Welcome to the Seagate Technology Fiscal Second Quarter 2024 Conference Call. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Shanye Hudson, Senior Vice President, Investor Relations. Please go ahead.

Thank you. Hello, everyone, and welcome to today's call. Joining me are Dave Mosley, Seagate's Chief Executive Officer; and Gianluca Romano, our Chief Financial Officer. We posted our earnings press release and the detailed supplemental information for our December quarter results on the Investors section of our website. During today's call, we'll refer to GAAP and non-GAAP measures. Non-GAAP figures are reconciled to GAAP figures in the earnings press release posted on our website and included in our Form 8-K. We have not reconciled certain non-GAAP outlook measures because material items that may impact these measures are out of our control and/or cannot be reasonably predicted. Therefore, a reconciliation to the corresponding GAAP measures is not available without unreasonable effort. Before we begin, I'd like to remind you that today's call contains forward-looking statements that reflect management's current views and assumptions based on the information available to us as of today and should not be relied upon as of any subsequent date. Actual results may differ materially from those contained in or implied by these forward-looking statements as they are subject to risks and uncertainties associated with our business. To learn more about the risks, uncertainties, and other factors that may affect our future business results, please refer to the press release issued today and our SEC filings, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q, as well as the supplemental information, all of which may be found in the Investors section of our website. As always, following our prepared remarks, we'll open the call for questions. I'll now turn the call over to Dave for his opening remarks.

Thanks, Shanye, and hello, everyone. I am going to focus on two key topics in my remarks today. First, we delivered solid fiscal second quarter results with revenue at the midpoint of our guidance and non-GAAP earnings of $0.12 per share, exceeding the upper end of our guided range. And second, last week, we marked a major inflection point in mass capacity storage with the launch of our groundbreaking Mozaic platform. Mozaic is intentionally named to describe the fusion of innovative technologies including Seagate's unique implementation of HAMR that collectively enable us to extend our areal density leadership. As we shared in the past, growing areal density is the most efficient way to enable data center operators to scale mass capacity storage, lower their TCO, and to advance their sustainability targets. I'll discuss the platform in more detail shortly and also share progress towards qualification and volume ramp of our first HAMR-based Mozaic product which lays the foundation for products boasting 5 terabytes per disk and beyond. Let me start by highlighting our fiscal Q2 performance. Revenue of $1.56 billion was led by sequentially improving cloud nearline demand and a seasonal uptick in consumer drives, offset partially by the decline in VIA sales that we anticipated. Strong cost discipline and execution on pricing adjustments resulted in non-GAAP operating income tripling quarter-over-quarter and increasing roughly 17% year-over-year despite lower revenue levels. These performance and demand trends affirm our expectation for the September quarter to be the bottom of this prolonged down cycle. The enhanced discipline we've built into the business, including strict cost controls, management of supply, and the strengthening of our balance sheet gives us an excellent foundation to build on as we move into a broader recovery. Additionally, execution of our product roadmap is expected to structurally improve profitability and return us to our targeted financial model which supports healthier industry economics. We enter calendar 2024 with increased confidence in our non-GAAP gross margin trajectory, including our ability to reclaim a minimum benchmark level of 30% at quarterly revenues that are at least 20% below our prior cyclical peak. From a demand standpoint, gradual recovery within the U.S. cloud market has started to take shape, reflecting solid progress in consuming excess inventory along with more stable end-market behavior. Enterprise OEM demand trends have also stabilized within the U.S. markets. Customer feedback still points to macro-related concerns, although IT hardware budgets are projected to modestly improve in calendar 2024 and traditional server growth is expected to resume, trends that support incremental HDD demand growth in the calendar year. We were also encouraged to see incremental demand among certain non-U.S. cloud and enterprise customers in the December quarter. Across the broader China markets, we project a relatively slower pace of recovery given the ongoing economic challenges within the region. However, some local governments announced further steps to support the region's economy which our customers believe will bolster local demand across mass capacity markets in China in the second half of the calendar year. These efforts support our view for demand in the VIA markets to pick up sometime after the Lunar New Year. Against the dynamic market environment, Seagate has continued to execute on a mass capacity product portfolio that further advances our technology leadership and serves the breadth of our customers' unique workload requirements while also supporting our objective of improving profitability. I'll outline the execution path for our latest product launches and the relevance of the new platform and then share how we believe our mass capacity solutions deliver economic value both to our customers and to Seagate. Our product qualification and ramp plans are on track with what we've been articulating over the past several quarters. We began shipping initial volumes of our 24-terabyte PMR and 28-terabyte SMR drives in the December quarter. Customer reception has been positive, as illustrated by the numerous active qualifications underway across multiple cloud and enterprise customers. Our 3-plus terabyte per disk product is the first major release of the HAMR-based Mozaic platform and we are rapidly nearing qualification completion with our initial hyperscale launch partner. The qualification has gone very well, and we are working with this customer at their request to fully transition future Seagate demand to the 3-plus terabyte per disk platform. Volume ramp is starting in the March quarter according to plan with a goal to ship about 1 million units in the first half of this calendar year. We then expect to continue to ramp through the balance of the calendar year and we are currently broadening our customer engagements. Based on their planned timelines, we expect to complete qualifications with a majority of U.S. hyperscalers and a couple of global cloud customers during calendar 2024. Starting at 3 terabytes per disk, Mozaic delivers a quantum leap forward in areal density innovation with a well-defined path that extends to 5 terabytes per disk and beyond. This transformative platform is the culmination of decades of development and numerous technologies pioneered by Seagate, including our Superlattice platinum alloy media that enables higher bit density, the revolutionary plasmonic writer with integrated laser capable of reliably writing each bit, and an advanced reader technology that boasts one of the world's smallest reading sensors. While Mozaic represents groundbreaking technology, the platform is fully plug-and-play with existing conventional drives and addresses the breadth of our customers' mass capacity workloads. These drives can also be deployed with SMR technologies for the few customers able to integrate SMR to take advantage of the additional capacity gains. As I noted earlier, areal density gains are the most efficient way to scale storage capacity. Let me offer a few clear examples. First, as we execute our product roadmap we can deliver increasingly higher capacity drives with minimal changes to the bill of materials. This results in a better TCO value proposition for our customers and attractive economics for Seagate. Second, as we scale areal density to 4 terabytes per disk, this enables extremely cost-effective product offerings in the low to mid-range capacity points used by a majority of our enterprise VIA NAS customers. With 4 terabytes per disk, we use half the number of heads and disks to produce a 20-terabyte drive. Prototypes are already working in our labs with revenue planned for the second half of calendar 2025. As we ramp production to expand to other end markets, we gained tremendous manufacturing efficiencies, adding to the attractive margin opportunities that I just described. We continue to build on our technology and operational innovations with each successive product generation. For example, we are executing plans to vertically integrate the laser manufacturing process which enhances supply flexibility, provides greater control of the technology, and provides opportunities to lower production costs. Collectively, we believe these actions underpin our mass capacity cost reduction roadmap while also providing a very strong TCO story for a broad range of customers. While TCO remains a key driver for mass capacity storage, data center operators are also focused on power and space consumption, particularly as investments in compute-intensive infrastructure proliferate to support generative AI applications. For context, the latest AI GPUs consume up to 700 watts which is roughly 100 times more power-intensive than a hard drive operating at maximum performance. Our products can help data center operators store more exabytes using less power and space. To quantify this, a single 32-terabyte Mozaic drive can replace three 10-terabyte drives storing more capacity at one third of the power and footprint. TCO and sustainability gains of this magnitude are decision-altering when architecting a new data center and offer a highly economical path to modernizing existing infrastructure. We believe that this dynamic can potentially accelerate the replacement cycle. As we move into the early stages of demand recovery, Seagate's strong focus on maintaining our product and technology roadmap through this past down cycle positions us to return to profitable growth and address data center operators' most important challenges: cost, power, and space. We believe we've got the right product at the right time, heading into a gradual recovering mass capacity market. With that, Gianluca will now cover details on our financial performance and outlook.

Thank you, Dave. Seagate's December quarter financial results reflect solid operational execution. Revenue was $1.56 billion, up 7% quarter-over-quarter. Non-GAAP operating income more than tripled sequentially to $127 million, leading to non-GAAP operating margin expanding to 8.2% of revenue, up 540 basis points quarter-over-quarter. And non-GAAP EPS was $0.12, improving $0.34 sequentially and exceeding the high end of our original guidance range, reflecting both improving demand trends and our focus on profitability. As these trends continue, we expect our results to improve and reach the target financial model over time. Within our hard disk drive business, exabyte shipments grew 6% sequentially to 95, with revenue growing 7% to $1.4 billion. Revenue performance was mainly driven by an expected improvement in cloud customer demand, along with seasonal improvement in the consumer market. Within the mass capacity market, revenue increased 4% sequentially to $1.1 billion, driven mainly by strong nearline cloud demand, offsetting the expected decline in the VIA market. Mass capacity shipments totaled 83 exabytes compared with 79 exabytes in the September quarter. Mass capacity shipments as a percent of total HDD exabytes were 87%, which is comparable to the prior quarter's 88%. For nearline products, shipments of 65 exabytes were up quarter-over-quarter from 56 exabytes. Average capacity per nearline drive continues to increase sequentially, reflecting modest demand improvement among both U.S. cloud customers and China cloud customers. We believe that inventory among many CSP customers is reaching more normalized levels and anticipate continued nearline demand improvement in the March quarter and beyond. VIA market revenue was down sequentially in the December quarter, consistent with our expectations. Looking ahead, we expect VIA to reflect more typical seasonal patterns through calendar 2024, with the March quarter representing the low point. Legacy product revenue was $324 million, up from $278 million in the prior quarter, driven by higher seasonal demand in the consumer market. We expect the legacy market to be sequentially lower in the March quarter following typical consumer demand trends post-holiday season. Finally, revenue for our non-HDD business increased to $171 million compared with $159 million last quarter, primarily driven by improved SSD demand. Moving on to the rest of the income statement. Non-GAAP gross profit increased sequentially by roughly $80 million in the December quarter to $367 million, ahead of our original expectations. Non-GAAP gross margin of 23.6% expanded nearly 400 basis points compared to the previous quarter, due in part to pricing adjustment and cost savings from earlier restructuring activities as well as lower amortization costs which were about $40 million consistent with our view for ongoing demand recovery. However, we expect underutilization costs to marginally increase for the next couple of quarters as we transition some of our production lines to Mozaic. Accounting for this headwind, we still expect to see margin expansion every quarter as nearline demand continues to improve gradually and we ramp our latest products along with continued execution of price adjustment across the entire portfolio. Non-GAAP operating expenses totaled $240 million, down from $248 million in the September quarter and reflecting ongoing spending optimization. With the benefit of diligent expense management and higher margins, adjusted EBITDA improved more than 50% sequentially to $216 million. Non-GAAP net income turned positive in the December quarter, resulting in non-GAAP EPS of $0.12 per share based on a diluted share count of approximately 211 million shares and tax expense of $17 million. Moving on to cash flow and the balance sheet. In the December quarter, we had inventory flat at just below $1.1 billion. Capital expenditure was also flat sequentially at $70 million. A majority of planned capital expenditure was completed in the first half of fiscal '24. Consistent with prior commentary, we still expect fiscal '24 CapEx to be down significantly compared with fiscal '23, also still sufficient to support our innovation-driven product roadmap. We generated about $100 million in free cash flow and returned $146 million to shareholders through the quarterly dividend exiting the quarter with 210 million shares outstanding. We closed the December quarter with $2.3 billion in available liquidity, including our undrawn revolving credit facility. Our debt balance was $5.7 billion at the end of the December quarter, with more than 90% of our long-term debt obligation beyond 3 years. Non-GAAP interest expense was flat quarter-over-quarter at $84 million and we project similar expense levels in the March quarter. Turning to our outlook. We expect incremental improvements in mass capacity demand from both cloud and enterprise customers to more than offset seasonal-related declines in VIA and the legacy markets. With this context, March quarter revenue is expected to be in the range of $1.65 billion, plus or minus $150 million, an increase of 6% sequentially at the midpoint. We are planning for non-GAAP operating expenses of approximately $260 million as our temporary pay reductions ended late in the December quarter. At the midpoint of our revenue guidance, we expect non-GAAP operating margin to expand to the low double-digit percentage range including underutilization costs of approximately $50 million. We expect our non-GAAP EPS to be $0.25 plus or minus $0.20 based on a diluted share count of approximately 212 million shares and a non-GAAP tax expense of $27 million. I will now turn the call back to Dave for final comments.

Thanks, Gianluca. Heading into calendar 2024, we have increased confidence in a gradual nearline demand recovery that coincides with the launch of Mozaic. We believe this platform delivers sustainable areal density leadership with compelling TCO advantages, enabling data center operators to satisfy their increasing workload demands while conserving both power and space. This combination of capabilities is significant and our timing is fortuitous. We've navigated the last seven quarters with discipline and focus while maintaining our product and technology execution plans. As a result, we emerge well-positioned to drive optimized financial performance to support our capital return commitments and return to our targeted profitability levels over time. Our strong execution is only possible through the tremendous efforts of our global team and I would like to thank them for their resiliency and dedication through this dynamic period. I would also like to thank our suppliers, customers, and shareholders for your ongoing support of Seagate. Operator, let's open up the call for questions.

And today's first question comes from Wamsi Mohan with Bank of America.

Dave, you alluded to the progress that you've made on Mozaic. Given what you know now, how would you characterize the outlook for maybe HAMR units in the second half of '24 or perhaps into '25? And I think you mentioned your first customer looking to transition to 3 terabyte HAMR. What kind of exabyte installed base opportunity is that? And maybe you could address it even more broadly across hyperscalers. That would be very helpful.

Yes. Thanks, Wamsi. So we were very quantitative and prescriptive on the last call about the front half of this year. I think we won't be as much on the back half of this year but the ramp is continuing at a healthy pace. And we're continuing to look at all what customers need on the last generation platform, next-generation platform, trying to balance supply and demand really well. I think that's the primary metric that we're focused on, making sure we get financial predictability. We'll drive the HAMR transition aggressively this year. And then Mozaic really gets into when we get to four terabytes of flatter and how we are populating that chain. I mean, we expect to drive as many HAMR exabytes into 2025 as we can. So we're off to a good start, and we're going up the ramp and trying to work the yields and get everybody qualified like we talked about. Nothing really changed in the last 90 days, I would say, problems are tough problems but the team is knocking them down. So I'm pretty happy with that.

Okay. Gianluca, could you help us just think about the margin ramp? I think you noted some headwinds that will continue from underutilization charges, but you're also expecting the margins to increase throughout calendar '24. Could you perhaps also help us think through in that margin commentary how the margin differential is between HAMR and CMR mass capacity drives and how that might change over time?

Yes, good question. Well, first of all, our December quarter showed a good improvement in profitability. Our gross margin was up about 4%. Operating margin was up more than 5%, so I'll say this profitability recovery already started. Part of that is, of course, coming from the cost actions that we have taken in the last almost two years. And of course, the mix improvement and the pricing action that we have taken in the last several quarters. So this will continue to be reflected in future quarters. The underutilization could be slightly higher, a little bit higher, but not very much higher which is a little bit higher. So I expect that for the next few quarters to see mix going in the right direction, meaning more high-capacity drives and starting to see the impact from some volume of HAMR. So March will not be particularly high volume but we will have more in June. And as Dave said, we will have even more into the second part of the calendar year. With the business improving, demand improving, we go into possibly higher revenue and we are, of course, targeting to bring back our gross margin into the target range of 20% to 23%.

And our next question today comes from Erik Woodring with Morgan Stanley.

Dave, could you elaborate on the dynamics concerning the hyperscalers and their inventory levels? How much longer do you anticipate challenges, and what insights can you share about their behavior and your discussions with them? Additionally, how are they reacting to your pricing adjustments and production changes compared to three months ago?

Yes. The dynamics for them is very interesting and it has affected us quite a bit over the last year or so. I do think the inventory situation is much, much better than it was six months ago. So I'll say it's basically cleaned up at this point. The rate of consumption isn't what it was two years ago. But I do think it's going to accelerate a little bit. The interesting dynamic as I look back on the last one and a half years was the push for AI and how it consumed a lot of compute dollars for the compute infrastructure that was going on in the data centers. I do think ultimately, there's a data back-end piece of that. The interesting dynamic as I look back on the last one and a half years was the push for AI and how it consumed a lot of compute dollars for the compute infrastructure that was going on in the data centers. We are definitely having those conversations with our customers. And factoring that into what exactly our volume plans are for the next three years and saying this is what we're intending to build.

And our next question today comes from Aaron Rakers with Wells Fargo.

I would like to ask about the income statement and the P&L trajectory moving forward. The guidance you've provided indicates the first sequential increase in operating expenses that we've observed. While I understand that fundamentals are improving, I'm interested in how we should view the pace of quarterly operating expenses and what a normalized level might look like over the next few quarters. Additionally, as free cash flow generation starts to return, could you remind us of your thoughts on the capital structure and the potential for reentering the market with share repurchases?

Thank you, Alan. Well, in terms of OpEx, if you look, our trend has always been very positive in terms of OpEx control, cost control. Just a few quarters ago, we were at well above $300 million. So we went fairly low, especially in the last quarter, now at $240 million. As I said in the prepared remarks, we have a little bit higher costs expected in this quarter because we took some extraordinary action on salary that ended at the end of the last quarter. So we have a little bit higher labor cost. As usual, we will focus on OpEx control, so this level is probably reasonable for fiscal Q3 and fiscal Q4. And then next fiscal year, probably a little bit higher cost in OpEx. Free cash flow, we had another positive free cash flow quarter. Of course, always very important for us to generate positive free cash flow. Revenue is increasing, profitability is increasing and therefore, we expect free cash flow also to improve sequentially through the next few quarters.

And our next question today comes from Krish Sankar with TD Cowen.

This is Eddie for Krish. Congrats on the HAMR launch. It's an exciting opportunity for you guys. I have a question regarding the customer value you are providing with these two terabyte HAMR drives. Will customers be enjoying lower price per terabyte versus 22 and 24 terabyte CMR drives, for example, or because HAMR yields haven't matured yet, will this benefit be more about power and space, with the lower price per terabyte to take place in the future?

Yes. Well, it's a good question. We will balance everything, of course, based on what our yields are and our costs are and try to incentivize the customers, but there is some incentive business provided by their power and space reductions as well. We call that their TCO proposition. So all things in balance. I do think that the price per terabyte, if you will, is nominally the same. It may be just slightly lower, but there's definitely going to be a TCO incentive for the customers to move off of the lower capacities.

That's great color. And if we just suppose the HAMR transition to the transition from LMR to PMR that took place back in 2006-2008, you guys went from like 0% PMR mix to 100% within 5 to 6 quarters. Do you think the HAMR transition will be as quick, or do you see some reasons why this transition may be a little bit slower?

Cycle times are a little bit longer now, so I don't think it will be as fast. I mean, I'd like it to be as fast and we'll continue to drive it as quick as we possibly can. The one thing I will say is that our last generation PMR product, the 2.4 terabytes drive that we've just talked about has a remarkably similar kit of parts as the HAMR drives do. So relative to what we're making one versus the other, it's not a big deal and we can get through customer transitions easier. I think as we gain more confidence over the 4-plus terabyte Mozaic platforms, then we'll definitely want to accelerate.

And our next question comes from Thomas O'Malley with Barclays.

I appreciate it. So I just wanted to understand the move from qualification to revenue recognition. It sounds like with your largest customer, you're finishing qualification right now and you're obviously pointing to some big units in the first half. You mentioned on the call that you're expecting qualifications with the majority of the U.S. cloud and a couple of others in calendar year '24. Would you expect a similar timeframe between qualification and revenue recognition? If those are getting qualified in the second half of this year, could you see revenue from a large number of additional customers? Just wanted to understand the timing.

Thanks, Tom. It's complex. There are some customers that are relatively shorter qualifications, some of that because of feature set, making sure we get the feature set checked out. If they're on a generic feature set that we're already shipping versus their own unique feature set we have to make sure we're doing all those things right. That's normal in any near-line transition. A lot of people are seeing the TCO benefits, so they're asking and trying to speed these qualifications through, right, because they want that benefit to flow through as well. We will also be limited on our ramp as to what we can do and the cycle times are quite long. So we're going to balance all these things together.

Yes, that's helpful. And then I just wanted to ask one on the margin side. So you guys have talked about 20% below peak but still getting back to that 30% gross margin target or at least at the low end. If you look at what you're saying for mass capacity growth for the industry, mid-20s if you just assigned that to your revenue ramp over the next couple of years, it takes probably 1.5 years to kind of get to that $2.5 billion, $2.6 billion mark using a linear growth rate. Is that the time frame we should be thinking about until you get back to that 30% to 32% gross margin? Or can you get there before? What are the levers that get you there before revenue gets back to that $2.5 billion, $2.6 billion?

Thank you, Tom. The major lever is HAMR. The more we ramp up HAMR, the better our margin will be. We are becoming more and more positive on the timing of that continuous improvement in our margin. I would say we gave an indication last quarter in terms of the level of revenue that we think we need to achieve in order to get a certain level of gross margin. That is probably I'm getting a little bit more optimistic right now. So probably we can do an even lower level of revenue.

And our next question comes from Karl Ackerman with BNP Paribas.

Gianluca, it's encouraging to see an improving gross margin trajectory, but it doesn't appear to be driven by price yet. Given our mass capacity suggests that price per terabyte did fall low single digits sequentially and year-over-year. Could you perhaps address whether we should expect previous actions to raise prices across the channel may occur over the next couple of quarters? I have a follow-up, please.

Well, I would say you can see the good improvement in our profitability. A good part of that is actually coming from pricing. Of course, you need to check into the like-for-like pricing. The mix has, of course, always a major impact on the average. We are very happy with what we are doing, both on pricing and on cost. This quarter shows a fantastic improvement in profitability, both gross margin and operating margin. And if you look at our guidance, this implies another strong improvement in profitability. So pricing is a good part of that.

I would say, Karl, the raw demand is still not what it was two years ago. And we have a supply chain that's not entirely healthy yet. We have to continue to work on those actions. But I do think over time, especially incentivizing transitions to newer mass capacity drives. My sense is that in the next year or two, we'll get to the point where we get high enough on the ramp that we can be very predictable. And then I think things will stabilize quite a bit.

And our next question comes from Kevin Cassidy of Rosenblatt Securities.

Congratulations on the great results. You implemented a build-to-order program with your customers. Can you give an update on that? Is that still active? And how is it giving you visibility?

Yes. Thanks very much. It is and it's transitioned from my last comments as well because the industry just at the levels that we're at, we can't fund the investment to make an areal density and exabyte growth over time with the revenue and margins where they were. What helps us is to run factories is the improved visibility and predictability toward demand. I think that's why the HDD industry has changed fairly dramatically through this cycle, the last six or eight quarters because capacity did come at the same time that demand was down. We need this build-to-order framework to just get back to a healthy industry and we are rewarding predictability with our customers.

Okay, great. And you mentioned vertical integration of your laser technology. Is that a cost saving or is it more controlling the supply chain?

Yes. I think at this point, it's been a long time coming and we definitely value the suppliers that have helped us get HAMR products to market. We also feel like given how intricate this silicon photonic circuitry is that we needed our own capability to control but right now, it's more of a technology second sourcing, if you will. It's been a long time coming, and part of the reason we're talking about it as part of Mozaic is because it's very relevant as we get to the 4-terabyte platter and 5-terabyte platter. There has been some noise out there in the industry about, well, as goes the ramp of that supplier, so goes the Seagate ramp, and that's clearly not true.

And our next question comes from Stephen Brian Fox with Fox Advisors, LLC.

Dave, I was just wondering if you could zoom out a little bit without putting any kind of time frame on it. To get to the 30% gross margins, it seems like you can almost get there from here on just the typical incremental margins from volumes. But based on everything you said, it doesn't seem that easy, especially early stage with HAMR versus later stage. Can you sort of walk through some of the puts and takes, say, over the next two to three quarters versus, say, when you hit that volume crossover where it becomes more smooth to get to the margin? It's just there's been a lot of comments around this. Maybe you could just sum it up.

Yes. We are ramping HAMR according to some prescriptive schedule. We can deploy it into certain mass capacity hyperscaler markets. We can also deploy it in other markets, depending on how we choose to do things. The rate at which we are able to transition and our yields and scrap and things like that will dictate the margins, especially once we get to four terabytes per platter, then I think that becomes more and more accretive in margin. Fundamental demand will shape the next few quarters from a margin perspective. My sense is the demand has still not come anywhere close to where it was two years ago.

Yes, no, I said before, I think the combination of stronger demand through the cycle and our very good products based on HAMR technology will drive further improvement in gross margin, sequential improvement. Now I think we will have a sequential improvement through the entire calendar '24.

And our next question comes from Timothy Arcuri with UBS.

This is Mia standing in for Tim. I have one question. Since you don't report orders, could you provide some insight into the book-to-bill ratio and how orders compare to revenues? It would be helpful to understand how the book-to-bill has been trending and your expectations for it over the next couple of quarters.

Yes, that does get into our build-to-order plans. We are definitely, like I said before, very prescriptive on what we're building for people two, three, four quarters out. As long as we all stay on that plan, I think that's predictable economics for our customers as well. So far, the progress has been fairly good and we're getting better visibility in the next quarter and beyond.

And our next question comes from Vijay Rakesh with Mizuho.

Dave, just on the enterprise hard disk drive side on the hardest asset. Do you see, given the 25% exabyte growth and recovery on the TC side this year, do you expect those revenues to get back to that $2 billion run rate exiting '24, I guess calendar '24?

No, we don't guide after this quarter. So we just gave a good guidance for the March quarter in terms of revenue increase and profitability increase. We expect sequential improvement through the quarter but we don't give specific guidance on revenue for the end of the calendar year.

Yes. I would say that, obviously, we're watching near-line demand, CSP demand on-premise enterprise demand continuing to build strength, but not nearly as big as it was a couple of years ago. We're being very careful building into it. The one point that you just raised was the whole AI TPC demand, which I think is still very early innings in this but we do see opportunity there, high-end workstations, if you will, that are running AI applications may actually be an interesting opportunity.

Got it. And then on the gross margin line, sorry to interrupt, but do you see you guys getting back to that target window of 30% exiting this year? Especially on the HAMR side, I think Dave mentioned you can do it with four terabyte plus five disks or a 20-terabyte drive versus seven to ten disks now. What are the gross margins on HAMR versus where you see your corporate margins today? I guess.

We know we said in the past, amortized gross margin is for sure accretive to the corporation. So it's always above our average. Right now, as you know, there is no HAMR drive in our results. But now we see starting in the March quarter and you already see some improvement in our guidance. It will be, I expect, more when we go into the June quarter and through the rest of the calendar year. We are positive on the profitability from that product.

And our next question comes from Ananda Baruah with Loop Capital.

Really appreciate it. I guess for Dave and Gianluca can jump in here, too. The hyperscalers are sort of having some conversation about data center redesign over the coming years, a lot of this is around GPU compute. But they are referring to it as data set reasons on more generally and Vale. If that occurs, do you have any opinion on if there would be incremental opportunity for near-line drive that would, I guess, substantively be like in addition to whatever data growth is going on? So I just wanted any thoughts on that in any context. And that's it.

Yes. Ananda, it's a real complex topic. What I would say is that the compute infrastructure is changing dramatically and the memory architectures will change to support that compute architecture very dramatically as well. So there is a lot of redesign discussion going on. If anything, we made reference to this in the prepared remarks, there's cost power and space are at a premium. There's many AI applications from what I'm hearing that there's just not enough power for and our infrastructure is going to be critical.

So that would be in addition to the 25% data run rate driven by that kind of power as a catalyst date.

It's hard to say. It depends on the bills and how much people are having to pay for it. Again, I think in the AI applications that are really exploding right now, power is going to become one of the limiting factors. The extent that there may be a really good payoff in not only cost savings, space savings, and so on, but also just freeing up that power infrastructure to go to other things. I mean, that might actually help us get above the 25%.

And our next question comes from Mark Miller of the Benchmark Company.

Congratulations on the launch of Mozaic. I'm just wondering, you mentioned it briefly. What kind of traction are you seeing from AI-related opportunities? And how do you see that ramping throughout the year?

Yes, Mark, I'm pretty cynical sometimes on these things, and I'm looking for POs that actually say AI on them. They are starting to happen but it's still fairly small. Again, I'll go back to my previous comments; these are really applications that have been developing on a lot of fronts over many years anyway. When we get into specific things like large language models where people talk about, I think the data infrastructure impact piece is still secondary to the compute piece even at this point. As a result, Seagate is focused on executing our product road map, leveraging the advanced technologies in our Mozaic platform which we believe positions us well to enhance profitability over the near term and capture long-term opportunities for mass capacity storage. I'd like to close by once again thanking all of our stakeholders for their ongoing support of Seagate. Thanks for joining us today, and we look forward to speaking with you during the quarter.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.