STX income name for the length finishing December 31, 2024.
Symbol supply: The Motley Idiot.
Seagate Generation Plc (STX 3.67%)Q2 2025 Income CallJan 21, 2025, 5:00 p.m. ET
Contents:
Ready Remarks Questions and Solutions Name Individuals
Ready Remarks:
Operator
Excellent afternoon, and welcome to the Seagate Generation fiscal 2nd quarter 2025 convention name. All contributors will likely be in listen-only mode. [Operator instructions] After these days’s presentation, there will likely be a possibility to invite questions. [Operator instructions] Please word this match is being recorded.
I might now like to show the convention over to Shanye Hudson, senior vice chairman, investor family members. Please move forward.
Shanye Hudson — Senior Vice President, Investor Members of the family and Treasury
Thanks. Hi, everybody, and welcome to these days’s name. Becoming a member of me are Dave Mosley, Seagate’s leader govt officer; and Gianluca Romano, our leader monetary officer. Now we have posted our income press unencumber and detailed supplemental data for our December quarter effects at the Buyers phase of our website online.
Right through these days’s name, we’re going to consult with GAAP and non-GAAP measures. Non-GAAP figures are reconciled to GAAP figures within the income press unencumber posted on our website online and integrated in our Shape 8-Ok. Now we have now not reconciled positive non-GAAP outlook measures as a result of subject matter pieces that can have an effect on those measures are out of our keep an eye on and/or can’t be moderately predicted. Subsequently, a reconciliation to the corresponding GAAP measures isn’t to be had with out unreasonable effort.
Earlier than we start, I would love to remind you that these days’s name comprises forward-looking statements that mirror control’s present perspectives and assumptions in response to data to be had to us as of these days and must now not be relied upon as of any next date. Exact effects would possibly fluctuate materially from the ones contained in or implied through those forward-looking statements and are topic to dangers and uncertainties related to our industry. To be informed extra concerning the dangers, uncertainties, and different elements that can have an effect on our long run industry effects, please consult with the click unencumber issued these days and our SEC filings, together with our most up-to-date annual record on Shape 10-Ok and quarterly record on Shape 10-Q in addition to the supplemental data, all of that could be discovered at the Buyers phase of our website online. Following our ready remarks, we’re going to open the decision up for questions.
As a way to supply all analysts with the chance to take part, we thanks prematurely for asking one number one query after which reentering the queue. With that, I’m going to now hand the decision over to you, Dave.
William David Mosley — Leader Government Officer
Thanks, Shanye, and hi, everybody. Seagate closed out calendar 2024 on a robust word, riding 7% sequential income enlargement within the December quarter. Our non-GAAP gross margin expanded through greater than 200 foundation issues and non-GAAP income according to percentage exceeded $2 for the primary time in 12 quarters, underscoring our persevered focal point on profitability. Our efficiency used to be supported through higher call for throughout just about all markets we serve with probably the most important enlargement within the cloud sector.
This broad-based call for from world cloud shoppers resulted in a virtually doubling of nearline product income within the December quarter on a year-on-year foundation and just about 60% nearline income enlargement for all of the calendar yr. We’re experiencing robust momentum with our aerial density-driven highway map, which positions us smartly to supply compelling garage answers to our shoppers and in addition helps our expectation for important successful income enlargement for fiscal 2025 and past. We proceed to advance our product highway map and feature accomplished a number of key milestones associated with our HAMR-based Mosaic platform within the December quarter. We finished qualification and began to ramp HAMR-based merchandise to our preliminary CSP buyer.
Previous these days, we additionally introduced sampling of Mosaic drives with capacities of as much as 36 terabytes. Total, Seagate is in an excellent aggressive and era place in a strengthening call for setting. Previous to discussing the top marketplace setting, I’m going to in short deal with the manufacturing factor that we disclosed final month, which has led to provide constraints for the March quarter. Gianluca will supply main points on our fiscal Q3 outlook.
On the other hand, I will verify that this factor has been resolved, we’re in a position to fulfill our build-to-order commitments to main shoppers, and we think the income have an effect on to be restricted to the March quarter. Now, turning to the mass capability markets. Cloud stays the main call for motive force. The surge in nearline product call for that I referenced previous aligns with a just about 50% build up in cloud capital investments made through our shoppers in 2024, with their capex anticipated to proceed rising in calendar 2025.
We consider hyperscale shoppers are proceeding to control their stock ranges smartly whilst making infrastructure investments to toughen rising call for for normal products and services, promoting, and e-commerce in addition to rising GenAI programs. Those programs will likely be prolific creators of knowledge. And for the reason that a considerable quantity of the knowledge will likely be saved on HDDs, we think GenAI to force long run mass capability garage enlargement. That is specifically true of data-rich imagery and video content material created through GenAI fashions, which is projected to make bigger just about 170 instances from 2024 via 2028.
Nowadays, HDDs play a a very powerful function in housing the large information units required for coaching AI fashions, serving as central repositories when those information units aren’t actively being processed through GPUs. Those mass garage information lakes shape the spine of faithful AAI through storing checkpoints or snapshots of AI style information units, making sure that information is each retained and to be had someday for steady style refinement. A contemporary survey of over 1,000 industry leaders and AI decision-makers underscores the essential significance of knowledge retention and checkpoints in bettering the standard of AI results. Those insights aren’t solely appropriate for the cloud, but additionally the threshold the place the majority of information is generated.
The endeavor markets fall below this edge umbrella. We predict enterprises to copy and retailer extra information in the neighborhood on the edge as AI computing and inferencing strikes nearer to the supply of knowledge era. VIA is every other opportunity-rich marketplace on the edge. For a while now, we have spoken concerning the higher adoption of AI analytics inside the VIA markets, which assist shape actionable insights from information for programs comparable to good towns and good factories.
Within the December quarter, moderate force capacities for VIA merchandise set a document, reflective of accelerating use of video analytics in addition to longer information retention classes. Total, we consider mass capability garage stays each an enabler and a beneficiary of those rising information tendencies. Seagate is in a super place to deal with the ensuing call for enlargement via our aerial density-driven product highway map. As we have shared up to now, we’re keeping up a disciplined method in making plans our manufacturing capability.
We can leverage era transitions to toughen exabyte enlargement. fairly than including new head and media unit capability. Taking a look at our long-term highway map, our Mozaic-based era supplies Seagate with a extremely capital-efficient manner to fulfill rising exabyte call for, to ship a robust TCO worth proposition for our shoppers, and make bigger profitability over the long run for the corporate. Nowadays, now we have persevered to ramp our 24, 28-terabyte PMR platform which has unexpectedly turn into our best product platform on the subject of each income and exabyte shipments.
At 30 terabytes are upper, our Mosaic HAMR era delivers main capacities and is gaining momentum throughout our buyer base. There are not any more than one shoppers certified in this platform throughout each and every of the mass capability finish markets. Lately, we’re ramping quantity to our lead CSP buyer whilst progressing on {qualifications} at further cloud and hyperscale shoppers. Those {qualifications} will set the basis for the following section of our Mosaic quantity ramp beginning in the second one 1/2 of calendar 2025.
We’re assured that our Mozaic digital camera era supplies a robust and sustainable aggressive merit at scale for mass capability garage and underpins a cost-efficient highway map to construct on the ones benefits. In line with comments we have gained from many cloud shoppers, AWS highlighted at their fresh Reinvent convention that adopting the perfect capability exhausting disk drives permits their garage machine structure to decrease prices, preserve ground area, and cut back energy intake. Information heart architects will proceed to undertake each exhausting disk force garage and compute-oriented reminiscence applied sciences comparable to NAND flash to toughen the breadth in their workloads. NAND is most suitable for top throughput, low latency duties, whilst exhausting disk drives stay the most well liked garage resolution for the majority of knowledge garage wanted within the Cloud.
We don’t see those dynamics converting over the foreseeable long run because of a number of benefits that HDDs hang over NAND. HDDs be offering shoppers no less than 6x lower price according to terabyte of garage capability. They possess a considerably smaller embodied carbon footprint and supply production scale this is extremely capital-efficient. Wrapping up, Seagate is in place to ship additional enhancements in income and profitability in fiscal 2025.
Taking a look out additional, it is a good looking setup for Seagate, with our steadfast focal point on provide self-discipline in a good call for setting, a number one era highway map, and the tailwind of AI’s large information garage necessities. I’m going to flip it over to Gianluca now.
Gianluca Romano — Government Vice President, Leader Monetary Officer
Thanks, Dave. Seagate’s robust December quarter effects have been highlighted through 50% enlargement in income and a fourfold build up in non-GAAP running source of revenue on a year-over-year foundation. We delivered December quarter income of $2.33 billion, up 7% sequentially. We higher non-GAAP running source of revenue 22% sequentially to $538 million, translating to non-GAAP running margin of 23.1% of income.
And our non-GAAP EPS used to be $2.03 on the excessive finish of our steerage vary, reflecting robust adoption of our excessive capability nearline force, at the side of ongoing worth adjustment and value self-discipline. Inside of our exhausting disk force industry, income higher 8% and to $2.2 billion with quantity shipments of 151 exabytes, up from 138 exabytes within the September quarter. Mass capability income grew for the 6th consecutive quarter, reflecting persevered power in nearline cloud call for, at the side of expected growth within the endeavor and OEM markets and seasonal uplift from VIA shoppers. Mass capability income and exabyte shipments each higher 9% sequentially and totaled $1.9 billion and 140 exabytes, respectively.
Beginning this quarter, we’re together with nearline exabyte shipped to VIA shoppers inside of our total nearline exabyte reporting. Many VIA shoppers are adopting nearline drives, in keeping with the shift towards extra cloud-like resolution that we had highlighted final quarter. Because of this, we consider this reporting exchange extra correctly mirror our shoppers are using with drives and aligns with trade reporting requirements. With this variation to all classes offered, Seagate’s general new nearline shipments have been 126 exabytes within the December quarter, up from 114 exabytes within the prior length.
Our efficiency displays robust call for for our 24 and 28 terabytes PMR merchandise, specifically amongst cloud shoppers in addition to persevered growth in endeavor marked through document excessive moderate force capability for the second one consecutive quarter, extending the fad for the next garage content material according to server unit. Gross sales of our legacy merchandise totaled $275 million, up 2% sequentially, supported through upper seasonal call for within the shopper marketplace. In any case, for our different industry, which come with techniques, SSD, and refurbished drives, income used to be $156 million, down moderately from final quarter as decrease SSD income used to be in part offset through progressed machine call for. Transferring directly to the remainder of the source of revenue remark.
Non-GAAP gross benefit higher 14% sequentially within the December quarter to $825 million. This build up displays persevered income enlargement of mass capability merchandise, expanding combine of recent high-capacity drives, ongoing worth adjustment, and value efficiencies. Our ensuing non-GAAP gross margin expanded through 220 foundation issues to 35.5% on the corporate stage, marking our 7th consecutive quarter of sequential gross margin growth. Non-GAAP gross margin for the HDD industry remained considerably upper than the company moderate.
Non-GAAP running bills totaled $287 million, in keeping with our plans and up 2% quarter over quarter. Different source of revenue and expense used to be solid at $86 million and are anticipated to be rather flat within the March quarter. Adjusted EBITDA higher 19% sequentially within the December quarter to $591 million. Non-GAAP internet source of revenue higher to $433 million, leading to non-GAAP EPS of $2.03 according to percentage in response to a diluted percentage depend of roughly 213 million stocks.
Transferring directly to money waft and the steadiness sheet. We proceed to concentrate on riding loose money waft era, which higher to $150 million within the December quarter when compared with $27 million within the prior length. We proceed to be expecting loose money waft era to beef up sequentially via the remainder of the fiscal yr. Capital expenditures for the quarter have been $71 million.
For fiscal ’25, we will be able to deal with capital self-discipline and proceed to be expecting capex to be on the low finish of the long-term goal vary of four% to six% of income. We returned $148 million to shareholders in the course of the quarterly dividend and closed the December quarter with $2.7 billion in to be had liquidity, together with our undrawn revolving credit score facility. Stock higher moderately to $1.5 billion essentially to toughen the ramp of recent high-capacity merchandise. Our debt steadiness used to be $5.7 billion on the finish of December quarter.
In line with our intent to scale back debt, we retired roughly $479 million of notes as they mature in early January. Because of this, we don’t have any debt legal responsibility till past due fiscal 2027. We exited the December quarter with a internet leverage ratio of two.5 instances and be expecting to look additional aid within the coming quarters. Turning now to our March quarter outlook.
We predict ongoing call for power from cloud shoppers to partly offset seasonal decline within the VIA and legacy markets, at the side of the availability constraints that we’ve got already mentioned. We nonetheless be expecting to fulfill our build-to-order commitments, however our talent to reply to in-quarter quantity upside alternatives will likely be restricted. Because of this, embedded in our steerage is roughly $200 million of income have an effect on from those provide constraints. With higher context, March quarter income is anticipated to be within the vary of $2.1 billion, plus or minus $150 million as a midpoint, which displays greater than 25% year-over-year growth.
Regardless of provide limitation within the March quarter, ongoing call for for our newest era nearline merchandise, together with Mozaic, provides the possibility of sequential growth in gross margin efficiency. We predict non-GAAP running bills to be within the vary of $290 million and on the midpoint of our income steerage, we think non-GAAP running margin to stay within the 20% vary. We predict non-GAAP EPS to be $1.70, plus or minus $0.20 in response to a diluted percentage depend of roughly 214 million stocks and non-GAAP tax expense of more or less $20 million. In abstract, Seagate’s robust December quarter monetary efficiency underscores our persevered focal point on bettering profitability, optimizing money era, and riding enlargement.
As we focal point on shooting the numerous alternatives forward, we will be able to stay diligent in supporting a wholesome provide and insist setting, which we consider positions Seagate to ship additional growth in income and enhanced profitability this fiscal yr and past. I will be able to now flip the decision again to Dave for ultimate feedback.
William David Mosley — Leader Government Officer
Thank you, Gianluca. As information worth continues to extend, so too does the strategic relevance of mass capability garage, specifically within the technology of AI. In contrast backdrop, Seagate is executing a robust product and era highway map to ship a compelling worth proposition for our shoppers. In brief, we’re responding with era to retailer the arena’s information.
Now we have crossed a thrilling inflection level with our Mosaic digital camera platform now ramping quantity to deal with buyer call for at exabyte scale. The Mosaic platform supplies a capital-efficient resolution for Seagate to maintain aerial density management and successfully deal with the rising call for for mass garage. This paves the way in which for Seagate to supply important financial benefits each to our shoppers and the corporate. Those achievements are solely conceivable in the course of the exhausting paintings of Seagate’s world group.
I lengthen my because of them in addition to acknowledge our providers, shoppers, and shareholders for his or her ongoing toughen. Operator, let’s now open up the decision for questions.
Questions & Solutions:
Operator
We can now start the question-and-answer consultation. [Operator instructions] Our first query is from Erik Woodring with Morgan Stanley. Please move forward.
Erik Woodring — Analyst
Hi there, guys, thank you such a lot for taking my query. Dave, possibly simply to begin, if I glance to previous June quarters, I do know we are getting forward of ourselves right here, however we have noticed sequential enlargement traditionally. And in gentle of your sure call for feedback and the truth that March quarter provide problems could be transitory, how do you take into consideration that incremental $200 million of shortfall within the March quarter? What precisely occurs there? Does it get driven to June? Does it get driven to more than one quarters someday? Are you able to simply assist us perceive roughly the magnitude and timing of when you are expecting to name that again? Thank you such a lot.
William David Mosley — Leader Government Officer
Yeah. Thank you, Erik. As you already know, we have attempted in point of fact exhausting to get predictable within the final couple of years, particularly with the downturn. And so, as we pop out of it, we have in point of fact valued that predictability.
This transient factor that we are coping with restricted to this quarter solely. I believe as we glance out additional and additional, particularly via one of the crucial product transitions which might be coming, now we have self assurance within the predictability. And so, I believe exabytes are going to keep growing, call for goes to keep growing. We are assured in that, and we’re going to get via the ones product transitions as smartly, which permits us to develop our margin profile as smartly.
So, I do suppose it is a very transient factor.
Operator
The following query is from Wamsi Mohan with Financial institution of The us. Please move forward.
Wamsi Mohan — Analyst
Hello. Sure. Thanks. I simply sought after to explain the remark concerning the transitory nature of this $200 million.
So, whether it is transitory, must we expect that the actual baseline for March used to be $2.3 billion, after which June must be sequentially up from that? That is only a explanation, if you have to explain that. And my major query is in point of fact round the truth that you have noticed six quarters of in point of fact robust nearline and mass capability exabyte cargo will increase. Traditionally, those had been one-and-a-half to two-year cycles, after which there is a length of a pause. Are you able to most likely possibly, Dave, percentage your view on the place we’re within the cycle and anything else that you simply see that would reason the cycle to show in 2025? Thanks such a lot.
William David Mosley — Leader Government Officer
Yeah. Wamsi, I believe we are nonetheless lovely early in calling this a cycle since the overbuild initially of the pandemic used to be most certainly really extensive. After which the previous couple of years, the exabyte shipments has been in point of fact low. So, it is a very profound cycle in comparison to the ones earlier ones that we had noticed ahead of.
That mentioned, those build-to-order the construct order self-discipline that we’ve got is giving us just right predictability and other folks proceed to invite for, with that predictability, extra simple task of the build-outs they are doing, the knowledge facilities that they constructed want inhabitants, the refreshes that they are doing of outdated tools. The wholesale substitute complete information facilities to uplift their capability. I believe the entire trade and provide chain is getting extra predictable and I am fairly glad about that. So, that provides us self assurance via this calendar yr.
Relative to roughly like Erik’s query, similar one you requested relative to this factor that we’ve got this quarter, it is in point of fact exhausting to inform in that predictable habits that we are doing for say, a yr in a build-to-order or visibility that is even going past a yr, whether or not or now not this quarter impact is a pull-in or is a push out. That is in point of fact exhausting. However I am assured within the monetary expectancies that we’ve got, and I am additionally assured in those product transitions that we’ve got, that that is development worth for our shoppers, and we are going with the intention to execute them. So, that is how I take into consideration it.
Gianluca, did you wish to have so as to add one thing?
Gianluca Romano — Government Vice President, Leader Monetary Officer
Yeah. Associated with the a part of the query at the have an effect on to the March quarter, the fast reply is sure, we will have been upper. Now, call for is there. Sadly, for the fast time period, we do not need the quantity to fulfill the call for.
So, we will have, in fact, succeed in the next stage of income. However as they mentioned, we see additional growth to the calendar yr. So, it’s not going to have an effect on our total effects.
Wamsi Mohan — Analyst
Thanks such a lot.
Operator
The following query is from Krish Sankar with TD Cowen. Please move forward.
Krish Sankar — Analyst
Yeah, thank you for taking my query. Gianluca, after I have a look at your steerage, it kind of feels like your March quarter gross margin is set 36%, give or take. And also you mentioned HAMR is clearly going to be accretive to numbers. And each you and Dave appear lovely positive on nearline for the remainder of the yr.
So, is it truthful to suppose because the close to line grows, the gross margin must beef up quarter over quarter via the remainder of calendar ’25 1/2 of the 36% baseline in March? Thanks.
Gianluca Romano — Government Vice President, Leader Monetary Officer
Yeah. We see just right alternative to proceed the fad that began like six quarters in the past to beef up our gross margin sequentially, phase is combine, in fact, now transferring increasingly into the high-capacity drives, give us alternative to beef up gross margin. And naturally, there’s all the time our technique on the subject of solid, constant worth build up quarter after quarter. Price potency HAMR will assist us, particularly in the second one a part of the calendar yr when we will ramp a lot upper quantity.
So, no, presently, we’re very assured that our profitability will proceed to beef up.
Krish Sankar — Analyst
Thanks.
Operator
The following query is from Amit Daryanani with Evercore. Please move forward.
Amit Daryanani — Analyst
Thank you for taking my query. I assume, Dave, I used to be hoping you have to simply communicate somewhat bit about there is all the time this worry whilst you pay attention about HDD firms including capability. What does that in point of fact imply for the trade? So, are you able to simply speak about, are you in point of fact including internet new capability seeking to get again to a couple baseline stage? And what do you suppose form of Seagate’s general exabyte capability may well be as soon as those additions are finished? Are you able to simply contact on that phase? After which possibly alongside that theme, I am quite stunned that your gross margins are anticipated to head up in March in spite of revenues coming down and in spite of the capability addition. So, simply speak about what is going on smartly or what is offsetting what I believe are headwinds sequentially in March quarter that is enabling gross margins enlargement? Thanks.
William David Mosley — Leader Government Officer
Thank you, Amit. If it is helping, when you suppose again 3 quarters or 4 quarters in the past, when issues have been — when call for used to be so much decrease, we have been on older product generations, and we had buffers of the ones product generations. As a result of call for’s picked up, the ones have blown via in large part. After which we had this factor — this manufacturing factor on one of the crucial new product generations.
However it is in point of fact — the solution for your query is all about combine. So, as we combine to better and better capability issues, we consider that that is a compelling worth proposition for our shoppers. We additionally consider that we are giving predictable economics for them and for ourselves as smartly, and that’s the reason what is development the margin construction in.
Operator
The following query is from Timothy Arcuri with UBS. Please move forward.
Timothy Arcuri — Analyst
Hello. Thank you. I simply sought after to invite about this $200 million impact into June once more as a result of I am not certain I perceive what the message is. I believe, Dave, within the remarks, you mentioned that the have an effect on will likely be utterly restricted to the March quarter.
So, it sounds such as you suppose that June, you get all of the $200 million again, however you appear to be you might be now not in point of fact prepared to explain that. So, are you able to explain precisely what you supposed through everything of the have an effect on is being felt in March?
William David Mosley — Leader Government Officer
Yeah. Take into account, that is — thank you, Tim. This can be a provide factor, now not a requirement factor. So, from our point of view, we are speaking this and we began after the convention in December there, we began speaking to the purchasers precisely what is going on.
We will deal with the entire build-to-order commitments that we’ve got this quarter, subsequent quarters — subsequent quarter. We are improving from the problem as briefly as we will. However once more, it isn’t a requirement compression. It is only our talent to hit the availability.
Gianluca, did you wish to have so as to add one thing?
Gianluca Romano — Government Vice President, Leader Monetary Officer
Mainly, as we defined in December, we didn’t get started sufficient subject matter in a definite time frame as a result of we did not put again the apparatus that have been vital to provide that fabrics. So, we do not need that stage of provide that will have been vital to compare call for within the March quarter. So, that $200 million isn’t coming again. It is not subject matter, we weren’t in a position to begin.
And so, we ignored that chance within the March quarter, after which we return to June with the best stage of provide that may fit the June call for. However in fact, the one who is in March is most certainly going away.
William David Mosley — Leader Government Officer
And as we mentioned in December, that is but one more reason you notice the lengthy lead instances that we’ve got in a few of this wafer apparatus, which is why we’d like the build-to-order predictability for our shoppers and for ourselves. This drawback began manifesting itself past due summer time, after which we discovered that we had it in past due November. And it is nonetheless flowing in the course of the machine. We are going to check out our absolute best to recuperate up to we will, however we all know that — and so I assume the backdrop of an excessively steep ramp.
So, it isn’t like a hollow that is going away. It is a ramp that we are on, that is very steep. It is simply, there’s an have an effect on this quarter as those portions do not waft via that we needed to on the stage of it, after which we fastened the issue now. So, we are satisfied that we will get again and fulfill call for subsequent quarter and past.
Operator
The following query is from Asiya Service provider with Citi. Please move forward.
Asiya Service provider — Analyst
Nice. Thanks for taking my query. You sound very assured about much more upside to gross margin, particularly as HAMR ramps right here and you might be transferring your combine to even those upper capability drives. Possibly if you’ll be able to shed some gentle on what do you take into consideration the correct margin for Seagate as you move ahead, given you might be executing smartly above your goal vary at this level? Thanks.
William David Mosley — Leader Government Officer
Yeah. I believe that relies in large part at the call for image. We expect the call for image is strengthening, and we expect now we have a just right portfolio towards it. Other folks will purchase the brand new drives, upper and better capacities as a result of they’ll run those in information facilities for a very long time, they usually see a super worth proposition for the ones.
And to the level that we will be extra predictable with those build-to-order negotiations, and we all know what we are development anyway, so we will move out and feature the ones negotiations and say, we’re going to construct it for you if all of us conform to this. And so, I believe that is served the trade in point of fact smartly, served our provide base in point of fact smartly, serving to us recuperate from the placement we have been in a yr or two in the past.
Gianluca Romano — Government Vice President, Leader Monetary Officer
Yeah. And that focus on vary that you’re regarding, we gave a goal, and we obviously mentioned this isn’t together with HAMR. So, in fact, in long run, we have been already anticipating the next profitability, and we will be able to ramp HAMR in now not simply two or 3 quarters from now. We can talk about possibly extra at our Analyst Day someday what’s going to be our subsequent style.
However I might say I might now not focal point on that outdated gross margin vary that we have been discussing up to now.
William David Mosley — Leader Government Officer
Yeah. One of the crucial issues I would say about margins, gross margins, and running margins is that even on the income ranges that we are at presently, we need to proceed to fund the R&D as a way to stay riding the street map for 4 terabytes, 5 terabytes that we need to fund capex, so on and so on. And from my point of view, the ones issues supply one of these compelling worth proposition to our finish shoppers, they would like us to as smartly. So, we are going to want the correct mix of margin and income with the intention to proceed to force the street map for the top person worth propositions.
I believe everybody’s roughly understood that as despite the fact that the — those undulations in provide and insist that we went via within the pandemic have been so painful, however I believe we are beginning to pop out of it and other folks perceive the monetary have an effect on of the ones much more and permits us to be much more predictable.
Operator
The following query is from Steven Fox with Fox Advisors. Please move forward.
Steven Fox — Analyst
Hi there, just right afternoon, everybody. Dave, I used to be simply questioning as we take into consideration the longer-term have an effect on of transitioning to HAMR, you progress as opposed to the — in the course of the preliminary ramps of recent era. Does the client combine or the way you ramp turn into quicker, slower, extra huge? Like I am simply — you discussed like going from one cloud man to having a 2nd and 3rd. However as you move towards 36 terabytes, what adjustments in how this era hits the marketplace?
William David Mosley — Leader Government Officer
I would say our first ramp used to be harder than we anticipated, even proper up towards it. We had nice effects out of the labs and the primary experiments. After which we bumped into some issues in productization. We do not precisely see any of the ones issues in long run productization so it must shorten the cycle.
The tension on the entire different subsystems, now not simply the recording subsystem, however the entire different subsystems as we move from 30 terabytes to 40 terabytes to 50 terabytes continues to be nice, however now we have self assurance, and we have advised those who in response to what we see presently, we must — we are going to force as aggressively as we will via all the ones transitions. And that’s the reason why the announcement of drives — transport drives already as much as 36 terabytes, that is already came about, through the way in which. So, from my point of view, onward and upward, that is what this trade will get paid for is aerial density. And so, we deliver worth on this planet, and that’s the reason what we are proceeding to force.
Steven Fox — Analyst
Nice. That is useful. Thanks.
Operator
The following query is from Thomas O’Malley with Barclays. Please move forward.
Tom O’Malley — Analyst
Hi there, guys, thank you for taking my query. I simply wish to get a greater image in your combine of industrial. I believe you favor to speak in exabytes which might be transferring towards HAMR. You guys had at the start talked a few unit forecast, you have adjusted that over the years.
However possibly as we glance out into the calendar yr ’25 you have to speak about how a lot of your enterprise on the subject of combine is HAMR these days and possibly how a lot you suppose exiting the yr? Clearly, you had sufficient to have an effect on gross margins within the close to time period. So, possibly if you have to dimension that for us, that may be in point of fact useful.
William David Mosley — Leader Government Officer
OK. Thank you, Tom. We did communicate concerning the luck of the 24, 28 platforms. So, that is rising at an excessively, very speedy ramp, very excessive quantity.
There is numerous not unusual portions with that during HAMR. So, we will ramp HAMR briefly as smartly, and we are serious about doing that, getting in the course of the {qualifications} and ramping. Remaining yr, we have been pushing via those transitions as exhausting as lets simply to inject some margin again within the industry. This yr, the call for image is fairly other.
And the reaction of other folks and what they — the place they’re in {qualifications} may be very other. So, we are going to be somewhat bit extra cautious. Take into account, HAMR continues to be accretive to margins, and we nonetheless wish to force it, and we nonetheless have portions which might be coming. However we’re going to simply be somewhat bit extra wary and ensure we paintings with the purchasers on precisely what they want.
I believe as we get to and better capability issues is one of these just right compelling worth proposition for our finish shoppers, they are pulling very exhausting. So, possibly even to one of the crucial previous questions, I do suppose that there is going to be an acceleration in response to the truth that we’re already on the curve. Productization-wise, now we have all the ones learnings. So, the opposite particular person does not have to be told those self same classes and there’s this compelling worth proposition that folks learn about.
Operator
The following query is from Aaron Rakers with Wells Fargo. Please move forward.
Aaron Rakers — Analyst
Yeah, thank you for taking the query. I am going to stay with the gross margin narrative right here somewhat bit. Gianluca, if I attempt to make some changes in your non-HDD gross margin, I assume what I would be left to take into consideration is that your exhausting disk force gross margin is most certainly within the 37% plus or minus vary. I assume the query is that may you assert even these days as you might be first of all ramping HAMR that your HAMR gross margin is accretive to the exhausting disk drive-only gross margin? And is there anything else structurally that assists in keeping you from considering, hi there, gross margin will have a 4 in entrance of it simply structurally as we glance ahead and pricing continues to growth, and many others., and many others.? Simply curious on what your ideas are.
William David Mosley — Leader Government Officer
Yeah, Aaron. Thank you. I might say that — and you already know our historical past in point of fact smartly. I am lovely glad the place we’re presently.
So, as we are searching out into the long run, we are signing up for industry that is just right industry and better capability issues via those transitions. So, that is what permits me to construct self assurance. Is there a theoretical most? I believe numerous that is determined by the call for image that in the end comes. And we’re going to stay you knowledgeable on that as time is going on.
However I believe we have finished a in point of fact just right process getting the margin construction again into the trade and even, in some circumstances, to all-time highs. The income continues to be now not again, and the output continues to be now not again, frankly. I imply, lets do a little extra output. However we wish to do it in an excessively predictable means and shield what we have needed to rebuild.
We nonetheless have some provide chain problems that we need to care for as smartly, and that’s the reason going to be happening for the following few quarters. So, we are roughly in that transitionary length to long run style as opposed to proceed to only execute as exhausting as we will to rebuild. And we are fairly pleased with the growth.
Gianluca Romano — Government Vice President, Leader Monetary Officer
And Aaron, a part of the boldness now we have in bettering gross margin even within the March quarter the place as you already know the income is decrease, is coming from the higher quantity of HAMR. So, basically, the combo transferring to better capability drives has all the time helped us to beef up margins and HAMR will build up so much the capability according to unit. So, it is a just right contributor to the enhanced gross margin.
Aaron Rakers — Analyst
Thanks.
Operator
The following query is from Karl Ackerman with BNP Paribas. Please move forward.
Karl Ackerman — Analyst
Sure. Thanks. As we take into consideration the sustainability of the cycle, are your nearline and hyperscale shoppers supplying you with extra visibility these days, which I believe used to be six months or longer final quarter, since you have skilled those manufacturing capability constraints? And for my explanation query, does the manufacturing capability deal with in particular HAMR drives? Or have been those gear used for typical nearline drives as smartly? Thanks.
William David Mosley — Leader Government Officer
Thank you, Karl. Yeah, the second one query first, the manufacturing capability factor affected non-HAMR drives, now not the HAMR drives. So, it used to be the ramp of the 24, 28. Recall to mind it this fashion.
Now we have in reality certified that again in even some outdated systems, however it is the non-HAMR product being affected. So, stepping out somewhat bit extra into the long run. I believe that the HAMR transition is in reality — we are going to force it increasingly aggressively simply because we get the additional capability issues like Gianluca used to be speaking about. Upper capability issues, after which we will additionally refresh decrease capability issues as smartly.
So, that is what is helping to construct margin into all of the portfolio, now not simply the perfect capability level.
Karl Ackerman — Analyst
Sure. Thanks. I used to be hoping you talked concerning the visibility you might be receiving from hyperscale shoppers these days since the ones capability constraints. Thank you.
William David Mosley — Leader Government Officer
Yeah. So, the build-to-order fashions that we are arising with have given us just right visibility. Possibly as we get in the course of the provide constraint factor that we’ve got this quarter, we mentioned we are protective the entire build-to-order commitments that we’ve got. So, on an account-by-account-by-account foundation, then I believe it is virtually — that individual factor is sort of inappropriate for them, proper? So, we are speaking about This fall is This fall, Q3 is Q3.
Q1 subsequent yr is Q1 subsequent yr. So, they are serving to us with that visibility and this transient factor is inappropriate in that BTO style.
Operator
The following query is from Vijay Rakesh with Mizuho. Please move forward.
Vijay Rakesh — Analyst
Yeah. Hello. David, Gianluca, simply searching on the HAMR. Whilst you have a look at your 150-exabyte quarter shipments or the 126-exabyte nearline, do you are expecting HAMR to get to love 10% to twenty% of that blend through like first 1/2 calendar, shall we embrace, ’26?
William David Mosley — Leader Government Officer
Neatly, we definitely be expecting to make it — to ramp it in point of fact exhausting, sure. We aren’t going to mention a particular quantity. We are in an excessively other area than we have been a yr in the past, proper? However we are not going to mention an excessively particular quantity. However we think it to ramp very exhausting.
The purchasers are pulling out of exhausting as a result of the worth proposition that they see. So, it must be accretive as smartly. Now we have mentioned that for some quarters now, however we are assured that it’s. So, sure, we are going to force it exhausting and force the volumes very quickly.
Gianluca Romano — Government Vice President, Leader Monetary Officer
Sure, Vijay. We can have growth each quarter. In fact, that must stick to the {qualifications} with the other shoppers. And as we mentioned, we think more than one qualification between December final yr and mid of calendar ’25.
So, we nonetheless be expecting the vast majority of the ramp to occur in the second one a part of calendar ’25, and that may be every other growth for our industry and our efficiency in only some quarters from now.
Vijay Rakesh — Analyst
Were given it. Thank you. After which on the subject of capability, as you ramp HAMR, do you are expecting — do you want so as to add extra capability within the again 1/2? Or how do you notice the to be had capability and the ramp of HAMR with that? Thank you.
William David Mosley — Leader Government Officer
No. Many of the gear or virtually the entire gear that we are the use of for our non-HAMR merchandise are convertible to the HAMR product. So, there is in point of fact no added gear that we want to deliver on. We deliberate this transition for fairly a while.
And we have mentioned within the ready remarks we might now not upload head and media unit capability. The capability provides that we get are through distinctive feature of riding the aerial density. So, we will move to shoppers and say, hi there, as a substitute of transport a 24-terabyte force, I’m going to send you a 32-terabyte force. With a bit of luck, one day, we’re going to send you a 40-terabyte force, and that provides us extra exabyte capability and extra relative energy, extra TCO proposition for them, advantages to their — for his or her worth, and extra energy for us to head build up our margin image, that plan is operating.
Vijay Rakesh — Analyst
Thanks.
Operator
The following query is from C.J. Muse with Cantor Fitzgerald. Please move forward.
C.J. Muse — Analyst
Thanks for taking the query. I assume first query, a explanation. At the $200 million for March, is that totally traded away? Or are you anticipating partial — a part of that industry within the June quarter? After which for my major query, on your ready remarks, you mentioned expanding focal point on imagery and video as a part of Generative AI. I am curious when you’ve finished any paintings on the subject of sizing what that may imply.
It looks as if meta is in point of fact the large motive force these days, however curious when you’ve sized it in any respect and the way you take into consideration the incremental call for for your total industry. Thanks.
William David Mosley — Leader Government Officer
Yeah. So, the $200 million, I believe we spoke back this somewhat bit previous, C.J. So, the way in which I take into consideration it’s the construct to orders or all the ones commitments are being made. So, if there used to be stuff on best of it, does it transact this quarter or subsequent quarter? I imply, we’re going to get into that.
However so far as the most important accounts which might be taking part in build-to-order, it really is not an have an effect on. It is a provide hollow, bear in mind, it isn’t a requirement hollow. So, the call for continues to be quite robust. Once we speak about video and imaging, we are in most cases speaking about what is going on on the edge, good towns, good factories.
The information that is in reality being created on the edge and in spite of everything making it to the cloud. However there are video programs as smartly which might be ranging within the cloud. I imply, one of the crucial use of video on one of the crucial main media homes and issues, they are rising — the movies themselves are rising in duration, in quantity, in — the lengthy tail is getting massive as extra hour-long documentaries. After which the advent gear with AI are coming that permits other folks to create video, be extra creative on that.
So, I believe the inventive pros which might be available in the market developing content material. So, all the ones tendencies are very advisable for us. And sure, one of the crucial first movers that we noticed on this resurgence as call for began coming again have been the ones people who find themselves servicing the ones fashions. Video is developing numerous call for within the cloud.
C.J. Muse — Analyst
Sure. Thanks.
Operator
Subsequent query is from Ananda Baruah with Loop Capital. Please move forward.
Ananda Baruah — Analyst
Yeah. Thank you, guys, for taking the query. So, possibly — I would like to listen to possibly from either one of you guys. That is simply form of HAMR transition query.
So, I may have ignored this. However Gianluca, are we — are you speaking that the HAMR margin — I assume at what level are the HAMR margins accretive? After which, Dave, I assume for you in that query, I used to be going to invite like methods to take into consideration the pacing of quantity of HAMR given the richness of the legacy tech margins presently? And I assume I used to be considering you could be extra selective with rolling them out given the margins, however you additionally simply made a remark about riding HAMR into the marketplace with some power. So, I assume simply form of — the ones are in point of fact the questions. I respect it.
Thank you.
Gianluca Romano — Government Vice President, Leader Monetary Officer
Hi there, Ananda. Sure. No, HAMR is high-capacity force and that suggests producing the next stage of gross margin than, in fact, different drives. As I mentioned ahead of, it is going to be extra visual later throughout the calendar yr when we will ramp extra quantity.
And we want to have extra quantity these days, however we want to undergo a definite selection of name ahead of we will in point of fact ramp up in a miles upper amount. However as the entire high-capacity drives, we think superb profitability from this product and this era.
William David Mosley — Leader Government Officer
Proper. After which if this is helping, you return a yr in the past when our gross margins have been considerately decrease. In fact, we have been announcing HAMR is accretive to the gross margin. Now, the gross margins are significantly upper on one of the crucial legacy merchandise such as you mentioned, one of the crucial 24, 28 PR platform, BMR SMR platforms.
HAMR continues to be accretive. And the extra we will force via those transitions that we are speaking about, now not solely will we build up the highest line capability, if you’ll, which gives one of these compelling worth proposition that we will in reality receives a commission for it, but additionally, we will begin to refresh one of the crucial decrease platform drives, decrease capability issues with fewer and less elements within and due to this fact, you get margin uplift that means. So, we are nonetheless riding the HAMR transition, if that is helping.
Ananda Baruah — Analyst
I were given it. No, that is nice. So, you will send as a lot HAMR as you’ll be able to and as briefly as you’ll be able to, and it’ll be accretive.
William David Mosley — Leader Government Officer
Yeah. And we simply must get the {qualifications} finished after which we’re going to make the best resolution in response to the specifics of what the purchasers need on the time.
Ananda Baruah — Analyst
Thanks. Respect it.
Operator
The following query is a follow-up from Wamsi Mohan with Financial institution of The us. Please move forward.
Wamsi Mohan — Analyst
Hello. Sure, thank you for taking the follow-up. I assume, a handy guide a rough query on HAMR. The sampling of the 36 terabyte drives that you simply introduced, is that with the similar main CSP that you simply certified the sooner HAMR drives? And any colour that you have to percentage on HAMR devices? At the start, your expectation used to be transport 1 million within the first 1/2 of final yr.
Obviously, now with this ramp being a lot more considerably underway, would you assert that it must be orders of magnitude upper than that during the second one 1/2 of this yr? Thanks such a lot.
William David Mosley — Leader Government Officer
Yeah. Thank you, Wamsi. So, it is a lot more broad-based. We are transport pattern devices to multiple particular person, let me say it that means, to not only one.
We’re going to simply remark in particular on anyone buyer, in fact. After which relative to the dimensions of the ramp, sure, we have were given shoppers which might be latched lovely smartly presently at the 24, 28 product. And we mentioned factories being complete with the ramp being in point of fact excessive. We can supplant a few of that product with HAMR product.
We’re going to do it in a measured means in response to when the qualification is whole, what the ones shoppers precisely need. A few of them, you all the time have to bear in mind, they’ve to get their techniques in a position. A few of these — one of the crucial transitions that they are going via is silicon transition of instrument capacity as opposed to a few of their fleet control options. They will say, I’m going to do this at the next-generation product.
So, there is numerous — it isn’t as simple as us simply ramping HAMR after which transport extra HAMR. We need to undergo the ones qualification cycles. However that is ongoing, and we are going to force as spaces we will as a result of we expect it is so accretive.
Wamsi Mohan — Analyst
Thanks.
Operator
And the following query is a follow-up from Krish Sankar with TD Cowen. Please move forward.
Krish Sankar — Analyst
Yeah. Hello. Thank you for taking the follow-up. Gianluca, a handy guide a rough query.
Of the 126 exabyte nearline is distributed in December, how a lot went to surveillance? You began to do a comparability since you did 109 in September, however this is in your conventional nearline definition. So, I am simply attempting to determine to 126, how a lot is surveillance as opposed to historically nearline?
Gianluca Romano — Government Vice President, Leader Monetary Officer
Generally, in numerous quarters about 4, 5 exabytes.
William David Mosley — Leader Government Officer
And our supplemental will display the historical past for the final 5 quarters so that you’ve like-for-like over the prior-year length.
Krish Sankar — Analyst
Thanks.
Operator
This concludes our question-and-answer consultation. I want to flip the convention again over to control for any remaining remarks.
William David Mosley — Leader Government Officer
Thank you, everybody. I want everybody a Satisfied New 12 months. Satisfied Lunar New 12 months. Truly respect the entire efforts of our workers and our providers in serving to the restoration, which continues to be ongoing, and searching ahead to chatting with everybody this quarter or subsequent quarter’s name.
Take care.
Operator
[Operator signoff]
Period: 0 mins
Name contributors:
Shanye Hudson — Senior Vice President, Investor Members of the family and Treasury
William David Mosley — Leader Government Officer
Gianluca Romano — Government Vice President, Leader Monetary Officer
Dave Mosley — Leader Government Officer
Erik Woodring — Analyst
Wamsi Mohan — Analyst
Krish Sankar — Analyst
Amit Daryanani — Analyst
Timothy Arcuri — Analyst
Asiya Service provider — Analyst
Steven Fox — Analyst
Tom O’Malley — Analyst
Aaron Rakers — Analyst
Karl Ackerman — Analyst
Vijay Rakesh — Analyst
C.J. Muse — Analyst
Ananda Baruah — Analyst
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