All right, perfect. We are going to get started here. Again, welcome to day two of the flagship TMT conference. My name is Erik Woodring. Lead the hardware coverage here at Morgan Stanley. I am delighted to be joined today by Gianluca Romano, CFO of Seagate Technology. Before we get into things, let me just remind everyone to please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. Gianluca, thank you for joining us today. Thank you, Erik. Before we start, we'll be making forward-looking statements today, and you can learn more about the risks associated with those statements on our website. Perfect. Now we're good to go. Good. Let's start on the demand picture. It's clear demand is quite strong. You know, I'd love to better understand exactly how AI is becoming a tailwind for you guys, meaning it's clear the world will need to kinda store, retain, leverage more data, in a world of multimodal models, Agentic AI, et cetera. The broad tailwind is clear, but can you maybe help us understand some of the emerging use cases for HDDs in an AI world, just to get some context for, you know, what's helping to drive this acceleration or behind AI? Absolutely. No, de-demand is very strong, as you said. AI is one of the applications that is generating a lot of data, and therefore the need for data storage. In our industry, you don't need to produce a different hard disk to store AI data. No, AI is generating the same kind of data from a storage standpoint that, you know, the traditional application we're generating. We don't have the different mix inside our product where we can say exactly what is coming from an AI application or a non-AI application. It's a bit more difficult for us to perfectly quantify. For sure, now in the last year and a half, I would say, AI has been the center of the discussion with our customers in term of their need to increase storage. More recently, probably in the last couple of quarters, in particular, Video AI has been the reason for that additional increase in demand that maybe came a little bit earlier than what we were expecting when we met in May at our Investor Day. There is a little bit more demand than what we were expecting. Again, it's not that we were not counting on Video AI for the long term. It's just happening a little bit faster than what we were thinking. Maybe just touching on video, the implications are significant when we think about the data requirements for a 30, 60-second video relative to a text file. I'm not just trying to focus on the consumer side, but is that maybe the most exciting new application as we think about the potential to as we think about inferencing and as we think about the potential that AI can bring, are there any other kind of very focused items that we should be focusing on besides video? I think it's very exciting until the next app. That's the reality now. Six months ago, we were talking about something else. Today, we talk about Video AI. Six months from now, hopefully we talk even about something else that will be very important for, you know, for people and for businesses and something that generate data and needs to be stored. As you know, 90% of the storage is on hard disk. Everything is important. As I said before, for us, a data is a data independently from which application will generate the data. I think you will see a lot of increase in data also from other application outside AI, like autonomous driving, or started many years ago, but has not really developed a lot. You know, there are many cities where you can see autonomous driving being a reality, other cities where you don't see any. This will continue to evolve, and that needs a lot of data to work. Of course, now Video AI is something that is taking a volume that is way higher than what we were expecting. Okay. Let's talk about visibility. Last quarter at earnings, you talked about calendar 2026 nearline orders effectively being covered for the year, that you'd start signing purchase orders into the first half of calendar 2027. Can you maybe just give us an update on demand visibility, and maybe more importantly, just beyond that, the sustainability of HDD demand kinda beyond the first half of 2027? Yes. What we really care is to be sure that when we start a product in our manufacturing, we already have an order for that product. An order that cover the mix that we are producing, the price for that product, and the time of the delivery. This is why we focus mainly on the next, you know, four, five quarters. Customers are very interested in volume. Of course, they want to discuss about exabyte volume when you go longer. Not only for calendar 2026, but also for calendar 2027 and even longer. We have agreement with our customers on exabyte volume for the longer term, and we have very precise orders for calendar 2026. This is why we were able to say in January at our earnings release, based on this visibility, we expect every quarter of calendar 2026 to increase in revenue and in profitability. Mm-hmm. Now, of course, this was more difficult in the past when the industry was working a different environment. Now we have this visibility, and so we can predict and, you know, and we can make our estimate. I also have to say that now we are beginning of March, so there are of course some contracts for the first part of calendar 2027 that have been translated into POs and everything is continuing as we have done for the last 11 quarters with that pricing environment that give us opportunity to, you know, reasonably increase pricing and take benefit of the cost reduction when we move the mix from, you know, a PMR product to the fourth generation HAMR 30 TB to the second generation HAMR of 40 TB. As a follow-up on this and speaking to visibility, how are you protecting the company from the risk of over-ordering amidst this demand strength and this elongation of visibility? How do you make sure you ring-fence that risk to limit any future kind of cyclical drawdown? We are very disciplined on how we deploy our CapEx. Our CapEx is not going to be utilized for increasing units. It's all focused on increasing capacity per unit. Technology transition and of course the HAMR production is a focus. We are not going to increase the units because we think through the technology transition, we can generate about 25% CAGR in the nearline space. That should be enough to cover the short-term need of our customers in term of data centers that are really building up. Maybe just to hit that point again, because I want to be explicit, there has been. At least you guys have talked about leveraging third parties for some head and media content. Some have associated that with greenfield unit additions. We have set the record straight for everyone. You said it once. I just want to make sure you say it again so it's clear. The view on new unit capacity is there is none coming online at the moment. Yeah. I don't think there is a need for more units. I think, us as a company have, you know, enough units to serve our customers because we are able to move those units from a certain capacity per unit to an higher capacity per unit. For example, when you go from the fourth generation HAMR 30 TB to the second generation HAMR 40 TB, in theory, if you move all your customers from 30 to 40 TB, you can increase your exabyte output by more than 30%. Of course, this doesn't happen in, you know, over a year. It takes a little bit longer. There are opportunities to continue to increase the exabyte without the need to increase units that in the past was the problem that, you know, then generated oversupply instead of slight undersupply. Mm-hmm. Generated that volatility and that impact on pricing. I think, you know, the industry is way more disciplined today. This is a benefit of being in this business today. Okay. Great. I would love for you to touch on maybe the conversations you're having with the major CSP customers. And the question is, you know, we've heard a reference to kind of going from a transactional model to maybe a more partnership model, which allows you to have that visibility. Just can you speak to maybe the permanence of that change? Is that just a function of the supply-demand imbalance as we sit here today, or has something actually changed in which there's a structural importance to HDDs that perhaps didn't fully exist given the need to store and retain and produce more data? Yeah. It's probably a little bit of both. You know, of course, the fact that there is a little bit of shortage in storage, in hard disk in particular, you know, is helping that partnership. You know, that's the reality. I also say there is a lot of collaboration with our customers on developing the right product for their storage need. Mm. The right product is the one that has more and more capacity per unit. As you know, we enter the qualification of our 40 TB just a couple of quarters ago, and now I'm pleased to announce today that both customers that were involved for the 40 TB drive has now qualified the drive. We start shipping some volume already this quarter and then more quarter after quarter. I guess you just eliminated one of my questions here. Very good. No. Before we get into HAMR, because obviously it's critical, just the point on pricing, right? Supply-demand imbalance right now, clearly, kind of insatiable demand, using areal density to drive supply, or to drive exabytes higher. You know, talk to us about what's happening with pricing. Because you've kind of characterized it as flattish to low single-digit growth. Your competitor has been maybe a little bit more outwardly bullish in talking about mid to high single-digit year-over-year growth. Just is there kind of upside as you see the pricing environment? Is there ability to take more price, not just as we think about calendar 2026, but into calendar 2027? Absolutely. No, I think depend what is your starting point. Usually, you know, I tend to talk about sequential improvement. Mm-hmm. It's more a quarter-after-quarter. Of course, if you go year-over-year, the increase is substantially higher than, you know, what we can do sequentially. I would say generally, I guess the trend is very similar in term of pricing. Again, the focus of our customers is more capacity per unit. Now that they can buy the 40 TB, at least know those two big customers, of course, they will focus more and more on getting the volume. They need to give us the time to ramp. Yep. Very little bit of time to ramp high volume, but it's a huge improvement for them to go from, you know, 30 to 40 TB. If you think about the cost of a slot that they have, a physical slot, if they can put 30 TB and monetize the 30 TB or for basically the same cost, having a 40 TB, now they monetize 30% more. It's a huge benefit for them to increase in capacity. It's a huge benefit for us because with a similar cost per unit, we generate 10 more terabytes per unit. The cost per terabyte now decline faster than what we have seen in the past. Again, with the pricing strategy that we have implemented and executed for more than 11 quarters and what we see for the future, now we can reasonably say revenue will be higher and profit will be higher. Okay, good. let's now touch on the comment that you made about HAMR. you did kick off qualification on Mozaic 4+ products with your first CSP last July. I think the second one started last October, if I'm correct. The comment that you're making today effectively is we have now qualified those two CSPs on Mozaic 4+, and just to make sure, again, to make sure we hammer the point home, you're starting to see volume shipments, calendar 1Q this quarter. Is that correct? That's correct. Okay. Now, how do we think about maybe the pace of the rest of the CSPs out there? Maybe help us understand the interest level in Mozaic 4+ from a qualification standpoint, how you think about that trajectory could look like going forward? Yeah, I would say the technology is not so important to them anymore. Now, they have basically all qualified the first generation HAMR, so they know it's working well in their environment. Technology is not an issue anymore. They just focus on how to get to a bigger drive because that is where they have the best return. I would say, no, we need to get the time to ramp the first two customers that are really big customers, so they will take a lot of volume. With the time, we will ramp enough also for other customers to get qualified and then take benefit of the bigger drive. Okay. Awesome. Congratulations on that. Thanks. You made a comment last earnings. You said, the transition from Mozaic 3+ to Mozaic 4+, so 30 TB to 40 TB per drive, you'll do that fairly aggressively. You also mentioned it will be a fairly prescriptive ramp. Obviously, Mozaic 3+ took time to ramp and qualify. You know, what exactly does that look like when we think about that mix shift that you've talked about historically for HAMR? Does that look any different than what you talked about last May in terms of, you know, the 40% mix, the turnover, or the crossover, excuse me. Does that look different now that you've had these qualifications? We were counting on having those qualification. I would say we are getting those call maybe a few months earlier. Okay. Not few quarters earlier. It's not that we can ramp a very different number of drive for the 40 TB. I would say we are still focusing on achieving those numbers that we said at Investor Day of if we are at 70% of nearline exabyte sold with an HAMR technology by, you know, June 2027, I think will be very, very good for us, especially because we start to better optimize our manufacturing. You know, when you start a new technology, you have a period of time where you are not, we are not optimized. Mm-hmm. You have one technology that is new that somehow compete with the old technology. Now, what you extract from your manufacturing is not fully optimized. It's very good, but it's not fully optimized. There is a lot of opportunity to improve. The more and more you ramp of the new technology, you become basically just running one kind of product, and that will help us to, you know, get the 25% exabyte or maybe little bit more in the future. Okay. I mean, just in terms of the technological volume ramp associated with Mozaic 3+, but also Mozaic 4+, are there any bottlenecks as you see it, whether, you know, whether it relates to cycle time or components, rare earths, et cetera? Just wanna make sure we're kind of triaging any risks that could be associated with that ramp. I would say the limiting factor is our own ramp. It's not, I would say, any external components that we buy. It is our ramp on how much we can. You know, the cycle time is not short. We need to start earlier to produce as a media, to do the assembly and to do the final test. Even the final test gets a little bit longer, not because of the technology, but because of the capacity of the drive. Everything takes a little bit more time. That means to do a ramp of millions of units take a little bit of time. Every quarter, you will see now a higher volume and a better contribution of the 40 TB drive, not only to the revenue, but also to the profit line. Okay, great. you know, your competitor had an Analyst Day a few weeks ago, they were talking about kind of adding more heads and platters to a single drive. you've been very focused on areal density, kind of leading the market on areal density. Just your perspective as you think about your technology innovation around more platters to a single drive, is that something that you're focused on, or is the focus, kind of squarely on areal density, where you're, where again, you're kind of leading the charge there in the market? Well, probably when you move to HAMR, the first focus is taking benefit of this increase of terabyte per disk. Now, when you go from a 3 TB per disk to a 4 TB per disk, you add 33% of capacity, which is much more than adding one disk. Now, if you add one disk out of 10, now you have only 10% of increase. Increasing areal density per disk give you a better return. Going to 3 TB per disk to 4 TB per disk to 5 TB per disk to 6 TB per disk is probably the best return you can get. Mm-hmm. At a certain point, it will be interesting and financially, I think, also a good return to start increasing disk. Mm-hmm. Of course, in the longer term, you want to take benefit of all the space that is inside the box, but you need to find the right time. Right now, we get more benefit in increasing the areal density. At a certain point, probably will be good for us and I think for the industry in general to take all the space inside the box. If you start increasing disk when you are at 5 TB or 6 TB, the return on the disk and to add is fairly huge. Okay. I think maybe as the CFO, this is, and at least as an analyst, this is one of the most exciting parts of this journey in areal density is you're not changing the form factor, you're adding more capacity to the box, but you're not adding disks, you're not adding heads. You've talked about insourcing the laser diodes that you've been working on innovating there. What does that translate to when it comes to cost downs? We talked about price per terabyte earlier. You've been able to do something like 15% annual cost per terabyte declines. Now, that we're mixing into more Mozaic 3+, and in the second half, more Mozaic 4+, how do we think about the trajectory of cost per terabyte decline? It is actually very interesting. The bill of material going from the first generation HAMR to the second generation HAMR to the third generation HAMR is fairly similar. As you said, it's still based on 10 disk and 20 heads. Of course, they are not the same disk and heads. Our disk with more capacity and our new heads that needs to be developed. Also, the components that we buy externally need to evolve to support the higher capacity, but it's the same number of components. The cost per unit is fairly stable, but we add a lot of terabytes per unit. There is a huge and very important decline in term of cost per terabyte. When you look at period of time, depends how many units you have sold. Mm-hmm. For that new product. Every quarter, you will see, you know, we sell millions of units, and we sell PMR units, we sell fourth generation HAMR, we now sell second generation HAMR. Every quarter is a different mix and a different capacity, but the trend now is, of course, is having a good cost reduction, and the more we can ramp all the 40 TB, the more we can take benefit of that decline cost. This is part of what we said before. An important reason of why we expect a better profitability is the mix moving more and more to the 40 TB drive. Right. Okay. Let's take what we've learned maybe on demand and now on the cost side and translate that into financial metrics. I believe the latest is, you know, mid 20% nearline exabyte growth in line to even stronger revenue growth when we think about the benefits that you can get from pricing that we discussed earlier. A year ago or almost a year ago, you laid out a target of 50%+ incremental margins. Clearly, you've been well outperforming that metric. You've been doing 70%+. Just given what we're talking here about demand, your ability to cost down, your ability to price up, that becomes a very powerful tool. You know, do we expect in totality kind of growth as we now look into the second half and then margin expansion as we look into the second half? Like, are those metrics that we think should accelerate just given all of the kind of goodness that is now coming through the model? I know you said we can grow sequentially. Just try to contextualize that growth. Yes. When we had our Investor Day, you know, I said we expect gross margin to, you know, to increase 50% incrementally, you know, starting a certain level of revenue. We have done significantly better. The reason why we have done better is mainly because demand is a bit stronger than what we were expecting. Now, going back to the Video AI discussion we had before, because with those call that we have achieved, not only the last one, that of course, did not impact, you know, the prior P&L, but will impact the future. The transition to the first generation HAMR also gave us an opportunity to reduce cost a little bit better than what we had in our plan, to achieve a better margin. I think we are continuing with the same trend. As I said before, you know, the pricing situation has not changed. It's actually now extending for us to the first part of 2027. That is very good. That means demand from customer is still very strong because this is a big test. You know, when you go and finally put number in a PO, you know, you can see how real is the demand, and this is a confirmation that demand is strong and is real. Of course, with the mix moving up and up in capacity, you know, we expect continuing improving in gross margin. Finally, in net income because our OpEx is already at a very, very good point today. Just very quickly touching on OpEx there. You've signaled a ton of leverage that you can drive in the model. Are there, like, maybe contextualize the added costs, if there are any associated with OpEx as we think about moving into the back half and into calendar year 2027, or if there was growth in OpEx, like where does that come from? Yeah. I think in terms of resources, we have a very good structure, so I don't expect an increase in, you know, the need for resources. Mm-hmm. In terms of cost, should be fairly similar to where it is today. Usually we have the annual salary increase in the September quarter, so we could see a little bit of increase in that quarter and then of course in December, but kind of limited. We've seen that this year, right? We have seen it this year. Part is also variable compensation, so every year is a bit different on how much is the variable comp. I would say if you look at calendar 2026, I don't really expect a lot of difference in OpEx spending per quarter. CapEx, you've been very consistent there. It doesn't seem like anything changes. Even as you ramp Mozaic 4+ and beyond, and testing beyond Mozaic 4+, does anything change with that range that we think about CapEx as a percentage of revenue? No. I would say 4% to 6% of revenue is a very good model. You know, give us the opportunity to buy the tools that we need to ramp more volume of HAMR. Focusing on the technology transition and moving from lower capacity drive to higher capacity drives, and this is what we need. Of course, there is always CapEx maintenance. There are equipment that gets old that you need to replace. Mm-hmm. Again, all the focus is on components and transition from one product to the next. Of course, now we don't focus on any increase in units. Okay, perfect. I know your Analyst Day probably feels like it was ages ago. It hasn't even been a year, impressively. Can you just remind us how to think about margins and free cash margins, you know, on the other side of the equation, right? We're kind of dreaming the dream as we go up in through this cycle. You know, when you talk about your ability to. I think you've guided to 40%+ gross margins, operating margins of 30%+. Is that signaling kind of those are the floors as we think about the new model, meaning even if we go through a period of digestion at some point in the future, that's, again, notwithstanding certain quarters, but that's where we feel like the floor kind of is in our margin trajectory? I would say we are already above those levels, the trend is to improve. Honestly, I don't see a reason why we should go in the other direction. We have all the visibility on calendar 2026. I told you about the first part of calendar 2027. Again, From here, I see improvement. You know, I don't see a reason why we should go in the other direction. Okay. Maybe last question before we get into kinda capital allocation, balance sheet. From the perspective of a kind of new entrants in the market, you know, this is a rational oligopoly right now, and I've long said rational oligopolies can be very powerful. Is there threat of new entrants? Do you see that? Is that something that is on the horizon? Just would love your perspective as you look out into the market, what you see in terms of this oligopoly structure potentially changing at all. Well, from my point of view, the difficult part of this industry is not only manufacturing, but also the technology inside the drive, especially now when you move to HAMR, there are way more, you know, additional complications, more difficulties. This is where the industry is competing, you know, is in product. In evolving the product so that we can generate more terabyte per unit for our customers. Is no focus on, you know, volume or units or all those things. Those things are actually eventually creating a possible disruption for this industry in the future, so it's not the right focus. The right focus is technology, giving our customers what they need in term of the product and increase the exabyte so that they can build the data center where they need and have the storage where they need. For a new entrant, will be very difficult, you know, because they need to spend a lot of money, first of all, to set up the manufacturing, second, to develop the technology. At this point, it's more complicated than, you know, two years ago or three years ago. Now, they need to enter and adding HAMR technology. If you enter and you don't have HAMR technology, you're already, you know, out of the game. Mm-hmm. I'll say for the next few years, I don't see this happening. Okay. Okay, good. Let's touch on that capital structure, capital allocation. First on the structure side, you retired $600 million of your converts the last month. Your gross debt is, I think, right around $3.9 billion. That's exactly kind of what you've guided to or at least projected towards. Have you kind of reached the end of that deleveraging just as it relates to your gross debt? Are you kinda done and now you're returning to buying back more stock, or is there a desire to maybe reduce that convert a little bit more? How do we think about balancing that? Yeah. To me, reducing the convertible has a double benefit. One is reducing the debt, second, very important, is to avoid further dilution from the convertible. Is kind of, you know, could be assimilated to a little bit of a share buyback. We have retired of $1.1 billion already in the last two quarters. We still have $400 million outstanding, we will take care of that part of the convertible in the next few quarters. In terms of debt, I'm fairly happy where we are today. Probably we will go a little bit lower. As you said, the free cash flow will be very strong, we have the opportunity not only to do a strong return to our shareholders through dividend and share buyback, but also to reduce our debt little bit more. As we think about maybe the balance of how you've utilized free cash flow, call it over the last two quarters, it has been more levered to de-levering. Now it's maybe a little bit more balanced as we look forward, reduce the convert a little bit more, buyback a little bit more, and kind of transition that over towards buyback as we think about a few quarters. Every quarter will be a bit different, you know, depending what kind of treasury activity we are doing in the quarter, but you will have, you know, both. Okay. Some quarter will have more share buyback and less reduction of debt, and some quarter we will maybe focus more on the convertible resources and some other debt reduction, and it will be less share buyback. You know, if you look over a longer period of time, you know, excluding the debt, basically 100% of our free cash flow will return to our shareholders. Okay. I was gonna touch on that, but my question was gonna be the stated goal is kinda 75% of free cash. Sounds like given how confident you are in the outlook, in your margin structure, innovation, all of that stuff, we could and/or should be expecting upside to that. Absolutely. Okay. That's amazing. Another good insight here. Before we end, you know, a last two questions. Just, you know, as CFO, just quickly addressing any risks that you think about in terms of things that you wanna challenge your team to do better internally, things that you see on horizon, just making sure and anything is kind of ring-fenced as we all think about potential risks. One question after that, please. Well, risk, unfortunately is always there. You know, geopolitical risk, of course, is high- Mm-hmm ...in every industry, not only for us. We control what we can, and what we can control is our manufacturing, how we address demand, how we implement the pricing strategy. I'll say where we can extract more value in, you know, the next several quarters because demand is above supply, is to, you know, moving the mix more and more into the higher capacity drive, so we can extract little bit more exabyte from our manufacturing every quarter. Of course, those exabyte have a very good return for us. That is, I think, the focus. Focus on, you know, the quality of the product and the exabyte that we can generate quarter after quarter. You know, the team is doing an incredible job in extracting the maximum as they can. Amazing. We've got Mozaic 4+ ramping, that's new. We got more free cash flow return to shareholders. I'm sure everyone here is happy about that. As you ramp up in kind of the last minute here, just leave everyone with a final word. You know, what maybe is underappreciated? What should people thinking about the messages that you wanna leave, as you step off stage here? Well, underappreciated could be, you know, the state of the industry. Of course, everyone is, you know, impacted by the past. I would say the past was a different business, was based on client business, so on desktop, laptop, different application for the storage. Year after year, this business move into the big cloud. 80% of our business is data center, so it's all focused on high capacity drives. This is a new situation, a new industry where demand is very strong, where the industry is full in term of capacity, not adding units, but focusing a lot on technology. I think this will generate a lot of profitability for us and for the industry in general. This is something that maybe, you know, you need a little bit more time for people to get used to it. Mm-hmm. You know, in the past was not exactly this, but now it's 11 quarters. Mm-hmm. We did this already for 11 quarters. We only talk about the next four quarters. This is not a, you know, two, three, four quarter cycle. This is a huge change in the industry, in my opinion. Amazing. That's a great place to end, Gianluca. Thank you very much for your time. Thank you, Erik. Thank you.