Will Seagate Continue to Gain From Increasing Mass Capacity Demand?

Seagate Technology Holdings plc STX is a leading provider of data storage technology and infrastructure solutions.

Seagate reported revenues of $6.55 billion in fiscal 2024. In the fiscal fourth quarter of 2024, non-GAAP revenues of $1.89 billion beat the Zacks Consensus Estimate by 1.5%. The figure increased 18% on a year-over-year basis and 14% sequentially driven by growing demand for mass capacity solutions. Management projected revenues to be $1.85 billion (+/- $150 million) for the fiscal fourth quarter.

STX Witnesses Solid Demand for Mass Capacity

Seagate is witnessing mass capacity demand improvement with nearline cloud demand picking up pace. In the last reported quarter, mass capacity revenues surged 46% year over year to $1.44 billion, owing to stronger global cloud demand. Sequentially, mass capacity revenues were up 22%.

Strengthening the global cloud demand environment is fueling demand for nearline capacity demand. In the last reported quarter, nearline cloud revenues more than doubled year over year, owing to higher traditional cloud computing workloads and new AI deployments. STX expects this momentum to continue in fiscal 2025.

Also, cloud service providers are focusing more on the development of AI applications while building cloud infrastructure. This includes training of large language models and expansion of the entire hardware stack to cushion generative AI content-driven growth. Seagate believes HDDs will play a key role in enabling these stages of the AI adoption curve and expects HDD demand to pick up pace going ahead.

Seagate's launch of the Mozaic 3+ hard drive platform, featuring Heat-Assisted Magnetic Recording (HAMR) technology, is also expected to aid in capturing a greater share in the market of mass capacity storage solutions.

Seagate expects HAMR to aid in exploiting megatrends like AI and machine learning, which will drive long-term demand for cost-effective mass-capacity storage solutions. The company has completed multiple qualifications for its 24TB CMR / 28TB SMR drives. It expects to begin volume shipments in the first quarter of fiscal 2025.

STX's Mass Capacity Exabyte Shipments

Mass capacity exabyte shipments represent more than 90% of total exabyte shipments. In the last reported quarter, the company shipped 103.9 exabytes for the mass-capacity storage market (including nearline, video and image applications and network-attached storage). This recorded a year-over-year increase of 38% in exabyte shipments and 17% sequentially.

STX's Robust Outlook

Driven by incremental improvements in mass-capacity demand, management anticipates first-quarter fiscal 2025 revenues to be $2.10 billion (+/- $150 million).
Gross margin is expected 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 (+/- 20 cents).

The non-GAAP operating expenses are expected to be $270 million. At the midpoint of the revenue guidance, management expects the non-GAAP operating margin to grow in the high-teens percentage range of revenues. 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, for VIA, management anticipates sales to fluctuate in the second half of the calendar 2024. Though smart cities are the biggest end-market opportunity, the near-term budget visibility remains blurry amid existing macroeconomic uncertainty.

STX Needs to Watch Out for Cut-throat Competitive Landscape

The increasing demand trends offer all players a lucrative opportunity to drive growth thereby resulting in intense competition. Stiff competition can put pricing pressure which can affect margin performance.

Seagate faces tough competition from other players like Western Digital Corporation WDC, NetApp Inc NTAP and Pure Storage, Inc PSTG in the data storage industry including HDD and SSD manufacturers. It also faces competition from companies engaged in offering storage subsystems, like electronic manufacturing services and contract electronic manufacturing.

Headquartered in San Jose, CA, WDC is a leading developer and manufacturer of data storage devices and solutions based on NAND flash and hard disk drive technologies. Western Digital is well-positioned to gain from continued momentum in its HDD and Flash businesses. In the fiscal fourth quarter of 2024, sales from the Cloud end market climbed 89% year over year due to higher demand for its nearline HDDs and enterprise SSDs, along with improved pricing.

NetApp provides enterprise storage as well as data management software and hardware products and services. It assists enterprises in managing multiple cloud environments, adopting next-generation technologies like artificial intelligence, Kubernetes and contemporary databases, and navigating the complexity brought by the quick development of data and cloud usage. NetApp's performance is being driven by strong demand for an all-flash portfolio and growth in first-party and marketplace cloud storage services. All-Flash Array Business' annualized ARR was $3.4 billion, up 21% in the first quarter of 2025.

Headquartered in Mountain View, CA, PSTG provides software-defined all-flash solutions that are uniquely fast and cloud-capable for customers. Pure Storage's primary offerings are FlashArray and FlashBlade products, which include FlashArray//C, FlashArray//XL, FlashArray File Services, FlashBlade//S and FlashBlade//E. Momentum in its FlashBlade solutions, including FlashBlade//E and subscription-based offerings, is cushioning Pure Storage's performance. Healthy subscription services revenues (with 25% year-over-year growth in the second-quarter fiscal 2025) are tailwinds. In the last reported quarter, revenues soared 11% year over year and beat the Zacks Consensus Estimate by 1%.

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