Seagate kicked off fiscal 2026 with a strong quarter, delivering revenue of $2.629 billion, up 21% year over year and 8% sequentially. The company posted a record non-GAAP gross margin of 40.1% and non-GAAP operating margin of 29%, underscoring the profitability benefits from higher-capacity HAMR-driven products and favorable mix into data-center customers. Management highlighted sustained demand from global cloud providers and enterprise OEMs, with data-center momentum representing 80% of total revenue and exabytes shipped of 182 in the September quarter, up 32% YoY. Free cash flow was $427 million, supporting a 3% dividend increase to $0.74 per share and opportunistic share repurchases. Seagate ended the quarter with roughly $2.4 billion in liquidity and a net leverage of about 1.5x on adjusted EBITDA, with S&P upgrading the company’s credit rating. The outlook for December quarter guidance implies continued strength in data-center demand and higher capacity mix, with revenue guided to $2.7 billion ± $100 million and non-GAAP EPS of $2.75 ± $0.20, suggesting further margin expansion toward ~30% non-GAAP operating margin. The long-duration HAMR roadmap and Mozaic platform progress, including 5 CSPs qualified on Mozaic 3+ TB drives and more than 1 million Mozaic drives shipped in the quarter, are central to Seagate’s strategy to capture exabyte growth through 2026 and into 2027. While near-term visibility remains anchored by enterprise and cloud demand, ongoing supply discipline and gradual HAMR transition execution are key risk and execution factors for investors to monitor.
Key Performance Indicators
Revenue
2.63B
QoQ: 21.71% | YoY:39.32%
Gross Profit
1.04B
39.44% margin
QoQ: 36.45% | YoY:72.83%
Operating Income
707.00M
QoQ: 64.04% | YoY:127.33%
Net Income
549.00M
QoQ: 61.47% | YoY:7.02%
EPS
2.58
QoQ: 61.25% | YoY:5.74%
Revenue Trend
Margin Analysis
Key Insights
Q1 FY2026 revenue: $2.629B, up 21% YoY and 8% QoQ; gross profit (GAAP) not disclosed in the press release, but non-GAAP gross margin reached a record 40.1%, up 220 bp sequentially; non-GAAP operating margin expanded 280 bp QoQ to 29%.
Net income and EPS (non-GAAP): Non-GAAP EPS was $2.61, above the high end of guidance; GAAP EPS not provided in the transcript, but net income was $549M.
Operating leverage: Strong top-line growth and leverage delivered a 19% increase in non-GAAP operating income to $763M; non-GAAP net income rose to $583M with 223M–ish diluted shares used for the quarter.
Data center revenue: $2.1B, representing 80% of total quarterly revenue; up 13% QoQ and 34% YoY; 159 exabytes shipped to data center customers, up from 137 exabytes prior period. Cloud exabyte demand was up for the ninth straight quarter, with nearline volumes skewing toward 24TB+ drives (roughly 80% of nearline volume at or above 24TB).
Edge IoT: $515M revenue, down from data-center strength but expected to recover modestly in December quarter.
Financial Highlights
Revenue and profitability
- Q1 FY2026 revenue: $2.629B, up 21% YoY and 8% QoQ; gross profit (GAAP) not disclosed in the press release, but non-GAAP gross margin reached a record 40.1%, up 220 bp sequentially; non-GAAP operating margin expanded 280 bp QoQ to 29%.
- Net income and EPS (non-GAAP): Non-GAAP EPS was $2.61, above the high end of guidance; GAAP EPS not provided in the transcript, but net income was $549M.
- Operating leverage: Strong top-line growth and leverage delivered a 19% increase in non-GAAP operating income to $763M; non-GAAP net income rose to $583M with 223M–ish diluted shares used for the quarter.
Demand and mix
- Data center revenue: $2.1B, representing 80% of total quarterly revenue; up 13% QoQ and 34% YoY; 159 exabytes shipped to data center customers, up from 137 exabytes prior period. Cloud exabyte demand was up for the ninth straight quarter, with nearline volumes skewing toward 24TB+ drives (roughly 80% of nearline volume at or above 24TB).
- Edge IoT: $515M revenue, down from data-center strength but expected to recover modestly in December quarter.
- Exabyte and capacity growth: Q1 exabytes of 182, up 32% YoY; average nearline drive capacity increased 26% YoY; Mozaic platform shipments exceeded 1 million drives in the September quarter.
Cash flow and balance sheet
- Free cash flow: $427M (flat QoQ despite a sizable variable compensation payout);
- Capital expenditures: $105M in the September quarter (about 4% of revenue); full-year calendar 2026 capex guidance remains 4–6% of revenue.
- Shareholder returns: Dividend increased ~3% to $0.74 per share; $29M of share repurchases executed in the quarter; management reiterated commitment to returning at least 75% of free cash flow to shareholders over time.
- Liquidity and leverage: Cash and cash equivalents ~$2.4B; gross debt ~$5.0B; net leverage around 1.5x based on adjusted EBITDA of ~$831M for the September quarter; S&P upgrade to Seagate’s credit rating highlighted by management.
Outlook and guidance
- December quarter guidance: Revenue guidance of $2.7B ± $100M, implying ~16% YoY growth at the midpoint; non-GAAP operating expenses ≈ $290M; non-GAAP EPS guidance of $2.75 ± $0.20; tax rate guidance of ~16%; diluted shares ~227M (including ~10M shares from the 2028 convertible notes).
- Margin expectations: Management indicated December quarter non-GAAP operating margin around 30%, signaling continued margin expansion as HAMR adoption and Mozaic mix advance.
- Strategic trajectory: Management reaffirmed a focus on HAMR-based road map and exabyte growth through high-capacity nearline drives for AI and cloud workloads, with qualification of the Mozaic platform expanding to additional CSPs and volumes in 2026–2027.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
2.63B
39.32%
21.71%
Gross Profit
1.04B
72.83%
36.45%
Operating Income
707.00M
127.33%
64.04%
Net Income
549.00M
7.02%
61.47%
EPS
2.58
5.74%
61.25%
Key Financial Ratios
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key insights from the management call, grouped by themes:
- Strategy and market positioning: Seagate emphasizes AI-driven data growth and the need for higher-capacity, cost-efficient storage, citing 50x token growth in a hyperscaler’s inferencing use-case as a proxy for demand and describing Mozaic HAMR-based drives with 36–44 TB per drive as central to the long-term data center exabyte expansion.
- Operational execution and product roadmap: Dave Mosley highlighted 5 global CSPs qualified on Mozaic 3+ TB drives (up to 36 TB) with 1M Mozaic drives shipped in the September quarter, and the goal to qualify the remaining 3 CSPs in H1 2026. Gianluca Romano noted 80% of nearline revenue coming from data centers, with exabyte growth supported by higher-capacity drives and continued pricing discipline.
- Financial discipline and capital allocation: Seagate delivered a record non-GAAP gross margin of 40.1% and non-GAAP operating margin of 29%, with EPS above the top end of guidance. Cash flow remained strong at $427M free cash flow for the quarter, and the company reaffirmed allocating at least 75% of FCF to shareholders (dividends and buybacks).
- Demand environment and seasonality: The company described robust data-center demand, particularly from cloud providers, while Edge IoT was softer; management indicated some seasonality in Edge IoT and a December quarter that should see favorable momentum. They also mentioned longer lead times and the need to manage supply through HAMR transitions.
- Pricing and mix dynamics: The team reaffirmed a pricing approach that has been in place for a decade, where price per terabyte tends to fall with higher-capacity HAMR drives, offset by higher mix-driven margin expansion. They expect higher exabyte volumes to come from the 4+ TB per disk ramp and continued HAMR adoption rather than simply adding unit capacity.
AI is reshaping hard drive demand by elevating the economic value of data and data storage.
— Dave Mosley
We delivered revenue of $2.63 billion, up 8% sequentially and up 21% year-over-year. We achieved a record non-GAAP gross margin of 40.1%.
— Gianluca Romano
Forward Guidance
Outlook assessment based on management commentary and industry dynamics:
- Near-term demand: The December quarter guidance implies sustained growth in data-center storage demand driven by AI inference and video-related data generation, with 80% of revenue tied to data centers and nearline products. The company projects revenue of about $2.7B and non-GAAP EPS of roughly $2.75, suggesting continued profitability leverage as higher-capacity HAMR drives capture more exabytes.
- Margin trajectory: With gross margin already at a record 40.1% and December quarter non-GAAP operating margin guided to ~30%, Seagate is well positioned to expand margins as HAMR transitions mature and the Mozaic platform scales, though quarterly fluctuations in mix and yield could cause variability around the long-run model.
- Exabyte growth and CAPEX: The ramp of Mozaic and the ramp to 4+ TB per disk capacity are pivotal; management targets 50% exabyte crossover on nearline HAMR drives in H2 2026 and expects multiple CSPs to qualify for 4+ TB drives with initial volume ramps in the next 12 months. Capital intensity will remain manageable at 4–6% of revenue, consistent with the company’s emphasis on cash generation and shareholder returns.
- Key risks and monitoring factors: Key factors investors should monitor include (i) HAMR yield ramps and transition timing (affecting exabyte supply and unit economics), (ii) customer demand stability, particularly in hyperscaler cloud environments, (iii) potential supply chain constraints and lead times, (iv) the degree of pricing power as HAMR penetration increases, and (v) relative performance to SSD adoption and cannibalization risk, which management downplayed in the call.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
STX Focus
39.44%
N/A
N/A
N/A
NTAP
71.30%
18.30%
26.70%
26.20%
DELL
21.80%
4.34%
-35.30%
22.21%
PSTG
71.50%
-6.02%
-2.55%
-124.28%
HPQ
21.00%
6.26%
-52.70%
13.63%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Seagate’s QQ1 2026 results reflect a favorable blend of robust data-center demand, a transformational HAMR-based product road map, and strong margin expansion. The trajectory of exabyte growth hinges on the Mozaic platform ramp and 4+ TB per disk adoption, with management guiding toward 30%+ non-GAAP operating margins in the December quarter and continued margin expansion into 2027 as HAMR transitions mature. The company’s leverage is healthy (net leverage ~1.5x) with ample liquidity, and free-cash-flow generation remains a core driver of shareholder value through dividends and buybacks. The primary catalysts are (i) continued CSP qualifications and Mozaic adoption accelerating exabytes, (ii) yield improvements and ramp execution on the 4+ TB HAMR platform, and (iii) favorable AI-driven data growth sustaining data-center storage demand. Key monitoring factors include HAMR ramp timing and CSP qualification progress, exabyte growth versus supply constraints, and the evolution of enterprise NAND/SSD adoption that could influence HDDs’ long-run market share.
Key Investment Factors
Growth Potential
Long-term growth is anchored by the HAMR-enabled Mozaic platform and the shift to higher-capacity nearline drives to meet AI-driven data center demand. Management targets exabyte expansion with 5 CSPs qualified on Mozaic 3+ TB and a ramp to 4+ TB with up to 44 TB per disk, aiming for 50% exabyte crossover on nearline HAMR drives in H2 2026 and beyond, supported by a roadmap to 10 TB per disk areal density.
Profitability Risk
Key risks include HAMR yield and ramp execution delays, longer-than-expected qualification timelines among CSPs, potential downgrade in demand visibility if cloud capex slows, competition from Western Digital and other storage players, and macro headwinds that could impact IT spend. There is also a potential risk that continued HDD-SSD cannibalization or SSD adoption in enterprise could temper nearline demand growth; although management asserts HDs remain core for bulk data storage in AI workloads.
Financial Position
Seagate shows strong liquidity with approximately $2.4B in cash and equivalents and undrawn revolver capacity; net leverage ~1.5x on adjusted EBITDA of ~$831M for the Sep quarter, with a track record of returning at least 75% of free cash flow to shareholders. The company also benefits from a credit rating upgrade (S&P) amid robust operating performance and a structurally improved business model.
SWOT Analysis
Strengths
Dominant data-center focus: 80% of revenue from data-center end markets, with 159 exabytes shipped to data centers in the September quarter.
HAMR and Mozaic leadership: 5 CSPs qualified on Mozaic 3+ TB per disk (up to 36 TB); 1M+ Mozaic drives shipped in the quarter; roadmap to 4+ TB per disk with up to 44 TB.
Strong profitability momentum: Record non-GAAP gross margin of 40.1% and non-GAAP operating margin of 29%; EPS above guided range.
Robust cash generation and capital returns: Free cash flow of $427M; dividend increased by ~3%; opportunistic share repurchases; solid liquidity and improved credit rating.
Weaknesses
Near-term Edge IoT softness: Edge IoT represented 20% of revenue and may dampen quarterly variation if data-center demand fluctuates.
HAMR transition risk: Yield and ramp timing for high-capacity HAMR drives remain a key risk that could constrain exabyte growth if execution lags.
Industry cyclicality: High exposure to cloud capex and AI-driven storage demand could amplify sensitivity to macro shifts in hyperscaler budgets.
Opportunities
Incremental exabyte growth through Mozaic 3+/4+ ramp, with potential for higher-density drives up to 44 TB and beyond.
Sovereign cloud and hybrid cloud use cases expanding data localization needs, aligning with Seagate’s nearline HAMR solutions.
Video AI content generation and new AI-enabled applications driving data generation and storage requirements.
Threats
Competitive pressure from WDC and others on pricing and capacity; potential pricing pressure as HAMR adoption accelerates.
Supply chain constraints and lead-time backlogs could delay ramp and exabyte expansion.
Technological substitution risk from SSDs in certain enterprise workloads, though Seagate argues HDD remains cost-effective for bulk storage.