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

Welcome to the Seagate Technology Fiscal Fourth Quarter and Fiscal Year 2026 Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Shanye Hudson, Senior Vice President, Investor Relations. Please go ahead.

Thank you. Hello, everyone, and welcome to today's call. Joining me are Dave Mosley, Seagate's Chair and Chief Executive Officer; and Gianluca Romano, our Chief Financial Officer. We've posted our earnings press release and detailed supplemental information for our Q4 and fiscal 2026 year-end results on the Investors section of our website. During today's call, we'll refer to GAAP and non-GAAP measures. Non-GAAP figures are reconciled to GAAP figures in the earnings press release posted on our website and also included on our Form 8-K. We've not reconciled certain non-GAAP outlook measures because material items that may impact these measures are out of our control and/or cannot be reasonably predicted. Therefore, a reconciliation to the corresponding GAAP measures is not available without unreasonable effort. Before we begin, I'd like to remind you that today's call contains forward-looking statements that reflect management's current views and assumptions based on information available to us as of today and should not be relied upon as of any subsequent date. Actual results may differ materially from those contained in or implied by these forward-looking statements as they're subject to risks and uncertainties associated with our business. To learn more about the risks, uncertainties and other factors that may affect our future business results, please refer to the press release issued today and our SEC filings, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q as well as the supplemental information, all of which may be found on the Investors section of our website. Following our prepared remarks, we'll open the call up for questions. To provide all analysts with the opportunity to participate, we thank you in advance for asking one primary question and then reentering the queue. With that, I'll hand the call over to you, Dave.

Thanks, Shanye, and hello, everyone. Seagate delivered a very strong finish to an outstanding fiscal 2026. Our June quarter results outperformed our expectations for both revenue and non-GAAP EPS, and we expanded our non-GAAP gross margin for a 13th consecutive quarter. Our performance led to free cash flow margins of 31%, which totaled more than $1.1 billion, our strongest quarter in over a decade. Our impressive fiscal 2026 financial performance was underpinned by the 3 structural growth pillars that I outlined last quarter: sustainable market demand, our differentiated technology road map and disciplined operational execution. First, sustainable market demand. As our results show, demand for mass capacity storage is strong and growing. We delivered fiscal year revenue growth of 34%, led by cloud customers' demand for data storage solutions amplified by the adoption of AI-enhanced applications. Given our momentum and the improved visibility we have into demand, we expect fiscal 2027 revenue growth to outpace our performance in fiscal 2026. Second, we are executing our differentiated technology road map, anchored by our HAMR-based Mozaic platform. HAMR enables us to increase areal density and store more data on each disk. As a result, we can scale exabyte shipments to meet rising demand in a highly capital-efficient manner to capture more value per drive. Exiting the year, HAMR-based products represented approximately 40% of our nearline exabyte shipment run rate, and we continue to invest in HAMR capabilities to support our mid-20% exabyte growth target while further enhancing profitability and capital efficiency. Our third pillar centers on translating demand strength and technology advancements into profitable growth. In fiscal '26, we increased non-GAAP gross margin 10 percentage points, grew non-GAAP EPS more than 90% and generated record free cash flow of $3.1 billion. Looking ahead to fiscal '27, we expect to deliver sequential margin and cash generation growth throughout the year. Our confidence is supported by the scale, quality and duration of our data center customer commitments in a strengthening demand environment. Data center demand now represents approximately 90% of our exabyte shipments. Based on the long-term supply agreements in place today, the vast majority of our nearline exabytes are now allocated into calendar 2028. Importantly, we are not seeing customers pull back on planning horizons. As our strategic relationships deepen, many are actively seeking to extend planning horizons through 2029 and beyond, which we believe reflects growing confidence in their own long-term infrastructure needs. These engagements reinforce our view of demand durability while providing customers greater supply assurance and support for the key technology transitions. We remain disciplined in securing orders from these customers prior to initiating drive production with contracts that define both product configuration and pricing terms covering the entirety of calendar 2027. We continue to execute our value-based pricing strategy, balancing a stronger demand environment with our objective of supporting sustainable, profitable growth over the long term. Cloud customers remain the largest driver for nearline demand today with 3 years of sequential quarterly exabyte growth and no evidence of a slowdown as AI adoption now builds on demand for traditional data-intensive applications, including video. We continue to benefit from cloud infrastructure deployments, which fuel the need for scalable, cost-efficient and reliable storage. At the same time, we believe storage demand will prove durable through investment cycles. First, new data is constantly being created across existing cloud and enterprise infrastructure. And second, customers are retaining and reusing more of that data over time as its value extends beyond its initial use. AI is reinforcing these trends and illustrating how data is not only growing, it is compounding. With the transition from AI model training to inference to agentic applications, more data is generated and retained for historical context, compliance and future reuse. As these data center environments become larger and more complex, customers must balance performance, energy consumption and cost across distributed infrastructures. Cloud providers have long addressed these challenges through tiered storage architectures that combine high-performance memory and SSDs with mass capacity hard drives to optimize performance and economics at scale. Our recent white paper with SK hynix illustrates the importance of tiered storage for inference and agentic AI workloads, which show a direct benefit to hard drive storage. These workloads rely on persistent context across user interactions and key value or KV cache is used to retain and reuse that context efficiently. KV cache can expand significantly as the number of users increase and interactions become longer and more sophisticated. Our research found that by extending KV cache data across memory, SSD and hard drive tiers, organizations can retain more context and avoid recomputing previously generated data. This drives the need for increased hard drive storage and reduces GPU usage during the most compute-intensive phases of an agentic application. As a result, GPU resources are available for additional revenue-generating workloads. Additionally, we are now seeing the relevance of tiered storage extend beyond large cloud data centers into enterprise deployments. As enterprises increasingly operate across public cloud, private cloud and on-prem environments, they must manage growing volumes of structured and unstructured data while facing similar performance, cost and energy consumption trade-offs that hyperscalers have addressed for years. We see this broadening of demand in our business. Enterprise nearline revenue increased for a fifth consecutive quarter in June and we are engaging more frequently with Neocloud operators and leading model developers. As their data management needs scale, these providers are starting to adopt modern tier storage architectures where hard drives provide the trusted mass capacity foundation. Looking ahead, we believe physical AI applications such as robotics and autonomous vehicles will drive the next step function expansion in data creation and retention at the edge. These applications rely on world models trained on millions of hours of historical and synthetic video content in order to understand and reliably interact with the physical world. Taken together, these trends reinforce a structural change in storage demand. Applications are creating, retaining and reusing more data across cloud and enterprise environments than ever before, extending the role of mass capacity storage across modern tiered architectures and creating additional opportunities for Seagate over time. Our technology road map plays an integral role in Seagate's ability to capitalize on growing storage demand. Advancing areal density is our North Star. We believe that increasing the amount of data stored on every disk we produce is the fastest, most capital-efficient path to supporting long-term exabyte growth while maintaining relatively stable hard drive unit output. Our expertise across material science, precision manufacturing, advanced photonics and nanoscale wafer production has enabled us to pioneer HAMR technology and the Mozaic platform, which have increased storage density per disk and per drive. We continue to push the boundaries of innovation as demonstrated by our vertically integrated laser manufacturing capabilities, which yielded tens of millions of edge emitting lasers last quarter. Our team's achievements underscore the scale, maturity and supply chain resilience behind our Mozaic platform. These innovations are improving the total cost of ownership for our customers while expanding our exabyte output and enhancing efficiency across our operations and supply chain. We ended fiscal 2026 on schedule with our HAMR-based product ramp. Our Mozaic 3 products are now qualified and operating in production environments across all major cloud customers. Our second-generation Mozaic 4 platform capable of supporting up to 44 terabytes per drive continues to ramp with the 2 largest global CSPs and additional customer qualifications are underway. We expect to achieve our next ramp milestone by exiting calendar '26 with 50% of our HAMR exabytes on our Mozaic 4 platform. Looking further ahead, Mozaic 5, our 5-plus terabyte per disk platform, remains on track for qualification shipments in late calendar 2027. Wrapping up, we delivered across the board in fiscal 2026 with each quarter building on the momentum of the last, and we expect that momentum to continue through fiscal 2027. The growth in data creation, retention and utilization continues to elevate the importance of hard drive storage and modern data architectures. Together, our demand outlook, differentiated technology strategy and disciplined execution position Seagate to capture the significant opportunities ahead and create long-term value for our stakeholders. I'll close by thanking our global team for another year of outstanding execution. I'd also like to thank our customers, suppliers, partners and shareholders for their continued support and trust in the company. With that, I'll turn it over to Gianluca.

Thank you, Dave. We capped fiscal 2026, delivering strong sequential double-digit top and bottom line growth in the June quarter, supported by disciplined operational execution and both revenue and gross margin expansion across every end market we serve. June quarter revenue was $3.6 billion, up 17% sequentially and up 48% year-over-year, exceeding the high end of our guidance range. We achieved record profitability levels across gross margin, operating margin and earnings per share. Non-GAAP gross margin came in at 52.7%, up 570 basis points sequentially. Non-GAAP operating margin increased 710 basis points sequentially to 44.6% and non-GAAP EPS was $5.71, up 39% quarter-over-quarter and 121% year-over-year, exceeding the high end of our guidance range by a wide margin. As Dave noted earlier, we generated free cash flow of more than $1.1 billion, rounding out our best quarterly performance in over a decade. Sustained data center demand continued to outpace broader company growth. In the June quarter, we shipped a total of 218 exabytes, up 34% year-over-year, with data center representing 89% of the total. We shipped 195 exabytes into the data center market, up 11% sequentially and 43% year-over-year, with data center revenue coming in at $2.9 billion, up 17% sequentially and 57% year-over-year. Global cloud customers are driving the vast majority of data center revenue and exabyte demand. At the same time, demand trends in the enterprise OEM data center markets have strengthened, reflecting growing storage requirements across a broader set of customers and workloads, many of which Dave highlighted earlier. In the June quarter, we delivered strong double-digit year-over-year growth across both revenue and exabyte shipments into the enterprise OEM markets. To support long-term demand growth, we continue to expand the deployment of HAMR technology across our product portfolio. Our goal is to transition an increasing portion of production to HAMR-based products first to address cloud customers and over time, to broaden adoption across enterprise deployments. As we make this transition, we are strategically investing in additional tools and technology to support the manufacturing of our HAMR products. These investments enable us to maintain relatively stable drive unit output as customers mix up to higher capacity drives and manufacturing cycle time increase. We believe this action will enable us to deliver nearline exabyte growth in the mid-20% range over the next few years. Beyond the data center, our edge IoT market made up 19% of revenue at $697 million, up 14% sequentially and 20% year-over-year due in part to ongoing tight supply conditions and increasing NAND pricing. Moving on to the rest of the income statement. Non-GAAP gross profit increased significantly to $1.9 billion, up 31% quarter-over-quarter and more than doubling year-over-year. Non-GAAP gross margin expanded to 52.7%, up from 47% in the prior period. This improvement reflects continued execution of our long-term pricing strategy and a stronger product mix. We expect these trends to remain favorable, underpinned by strong demand. Non-GAAP operating expenses were $293 million or 8% of revenue, reflecting our discipline in cost management. Non-GAAP operating profit increased 39% sequentially to $1.6 billion, representing 44.6% of revenue and underscoring the scalability of our financial model, continued areal density innovation, supply discipline and pricing strategy execution. In the June quarter, other income and expenses were $58 million, and we project OI&E to decrease further in the September quarter to approximately $45 million, reflecting the benefit from lower interest expense as we continue to reduce our outstanding debt balance. Non-GAAP net income grew to $1.3 billion with corresponding non-GAAP EPS of $5.71 per share based on tax expense of $242 million and a diluted share count of approximately 231 million shares, including the net impact of our 2028 convertible notes. Turning now to the cash flow and the balance sheet. In the June quarter, we invested $187 million of capital expenditures, with total fiscal 2026 CapEx representing 4.7% of revenue. Looking ahead, we expect capital expenditures for fiscal 2027 will remain well within our target range of 4% to 6% of revenue. Free cash flow generation expanded to $1.1 billion, up 17% from the prior quarter. We expect cash generation to further improve throughout fiscal 2027, supported by sustained demand, operational efficiencies and CapEx investment discipline. During the June quarter, we returned approximately $283 million to shareholders through dividends and share repurchases. Strengthening the balance sheet was a key objective for fiscal 2026 and we delivered on our plans. We ended the year with cash and cash equivalents of $1.7 billion and strong liquidity of $3 billion, including our undrawn revolving credit facility. Our gross debt balance was approximately $3.6 billion exiting fiscal '26, down $1.4 billion year-over-year, including $300 million that we retired in the June quarter. Our resulting net leverage ratio improved to 0.4x based on adjusted EBITDA of $1.7 billion for the June quarter, up 37% quarter-over-quarter and 142% year-over-year. During the September quarter, we are retiring an additional $1.2 billion in debt. We have already extinguished $1 billion in high-yield senior notes in July and plan to retire the remaining balance on our convertible notes in September. Turning now to the September quarter outlook. Visibility from our BTO model reinforces our confidence in sustained demand for high-capacity nearline drives as AI adoption accelerates. We see continued revenue and profitability expansion in the September quarter, supported by our Mozaic ramp and pricing strategy. We expect September quarter revenue to be in the range of $4.1 billion, plus or minus $100 million, which represents a 56% year-over-year improvement at the midpoint. Non-GAAP operating expenses are expected to be approximately $300 million. Based on the midpoint of our revenue guidance, non-GAAP operating margin is expected to be around 50%. Non-GAAP EPS is expected to be $7.30 plus or minus $0.20 based on a tax rate of about 16% and non-GAAP diluted share count of 231 million shares, including estimated dilution from our 2028 convertible notes of approximately 2 million shares. To close, Seagate's financial results and outlook demonstrate our ability to deliver profitable growth, expand margins and drive significant cash generation. We remain confident in delivering sequential revenue growth and margin expansion through fiscal 2027, while creating long-term value for customers and shareholders. Operator, let's open the call up for questions.

[Operator Instructions] Our first question comes from Aaron Rakers with Wells Fargo.

Congrats on the results. I want to dig a little bit deeper into the gross margin. I guess, given the guidance that you've outlined, it looks like your guide is implying like a mid-57% or so gross margin into this next quarter. So I guess my question is, one, is that kind of the guidance that you're providing? And two, how do you think about the cost down execution as we move through Mozaic 3 to Mozaic 4? You've been operating at like a mid-teens kind of cost down per year on a per terabyte basis. Do you think that's sustainable? Or how should we think about modeling that over the longer term?

Aaron, I'll let Gianluca answer this quantitatively, but the way we're thinking about these product transitions is and I think you know this well, we have to actually put our factories on pause to go through the product and transition a little bit. So as we're moving product from 3 terabytes to 4 terabytes to 5 terabytes. And then there's yield issues. And as we out-execute our plan, what happens is we have opportunity for cost to drive better cost than we thought. So that answers the second part of your question, Gianluca?

Aaron. So yes, very good result, I would say, on gross margin already in fiscal Q4. So strong improvement sequentially, and we are guiding up again. So our pricing strategy is continuing as we have discussed now for several quarters. I would say we have adopted this strategy more than 12, 13 quarters ago. So we are continuing in that direction. Every quarter is a bit different, but the strategy is the same. The mix is helping. We are moving more and more into the high-capacity nearline product. You have seen another strong increase in nearline exabyte in the quarter. So everything is continuing in the same direction that we have driven the company for many quarters. Dave discussed about the cost, of course, moving the mix from 3 terabyte to 4 terabyte per disk is, of course, giving us another boost in terms of profitability.

The next question is from Ben Reitzes with Melius.

Great to be covering you again. I wanted to talk about 2 longer term -- ask you about 2 longer-term demand drivers potentially. I mean this key value cache use of the HDD tier at hyperscalers. How much is that helping right now? Is it on the come? And do you expect it to kind of ease in your exabytes? And how do we look at that? And when do you think physical AI really starts helping your exabytes as well?

Right. Ben, I think that's good. Both very, very early days. I would say that the agentic flows that we're seeing are actually what -- that's the reason we pointed to the KV cache discussion. I think the key word here is context. When you set up these agents, you really need to give them context and sometimes that's a very broad set of rules across your business or your problem set or whatever. And as you do that, then you don't want to have to redo that context every time. You don't want to have to recompute all that context every time. So that's what's driving storage, but still very early days. Physical AI, we are quite excited about. I think I hear a lot about robotics. We've all seen autonomous vehicles. People focus very much on the end product, the robot, if you will, but I actually think it's a lot more of a data play. These robots have sensors on them, they're sensor networks. In order for them to learn the data actually comes back up into a local cloud or a bigger cloud. And so when people say physical AI to me, I think it's a lot more about the data, the data processing, what kind of learning you're getting from that. And exactly to your question, how much you have to store to make sure you have that context long term. So we think these are both great opportunities. In particular, the physical AI stuff is largely more about video. So it's a very unstructured type of data coming. It's not like the days of old where you had spreadsheets or checklists to fill out that were complete structured data. This is very unstructured data that the machines are learning from and they might want to learn again and again and again, but you don't want to have to repromote that into the memory tier. So we think that's a great opportunity for us.

The next question is from Erik Woodring with Morgan Stanley.

Congrats on the really nice results and guide. Gianluca, for a number of quarters, you've been quite steadfast that price per exabyte growth would be kind of this mid-to-high single digits year-over-year. You just reported 10% year-over-year price per exabyte growth in June. I think the September quarter guide implies pricing growth closer to maybe 20% year-over-year or even above that. Can you maybe just provide an update for us on how we should be thinking about pricing looking forward, why this trend we're seeing in the September quarter shouldn't sustain or maybe even accelerate just given supply-demand imbalance, customer demand strength, delivering more value to customers, et cetera?

Erik, you are correct. As I said before, it's not that we are changing our strategy, but for sure, the gap between supply and demand is now a little bit bigger than a few quarters ago. And our volume was a little bit higher in fiscal Q4. Now we think it can be maybe a little bit of output available in fiscal Q1. And of course, we are pricing that increased output at a very good price right now. So I would say not really a change in our strategy, but a very good execution and with demand being particularly strong right now, we take a little bit more pricing benefit. Now of course, every quarter is different. We will see in the following few quarters how the pricing will evolve. But I think we were very clear, both Dave and I in our prepared remarks, we see every quarter revenue to improve and they report gross margin and profitability in general to increase. So of course, pricing is a part of the sequential improvement through the fiscal year.

The next question is from Asiya Merchant with Citigroup.

Great results here. And if I may, just on the exabyte CAGR growth, I think you guys reiterated sort of this mid-20%. You guys obviously have been executing too much greater than that. I think I heard about some investments that you're doing. Just help us understand like this above 30% exabyte growth rate, could that sustain as you enter fiscal '27, especially as you're migrating more towards your second-generation HAMR and then you're ramping into -- further out into your Mozaic 5.0. So if you could just help us understand why exabyte CAGR could or could not sustain at this 30% as we look into fiscal '27?

Thanks, Asiya. As we said before, we're not really increasing the box count. We are working really hard to get the heads and media inside the boxes to be able to go up in the technology capability to get exabytes out. And exactly to your point, what's the ultimate CAGR? It's how fast we can do that, how successfully we can do that. We are going through product transitions. I mentioned this earlier. So as you do that, there's a little bit of inefficiency in your factories. But long term, you actually get many, many more exabytes out as we go from 3 to 4 to 5. And that's the way we're focused. What you've seen so far is the transition largely to 3. We are ramping the 4 right now and the 5 is coming. And so how we play that is depending upon how we see end customer demand, what the qualification schedules like for those customers. And we need visibility because that's 3 to 4 quarters out from when we do wafer start. But also, we get a little bit better yields. We can add a few more exabytes here and there, and the team has been doing fantastic on that front. So all of these dynamics are how we actually have to predict the next few years. And that's one of the reasons we say mid-20s. Could we execute a little bit better, not conceivably, but there's a lot of invention required still.

The next question is from C.J. Muse with Cantor Fitzgerald.

A follow-up on pricing. I'm curious if you could kind of speak to like-for-like versus the benefit of newer products. And then moreover, if you could speak to how we should be thinking about contracts rolling off, renegotiating of existing contracts and how that is impacting the relative kind of year-over-year pricing, particularly as it relates to that strong 20-plus percent number embedded in the September guide and how to think about the moving parts into December and beyond?

Thanks, C.J. As we said in the prepared remarks, we're trying to be predictable for at least the next year because that's what we have visibility to in our factories, and that's when we know the exact configuration and we determine pricing with our customers. But as various customers are rolling through those periods, interesting things happen. First, there's product qualification. Like-for-like is kind of tough because we are moving products so quickly through transitionary periods. That benefits us. It also benefits them if they're building a data center, they get a better TCO out of those products. And then there's other architectural reasons that may slow down or speed up their ability to ingest these things. So it is fairly complicated. What we're seeing over time is not only what we lock in for that period of a year is we also see our ability to execute a little bit better, and that's usually 2 or 3 quarters out. That's not in quarter, but we execute a little bit better. We have more exabytes to give, and we determine how hungry the market really is for those exabytes. And usually, they'll pay more than that contract price, if you will, for those exabytes. And so that's why you see these step functions. And therefore, I think we're all confident about the demand that we're seeing, both ourselves and our customers, but also they're voting every day with that by signing up to pricing that is even higher than some of the contractual stuff that we have done together.

C.J., you were asking about the new orders that we are negotiating and the new LTAs that we are negotiating. The trend is the same of the past. So we see strong demand and of course, opportunity for us to continue to push on our pricing and pricing strategy and continue in the same direction. Every quarter is a bit different depending how many contract we negotiate, what is the volume for different customers, what is the upside volume, if any, that is available and what is the price. So it's not a straight line. But I would say the trend is clear. I'd say we have really performed in the same way for more than 3 years at this point right now, it's particularly strong in terms of supply-demand and pricing. But it's going to continue. We're already discussing about the next 2 or 3 quarters going in the same direction.

The next question is from Tom O'Malley with Barclays.

I just had a 2-parter here. So you guys have previously said 70% of nearline exabytes will be HAMR by June of 2027. How are you tracking to that? And then I saw on the preamble that you specifically called out as you're transitioning there, you're strategically investing in additional tools, technology and manufacturing. Is that just something that you normally put in the preamble? It stood out a little bit to me. Can you maybe be more specific on what you're investing in there to help you get to that percentage of the total mix?

Yes. Tom, we're still pushing HAMR well, and it's reacting exactly what we thought it would a couple of years ago. We have -- as time has marched on, we have pushed maybe PMR a little bit harder than we thought. So transitionary, I think we're still on the generally the same trends and everything is going well. Relative to the investment, most of the tools that we're investing in are directly contributing to those heads and media that are driving those technology transitions. I'm very happy with how the team has executed on that front, 3 to 4 to 5 like we've talked about before, very optimistic about it. And I think ultimately, HAMR is going to completely take over the portfolio because of it. We're learning more and more about the tools all the time, and that's part of how we do areal density development is to get the latest tools on, learn how to run them and see what we can do with them. And I would say, long term, I think there's probably more favorability for areal density than I had thought a couple of years ago.

In terms of HAMR percentage of exabytes, we have actually just achieved our first milestone, which was to achieve 40% of nearline exabyte sold on HAMR drive by June. So we just did that. And so I would say we are on track to achieve the future goals. I'd say on the new investment, there is, of course, a big difference between components and hard disk drive units. Now if you -- for example, if you look at our last year, and if you look at the number of disk and the number of heads inside the box, they probably grew between 15% and 20% and the units were absolutely flat. So there is always a mix up of drives going more and more into the nearline and going more and more close to the 10 disk and 20 heads. But of course, there is a strong shift year-over-year over year. This happened for the last 10, 20 years. So it's normal that even with flat hard disk drive units, we need to increase heads and media through time. That's normal part of the business.

The next question...

Sorry, one more thing on that point because I think a lot of people still don't understand this. So the thing that's actually driving factory complexity is not just drive numbers or heads numbers or media numbers. It's actually the product transitions. These new products, say, 4 terabytes going to 5 terabytes, there will be more time in the tools, more time through the tools. Sometimes it has to touch the tool multiple times. The factory complexity is what's driving a lot of the investment that you made reference of, Tom.

The next question is from Mark Newman with Bernstein.

Congrats on another great quarter. Lots of questions on the pricing. So I wanted to talk more about the technology and the cost. Could you update us on the HAMR portion of your shipments? I think you've guided before 40% exiting the fiscal year on HAMR and 50% exiting calendar year '26. Are we on target for that or tracking ahead of that guidance you can say on that? And then also Mozaic 4, you said ramping to global CSPs. So is that going to -- I think you said it's a very small portion of revenue in the previous quarter, but it's going to become more significant in the first -- in the September quarter. I just want to clarify that. And then -- given all that, should we expect that cost declines should be potentially accelerating given this upcoming ramp of Mozaic 4 and now you have almost -- you're now at the sharpest part of the S-curve for the HAMR adoption. So just wanted to see if anything you can comment on that would be really appreciated.

Thanks, Mark. Yes, we're on target for all the metrics that you talked about. I would say relative to Mozaic 4, it was pretty consequential last quarter even, and it's ramping quite nicely. We intentionally have maybe throttled the Mozaic 4 ramp because of qualification cycles and everything else and other customers as they qualify, they're full of the last generation product as well. So things are fairly complicated in the supply chain. But Mozaic 4 is quite successful out in the market. It will continue to ramp over the course of this next fiscal year.