Seagate Technology Holdings plc (STX), a leading provider of data storage technology and infrastructure solutions, is experiencing a surge in demand for its mass capacity storage solutions. This surge is being driven by the increasing adoption of cloud computing and the growing need for storage to support AI and machine learning applications. In the fiscal fourth quarter of 2024, Seagate reported non-GAAP revenues of $1.89 billion, exceeding the Zacks Consensus Estimate by 1.5%. This represents an 18% increase year-over-year and a 14% sequential increase. The company attributes this growth to strong demand for mass capacity solutions, with nearline cloud demand particularly strong.
The company’s mass capacity revenues jumped 46% year-over-year to $1.44 billion in the last reported quarter, fueled by robust global cloud demand. This trend is expected to continue in fiscal 2025, with cloud service providers investing heavily in AI applications and expanding their cloud infrastructure. This includes the training of large language models and the development of new hardware to support the growth of generative AI content. Seagate believes that hard disk drives (HDDs) will play a crucial role in enabling this growth, and expects HDD demand to accelerate in the future.
Seagate’s launch of the Mozaic 3+ hard drive platform, featuring Heat-Assisted Magnetic Recording (HAMR) technology, is also expected to help the company capture a greater share of the mass capacity storage market. HAMR technology is seen as a key enabler for megatrends like AI and machine learning, which drive long-term demand for cost-effective mass-capacity storage solutions. Seagate has completed multiple qualifications for its 24TB CMR / 28TB SMR drives and expects to begin volume shipments in the first quarter of fiscal 2025.
The company’s mass capacity exabyte shipments, representing more than 90% of total exabyte shipments, increased 38% year-over-year to 103.9 exabytes in the last reported quarter. This growth reflects the increasing demand for mass capacity storage across various applications, including nearline storage, video and image applications, and network-attached storage.
Looking ahead, Seagate is optimistic about its future prospects. Driven by the continued growth in mass-capacity demand, management anticipates first-quarter fiscal 2025 revenues to be $2.10 billion. The company expects gross margin to benefit from a higher mix of mass-capacity revenues and ongoing pricing actions. Non-GAAP earnings for the fiscal first quarter of 2025 are expected to be $1.40 per share. Management anticipates fiscal 2025 capex to be at or below the low end of its long-term target range of 4-6% of revenues.
However, Seagate is not without its challenges. The intense competition in the data storage industry presents a significant risk. Seagate faces tough competition from other major players, including Western Digital Corporation (WDC), NetApp Inc (NTAP), and Pure Storage, Inc (PSTG), in the HDD and SSD markets. It also competes with companies offering storage subsystems, like electronic manufacturing services and contract electronic manufacturing.
While the current growth trends offer a lucrative opportunity for all players in the industry, the fierce competition could put pricing pressure, potentially affecting margin performance. Therefore, Seagate will need to carefully manage its operations and find ways to differentiate itself in a crowded market to maintain its growth trajectory.
