Seagate Technology (NASDAQ:STX) reported fiscal second-quarter 2026 results that management said capped a “record-breaking” calendar 2025, with revenue and profitability exceeding expectations and demand remaining strong across data center markets. Executives highlighted record exabyte shipments and expanding margins, supported by a pricing strategy, a richer mix of high-capacity nearline drives, and a continued ramp of heat-assisted magnetic recording (HAMR) products under Seagate’s Mozaic platform.
Record quarter driven by data center demand
CEO Dave Mosley said the December quarter delivered sequential revenue growth across “nearly all end markets” and set new company records for exabyte shipments, gross margin, operating margin, and non-GAAP earnings per share. He characterized demand conditions as “exceptionally strong,” particularly in data center end markets, citing sustained demand growth for high-capacity nearline drives across global cloud data centers and continued improvement from the enterprise edge.
HAMR ramp and Mozaic roadmap
Mosley and CFO Gianluca Romano repeatedly pointed to HAMR as a key enabler of Seagate’s capacity roadmap and profitability. Mosley said Seagate ended calendar 2025 shipping 3 terabytes per disk Mozaic-based HAMR products to its first cloud service provider (CSP) customer, and that quarterly HAMR shipments exceeded 1.5 million units by year-end and “have continued to ramp.”
He said Mozaic 3 HAMR drives are now qualified with all major U.S. CSP customers, with a goal of qualifying all global CSPs within the first half of calendar 2026. Management also said qualifications for second-generation Mozaic 4 products are tracking to plan, with Romano stating the company expects to begin ramping Mozaic 4 “later this quarter” and have multiple CSPs qualified “in the coming months.”
Executives emphasized that the company intends to meet demand growth primarily through areal density gains and product transitions, rather than increasing unit production volumes. Mosley said average nearline drive capacities rose 22% year over year to approach 23 terabytes per drive, with cloud customers averaging significantly higher.
Financial results: higher margins and strong cash flow
Romano said December quarter revenue totaled $2.83 billion, up 7% sequentially and up 22% year over year. Non-GAAP gross margin was 42.2%, up 210 basis points sequentially, while non-GAAP operating margin expanded 290 basis points sequentially to 31.9%. Non-GAAP EPS was $3.11, up 19% quarter over quarter.
Seagate shipped 190 exabytes in the quarter, up 26% year over year, while keeping overall unit volume “relatively flat,” according to Romano. The data center market accounted for 87% of shipment volume. Data center shipments were 165 exabytes, up 4% sequentially and up 31% year over year, with data center revenue of $2.2 billion, up 5% sequentially and 28% year over year.
Romano said the company’s non-GAAP gross profit rose to $1.2 billion, up 13% sequentially and 44% year over year, outpacing revenue growth. He attributed margin expansion to pricing execution and growing adoption of high-capacity products, noting a “modest sequential increase in revenue per terabyte” that the company expects to continue into the March quarter.
Operating expenses on a non-GAAP basis were $290 million, roughly flat sequentially. Operating expense as a percentage of revenue declined to 10.3%, “rapidly trending” toward the company’s long-term target of 10%, Romano said.
On cash flow, Seagate generated $607 million in free cash flow, the highest level in eight years, according to Romano. The company invested $116 million in capital expenditures, about 4% of revenue, and reiterated its expectation for fiscal 2026 capex to remain within 4% to 6% of revenue. Seagate ended the quarter with just over $1 billion in cash and cash equivalents, and total liquidity of $2.3 billion including an undrawn revolving credit facility.
Romano also said Seagate retired approximately $500 million of exchangeable senior notes due 2028 and returned $154 million to shareholders through dividends. Gross debt was about $4.5 billion at quarter-end, while the net leverage ratio improved to 1.1x based on adjusted EBITDA of $962 million.
Outlook: March quarter growth and margin expansion
For the March quarter, Romano guided revenue to $2.9 billion plus or minus $100 million, representing a 34% year-over-year improvement at the midpoint. Non-GAAP operating expenses are expected to be approximately $290 million, and based on the midpoint of revenue guidance, non-GAAP operating margin is expected to approach the “mid-30s%” range.
Non-GAAP EPS is expected to be $3.40 plus or minus $0.20, assuming a tax rate of about 16% and a non-GAAP diluted share count of 230 million shares, including estimated dilution from the 2028 convertible notes of about 7.6 million shares.
Romano said management expects data center demand to more than offset typical March-quarter seasonality in the edge IoT market. He also said Seagate expects free cash flow to expand further in the March quarter, driven by demand trends, operational efficiency, and capital discipline.
Pricing, LTAs, and supply discipline in focus
During Q&A, analysts pressed management on pricing, long-term agreements (LTAs), and the durability of margin gains. Mosley said pricing will be dictated by demand and that “flat to slightly up is certainly possible,” depending on how demand and capacity evolve into 2027 and 2028. Romano added that Seagate has been executing “a little bit better” than the incremental margin model shared at its Investor Day, which assumed 50% incremental margin above $2.6 billion in revenue, while emphasizing the framework is meant to apply over years rather than a few quarters.
On allocation and contract structure, Romano said Seagate has purchase orders in place for all quarters of calendar 2026 and that “volume and pricing is well defined” for the year, with most of the volume already allocated. For calendar 2027, he said the company has “very good indication and agreement on volumes,” but pricing has not been fixed yet.
Executives also tied customer behavior to improved planning. Mosley said customers that can’t get what they need immediately are increasingly planning procurement “next year better and the following year better,” which he said improves Seagate’s visibility and factory planning.
Management also declined to provide a calendar 2026 exabyte shipment range, reiterating its longer-term expectation for nearline exabytes to grow in the mid-20% range, while noting Seagate has performed “a bit better” in recent quarters and aims to “extract as many exabytes” as possible through transitions from 2.4 to 3 to 4 terabytes per platter.
About Seagate Technology (NASDAQ:STX)
Seagate Technology (NASDAQ: STX) is a global data storage company that designs, manufactures and sells a broad range of storage products and systems. The firm’s product portfolio includes traditional hard disk drives (HDDs), solid-state drives (SSDs), hybrid storage devices and integrated storage systems aimed at enterprise, cloud, OEM and consumer markets. Seagate also provides services that support its hardware offerings, including data recovery and storage management solutions.
Seagate’s products are used in a wide array of applications, from large-scale data centers and cloud infrastructure to desktop and portable consumer devices.
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