Seagate closed its fiscal year with $3.6 billion in quarterly revenue, up 48 percent from a year earlier, and its shares added more than $100 apiece over the two trading days after the report. Not bad for a company that sells spinning magnetic platters, a technology I was assured was doomed back when I still carried a flip phone.
The buyers are cloud data centers, and the product they want is the nearline drive. Nearline is the warehouse shelving of the cloud: not the fastest storage in the building, but by far the cheapest place to keep data you intend to use again. AI turns out to generate oceans of exactly that kind of data, and Seagate says the vast majority of its nearline capacity is already allocated to customers into calendar 2028 under long-term agreements.
The quarter's technical hero is HAMR, short for heat-assisted magnetic recording and pronounced, delightfully, like the tool. A tiny laser warms each spot on the disk for a nanosecond so the drive can write on magnetic grains too small and too stubborn to flip when cold, which is how you squeeze more terabytes onto the same platter. Drives built on Seagate's HAMR-based Mozaic platform reached about 40 percent of nearline exabyte shipments in the quarter, and the company told analysts its Mozaic 4 generation, which stretches to 44 terabytes per drive, is ramping with its two largest cloud customers.
Margins tell the rest of the story. Gross margin reached 52.7 percent on a non-GAAP basis, up 570 basis points from the prior quarter, and free cash flow hit $1.1 billion, the company's strongest in more than a decade. "Seagate's strong fourth quarter exceeded our expectations for revenue and non-GAAP EPS, capping a fiscal 2026 in which we grew annual revenue 34%, delivered record profitability, and generated a record $3.1 billion in free cash flow," chief executive Dave Mosley said in the earnings release.
Behind those margins sits a supply squeeze. Seagate's price per exabyte rose roughly 10 percent year over year in the quarter, and finance chief Gianluca Romano was candid about why on the earnings call. "It's not that we are changing our strategy, but the gap between supply and demand is now a little bit bigger," he said. Translation for the rest of us: when every hyperscaler wants shelving at once, the shelf maker stops discounting.
Guidance points the same direction, with revenue of $4.1 billion give or take $100 million and non-GAAP earnings of $7.30 a share at the midpoint for the September quarter. Rival Western Digital reports on August 5, and The Motley Fool notes its shares rose 15 percent in Seagate's slipstream as investors reset expectations for the whole sector.
For years the storage industry begged its customers to believe data would keep growing. The customers now believe it so completely that they are booking drives two years in advance, and for the first time in a long while, the people making the platters get to name the price.
Leave a Reply