Seagate says hyperscalers are showing strong interest in its HAMR drives.

Seagate beat its first-quarter fiscal 2027 guidance, reporting a record $4.8 billion in revenue against a $4.1 billion forecast, as hyperscale cloud buyers purchased its high-capacity HAMR disk drives. The company shipped 220 EB of capacity. The AI storage boom is continuing, with datacenter customers accounting for 90 percent of shipped capacity. Within the datacenter segment, Cloud nearline (mass-capacity drives) products recorded their 12th consecutive quarter of revenue growth, and enterprise OEM revenue reached its second-highest quarterly level in over a decade. As AI adoption expands beyond model training toward inference and agentic applications, persistent data is becoming increasingly important.

CEO William Mosley said on the earnings call: "Fiscal '27 is off to an outstanding start. September quarter revenue grew by more than 60 percent year-over-year and non-GAAP EPS expanded by nearly 3x to a record $7.68. We also achieved record gross and operating margins, demonstrating the earnings power of our business and ongoing demand strength for data storage. Both the data center and edge IoT markets delivered double-digit sequential revenue growth, up 18 percent and 13 percent, respectively, reflecting ongoing demand and pricing strength. These trends support our expectation to deliver strong sequential revenue growth and gross margin expansion throughout fiscal 2027."

**Financial Summary**

- Gross margin: Record 57.3 percent, vs. 52.3 percent in the prior quarter

- Operating cash flow: $1.69 billion, vs. $1.3 billion in the previous quarter

- Free cash flow: $1.5 billion, vs. $1.1 billion in the prior quarter

- Cash and cash equivalents: $1.7 billion, vs. $1.7 billion in the prior quarter

- Gross debt: $2.4 billion, vs. $3.6 billion in the prior quarter

- Diluted EPS: Record $7.68, vs. $5.58 in the prior quarter

A set of charts shows Seagate's net income rising as a percentage of revenue, cloud taking a growing share of end-market segment revenue, increasing revenue and profit per exabyte shipped, slowing growth in capacity shipped, and a narrowing gap with competitor WD's revenues.

Seagate's ability to ship more exabytes at higher prices and with greater profit is impressive. The ongoing demand and pricing strength, enabled by Seagate and its main competitor and market leader WD, stem partly from both companies not increasing disk unit output and instead increasing capacity per drive. This allows them to provide more GB of capacity to hyperscaler buyers of their nearline drives at a lower cost per GB while still raising prices per drive. Distant third player Toshiba wants to increase drive unit output, and it remains to be seen whether this will affect the market much when it happens.

Mosley said: "Advancing areal density is our North Star. We are scaling drive capacity through areal density rather than relying on higher drive unit production."

This approach is enabled by Seagate's HAMR (Heat-Assisted Magnetic Recording) technology. Mosley said: "We continue to expect HAMR to represent roughly 50 percent of our nearline exabyte shipment run rate exiting calendar 2026, with Mozaic 4 representing roughly half of those HAMR shipments. Mozaic 4, which offers up to 44 terabytes of capacity, is continuing to ramp with 2 leading CSPs. We are on track for additional qualifications to complete over the next couple of months across multiple global CSPs and OEM enterprise customers."

Customer qualification of Seagate's gen 3 Mozaic drives, which offer up to 55 TB across 10 platters, should begin toward the end of calendar 2027. The company has demonstrated 8 TB/platter technology in its lab. Each HAMR technology transition lowers Seagate's manufacturing cost per bit, which increases profitability.

Like the DRAM and NAND suppliers, Seagate and WD now have long-term agreements (LTAs) with major buyers, giving them a much clearer picture of disk capacity demand over the coming months and years. The massive capital investment needed to enter the disk drive market, combined with AI-driven demand exceeding supply, means that the three major suppliers collectively see buyers competing to purchase their disks, rather than the suppliers competing to sell them.

Mosley said: "Our confidence is supported by an extremely strong demand environment with visibility extending beyond 2030 and an areal density-driven technology road map poised to capture this growth."

"We shipped a record 198 exabytes of nearline capacity into data center customers, and we expect a meaningful step-up in the December quarter, supported by the continued ramp of Mozaic 4. As we stage new generations of Mozaic products and ship to a broader customer base, quarterly exabyte growth may vary. At the same time, we expect our technology road map to support nearline exabyte supply growth in the mid-20 percent range on a compound basis."

Mosley observed: "Data growth is profound across a wide variety of applications."

Seagate has strengthened its balance sheet with new debt deals and expects to be net cash positive by the end of this calendar year. The company is now shifting its focus toward capital returns. Mosley said: "We are shifting our focus towards capital returns with share repurchases serving as our primary vehicle, complemented by dividends. This month, our Board approved an increase in the quarterly dividend to $0.76 per share. Importantly, this capital allocation strategy reflects our confidence in the cash flow potential of the business as well as the multiyear demand visibility afforded by our customer (LTA) agreements."

He pointed out: "The vast majority of our nearline exabyte supply is now allocated under long-term supply agreements through calendar 2028, with some cloud customer agreements extending through calendar 2030. Our strategic planning discussions extend even further."

The nature of the business is moving away from decades of commodity drive shipments toward custom deals with large customers. Mosley said: "Beyond hyperscalers and CSPs, demand is expanding among a broader set of enterprise OEM customers that are managing increasingly large data sets. We are engaging more directly with many of these customers and developing reference architectures that pair proven compute and storage hardware with flexible, customer-selected software. These solutions offer a path to scale persistent data capacity, improve storage economics, and drive platform efficiencies."

The outlook is solid. Seagate said: "Based on the long-term visibility we have with customers, we believe we're still in the early days of a multiyear growth phase." The company expects next quarter's revenue to be $4.8 billion, plus or minus $100 million, which implies 7 percent year-over-year growth at the midpoint.