Seagate Technology Holdings plc (STX) Earnings Call Transcript & Summary

Hello, everyone, and welcome to Seagate's 2021 Virtual Analyst event. I'm Shanye Hudson, Head of Investor Relations and Treasury, and I am thrilled that you've chosen to spend time with us here today. Before we begin, I want to remind everyone that today's presentation will include forward-looking statements. Information concerning our risks, uncertainties and other factors that could cause results to differ from these forward-looking statements are contained in the SEC filings, which can be found in the Investors section of our website. We will also be presenting non-GAAP financial measures. You can find reconciliations to the closest GAAP financial metrics in the presentation accompanying today's event, which will be published on the website later this afternoon. We've got a great program planned for you today. I'm joined by several members of our leadership team, who will walk you through Seagate's strategy for building on our leadership in mass data storage to capture an expanding set of opportunities and deliver value for all of our stakeholders, customers, suppliers, employees and shareholders. Our CEO, Dave Mosley, will start things off. He'll be followed by John Morris, our CTO, who will speak to the strength of our technology innovation. Next, Jeff Fochtman, who heads our global marketing team, and he's ideal for presenting the breadth of our product portfolio. After Jeff, we have Ken Claffey, who leads our systems business as well as our CIO, Ravi Naik who together will talk about Seagate's new live initiative. And finally, CFO, Gianluca Romano will share our financial outlook. Following today's presentations, I'll moderate a question-and-answer session with both Dave and Gianluca. We expect total run time to be about 3 hours and include a 10-minute break. But before Dave kicks off the presentations, we'd like to share a brief video highlighting the vital role Seagate plays in unleashing the potential and maximizing the value of data. Thank you. [Presentation]

Welcome, everyone, to our 2021 Seagate Analyst Day. Hopefully, after today's program, you'll have a refresh view of our story and our strategy, and share our excitement about Seagate's future opportunities in the rapidly expanding datasphere. I'm going to tell you a very simple story this morning. And then I'm going to let our outstanding team of technical experts give you all the details on how we're bringing that story to life. When we're done, this is what we hope you take away. Data growth is exploding, and that will only continue. Seagate is the mass capacity leader backed by over 40 years of HDD technology innovation. We have an established supply chain, strong customer relationships with the right products and technologies to address secular demand for mass capacity storage. And as the datasphere scales and the need to securely capture, move and store data across the distributed enterprise increases, new opportunities are arising for Seagate. We have a plan to capitalize. And in so doing, we believe we're in a great position to drive long-term value creation. That, combined with our demonstrated commitment to capital returns, is a compelling story for investors. Before diving in into the future, I want to make a few remarks about the year we just concluded. 2020 was shaped, of course, by the global pandemic, which had a profound impact on all of our lives. Against this backdrop, Seagate met our customer commitments, while managing through many intricate supply chain disruptions affecting ourselves and our partners globally. We executed on our technology road map, ramping 16-terabyte drives, launching 18 terabytes and delivering on our commitment to ship the first HAMR 20-terabyte drives by calendar year-end. You'll hear more about our HAMR road map today, which will extend our leadership in mass capacity drives. And you'll also hear about our Lyve storage platform, which we introduced in 2020. Lyve is a natural extension of Seagate's mass capacity data portfolio, helping customers unlock data value. We're excited to share more about it today. While navigating challenges and executing on opportunities, we also achieved financial results for the calendar year, in line with our financial model, growing revenue 2%, growing operating profit 8% and enhancing our capital returns program, with an increase in the dividend and a greatly expanded share repurchase program, a difficult but extraordinary year and one we're excited to build upon in 2021 and beyond. This chart likely comes as no surprise. The global datasphere that we serve is exploding, doubling every 3 years. In just 4 years' time, we'll reach 175 zettabytes of data created annually. More importantly, an increasing amount of this data will be put to work. Algorithms and devices will be optimized around processing and learning from that data. This massive growth in data fuels the race amongst enterprises to unlock the potential of their data and gain competitive advantage. And this growth in data continues to drive very attractive mass capacity growth. Seagate's ability to deliver cost efficient, reliable storage technologies is a key driver behind the growing demand for mass capacity storage, which continues at a compound rate of about 35%. We see mass capacity as storing more than 60% of exabytes in 2026. That means the world is relying on Seagate and the HDD industry to preserve a huge amount of its data for years to come. To meet that demand, the HDD industry must ship nearly 4 zettabytes more mass capacity storage in 2026 compared with what was shipped in 2020. Other technologies that support the expanding datasphere will grow as well, but they're complementary to mass capacity storage and not competitive products. The key point is that all this data needs to be economically stored, sometimes temporarily and sometimes forever. For the last 5 to 10 years, the biggest driver of mass capacity storage demand has been the transition to the cloud. In 2020, 40% of all data was being stored in the cloud. Over that same period, Seagate pivoted our product portfolio to address this growing part of the markets, a transition that's been a key driver of Seagate's success and ability to drive value. For cloud data center architectures, mass capacity storage delivers the most cost-efficient solution for preserving vast amounts of data and complements flash and other emerging memory solutions. The world's leading cloud data centers rely on mass capacity drives to store approximately 90% of their exabytes. And we expect that trend to continue far into the future. That is due in part to customers being able to rely on Seagate to continue driving innovation and delivering lower total cost of ownership storage solutions. We have developed a strong portfolio of HDD technology solutions, including our common platform drive family, that extends from 16 and 18 terabytes to 20 terabytes using PMR technology and scales beyond that using HAMR and SMR. We delivered on our commitment to ship 20-terabyte HAMR drives in 2020, and we expect to ship 50 terabytes in 2026 with the road map to ship 100 terabytes by 2030, achieving roughly 10 terabytes per disc. Magnetic recording, which has been instrumental in delivering economic value to the datasphere, will continue to thrive well into the 2030s. Our decades of innovation extend beyond HDD hardware, however. We have deep technical relationships with the biggest customers and partners in the datasphere. We design our own ASIC chips, which are shipping in many of our high-capacity drives today, and we have extensive software experience from years of integration into complex application spaces in many markets. You can imagine the expertise we've developed by integrating into so many chipsets and BIOS' and file systems and object stores, et cetera. We're simplifying some of those challenges now by pioneering a true, open source object store for the future of big data called CORTX. Seagate's technology and product road maps are stronger than ever. And when combined with our industry know-how and customer relationships, we are in an excellent position to deliver value to our customers and capture the growing opportunities in mass data management. At Seagate, we understand device physics very well, and we pay close attention to all competing technologies, understanding their respective strengths and weaknesses. With costs being such a key driver behind storage economics, we believe that through Seagate's strong technology road map, including HAMR, we are able to deliver on customer big data demand and maintain cost and TCO advantage versus competing technologies over the foreseeable future. Against that technology backdrop, our outlook for HDD demand is strong. We expect the mass capacity TAM to double over the next 4 years, reaching about $24 billion in 2025, and increasing to $26 billion in 2026. The growth is fueled by strong cloud data center demand for nearline drives, but also with the increase in video and image applications at the edge. By now, we're all familiar with the myriad of different technologies that are driving the creation of data at the edge. There are smart city applications looking at traffic patterns, consumer behavior, providing safety and security or the smart factory applications, helping businesses drive efficiencies. There are autonomous vehicles collecting tons of information for dynamic learning, or health care and genomics applications analyzing enormous datasets to help fight disease. The list of innovations and uses for data is long and growing, and driving the need for mass capacity storage in both the cloud and at the edge. However, at the heart of it all is the ability to capture, move and ultimately preserve the right data in a central location to drive actionable insights and extract value. In the first half of our fiscal year, Seagate shipped about 40 exabytes for video and image applications at the edge. By our estimates, those drives get overwritten about 4 to 5x each quarter. That would imply 360 exabytes or more of new capacity each year that is trapped in the distributed edge and not being fully used. The growth in information is also leading to a shift in data gravity with more data being stored closer to the sources of creation. Over the next 5 years, we project 70% of the data being stored in the cloud and at the edge will end up in a sprawling, more complex distributed enterprise. The data storage landscape is thus evolving quickly. The edge is being shaped by latency, security and economic needs. For example, applications requiring immediate access to data or caching would reside near the end of the network in a micro edge, very close to the source of data creation, whereas applications such as AI training that require massive pools of data and heavy workloads would reside in a metro edge. These highly interconnected data centers need to support the flow of data from the edge devices that I spoke about earlier up to the public clouds. The distributed environment is creating cost, scale and complexity challenges for CIOs and IT professionals to manage and ultimately put more data to work. As the mass data leader, Seagate has worked with the breadth of all these customers, and we understand these challenges. Starting with our leadership in mass capacity storage and broad capabilities in software, host and device silicon design and detailed contributions to many industry standards, we've accumulated over 4 decades of expertise integrating into many different kinds of systems and architectures. And we have the deep customer relationships from consumers to enterprise and large cloud data centers, which collectively make us the right company to address all of these challenges, which is why last year, we introduced the Lyve storage platform. The Lyve platform offers a simple, cost-efficient and secure way to manage massive volumes of data across the distributed enterprise. Lyve Mobile takes our years of expertise and feedback from consumers and creates an enterprise quality solution to transfer mass capacity data between the endpoints, edge and core cloud. Since introducing Lyve Mobile a year ago, we've established 10 important customer engagements, some of which we'll discuss later today. Lyve Rack, powered by CORTX, which is an open source and object-based software, leverages our mass capacity HDD innovations and systems expertise to provide enterprises with the lowest cost per petabyte. In September, we introduced Lyve Rack, and in just a few months, are running 8 customer engagements, including a multi-tenant co-located data center. And today, we're excited to introduce the next piece of our Lyve platform, Lyve Cloud, an object-based storage-as-a-service platform, providing mass capacity storage at the metro edge. Lyve Cloud is the next logical step in our Lyve platform, and you'll hear much more about it as we move through today's presentations. At a high level, we believe our customers own their own data, and we've designed a simple, secure, cost-effective option to help them capture and activate their data at the metro edge and move more data to the cloud. In collaboration with Equinix, the world's digital infrastructure company, we are expanding into 4 U.S. locations by the end of calendar 2021. With our first customer already on board, there's strong interest from many others. Our Lyve platform considers the range of cost and complexity issues faced by the distributed enterprise. Rack is designed to provide customers with the lowest TCO option for hybrid or edge cloud mass capacity, Mobile for enabling fast massive data transfer, and now Cloud for capturing and activating data. With the addition of Lyve, Seagate's mass data solutions are ubiquitous across the new storage landscape. I spoke earlier about cloud demand driving a 2x growth in HDD mass capacity to around $24 billion by 2025. We believe the opportunity to bring mass capacity closer to the edge and combined storage with an innovative data management platform will open a $50 billion market to Seagate in the 2025 time frame. Leveraging our strength of our mass capacity IP, the Lyve platform offers top line growth at very attractive unit economics. It's still early days, but the Seagate advantages I've covered today, leadership in mass capacity, our broad capabilities in software, chip design and data management accumulated over 4 decades and our scale and deep industry knowledge make us the right company to embrace and capitalize on this opportunity. We look forward to diving in deeper in today's presentations. The past performance and strategic vision that I've shared with you today is underscored by Seagate's focus on creating value for all stakeholders. A stakeholder focused company succeeds only if it adheres to a clear set of core values. These are our values. First, at Seagate, we lead with integrity, striving to balance the planet and its people, while generating a profit to build our future. Long-term integrity means sustainability in relationships. And we have delivered that through a commitment to enhancing value for our customers, employees, supply chain partners and investors. For shareholders, we've demonstrated that commitment over time. In the last 5 years, we have returned $7 billion to investors. This includes 6% growth in the dividend in that period and the repurchase of about 80 million shares. Today, we are building further on our commitment. Our Board has approved an increase in our share repurchase authorization of another $2 billion. Above all else, we are committed to allocating all of our capital with the goal of generating the highest long-term return consistent with our core values. The significant market opportunities ahead, together with our strong business model and cash generation capabilities, give us confidence in managing ROI in 2021 and beyond, and in our ability to continue to enhance value for our shareholders. Our second core value is innovation. We cultivate a team with curiosity, who works alongside our customers to deliver mass storage economics. And innovation extends beyond the products we build to drive efficiency across manufacturing and supply chains with agility and the right solutions for our customers. And third, very importantly, embracing inclusion, continuing to build a more equitable, safe and inclusive workplace for our employees and expecting the same of our suppliers and partners. We've tried to capture the spirit of these values in the short video I'll share with you now. [Presentation]

At Seagate, we focus on people, planet and profit. We balance investing in our business and our employees, doing the right thing for our customers and returning value to shareholders. As you just heard, we have a bright future ahead with opportunities to drive revenue growth, continued strong cash generation and enhanced shareholder returns. We would not be a successful company or a productive company without delivering consistently on the commitments we make to all of our stakeholders. And to wrap up, I want to take a second to recognize the leaders of our organization who embody those commitments and ensure we deliver on them. I am very proud of this leadership team, which combines members that have worked together for a long time as well as new members who further strengthen our bench of talent. Together, we are poised to extend our track record of success. And now let me hand off to our CTO, John Morris.

Hi, this is John Morris, Chief Technology Officer at Seagate. As you just heard from Dave, the datasphere expansion and demand for mass capacity storage continues at an exponential rate. And Seagate is in a prime position to move and store more of it on our devices and systems than anyone else. To meet this challenge requires significant innovation in mass capacity storage, and hard disk drive innovation is at the heart of Seagate. With the proven track record of innovation that spans 40 years of industry first, from recording technology to form factors, to interfaces, to performance solutions, Seagate has delivered. Today, I want to share more about our recording technology innovation and the path to significantly higher capacity devices through areal density growth. Areal density growth is fundamental to the long-term value of any storage device. In the next few minutes, I'll show why we have confidence in our ability to grow hard disk drive areal density, and not through a onetime gain, but through strong and consistent growth that can scale with already stage component innovation. I will finish with a view of infrastructure total cost of ownership that will show why we believe hard disk drives will continue to be the mass capacity storage choice for the foreseeable future. Let's start with an overview of where we are today in hard disk drive recording technology. First, take a look at the figure on the left, where you can see a visual for a track of data. The yellow box represents a bit. This highlights the bit dimensions, the grain structure of the media and how the area of a single bit leads to a definition of areal density, the key enabler for capacity gains. We'll come back to this later. On the right is a graph highlighting the past 25 years of areal density growth and hard disk drives. You can see that perpendicular recording technology has delivered 15 years of solid capacity gains. But as with longitudinal recording technology in 2005, there comes a time when it reaches a point of diminishing returns. We are now at about 1.1 terabits per square inch and delivering 18 terabytes on our 9 disk mass capacity drive. And while we will be releasing more perpendicular products in the coming years, it is clear that a transition to a new recording technology will breathe new life into mass capacity storage. With this in mind, we have staged heat-assisted magnetic recording, or HAMR, to enable robust and sustainable areal density growth over the next 15 years. Recall that with HAMR, we use a new higher coercivity iron-platinum-magnetic alloy in the media to allow for grain size reductions. To write data, we require a change in the head to deal with the higher coercivity. The laser light, shown on the top of the left image, energizes a near field transducer, or NFT. This generates an electric field in the NFT, which couples into the media. The iron-platinum is very quickly heated, and this temporarily reduces the magnetic coercivity in the heated region, allowing it to be written by a conventional perpendicular writer. After cooling, the grains are extremely stable and not switchable by the head field alone. This whole process occurs in under 2 nanoseconds. Now let's take another look at how the 2 planar dimensions of track density, or cross track width, and linear density, or downtrack pitch, in the media result in a single bit with a 1 terabit per square inch example. Recall that data is stored in circular, concentric tracks on the disk. And for a given disk drive design, the dimensions of the written data are set by the intrinsic geometry, the design and materials in the heads and media. Today, at 1 terabit per square inch, these tracks of data are just under 50 nanometers in width and individual bits are just over 10 nanometers in length. This represents about where we are today with our 16-terabyte drive. Now we'll look at the last 5 years of HAMR areal density achievements in our engineering labs. Let's first look at 2016, where we achieved just over 1 terabit per square inch with HAMR and note that this translates to 18 terabytes on a 9 disk drive. I will now show the progression of engineering lab areal density demonstrations on the left figure and what was achieved in track density and linear density on the right figure and note that the graph scale will stay the same. In 2017, you can now see a cluster of laboratory demonstrations in the 1 to 1.5 terabit per square inch range. And in 2018, a sharp increase in areal density and beginning to get close to 2 terabits per square inch. In 2019, we maintained similar growth to what we achieved in 2018 and demonstrated over 2 terabits per square inch. Occasionally, you'll notice that there appears to be some backward movement in areal density. This is associated with our pipeline of experiments as we explore the design space. And finally, in 2020, where we achieved 2.6 terabits per square inch, which is capable of supporting 40 terabytes in our 9 disk nearline drive. Here, we collect the past 5 years, and you can now see that the 5-year trend of compound areal density growth is over 20% per year. These graphs also highlight that we're at the bottom of a new technology S-curve with HAMR and underscores our belief that this is providing robust and sustainable areal density growth. What we can now do is create a rule of thumb that supports a 3- to 5-year projection for the time from an engineering lab demo to a product intercept using our recent 20 terabyte HAMR product shipments as an example. The gray region captures this 3- to 5-year offset from lab demos and highlights the feasibility for achieving a product shipment of 50 terabytes by 2026. By staying on the 22% CAGR line through early next year, we expect to demonstrate the areal density required in our lab and this demo will establish feasibility for a 50 terabyte drive in 2026, as shown in the figure. Let's take a look at an outline of 4 major phases of technology staging in HAMR. Here, we focus on the evolution of our media design, which in conjunction with head, drive and electronics technologies provides the path to future growth. First, we highlight our current status with technology demonstrations, namely 2.6 terabits per square inch and support for a 40 terabyte drive. We see an opportunity to scale this design space with granular media into the range of 4 to 6 terabits per square inch, at which point we plan to add patterning in 1 dimension through the use of ordered grain media. This, we expect to be a stepping stone in media to open up the range of 5 to 7 terabits per square inch. Then we will transition to fully pattern media to open up densities to 8 terabits per square inch and even higher. With the areal density CAGR just introduced, we have a path to 10 terabytes per disc by 2030. This then represents our outlook for technology limits over the next 10 to 15 years. Now we'll shift our attention to total cost of ownership, or TCO. TCO is the fundamental metric that dictates the buying behavior when deploying storage at scale. It encompasses the capital and operating costs of all the components required to deploy the storage, including the devices, compute and network, physical enclosures and cost of power. Here, you can see the TCO breakdown of a hyperscale hard disk drive deployment and compared with a hypothetical deployment of SSDs of equivalent capacity. You can see that the power, compute and networking are only minor components of the TCO in these systems. That isn't to say there isn't significant innovation occurring in these categories just that they're more impactful to compute heavy infrastructure than they are in mass capacity storage. Also, while there is healthy innovation in enterprise systems around data reduction, at scale, these techniques are applied at a layer above the storage deployment. So fundamentally, when considering mass capacity storage infrastructure, the device level dollar per terabyte dictates the buying behavior and will continue to do so. Now if we consider the actual cost as a ratio, we can see that the TCO of SSDs is approximately 6x greater than hard disk drives of equal raw capacity and a mass capacity deployment. The low-to-high range displayed here reflects that not all deployments are identical, and that applications and workloads can play a role in the overall total cost of ownership. As we look out for the next decade, we do not see this picture changing significantly at all. We believe that the TCO for hard disk drives and SSDs will stay approximately in equilibrium. Both SSDs and hard disk drives will continue to improve their value proposition, and storage demand for both will continue to grow. They are both critical enabling technologies for the growing datasphere, and their synergistic relationship in the data center infrastructure will persist. So in summary, we are demonstrating robust and sustainable areal density growth with heat-assisted magnetic recording of more than 20% per year. We can use our recent experience, productizing our 20-terabyte HAMR drive to translate from laboratory demonstrations to products, which puts us on track to deliver 50 terabytes by 2026. We have drive technologies planned, which will enable long-term hammer growth and a path to over 100 terabyte devices. And hard disk drives will continue to service the needs of mass capacity storage with the most optimal total cost of ownership for the next decade and beyond. Thank you.

Data is everywhere. It can be found at each and every corner of our planet. As a leading cloud service provider, Tencent Cloud has been committed to helping industries around the world execute their digital transformation strategy. In 2020, Tencent Cloud has empowered various vertical sectors to better counter the COVID-19 pandemic with our services, such as computing infrastructure, storage and database, AI and big data, SaaS services like Tencent Meeting, so on and so forth. Seagate has always been a trusted partner of Tencent Cloud at addressing our needs for cost-efficient and reliable mass capacity storage solutions, especially for the growing unstructured data volume. We are actively working with Seagate on their 20-terabyte HAMR technology and have started the evaluation and qualification process for those drives in our data center in early January 2021. We are expecting Seagate's HAMR technology as the latest industry innovation to break the bottleneck of areal density and enable significant hard drive capacity gains and bring better total cost of ownership to the industry. As a close partner of Seagate and one of the earliest member of Seagate HAMR Think Tank, we're looking forward to introduce HAMR drive to our data center with other new technologies to continued optimization of our scalable storage architecture. Tencent Cloud is at the forefront of managing cost and complexity. We optimize our data center with a tiered storage architecture to accommodate various workloads. There are a lot of mass capacity drives that are being used in our data centers for warm and cold storage applications, such as cloud block storage, cloud object storage, big data and the backup service. For example, we are actively qualifying Seagate's MACH.2 drives as it provides much better IOPS to enable performance-sensitive applications at a reasonable total cost of ownership. We have been working with Seagate closely on projects like high-density storage platform, hard drive health screening and monitoring applications, continuously improving reliability, performance and cost and eventually bring the value to our customers. With massive amount of data to be generated in the future, Tencent Cloud will partner with Seagate even more closely to develop solutions, to build efficient data infrastructure for various industries and applications, improving the way we live and work. Thank you.

Hardwares play a critical role in our data center architecture and are the largest physical storage medium in our fleet today. Our custom-built software leverages the latest innovations in the industry and primarily all our customer data today is stored in hard drives at Dropbox. Dropbox is one of the few multi-exabyte storage systems in the world. And the amount of data that we need to store continues to grow unabated. Relative to a competing technology, such as SSD, hard drives provide a larger storage base capacity, lower cost per gigabyte and also increase endurance. Increasing the capacity of a drive not only helps us achieve the same capacity target with less drives, but optimizes the overall TCO by decreasing our data center footprint. This, in turn, provides an economic benefit with lower OpEx costs, lesser power requirements, cooling requirements and hard drive maintenance expenses and also lowers our overall OpEx cost. We need fewer number of racks and also networking and server equipment. The early release of HAMR to customers in 2020 and the continuous path to grow areal density displays the power of innovation from Seagate. Whether this is through energy assist technologies or multi-actuator technologies, Seagate has displayed a clear path to continue to grow capacity and performance with each platform generation. Dropbox looks forward to continuing to partner and evaluate advanced technologies, such as these, for our new platforms going forward. With Seagate's help, we believe we can continue to deploy more cost-efficient storage without either sacrificing reliability or performance.

Hello. My name is Jeff Fochtman. I'm Senior Vice President, Business and Marketing. It's a great pleasure to be speaking with you today. First, I would like to walk you through the elements that shape our exabyte storage leadership across all major hard drive device markets. This includes enterprise for cloud and non-cloud mass capacity storage applications, OEM, consumer, branded and retail product lines. Our current leadership position goes hand-in-hand with executing on and constantly improving on our customer satisfaction metrics. It may sound like a buzzword, but we've made total customer experience a north star in our go-to-market approach. And as a result, our customers have rewarded us not only with market share, but also by co-planning and sharing their future storage needs with us, helping to shape our path forward and our road maps. One step we are taking to is listening to our customers and simplifying our portfolio, focusing our investments in their growth markets and focusing only on big hitters in declining markets. These decisions benefit Seagate and our investors by improving our return on investment. At the same point, we benefit from supply chain efficiency as our strongest product brands work harder and harder and become more efficient as they address more of the market. Finally, our brand. Our brand stands out as a leader across device segments, vertical markets and emerging solutions. Our 40-year brand journey is at the precipice of another rich decade of helping to store and access the world's data. I will cover our device markets. And later, we'll tell you more about how we're extending the brand beyond the drive. As Dave mentioned in his keynote, we segment our devices business into 2 markets; legacy and mass capacity. Legacy being traditional markets, like PC and gaming, while mass capacity being storage dense in growing markets, like cloud and video image and applications. The crossover point in exabytes between these markets happened between 2017 and 2018. And now, as you can see, we're riding that wave of growth from mass capacity demand, driven inside and outside of cloud hyperscale locales. Through that transition, our portfolio and investment focus has also shifted. Our R&D is firmly aimed at mass capacity opportunities and new market drivers. While we've minimized investments in the legacy markets, they remain important to Seagate and our customers in a few fundamental applications. We're coming off a wave of success with our latest nearline launches because of faster customer adoption and volume ramp. The 16-terabyte platform was the fastest ramping nearline product in Seagate's history. By leveraging the same platform for both 18- and 20-terabyte PMR capacity points, we are able to accelerate customer adoption of these higher capacity drives. Customers want plug-and-play solutions, and Seagate is answering the call with this best-in-class product line. Our common platform approach and extensibility into 20 terabytes and beyond on PMR technology offers Seagate the flexibility to meet customer needs and also demonstrates our clear technology leadership. With HAMR technology, we expect to maintain that leadership for years to come. HAMR devices have been in customer hands for several years now, and we just hit a new milestone, 20 terabytes in 2020. We will continue to see this technology across multiple markets and use cases. As we approach the maximum useful capacity of PMR technology, each successive drive increases by 1 or 2 terabytes at a time. With HAMR technology, it allows us to jump in steps of 4, 6 or even 10 terabytes at a time. These large steps in capacity give Seagate a clear line of sight to a decade or more of technology leadership in our core device market. In parallel, we've shipped our multi-actuator technology in volume. We call this MACH.2 and this performance boosting technology will be interspersed across both PMR and HAMR swim lanes. I'd like to tell you a little bit more about MACH.2. We began shipping in volume in 2019, and we're now expanding our customer base. Well over a dozen major customers have active dual actuator programs underway. As we increase capacities to meet customer needs, MACH.2 ensures the performance they require by essentially keeping the drive performance inside the storage to your expectations for hyperscale deployments. Although MACH.2 is ramped and being used now, it's also really still in a technology staging mode. When we reach capacity points above 30 terabytes, it will become a standard feature in many large data center environments. A notable benefit to dual actuator technology standardization is that it drastically cuts down test time. And therefore, hard drive production time is greatly reduced. This is a benefit we're looking forward to recognizing on the cost side of the business. We're extremely proud of our continued partnership with Microsoft on the MACH.2 dual actuator technology, and I appreciate this quote from distinguished engineer Aaron Ogus. "Again, its Seagate's relationships and deep technical engagements that keep us on the cutting edge, and we have no problems being behind the scenes when we're collaborating with game-changing partners like this." Now let's talk about where our customers are putting capacity dense hard drives to solve their most important data challenges. It's in both the edge and the core. This graph illustrates why solving the data gravity equation is critical. The future of the datasphere remains complex and sprawling. And while many of the easy applications have already migrated to core cloud, we see a myriad of emerging use cases and drivers that will keep data gravity in the edge as well. Endpoints, including phones, industrial equipment sensors, retail inventory, scanners and other devices, they're all onboard storage light. Some have no stories at all. Instead, data migrates from these endpoints to aggregation points at the edge for processing and collection. Aggregating endpoint collection data turns into large volumes of data. And when data gets big, costs matter. Our record exabyte shipments in Q2 of this year partially reflect this migration into edge applications, telling us we're on the right track. We're able to address these demands and capacity growth with a massively simplified road map of platforms, products and SKUs. This gives us a chance to focus our investments in mass capacity storage, delivering a higher return. As I said, our products work harder and more efficiently. With fewer but more powerful product brands, we've had a double benefit of complexity reduction while enabling faster turns for our downstream partners. In the outer years, I do expect we'll see mass capacity device platforms evolve further as we hone in on burgeoning IoT and video analytics use cases. So we're simplifying while we're winning. How is that possible? I mentioned it previously. We include customer experience in all our decisions. We listen better. As a result, we continue to improve on all of our metrics. We started this 5 years ago when we realized that while we were strong in OEM markets, which had long been a Seagate's strength, we had a lot to improve upon in distribution and channel and even with cloud customers. Everyone at Seagate takes part in this, and I want to quickly thank my coworkers and every function for their focus here over the last few years. We're not perfect, but the focus and results speak for themselves, and we continue to up level our internal metrics, challenging ourselves to improve year-after-year. Our customers share their feedback with us regularly, helping to shape our path forward. When we started our TCE initiatives a few years back, we set a path for improvement, and this slide shows how we've not only achieved that but we've put ourselves in a great position to be relevant with nearly every leading customer in every market segment in every region. Seagate was founded on this view of partnership as key intellectual property. We will continue to serve our customers with humility and integrity. I'd like to tell you more about how our customers have shaped our perspectives in a few critical key markets. Let me touch quickly on legacy markets. We used to sell inside of client devices like laptop PCs or game consoles. But as those devices have gotten thinner and smaller, we now see a robust attachment market connecting to those PCs and consoles. The first half of the fiscal year, our consumer business is up year-over-year, partially driven by the growth in gaming, both in hard drives and in SSDs. As a proof point to our gaming focus and our partnership orientation, we launched one of the coolest storage products this last holiday season, a cutting edge, 1 terabyte NVMe Gen4 SSD product made for the new Xbox consoles. It's a long product name and a cool product. We've also done an excellent job on the placement and promotion in etail marketplaces globally. This has driven positive gains, not only in external storage, but in all direct-to-consumer product areas, like DIY internal upgrades and NAS markets that typically transact on these major etail platforms, really important route to market. While the legacy markets are driven by work from home and game from home trends, our mass capacity markets are driven in part by the move in video and image applications. We speak a lot about the growth of hyperscale data centers, but there is also a significant exabyte demand generated by the many markets spanning from cameras and sensors. This shift to smart-everything increases capacity demand at the edge and in the core. We see AI light applications meant for single task processing, like security monitoring, begin to burgeon into true AI use cases where multiple forms of value can be created from the same data, efficiency, productivity, safety, you name it. To do this though, you have to save the data. Video and most other IoT sensor data types are unstructured in nature. And with the right tools, great value can be unlocked with AI processing and machine learning. Unlike traditional structured data, where the value of processing goes down once you've reached a certain threshold, unstructured data continues to yield insights. The autonomous vehicle vertical is a great example where this store-everything mindset is already happening. With video and LiDAR sensor data, in the test phase, every bit from the test fleets of cars is not only analyzed but stored for long-term modeling and analytics usage. Customers are storing more data, longer, creating both the opportunity for new insights and a corresponding data gravity challenge. Our device brands, Exos and SkyHawk AI are meant to handle that challenge. They take center stage in these markets where valuable insights come from data dense modeling. Exos nearline drives are meant for traditional enterprise workflows and hyperscale density, while SkyHawk video and image app drives are designed for multi-stream HD video recording and data analytics processing. We will continue to use our deep customer reach and technical expertise in system designs and data workflows to take full advantage of these trends and outpace our customers' needs. I'm very excited about the short-term and long-term future of the Seagate brand as we execute in our device markets, as we've done for over 40 years now, and also as we extend our great brand into new offerings and with new customers. With that, we'll head into a short 10-minute break before our next presenter, Ken Claffey, takes the virtual stage. Ken heads Seagate's Systems business and we'll talk about our Lyve edge-to-cloud mass storage platform. Thank you for your time.

Ladies and gentlemen, we will now enter a 10-minute interval. The event will recommence in 10 minutes. [Break]

Hi. My name is Ken Claffey. I'm the Senior Vice President of our Systems business, and I'm going to introduce you to our Lyve initiative that really builds on everything you've heard earlier today. Adding to our device foundation with our systems, software and services capabilities, I will explain that our motivation is both to help enterprises deal with the explosive data growth in an increasingly edge centric, distributed hybrid cloud world. And in doing so, how we can significantly expand Seagate's addressable market opportunity, delivering incremental customer value and further enhance our profitability. We're going to talk about building upon our HDD device level core technology leadership with further augmenting that through our investment in mass capacity optimized systems, software, open source ecosystems, solutions and our services to solve the very real problems faced by the distributed enterprise. But at a top level, the premise I want you to take away is very simple. We are now the largest provider of bytes in the world, and we are executing a strategy that will augment how we best monetize those bytes as we go forward. So what is Lyve? Lyve is a culmination of innovation at every layer of the storage stack. It consists of portfolio of innovative products that are each designed to address specific pain points along the endpoints to edge to core continuum, and how that consistency in our technology architecture across all these products enables them to work together to form the mass storage platform, that is Lyve, a platform that enables both the secure data movement and storage of massive amounts of data. The starting point, the foundation, of course, is our device level innovation. On top of that, we've been building out our enterprise systems business. This business services a broad range of OEM CSPs and enterprise customers. In fact, we just closed a record near 8 exabyte deal. We believe our systems business is on track this year to deliver a significant year-over-year growth. We're using our systems capabilities to maximize the velocity with which we get our core device level innovation to market. A great proof point is that we just shipped our fourth HAMR production revenue drives in our systems to our enterprise channel customers last quarter. Last quarter, we also announced an important next step in our vertically integrated stack with the launch of CORTX, the world's first and only open source mass capacity optimized object store. It is very exciting for us to showcase our expertise, extending beyond drives and our systems, including working with a growing community of collaborative partners and developers, enabling us to further unlock the value of our devices. This software then combines with the latest in our device and system technologies to create Lyve Rack, a solution for on-prem or off-prem private cloud storage. Now a clear challenge of the distributed enterprise is that data not only needs to be stored, but that it also needs to be moved. Sure, small data, bytes of data can be effectively moved over to wire or even wireless. But terabytes of data, terabytes of data needs to be physically moved. To solve this problem, we have created a portfolio of data movers, data shuttles in the form of Lyve Mobile, which with further software innovation, we call Lyve Pilot enables centralized orchestration and fleet management. These technologies are the foundation of our new data transportation-as-a-service offering you'll be hearing more about. All these technology innovations, all of them, will be used inside of and to enable Lyve Cloud. The devices, systems, software, racks, mobile, all that capability will differentiate the mass capacity cloud, our new storage-as-a-service offering that our CIO, Ravi Naik, will be diving into directly after this session. Lastly, all these systems and services are all connected. We got extensive telemetry data, which enables AI-driven insights into how our devices are used, such as gathering metrics on performance, environmental, reliability and security. These insights will help fuel our continuous device innovation, thus completing what we call our mass capacity virtuous circle. So let's put this in context. We would all agree that data is growing to the extent of 175 zettabytes being created in 2025. Now only some 10% of that data is projected to be actually stored. It should be somewhat confusing to all of us. I mean, we live in a data economy. Data is the new liquid gold. AI and ML technologies are helping us to monetize data and the insight it affords just like never before. And across all these application areas, it's clear, the larger the data set, the better enabling accuracy in your AI models and the better the outputs. So again, why not store more of that data? We asked enterprise customers this very question. I'm sure, they said, not all data was valuable. And that data efficiency techniques, like compression and ZIP, sure, they play a part. But actually, when it came down to it, they all said, we don't really know what data is not going to be valuable in the future. So we really would like to save it all, but the cost of storing data is so immediate, so high that we can't afford it, even though we do recognize that the opportunity cost of that lost data is likely to be significant to our organization. The takeaway from all these conversations was, "Seagate, if you can help make it cheaper to store data, we would store more." We believe this to be a highly price elastic economic model, in that for any given reduction of the cost of storing data, demand will disproportionately grow. So we've said about answering that question and have enabled cost-effective storage of more data in a way that meets the challenges of the distributed enterprise. Together, let's take a look at those enterprise challenges. Let's take the example of autonomous vehicles. Now where these cars are generating 10 to 50 terabytes of data a day, that data needs to be collected across fleets that even in this early stage of autonomous vehicles are hundreds or thousands of cars deep across every global car manufacturer. That sensor data needs to be captured in vehicle, then ultimately moved into an edge processing facility and then onto the main data center or cloud to train their AI-driven models. Today, for customers, there is no easy means to ingest and transport data -- that amount of data simply, efficiently and securely. Soon enough, these customers will be looking to store exabytes of data and is not always competitively desirable or certainly affordable to store all that data in today's public clouds. They need a method of lower cost storage. They need that mass capacity optimized architecture, and they need an architecture that prevents vendor lock-in. That's what we're offering with Lyve, enable the distributed enterprise to seamlessly move and store data across the hybrid IT environment. We started with Lyve Mobile. And last quarter, we added our initial Lyve Rack offering for storing up to a petabyte of data at the macro edge. The physical movement of data is orchestrated and managed by a new software-as-a-service based offering we call Lyve Pilot, which we will be launching later this quarter. Today, we announced Lyve Cloud targeted to support exabyte scale storage-as-a-service, and we will extend Lyve Rack to support large multi-petabyte scale private storage clouds over the coming calendar year. Across all of Lyve, we're working with our hyperscale partners to ensure compatibility and integration with their platforms. So what's the most efficient approach to storing mass data? Luckily, there's a blueprint for that. Let's take a look at it together. We have a great set of customers who have pioneered a blueprint for reducing the cost of storing massive amounts of data. They build a mass capacity centric architecture that uses sophisticated storage tiering 90% HDD, just 10% flash. Central to the architecture and indeed, their business model is an imperative to adopt the next-generation of storage devices rapidly, so you can stay at the forefront of the areal density cost reduction curve. The whole approach is enabled by a software-defined storage architecture for which they build their own object storage. They also have a fleet of data movers and shuttles that enables them to efficiently ingest and move all that capacity around. This technical approach and efficiency is not what we typically see in enterprises today. And that is why we see that the hyperscalers are roughly 2 process nodes or generations of HDD capacity ahead of the mainstream enterprise. Let's take a closer look at how Seagate is helping enterprises to bridge this gap. Our software-defined object storage is central to an efficient mass capacity-centric architecture. We created the world's first and only open source mass capacity object storage stack. We launched CORTX last quarter. It was co-designed by users, application partners and, of course, our own software engineers working side-by-side with the same device level engineers working on the mass capacity innovations like HAMR. CORTX is truly designed from the ground-up to be able to handle the kind of capacities we'll be delivering at HAMR through this decade and beyond, handling thousands -- tens of thousands of those devices, even hundreds of thousands of them, all working together at scale. It's already the fastest-growing open source object storage community. It was and is important for us to open source this technology. We're big believers in collaboration. Our motivation is to unlock the value of our devices and just make it easier for enterprises to take advantage of their full capabilities in capacity, performance, reliability and security. To be clear, our model is not to charge for the software. It's open source, we're there, we're working to support the community. Our economic motivation is to reduce the cost of storage and enable more storage clouds, all public and private, as we enable the growth of that mass storage market across the enterprise. Now let's take a closer look at that mass storage market. Let's look into the big opportunity we see in front of us, the product innovation we're driving to capture that opportunity and the strong economic advantage we will be bringing to our enterprise partners and customers alike. Looking at how the overall enterprise storage systems market is forecasted to evolve up to 2025, we see $5.9 billion opportunity to sell our systems, our optimized systems to our public cloud service providers. I would point to our recent 8 exabyte deal as proof of our strong value proposition and our ability to succeed. We also estimate an additional $5.8 billion opportunity for our systems and solutions in the private storage cloud market, an opportunity that we would address via our large enterprise system portfolio and specifically with our CORTX community powered Lyve Rack solution. Together, these are 2 of the highest growth segments of the overall enterprise storage systems market and represent an $11.7 billion addressable and incremental opportunity for Seagate. This does not include Lyve Cloud or Lyve Mobile opportunities that Ravi will be covering in just a moment. Now let's take a look at the product innovation we're bringing to bear on that cloud storage opportunity. The foundation, of course, is our drives. They represent the vast majority of the physical bill of materials. We start with the latest highest capacity devices that deliver the lowest cost per terabyte. We then integrate them into our mass capacity building blocks, which themselves have unique ASIC-driven self-healing technology and provide the most reliable and lowest cost per petabyte. We then marry these systems and building blocks with CORTX software in order to build out our Lyve Rack solution, which is a hyperscale inspired, mass capacity optimized private cloud storage solution available both through traditional CapEx and our future OpEx consumption models. How attractive will this offer be to the enterprise? It brings a very strong economic value proposition. It will deliver the lowest cost per petabyte, some 33x lower than all-flash based object storage alternatives. It further reinforces how the mass capacity advantage of HDDs, especially when coupled with open source software, can translate into big savings at the systems and solution level for enterprise customers. Now let's take a look at some of the market reactions that validate and actually even enhance what we're doing with Lyve. For Lyve Rack, we've developed a partnership with Raytheon in order to deliver secure private clouds to the U.S. government and commercial customers. This partnership entails the combination of all that's in our Lyve Rack solution together with Raytheon's security suite, including their Electronic Armor and Boot Shield secure root-of-trust technology. We're equally excited to be partnering with Dell on Lyve Mobile. Again, we believe we are now the largest provider of bytes in the world. We are executing our Lyve strategy that will augment how we best monetize those bytes in the future. We are going to execute on our vision of leveraging our unique vertical integration to address a large and high-growth mass capacity market opportunity in the enterprise. We've explained that all these technologies and products are built upon our core device technology leadership and that we are further enhancing our competitive position with incremental innovation across the entire storage stack from systems, to software, to solutions and services. Lyve is a unique offering, an open, mass storage platform that offers the ability to move terabytes and even exabytes of data and efficiently store it. So enterprises can store more of that data, more of that 175 zettabytes and realize the economic benefits of the data age. I'd now like to hand it over to our CIO, Ravi Naik, to share more about the newest piece of our platform, our Lyve Cloud storage-as-a-service offering. Ravi, over to you.

Hello, everyone. I am Ravi Naik, CIO of Seagate Technology. As Ken shared with you just now, Seagate's Lyve platform is aimed at helping enterprises address the cost and complexity of securely managing mass capacity data in the distributed edge cloud world. I will be sharing with you about Seagate's new storage as a service offering. Data is growing. Data is potential, but more data is thrown away due to increasing storage costs and lack of storage solutions near where data is created. It is clear that there is an unmet need in the market. Lyve Cloud is an S3 compatible storage-as-a-service that addresses these data needs with predictable economics for mass capacity data. Lyve Cloud is about offering choice in a multi-cloud world. Our collaboration with Equinix enables this choice through the power of interconnections and makes it available at the metro edge closer to the data. The opportunity is big and growing. The addressable market is predicted to grow to $36 billion by the year 2025. We see Lyve Cloud serving the needs of many verticals and use cases. CIOs like myself are facing an acute data problem. There is more data created than ever before and more use cases to unlock value from that data, but no easy answer to store and activate data at scale in a secure and cost-effective way. There are exabytes of data trapped in silos that remain unutilized. Data is being thrown away simply because keeping it is too expensive, and our customers know by doing so, they could be losing important insights. CIOs need an easy answer to store more data and harness its power without worrying about the total cost of ownership, security and data mobility. Today, we are announcing Lyve Cloud, a storage-as-a-service platform, purpose-built for customers to store, manage and activate mass capacity data with predictable cost economics. Lyve Cloud leverages the combined expertise and capabilities of Seagate and Equinix, the world's digital infrastructure company. We are excited to collaborate with Equinix to place Lyve Cloud infrastructure in their colocation data centers. We see 2 clear advantages for our customers utilizing Equinix digital infrastructure Solutions. First, with Equinix' global presence, Lyve Cloud customers are now able to consume object storage-as-a-service at the edge, interconnecting sources of data for accessibility and real-time analytics. Secondly, Platform Equinix provides multiple applications for our Lyve Cloud customers to interconnect their cloud storage to compute capability, including Equinix Metal. It's automated, interconnected and secure bare metal-as-a-service. You will hear more about this directly from Equinix later in this session. We are offering a cost-effective way for customers to store more data. Data that can help them enable new use cases while also meeting TCO objectives. Further, Lyve Cloud is S3 compatible, making it suitable for many applications. Lyve Cloud is positioned for multiple data-intensive use cases from back-end, for backup and archive, to big data analytics and several others across industry verticals. We are on track to have 4 Equinix locations available across the United States in 2021. Lyve Cloud is not about replacement, but about filling the unmet needs of data storage, storing and harnessing the potential of mass capacity data. Due to increasing storage cost, customers end up tossing out valuable data. Lyve Cloud fills this gap by delivering a storage-only cloud to work alongside private and public clouds and brings the cloud closer to the data at the metro edge. In the end, we believe Lyve Cloud will become the preferred storage cloud for storing mass capacity data. Available now, Lyve Club delivers on 3 main value propositions; simple, trusted and efficient, simple to buy, use and scale. Let me explain what I mean by that. We are focused on creating a simple pricing model for always on data. This makes Lyve Cloud's economics straightforward with storage costs that is easy to understand and budget for. Customers know exactly what storage they're getting and what it costs them. Data is always accessible and ready-to-use without delay. Everything is included, and there are no extras, like read and write access fees or other billing surprises. Lyve Cloud is frictionless. With S3 compatibility, it is easier to start storing data in no time. With no lock-ins or egress fees, it is also easier to move data out. We hear from our early adopters about the ease of use and the value of predictable pricing with no billing surprises. This is what we seek to build on and deliver to all. Let us here from one of our early adopters, CIO of Lattice Semiconductor; Sudhakar Chilukuri.

We tried Lyve Cloud for our backups. I always say and most CIOs would agree, I don't have a backup problem, I have a retrieval problem. Lyve Cloud solved the retrieval for us with high data durability. The biggest imperative for us is a cloud solution that enables us to store data without us having to redo the economic, rearchitect and revisit things every few cycles. When we saw Lyve Cloud in action, we recognized how it is built for large volumes of data and enables any application around it. It became easier for us to think of many data types that can benefit from moving to Lyve Cloud, both in terms of cost benefit and from making the data available for analytics. As a CIO, 3 things I most seek from any solution are predictability, security and no lock-in. We want clear line of sight on what it would cost us regardless how much data we store, how many different applications that access the data and how often the data is accessed. The second is security. We want to be assured our data remains our data and protected against ransomware attacks. Lyve Cloud provides both data-in-flight and data-at-rest encryption. And by turning on versioning, we can protect against ransomware attack. We do not want to be locked into a long-term contract or tie our data down that prevents us from making future decisions that are in the best interest of our business partners. That's why a cloud storage strategy with transparent pricing and 0 ingress or egress fees is the optimal choice for capitalizing on the proliferation of enterprise data. Lyve Cloud features fit these needs very well.

Trust is a data imperative, and Seagate understands that. With Lyve Cloud, data is always encrypted and protected against malicious attacks. And Lyve Cloud's ISO27001 and SOC2 certifications meet the data security needs of enterprise customers. We also know data access is crucial for customers to not only run their business but unlock its value with analytics. Lyve Cloud offers multiple regions with a resilient infrastructure to ensure data is available when needed. Additionally, we believe customer data should remain customer data. Data is always encrypted, and Seagate will not look at the data or monetize it. For enterprise cloud economics, what worked at 1 petabyte does not work at 10 or 100 petabytes. Storage costs and other extras add up very quickly and become very expensive. Enterprises pay for storage costs for every second of every day on all the data stored. Lyve Cloud delivers better total cost of ownership, especially when the scale of data grows to multiple petabytes. Lyve Cloud enables customers to be more efficient in managing and using their data. They can store more of it while getting the best value and harness more of its potential. Perhaps most importantly, we deliver efficiency through the benefit of proximity. Locating with Equinix brings Lyve Cloud closer to data sources and data users at the edge. This allows enterprises to store and process data closer to data sources and enable more edge like use cases with less latency. Now let me share with you how we are going to drive growth from this new product by focusing on customer needs and building on Seagate advantages. According to the IDC Rethink Data report, 44% of data generated in enterprises goes uncaptured. And of the data that is captured, 43% goes unused. Over the next 2 years, enterprise data is projected to increase at a pace of more than 40%, which translates into step function increases in both uncaptured and unused data. Lyve Cloud seeks to provide a cost-effective solution to store and realize more value from the data they are already creating. It is easier to see how this translates into market opportunity. Based on IDC data for storage-as-a-service market and applying Seagate analysis, the opportunity is predicted to be $36 billion by the year 2025. Needless to say, this is a big and growing market. We are able to leverage Seagate's unique advantages to deliver value to our customers. Seagate has been a global leader in providing the building blocks for private and public clouds. And now with our pipeline of high-capacity HDDs, we can deliver the performance and TCO benefits of our innovations directly to enterprise customers through Lyve Cloud. We have crafted a repeatable and scalable 100 petabyte cloud building block that allows us to scale fast and meet customer demands. From one site that is in production today, we will add 4 more across the United States by year-end with Equinix. We are making Lyve Cloud accessible to more customers and expanding geographically as needed. Our collaboration with Equinix enables us to offer customers a cost-effective storage-as-a-service closer to where their data is created. Lyve Cloud is part of a complete live -- portfolio of software and services designed to help enterprises find a new way to data. Data transport services powered by Lyve Mobile and fully managed data migration services, key elements of the Lyve portfolio enable offline transport of large volumes of data to and from Lyve Cloud. Our innovation advantage directly translates to value to our customers. Lyve Cloud delivers customers better cost and more choices. Simple pricing with no extras or egress fees means customers can now store more of their data they're throwing away today without the fear of cloud lock-in. Lyve Cloud will connect to Equinix Fabric, a software-defined interconnection service that allows any business to connect between its own distributed infrastructure to any other company's infrastructure on platform Equinix. Equinix Fabric is the de facto standard for companies to directly and privately connect to today's leading cloud providers, which allows customers to take advantage of multi-cloud services without deploying additional infrastructure. At its essence, Lyve Cloud is an object storage as a service that has a wide range of applications. The verticals include, but are not limited to, enterprises, media and entertainment, automotive and video and imaging. I would like to specifically call out 2 unstructured data use cases, the first being big data analytics. Big data analytics enables customers to harness the power of their business data. With big data, value grows almost linearly with the volume of data stored and analyzed. Today, most big data applications do not run in the cloud because of the cost of storage and additional API charges. Lyve Cloud delivers the TCO customers need to justify storing more data and the reach of platform Equinix enabled storage and analytics anywhere within the platform. The other is content repository. There is an increasing need to store more data for longer. Media and entertainment is a clear example of a vertical that needs a cost-effective cloud storage for its content repository needs. However, customers across all verticals are seeing increasing amounts of images and media, especially given the extensive and increasing use of cameras. We believe Lyve Cloud is an easy choice for these kinds of multi petabyte scale content repositories. Lyve Cloud empowers customers to harness the full potential of their data. Enterprises are asking for a simple, trusted and efficient choice for storing mass data. And now it is here, Lyve Cloud from Seagate, the preferred choice for mass capacity data. And next, let us hear from the Chief Strategy and Development Officer of Equinix, Eric Schwartz. [Presentation]

I'll now hand it over to our CFO, Gianluca Romano, to walk you through Seagate's financial outlook.

Hello, and thank you for joining us today. I will start by discussing our long-term value creation. Today, we operate in an industry that is structurally in a more attractive position, with mass capacity storage now representing a majority of revenue, which position us well to deliver future growth. On top of that, we are also excited about our opportunities with the Lyve storage platform, which are incremental to help us drive growth that we foresee in the coming years. These trends are complemented by our ongoing focus on operational discipline and ability to convert revenue into strong free cash flow. We have demonstrated our commitment to capital returns, far exceeding our target model and establishing a track record for growing our dividend, while also reducing our share count. I will discuss our future capital return plans in further details later in the presentation. First, let me review our fiscal year '20 performance, which was well aligned with our long-term model despite the headwind of the global pandemic. We grew revenue year-over-year. We delivered strong operating margin and cash flow. We maintained our focus on CapEx discipline. And in terms of capital return, we were once again well above our target, raising our dividend and retiring approximately 10% of share outstanding. Given some of the positive market dynamics mentioned earlier, including our strength in mass capacity storage and confidence in the future demand of that market segment, we are revising our 3- to 5-year financial target framework. Starting with the top line. We are increasing our revenue growth target to a range of 3% to 6%. We are improving our operating margin to 15% to 20% of revenue, well above our prior financial model. To achieve this profit level, we will continue to demonstrate OpEx discipline and target gross margin in the range of 30% to 33%. Over the past several quarters, COVID-related costs have represented a significant headwind to our gross margin performance. We expect to see incremental improvement in the second half of the calendar year as COVID costs start to abate and we ramp our latest high capacity products into high volume. These factors, along with ongoing mix shift to mass capacity storage, support the gross margin performance in our target range toward the end of our fiscal year 2022. We target CapEx as a percentage of revenue to be between 4% and 6%. The lower spending level relatively to the prior model reflect platform simplification and continued manufacturing efficiency improvement. Finally, we expect to return at least 70% of free cash flow to shareholders through dividends and share repurchases. We have recently executed well above that threshold. And based on everything I just went through, you can see that we are excited about where we are going as a company, and we have felt investing in our shares have been a good use of capital. I will discuss more about our capital strategy later. Now for some more detail on how we get to this target, starting with the top line. We have continued to execute our strategy to capture the significant opportunities associated with secure demand growth for mass capacity storage. Our hard disk drive revenue has now reached an inflection point, with mass capacity representing over 60% of our revenue in the most recent quarter and is expected to reach over 90% by fiscal year 2025, driven by a strong demand from cloud data center customers and video and image applications, combined with our leading product portfolio. These trends support our expectation for mass capacity revenue to double by fiscal year '25 compared with fiscal year '20, with the growth in mass capacity far exceeding the decline in the legacy market. One element of our business model that is still underappreciated is how the installed base in mass capacity actually create a stable replacement cycle. By 2025, we expect that nearly 1/4 of our mass capacity demand will be from replacement capacity. We look at this as a reliable revenue stream which should compound into the future, layering on top of our hard disk drive business. We are expecting our non hard disk drive revenue to approximately double by 2025 as we scale our life storage platform. Lyve Rack is a natural evolution of our system business, but with significantly more software content and IP to provide a cost-effective way to manage and scale petabytes of that. Furthermore, we are offering services through a subscription model with Lyve Cloud and Lyve Mobile. These are now as-a-service offerings that are tailored to address the complexity of moving and storing mass data in the distributed enterprise. We expect the architectural change for edge workload to be transformational in the coming years. Given hard disk drive, our natural backbone of hyperscale cloud storage, we are well positioned to deliver a unique solution to customers consistent with what they have come to expect in terms of performance, but far improved in term of cost, security, transparency and simplicity. These new businesses offer us opportunity to build a subscription-based model which support a more stable revenue stream at attractive profitability levels and generating good return on capital. We expect subscription-based revenue to be at least 45% of total non hard disk revenue by 2025. On top of focusing on increasing our revenue and making our market position stronger, we also focus on improving our operational efficiency. And we will continue to optimize our cost structure by focusing on 3 key areas. First, we are simplifying our product road map, reducing the number of configurations by half by 2025. We are also leveraging our areal density gains to optimize the cost of our drives by reducing the number of heads and discs for different capacity products. We project these cost-optimized drives to represent about 95% of exabyte shipments by fiscal year '25, up from about 20% this year. This enable us to have the greater manufacturing agility to address customer needs to deliver more value to our customers at attractive cost and better margin. Second, as we presented to our last analyst event, by doubling capacity every 3 or so years, we can sustain our cost per terabyte decline, but keeps our total cost of ownership well ahead of competing technology for mass capacity storage market, supported by our HAMR technology. We have proven over the years that we can sustain innovation through market cycle to continue to execute against our cost reduction road maps and keep our competitive position. Third, we have tightly managed our OpEx, lowering spending levels by about $400 million over the last 4 years. As we look forward, we expect to continue this operating discipline. We will gain R&D efficiency through our common platform and transition more into non hard disk drive opportunity while keeping total OpEx spend near the current level and aligned to business progress and results. Let's now turn the page to capital structure. We continue to maintain a strong balance sheet with ample liquidity, including significant cash as well as undrawn revolving credit facilities. As mentioned on our last call, we raised a total of $1 billion in capital last quarter, issuing 2 tranches of debt at the lowest ever interest rate of any of our prior bonds. Including the new notes, the net debt was $3.3 billion at the end of calendar year '20. We also made significant progress over the last year in managing our maturity schedule, significantly extending the average tenor of our debt and reducing the annual maturity levels. With last 12 months adjusted EBITDA of $1.8 billion, we are in a strong position in terms of leverage, and you can expect us to maintain an appropriate leverage ratio over the long term. And let's now look at our future capital strategy. Our confidence in the business, both in the underlying market trends as well as our strong track record of execution in delivering consistent cash flow, is the basis for our capital allocation priorities. Our fourth priority is to maintain this disciplined approach to supporting the growth opportunities we see in our business in terms of OpEx, CapEx and other strategic opportunities. Our next priority is to build on our recent track record of reliable annual dividend growth. We have delivered a 3% increase in annual dividend in each of the last 2 years, and we plan to grow our dividend in a programmatic fashion. Our next priority continues to be our share repurchase program. In the first half of fiscal 2021, we retired approximately 8% of our share outstanding. As Dave noted earlier, the Board approved a $2 billion increase to our reported authorization. Our decision to invest in our share in the current environment underscores our confidence in the long-term business outlook and future cash generation abilities. We have recently accelerated our share repurchase activity and expect to return more than 100% of free cash flow to our shareholders for this fiscal year and next. We will do this while maintaining a strong balance sheet and liquidity profile. Importantly, we are focused on allocating our capital with a goal of generating the highest long-term return. As we have said before, but worth reiterating, the combination of our operational performance and capital allocation discipline has allowed us to be 1 of a small group of company in the S&P 500 to be in the top tier in terms of delivering high free cash flow yield as well as strong return on invested capital. Over the past 5 years, we have returned more than $7 billion to shareholders via dividend and share repurchases and included a 6% total increase in our annual dividend and the reduction in our share count by 27%. So in summary, there are 3 pillars that underpin the value of our financial model today. The first pillar is our opportunity to drive significant revenue growth against an attractive market backdrop for mass capacity storage and entry into new market opportunities via our Lyve platform. The second pillar is our operational discipline to drive operating profit growth in excess of our revenue growth, supported by technology road map execution, cost reduction, and prioritizing R&D investment toward new growth markets. And lastly, the third pillar, our strong balance sheet and best-in-class capital return commitment that will augment and enhance the value we are delivering to our shareholders. Thank you.

Ladies and gentlemen, we will now hand the session back to Shanye Hudson, who will bring you through the next segment of today's event.

Thank you. We'll take questions from analysts here shortly. [Operator Instructions] But first, let me hand the virtual stage back to Dave for a few closing remarks.

Thank you, Shanye, and thanks to all of you for sharing part of your day with us today. I want to circle back to where we began this morning and reiterate the key decisions that I believe Seagate's in a stronger position than ever to capture the significant opportunities ahead of us and deliver value to all the stakeholders like we discussed. Starting with mass capacity storage, which is vital to the evolution of the datasphere, and is now driving overall HDD revenue growth again. Seagate's enhancing its product road map to drive technology leadership, address all the mass capacity demand for years to come, and pivot. As the datasphere evolves in complexity, enterprises are increasingly challenged to get the most out of their data. And Seagate is leveraging its broad expertise beyond the drive, even into our IT functions to help customers securely capture, move and store data across a more distributed enterprise with our Lyve edge-to-cloud storage platforms. Lyve helps enterprises unlock data potential. And it also creates a recurring revenue stream, as Gianluca talked about, opens up great market opportunities for us in the future. So we're really excited about it. As we build for that future, we have a strong business foundation to deliver profitable growth, strong free cash flow and continue to return capital to our shareholders as we have in the past. Finally, I'm confident that we have the right leadership team to execute the strategy, some of whom you heard from today. So now let's begin the Q&A session. Thank you.

Thanks, Dave. Okay. Let me start off with a question. You mentioned pivoting, and Seagate has successfully pivoted the business towards growing mass capacity storage opportunities. And I'd say today, we've emerged a leader in mass capacity storage. So Dave, could you talk about maybe how sustainable technology leadership is in the HDD industry and then how can you leverage that strength in the new opportunities in our Lyve storage platform?

Sure. Thanks. It was a very conscious pivot into mass capacity a few years ago. When we started talking about the common platform, the 16-terabyte, it was many quarters before we ever launched it. And it took quite a while. Even though it was the fastest growth of heads and discs that we'd ever done in Seagate, it still took quite a while for adoption. And I think that very deliberate planning and those long cycle times are going to be the hallmark of the future of mass capacity delivery to the cloud and to the edge. It's -- you have to be very thoughtful about your capital, what you're building, because the cycle times are so long through wafer and slider operations and media operations to kit the final drives together. Have to have very tight discussions with your customers to really understand their demands as well. So your planning has to be very deliberate. You can't flow a bunch of inventory that you don't know if it's going to yield properly and so on. It's enforcing a lot of discipline, a long lead time discipline inside the markets. And because of that, we don't think the market is going to move very quickly. We're very comfortable with our existing CapEx footprint. The way we've pivoted our OpEx and also our customer relationships, as Jeff Fochtman talked about. So very comfortable with that. We think it's sustainable, and we're going to continue to drive this common platform architecture. The other thing, which I just made reference to just a bit ago, is the fact that we also run those factories, we understand big data generation in factories. We see how that data has to be used, how much data is created, which is tens of terabytes per factory per day and how long we have to keep it in order to make decisions. So our IT department, which is a big department, is actually learning a lot about these problems, these big data problems. And we can move engineers from our core products back and forth to those solutions, which becomes Lyve. It's a thing that I think our brand is very well positioned for. Our technology is very well positioned for. It's a mass capacity solution that the world really needs. So we're confident about that.

That's great. We have a question here from Katy Huberty of Morgan Stanley. Katy asked, given the significant lead that you could have in aerial density, how do you think about balancing market share and margin expansion over the long term? Maybe, Gianluca, you could start with that. It's a 2-part question. Her second part is on another margin related question, but can you reach your -- the low end of the long-term gross margin range in the second half of '21, depending upon how COVID costs fade? So maybe Gianluca, you start, and Dave, you add in.

Yes. Thank you, Katy. Well, I would say, market share is not our priority. For us, market share is a result of having the best product at the right time when customers really demand for those products. We are there today with our 16-terabyte, we think we will continue to be there. You have seen our product road map, our 18-terabyte, 20-terabyte and most importantly, our HAMR road map. As we committed before, we were able to ship our 20-terabyte HAMR in December. And now we are fully focused on developing the second and third-generation of those products, but will continue to be the most important product for the mass capacity for the cloud part of the business. So in our model, we don't really look at the market share per se. We look at what we think is the demand and how our product can answer to that demand. In terms of the gross margin and when we will achieve the range that we have indicated today, I would say it depends on many things, as you said, it's not only COVID. The COVID cost that we report every quarter the earnings release are just direct costs, there are a lot of indirect cost that are more difficult to explain and to identify, but are really impacting a lot not only our company but the industry in general. I would say on top of COVID, the mix is, for sure, moving in the right direction. We expect to continue to go in that direction. That will, for sure, help our gross margin to continue to improve factory utilization. That is another discussion we had about CapEx, how we align supply and demand. Today supply for us, and I think for the industry in general, is a little bit higher than demand. This is mainly because of the decline in the legacy part of the business but has freed up capacity. I think with the right level of CapEx, that is a fairly high level. It's not a small level. Now when we say 4% to 6% of our revenue is a fairly big number. But I think with that level, we will be able to align supply and demand. And as I said before, hopefully, with abating of the COVID costs in the next 2 or 3 quarters, and with the mix going in the right direction with the pricing environment, of course, aligning to the supply and demand situation. All those elements will contribute to the Seagate gross margin to go into the range that we discussed. We don't know exactly when it will happen, it can be 3, 4 quarters, we are now almost at the end of fiscal '21. And next quarter will be our last quarter of fiscal '21. So when we say end of fiscal '22, it's not really far, it's just a few quarters from now.

Thanks, Gianluca. Anything you want to add, Dave? Or should I move on to the next question?

I think Gianluca answered it well. Just a couple of points I would add. Of course, COVID has impacted so many people so deeply up and down our supply chain. So we want them to continue to put the priorities on safety and security in the factories. And all the freight and logistics issues will still be with us for some time. People are finding ways to be creative around some of those freight and logistics issues, but it's still fairly impactful. The only other thing I would add to Katy's question is that remember that the mass capacity drives the long lead times I talked about before, but also we control a significant part of the bill of materials because we make the heads and the discs. So relative to the BOM, that's why we understand what the big hitters are for cost: of scrap and yields and test times and all the other things that people talk about in the industry. We understand and control those, they become a much more significant part of our bill of materials.

Sounds good. And we have 1 in from Karl Ackerman of Cowen, and it's on some of the edge opportunities. He says, much of our research and your thought leadership highlights mass capacity storage as a critical enabler of the edge and clearly have a unique ability to sell your drives to hyperscale cloud providers. Could you discuss at least qualitatively the investment priorities of traditional enterprises and telco providers as they seek to capitalize on the growing service opportunity at the edge?

It's a very diverse question depending on where you are in the world and which specific customer you're talking about. But Karl, first I would say that the Cowen report is about a year old now, but I still would point people back to it, and I just was looking at it a couple of weeks ago. As 1 of the kind of seminal reports on what's going on at the edge, it's still very relevant, too. So I think that's -- it's a great framework to think about. The way I state the mass capacity problem today is, there's too much data being trapped or just frankly deleted at the extreme edges. And so in the presentation today, we've used the word micro edge for that. That data isn't effectively moved into other instances, whether it's a metro edge or backed up into the cloud or the cloud service providers. Getting that data moving and then allowing AI and ML to make decisions on the data, not necessarily snap decisions, but 1 day, 1 week, 1 month later, is a big, big opportunity, I think, in the datasphere. And it's something that really everyone benefits from. So it's not a zero-sum game. So qualitatively, to answer your question, that's the way I think about it, is that there's a lot of data today that's not properly utilized. We talked about that in some of the marketing pitches that Jeff Fochtman has put forward. If we can actually address that in a cost-effective, secure, very efficient way, I think it opens up opportunities for a lot of people to add their value in [ either ] applications, compute, AI, ML or even some of the existing cloud service providers, they just need more data to be fed to them.

Thanks, Dave. And this one, I'm actually going to ask both you, Dave and Gianluca, to comment. It comes in from Wamsi Mohan of Bank of America. And it's a question on HAMR and asks if HAMR will be standard for anything over 20-terabyte or give a little more clarity on the time line for HAMR to be mainstream. And then from a cost perspective, can you compare the cost structure for HAMR 20 TB, say, versus a PMR drive that you talked about today?

Yes. I'll let Gianluca answer the details. He did in his prepared remarks a little bit on HAMR cost. 20 terabytes is the cusp of a transition. We believe that PMR is actually running out of steam, but we still have solutions. And we really like the platform that we're on. So whether it's 20 or 22 or 18, I think a lot of people get -- come to the wrong conclusions about those things. I think what we need is customer predictabilities and high yields and the deliberate planning that I talked about up and down the supply chain. In order to continue the areal density growth, the capacity growth, that the world needs, we're going to have to break and go to HAMR. And so that's 1 of the reasons why we're out there in the market today, learning from it. And from my perspective, it doesn't add a lot of cost. There's a lot of maybe misinformation out in the markets about this. It doesn't add a lot of cost. It's not easy to do it, but it wouldn't be easy to do a 25 or 30 terabyte drive to begin with irrespective of the technology. But we have a lot of confidence in the parts that we have in our lab right now. And we're going to push this out into the market. We're going to learn a lot with our customers. We're going to stage for the future. Our capital is all ready for HAMR. So there's not a whole lot of capital investment that's required. We don't have to change the model that we presented today. So we're pretty optimistic about HAMR.

Yes. No we were discussing before about the comparison in the cost decline between PMR and HAMR. We have high expectation in terms of cost decline from HAMR. We show how we expect the cost to decline by more than 40% when we move from a 16-terabyte to a 30, 32 terabyte HAMR. This is a similar decline to what PMR was able to generate in the period of time where we were moving from 2 to 4 terabytes or 4 to 8 terabytes, so several years ago. Right now, PMR is not generating that level of cost decline. And so we expect HAMR to bring us back in that cost decline curve. But, of course, will help us and will help our customers to get to the right level of TCO. In terms of R&D, I would say the majority of the effort has been done in terms of developing the technology. So we have demonstrated the technology. We are selling our 20-terabyte HAMR in the market today. Now we go to a normal or more normal cycle where we develop the product. We don't need to develop the technology and the product. We just focus on the product. And CapEx, no, we'll have -- of course, we will have some specific tools and equipment that are dedicated to HAMR. We don't think we need to spend more than what we spent in the last few years, as we're indicating in our model, 4% to 6% of the revenue. Of course, the revenue is supposed to increase. Now you need to consider that. But nothing that will drive us very differently from where we are today.

Thanks, Gianluca. We've got a couple of questions in from Ananda Baruah from Loop Capital. Let me start with Lyve. He says you have a $50 billion TAM and it's actually a served available market. It's our SAM for Lyve. If there was no Lyve, what would happen to that data? And maybe, Dave, I'll ask you to address that. And then we've got another 1 on the buyback that I'll kick over to you, Gianluca, when Dave is done.

Great. Thanks for the question, Ananda. The way I think about Lyve and the total market is it's a small part of the much, much bigger enterprise IT market. So this is a mass capacity only focus on the market and $50 billion sounds like a big number. We talked -- Ravi and Ken talked today about the various constituents of that. From my perspective, if Lyve doesn't exist, not as much data is moving around, so the market is probably smaller. But I think people will come up with creative solutions, irrespective. I think if we stay with data trapped in ecosystems and getting deleted too much, I think there's a lot of lossiness in business models as well, AI and ML business models. So I think it just doesn't develop as quickly. There will still be mass capacity products. We'll still continue to serve the customers that we serve. But I think what Lyve actually does is it enables with frictionless data movement and some other opportunities to just have temporary resting spots for mass capacity data. It allows for everybody to garner that. I mean if you think about it, edge compute is talked about a lot or AI and ML are talked about a lot, all those things need to be fed consistently with data. And the more data that we can actually bring, add good economics, the more that those technologies are going to be able to contribute value back into the world.

Great. And then Gianluca, the question is around the new -- the $2 billion share repurchase authorization today. And that brings the total, at least at the end of last quarter, about $5 billion. Could you talk about the pace of those repurchases over time?

Yes, Dave announced earlier today the additional authorization of $2 billion for our share buyback program. This gives us a lot of flexibility on how to execute the share buyback. Share buyback, first of all, is only a part of our shareholder return program. Now we have a lot of focus on our dividend. First of all, we raised our dividend in the last 2 years. And on top of that, we complement with a share buyback. Dividend are very programmatic in our view. Share buybacks are more opportunistic. So I would not expect a stable buyback in the next quarters or year. We will discuss at the beginning of every quarter with Dave and decide how much we want to allocate in terms of share buyback as part of our cash flow. And see, we will try to maximize the opportunity that we have. It's important to know that we always give priority to that part of capital return that generate the greatest long-term return. So always looking at the long-term result and not just focusing on the short-term quarterly result.

Great. Thanks, Gianluca. We've got a question in from Steve Fox of Fox Research. This one, again, goes back to the network edge story. He says, it seems like there's a significant opportunity there that's already underway. What kind of revenues does the company expect to generate from edge HDDs over the next couple of years? And how well is the company positioned in the specific edge sales channels?

Thanks, Steve. So edge is already alive, to your point, there's products that we sell today and Jeff Fochtman talked about SkyHawk AI, for example, as a product that is serving markets like smart cities, smart factories, smart health care, those kind of applications. And so we see the growth, and we see the diversity of customers around the world and what they're doing to kind of aggregate that data. From my perspective, those customers will still be really valuable to us. We offer up other solutions as well, not just the hard drives that they're using, but other solutions to support their markets, whether it's recovery services or transport services. And now we're talking about all these other things in Lyve. It's a great opportunity for us. We think about video data a lot, but there's all kinds of other sensor data that's coming ultimately, autonomous vehicles and LIDAR data, health care genomics. And these are large, large data sets. And as those are generated at the extreme edge, we need to move them around or we need to store them in the extreme edge. There is great mass capacity opportunities for many years. And I think the solutions that come from systems that actually do this economically, quickly and so on are going to be super impactful to the world.

That's great. And maybe -- here's 1 from Patrick Ho of Stifel, and it's a little bit of a follow-on, Dave, and a big picture kind of question. So he asks, Seagate has begun monetizing the opportunity with HAMR and the Lyve platform. And as the Lyve platform expands Seagate's reach into emerging markets, is it fair to say that Lyve continues to expand and there will be more services-based offerings and potentially software enhancements for customers in the future? And overall, would that help to lower overall TCO for customers?