Dave Mosley
Chief Executive Officer at Seagate Technology
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 enabled us to extend our aerial density leadership. As we shared in the past, growing aerial density is the most efficient way to enable data center operators to scale mass capacity storage to lower their TCO and to advance their sustainability targets.
I'll discuss the platform in more detail shortly and also share progress toward qualification and volume ramp of our first HAMR-based Mozaic product, which lays the foundation for products posting 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 downcycle.
The enhanced discipline we've built into the business, including strict cost controls, management of supply, and 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 30% minimum benchmark level 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 and 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 projected 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 a 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 CMR, 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+ terabyte per disk product is the first major release of the HAMR-based Mozaic platform and we are rapidly nearing qual completion with our initial hyperscale launch partner. The qual has gone very well and we are working with this customer at their request to fully transition future Seagate demand through the 3+ terabyte per disk platform. Volume ramp is starting in the March quarter according to plan, with a goal to ship about one 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 the majority of U.S. hyperscalers, and a couple global cloud customers during calendar 2024.
Starting at 3 terabytes per disk, Mozaic delivers a quantum leap forward in aerial 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 its advanced reader technology is one of the world's smallest reading centers. While Mozaic represents groundbreaking technology, the platform is fully plug-and-play with existing conventional drive 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, aerial 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 resulted in a better TCO value proposition for our customers and attractive economics for Seagate. Second, as we scale aerial density, the
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 the 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 operator 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 position 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 the details on our financial performance and outlook.
