to start today to build it and then get all the infrastructure in place. They need to know what will be the exabyte that we can allocate to them. The discussion is a bit different, is not so precise in terms of the mix, in terms of the price, and know the exact quarter of delivery, is more an overall exabyte number. We had that discussion with basically all our big customers, and then when we get closer to those now three, four, five quarters, we basically translate this exabyte commitment into a very precise order. At that point, we know what is our ramp, what is a product that they are qualified on, so we can have a detailed order. Okay. If you think about pricing, we get this question often. We're shipping to what seems like a higher demand level than maybe what people anticipated even six, nine months ago. In a lot of adjacent industries, I would say, if we think about memory, if we think about optical needs, data center exposed places, pricing has gone up a lot. By a lot, I mean like 100% quarter on quarter, right? When you think about that in relation to what is happening in the hard disk drive world, we are seeing improved pricing. It's much more measured. How are you thinking about the pricing trajectory as you think about the next several years, and why is it not going up at the rate at which some of these other ones are moving, is that by design? Could it, if you wanted to? Short answer is yes. I think this industry is now very disciplined. Now is very disciplined in how we add exabyte capacity and not adding units. Is disciplined on how we approach customers on continuous improvement on pricing, but not in an aggressive way, not in a way that cannot be sustained or that is strongly impacting our customers, even as a surprise, without giving them the time to absorb it. We have been way more disciplined, and the result has been fantastic. I don't see any reason why we should change our strategy in term of pricing, in term of exabyte growth without adding units, and focusing all our energy on the product roadmap and moving up into capacity per unit and ramping as much volume as we can of those higher capacity units. I think it has been extremely positive for Seagate and maybe even for the industry in general. If you look the last three years, 12, 13 quarters, every quarter higher revenue, every quarter higher profitability. We want to do this for a long period of time. As I said, based on the order that we have in place, we see this continuing to happening again, at least for those four or five quarters. I'm sure that will happen also for a much longer time. Yeah. Can you talk a little bit about the drivers of that? Obviously, what you're charging on a $ per TB basis today, on average, is in the $13, $14 range. When you look at some of the spot markets, those are transacting at 2x that. Clearly there is room for this pricing to move in the long term, much higher. As we think about your margins and profitability comment, pricing is one lever, cost is another, and your factory utilization and others, there's a lot of factors at play. How would you rank order those and your confidence in sort of being able to drive higher gross margins over time? What's the right way to think about that? Yeah, we focus on all those items. In terms of utilization, probably we are already a little bit max out at this point. Our factories are full. Our product roadmap is very strong, we will continue to move up in capacity per unit. With the same number of units, we actually generate 25% more exabyte every year for a long period of time. Pricing, of course, pricing finally is always now a matter of supply and demand. Demand is way above supply. Demand is actually stronger than what we were expecting. Of course, pricing will continue to be better. Absolutely. Again, with the same strategy that we have applied in the past. The cost per terabyte now is another quality variable, especially when you can move from a mix that was based on a PMR technology of 20, 25 terabyte per unit to an HAMR technology that started 30, now we're qualified on 40 terabyte. We will be qualified on the 50 terabyte. We discussed that on our earnings day. We will start the call for the 50 terabyte in few quarters from now, before the end of calendar 2027. We are progressing very well, and this is how we want to extract more exabyte from the same footprint, getting more revenue because we have more exabyte, getting more revenue because we have higher price, fairly similar to what we've done in the past, I would say. Yeah. If we think about this gross margin trajectory, your incremental gross margins are extremely strong. As you just said, you're continuing to take a little bit of price. There's higher demand, so exabytes are also growing at the same time. Is there any reason that these incremental margins should not be as strong as they are? Not really. No, we gave an indication a year ago during our Analyst Day. We did better every quarter. Yeah. We did better than what we indicated because demand was a little bit stronger than what we were expecting. Therefore with better demand, you get a little bit better pricing. On the part that is not really committed on the order, because now we have 80% of our business that is data center. On data center, we commit a lot of that volume. Every quarter, now we try to get a little bit more out of our manufacturing. We commit what we are sure we can produce, then hopefully we can produce a little bit more. Yeah. That extra volume get a different price. There are different economics on that extra volume. Every quarter is different. Sometimes we don't have more volume. Sometimes we have a few exabyte, and we can sell those very quickly and at a higher price. Then we have the other 20% of the business that we call edge. That part of the business is low-capacity drive. It's not the 24, 30, 40 terabyte. It's like the two, four, eight terabyte drive. That is the only part of the business where we overlap with NAND. Now, in the data center, the two components are used very differently. Storage, hard disk. When you need to do the compute, you move the data from the hard disk into the NAND, you do the compute, and then you store it back into the hard disk. It's been the structure for 15 years, it's going to be the structure for the next 15 years. When you go to low capacity, for example, in the consumer business, if you need to have an external storage device, you go to a store and you see both. You have an SSD and you have an hard disk. The price is very different. SSD price today is very high. In that part of the business where we don't have orders, we can actually now increase price, also looking at what other components are doing. That part of the business is for sure another upside to our result. Now, in the March quarter, little bit in the December quarter, but I say more in the March quarter, possibly this quarter. Now we have both segments that are very strong. Before it was mainly data center, data center, data center. The other part was not so profitable. Now, even the other part gets good. Again, because it's not the part of the business where we have LTAs or build to order, we can be more opportunistic. More than opportunistic, say we can act faster on changes. Yeah. On that part of the business, if we think about, it just doesn't seem like we're going to get any reset on at least NAND for many, many quarters to come. We should be expecting the profitability on that side of the business to continue to improve from here in the foreseeable future. Absolutely. Okay. Maybe just going back to the fundamental premise around demand, right? It seems as though we're going from 1.5 zettabytes to close to two zettabytes of HDD shipments. When you think about it from that perspective, those are huge numbers to be able to deliver that kind of growth, and sustain that kind of growth on sort of, at least mid-20s or so, seems pretty huge. What is the underlying things that are fundamentally happening that you see, which is supporting that kind of a viewpoint on such a strong incremental exabyte demand? Yeah, I think, when you look at percentages and when you look at absolute exabyte number, the exabyte number is really impressive. Yes. The base is growing and growing and growing. Yes. The same 25% that we were growing five years ago and what we are growing today in exabyte, today is double. Yes. It's hugely different. We focus all on technology. We are happy with our technology. We are happy with now having qualified all the important customers on MR technology in the last year. We start qualifying customers on the 2nd generation, then we will have 3rd generation. It becomes a normal technology for us and for customers. This is how we generate more exabyte. Of course, with MR, you can move higher faster. With the past technology, we were growing two terabyte for each new product. We were having a new product basically every year. We have a new product every 18 months, maybe 24 months. The growth is much bigger. You go from 30 terabyte to 40 terabyte. This is how we try to keep up with 25%, that in exabyte is now a much bigger number. That is the main focus. Yeah. Just talking about this areal density transition, right? Some people try to draw an analogy between NAND going from 2D NAND to 3D NAND. There was initially a shortage, and then you just got a flood of bits in the market. How would you say HDDs are different in the sense of, how do you prevent the same thing of, now you give the ability to make significantly higher amounts of bits, if the demand were to taper off in some way, how do you manage that? Well, the main difference is this industry is not adding units. Now we are not building new factories. Now the other components have decided to go into different strategies and adding factories and spending a lot of CapEx to add those factories because now they were assuming that was needed and was good for them to do it. I think for this industry, the best solution is to add exabyte, not to add factories and units. Now I think we can do it, and we are actually demonstrating that we can do. We have increased exabyte even more than 25% in the last several quarters. That is the right way to do it. Limiting the number of units reduce the risk of going to an oversupply situation. I also say this industry has been in an oversupply situation for a long period of time. All the transition from the client business into the cloud business was done with an oversupply situation. Yes. Cloud was very small 10 years ago, we had to give the time to grow and absorb that supply that was created for the client business that was going away. We know what does oversupply means to the business. We don't like it, we will try to avoid to go into that situation as much as we can. Yeah. You got a name for that, right? Legacy products at some point in time. If you think about where we are from just the sustainability point of view, what you're noting about this growth that is compounding at such a high rate off of such a high base-Hyperscale obviously is driving a lot of this. Yeah. If we think about hyperscale CapEx eventually at some point, maybe flattening out, not growing anymore. Maybe $1 trillion is not very far away now, but you spend $1 trillion each year. How does that impact the trajectory of growth for you? Well, no, CapEx is a big number to buy a lot of different things. Yes. Our disk, good for this industry, hard disk is probably low to mid-single digit of that CapEx. Yes. This help us also on the pricing discussion. The impact of an increase on hard disk is very limited to our customers' CapEx overall, because we are a small part of the CapEx. Sure. The CapEx trajectory is important, then, of course, because we are not a big part of the CapEx, depend exactly how much of that is allocated to storage. CapEx can go up and down, maybe it's not 100% correlated to where storage is going. Depend also from the pricing of other components. For example, for a period of time where GPUs were fairly expensive, our percentage in term of CapEx went down. They were not buying less hard disk, it was just they were spending more money on something else. Maybe now it's going into a different direction because we are also increasing our price, and we do that sequentially for a long time. Let's see. Today all the indicators are for a demand that is well above supply. Again, even if the CapEx could at certain point stabilize or even reduce, I don't think will impact our situation. As your customers come to you and say, "Hey, my demand, I got to grow my business. I have need for incremental supply." You're saying demand is well ahead of supply, so there must be a lot of pressure on, "Hey, what can Seagate do to deliver more exabytes here?" What's your response to that? Well, our response is we do all what we can in terms of product mix. Of course, they need to do their part, that is, qualifying as fast as possible new products, because new products have higher capacity. The number of units is the same. That is a way for them to get more exabyte in total, is to move their mix to higher capacity drive. That is helping us because in higher capacity drive has a lower cost per terabyte, so good for us. It is also very good for our customers because they get more exabyte. Very importantly, in the data center, you have a lot of physical slot. Every slot has a cost. Now, there is a real estate cost, the power cost, the compute cost, the hard disk cost, people that are working into the data center. Everything is brought to a slot cost. That slot is also as a revenue. The revenue is how many terabyte our customer can sell from that slot. If in a physical slot you put 20 terabyte, there is a cost for the slot, and there is a revenue that is equal to the 20 terabyte that they sell to their customer. If you can put 40 terabyte drive for the same slot cost, you double the revenue. This is why for our customer is so important to get a bigger drive, because for basically the same slot cost, they get much bigger return. This is why they want bigger drives, and of course, they want more exabyte. Yeah. The TCO value proposition just goes up tremendously. Yes with these larger drives. Maybe just on that, how much of the demand that you're seeing today is coming from replacement demand versus new demand in these data centers? Today demand is really strong, they tend to use the vast majority of what they buy for new data center. They can keep the exabyte in the old data center and add 100% of what they buy in the new data center. At a certain point, the drives, they don't last forever. Now our guarantee is five years. They can use five years, maybe six years, maybe seven years, they need to refresh. There is a huge benefit also in doing a refreshment because as we said before, they just spend the money to buy a new drive, they replace 20 terabyte drive with 40 terabyte drive. The return from that small hard disk spending is huge for them. There is a lot of benefit also in doing refreshment for our customers. Not only because the drive, they have a limited useful life, but also because of the financial return. Today we see the majority of the drives going to new data center because they try to keep those exabyte that they already have intact and not taking an offset. Can you just talk a little bit about sort of the gross margin trajectory in terms of, as you're going through these subsequent versions of HAMR, you already demonstrated that in going to four TB per platter, your qualification time has come down relative to sort of the speed of qualifying has come down relative to what it took on the first generation. As we think about subsequent generations of HAMR, should we be thinking that we should be seeing some kind of a margin inflection because just as you said, what you can charge on a $ per TB basis is going to be so much more attractive to your customers relative to what you're delivering even today. Shouldn't we be seeing sort of even stronger incremental margins in some ways as we go to next and future generations of HAMR? Well, generally, if you just look at the last product, of course, that is a very good product to us. Now we generate a lot of revenue and profit. Of course, when you look at the entire company, you need to assess the volume. Of course, the volume is starting fairly low and going up quarter after quarter after quarter, so getting more impactful later until we go to the next product and do that again. Yeah. Now with this new technology, as you know, we don't need to increase the number of disks and the number of heads inside the box, so we have even a better opportunity to drive a certain level of cost reduction, now assuming everything else remains the same. Of course, the price is now a price per terabyte, so it is kind of independent from the product. The two things combined should give us a good opportunity to continue to improve. Now, as I said before, we have orders in place, so we know what is the price, we know what we will produce. If we execute our plan as we have committed to our customer, we will see higher revenue, higher profit. Yeah. Maybe just to think about sort of the amount of cash that you guys are generating now, right? It has been amazing to watch sort of over the last three, four years, the change in the cash flows. How are you thinking about prioritizing cash flows when you're throwing off this amount of cash? Yeah. We have always focused on shareholder return. We have always returned the vast majority of free cash flow, through dividend and through share buyback. We will continue to do it. We have increased our dividend fairly recently. I think the first payment with increased dividend was January, so just a few months ago. We will do that again, I think every year we will do it. We are doing share buyback. We are doing less than what we will do in the near future because we are also paying down our debt. In particular, we wanted to reduce the convertible. To me, the convertible is very similar to a share buyback. If you don't do it and share price continue to appreciate, you continue to have a bigger dilution. Those shares, we need to go out and buy them back at higher price. Yes. To me, in this environment, it's probably good to anticipate the repurchase of the convertible. We are almost done with that. We still have about $200 million outstanding that we will repurchase next quarter. We will reduce our debt even outside of the convertible a little bit more. You will see now sequentially more share buyback, and fairly soon we will be done with the debt repurchase, so we will focus the vast majority of the cash flow in between dividend and share buyback. What's the amount, sort of cash balance that you need to have, that you feel comfortable to run the company? Well, I think what we have today is good. We also have a revolver that, now we are not utilizing, but is always available in case we have a short-term need. I think, where we are today, between probably around $1.5 billion in cash is a good level for now. Yeah. We see the business, now if it becomes much bigger, now we also need to manage the working capital, so we could change a little bit, but probably not much. Okay. I know we're coming up on time, unfortunately. These are only 30-minute sessions and lot to talk about over here. Gianluca, maybe just to close it out, right? What do you think investors should be most focused on over the shorter or medium-term horizon, as you think about where Seagate is positioned today? I think the trend. The trend is very indicative. The last 12, 13 quarters, I think, are very indicative in terms of profitability improvement of what is going to happen, I think, for the next four or five quarters. I can talk about that period because we have orders. It's not only those four or five quarters, it will be longer than that. At least we know what is going to happen in the next four or five quarters. I think the trend is very clear. Demand is only getting stronger, the trend will not change. We have opportunity to now price even better through time. Of course, not on the orders that we already have, on new orders. That is what I think you should focus on. It's a very good industry right now. Amazing. Well, thank you so much for your time, Gianluca. I really appreciate it. Thank you. Thank you very much. Thank you. Thank you.