Seagate Technology plc (STX) CEO Dave Mosley Presents at Citi 2020 Global Technology Conference Call (Transcript)


Seagate Technology plc (NASDAQ:STX) Citi 2020 Global Technology Conference September 8, 2020 2:45 PM ET

Company Participants

Dave Mosley – Chief Executive Officer

Shanye Hudson – Senior Vice President and Investor Relations

Conference Call Participants

Jim Suva – Citigroup

Jim Suva

Hello everyone, and thank you so much for joining us here on the Citi Global Technology Conference, where this year we’re going virtual, of course, given coronavirus. My name is Jim Suva. This fireside chat is with Seagate Technology and importantly, we have the Chief Executive Officer, Dave Mosley joining us, as well as Shanye Hudson, Senior Vice President and Investor Relations.

I do want to remind people that there are disclosures associated with this, and they can be found on the Citigroup Website, as well as Dave will have a few comments about the disclosures. And anybody subject to MiFID II needs to be reminded they need to have that research agreement in place. Anybody but press or media needs to make sure they are not connected and we will disconnect you automatically. Press and media are not invited. This business is for investors only.

So I want to first welcome Dave Mosley and he is a Chief Executive Officer of Seagate. And Dave, I think you had a couple opening comments that you wanted to make. Dave?

Dave Mosley

Yeah. Thanks, Jim. And thanks to all of those of you joining us today. Before starting just a quick reminder, like Jim said that, I’ll be making forward-looking statements and you can learn more about those and the risk factors associated with them in our SEC filings, which are on our Web site, www.seagate.com.

Let me just start and give a little context around a quick update on the current business environment. We’re about two-thirds of the way through in the September quarter and the end market demands are trending well to our expectations. Coming off record levels in the June quarter the cloud data centers had continued to be strong. And we’re obviously biased there because we have a lot of 16-terabyte demand but the customer demand is actually very broad-based spanning all geos. So we can talk about that if you have questions about it.

Demand for video and image applications, including surveillance, has actually continued to pick up through this quarter. While the enterprise markets, the on prem enterprise markets that I talked about in July, actually remained soft. Although, we do see indications for demand to improve as we progress throughout the year. So the net, net is the September quarter is tracking pretty well with our expectations. And most importantly, the demand trends are improving in a couple of the key end markets, which supports our outlook for a flattish FY21 versus FY20 in revenue.

Over the long-term, which is we’re really what we’re focused on making our investments around, we remain confident in the growth of the data center and all the mass capacity that drives secular demand for mass capacity storage due to just data growth, and Seagate’s obviously been a leader in mass capacity storage for quite some time. We continue to execute our technology transitions, our roadmap — product roadmap and our capital investments in order to meet the demands of the world, which are growing from a data perspective, leaps and bounds.

We’re also leveraging all this knowledge and our expertise in interfaces and interface technologies in the data center to actually service a broader world that’s what we call the growing edge, the architectures, interfaces are changing a lot due to all the data movement that’s going on in the world right now, what we call data sprawl. To that end, we plan to discuss some of this in our Datasphere event that’s coming up pretty soon. On the 24th of September, we’re going to host it all virtually. So I encourage you to participate if you can. There’s information on our Web site or you can contact IR and find out more about that.

Really what we’re talking about is how all the cloud data movement that’s happened during the transitions that we’ve seen in the last six months, which have been wild are going to actually mean that the on-prem side needs to grow as well to meet latency and cost and security requirements. So the cloud is going to grow very strongly, but we really believe in the edge as well. We think that all these trends have been accelerated because of recent events, not decelerated. So we’re pretty excited about. We’re going to talk more in our conference about that.

With that, Jim, I’ll open it up for questions.

Question-and-Answer Session

Q – Jim Suva

Well, I think kind of my first question is about how’s near-term, and it sounds like it’s shaping up within expectations, which is great to hear. You did make a little comment that I picked up on. You said some demand end markets are improving. Just kind of curious which ones are those? I mean, my kids have started school. They’re doing a lot of cloud computing, cloud education. But yet the construction workers and my neighborhood really aren’t doing much construction yet. And you talk about edge. So which end demand markets are you seeing are improving, Dave?

Dave Mosley

Right. So as I sit down through it, Jim, we talked about the on-prem enterprise being really strain, private cloud, anything going on, on premise is where people couldn’t even get on-premises in July was being strained, and we see that through our distribution channel and some of our client server markets as well. Surveillance though, it’s a mass capacity application and it has a lot to do with on-prem, it was strained as well. The good news for us is mass capacity surveillance is starting to come back and so that — I made a comment to that earlier. And I think that’s a function of not only people getting back on-premises but also looking for applications that help solve problems, smart cities problems, smart factory problems, smart hospital problems, all these things. So we do see that strengthening.

The distribution channel itself is actually strengthening quite a bit in the quarter. And this is something that frankly the bow whipping that was going on in supply chains between April, May, June, July with factories being turned off and people having to pull inventory in because they were worried about getting any and then seeing the true end demand. It’s quite a ride. I think some of it’s starting to stabilize there. The on-prem enterprise mission critical and small, medium business that we made reference to is recovering, but it’s very slow and exactly to your point. And we’re there for those customers we need to pay attention to them. Some of them will come back others maybe change their business model. We believe the in demand around mass capacity storage is still going to be there, but the routes to market may actually change a little bit, we’ve just got to ride that through with everyone.

Jim Suva

And Dave with coronavirus and the pandemic, has it impacted your operational ways of doing things. A lot of companies are trying to be more nimble, trying to adjust. Your business practices, companies are trying to be more efficient but you’re doing temperature checks, you’re doing a lot of more social distancing. Is it a impact of margins, long-term, near-term? Are you through the worst of it? Some countries saying Seagate can’t do normal business, others saying you can open-up. I’m in the Bay Area. Things are — traffic is picking-up, it seems like it’s almost normal if you look at traffic now. But yet, a lot of the parts of society, restaurants and hospitality really aren’t even close yet to coming back. How should we think about the ways of the pandemic, the operational challenges what you’ve done and looking ahead we should think about things?

Dave Mosley

Right. And it started early on in China. For example, some of our China factories, we learned a lot in the very early stages of the pandemic about what are all the things we need to do to keep people safe, which I think we’ve done a great job of. It’s a severe challenge and you have to make sure you put safety first for all your people obviously. To that end, we do still have permanent shifts, if you will, that caused some cost impact inside the supply chain, inside of our own factories, social distancing, bussing, things like that have changed permanently. I think as time goes on, we learn how to adapt to some of those things.

And I would say that generally speaking the cost impact will be less and less over time as we learn to adapt, but we still have to be mindful of safety first all the way throughout our supply chain. There’s aspects of Seagate where we can do things remotely, there’s other aspects where we obviously can’t and upstream in our supply chain as well, there’s a lot of parts coming at us. So we have to make sure we’re just mindful that sending those same messages to everyone.

Jim Suva

And Dave, how should we think about Seagate’s positioning in the current state of the competitive markets? HDD versus flash, big debate of who’s going to win out, a reality, does one not need to win out versus the other. Can they coexist for a decade or longer ahead? How should we think about your competitive position relative to competitors?

Dave Mosley

Yeah, if I think back ancient history, and there were some devices where hard drives were there that they got displaced by other technologies. I think when we start talking about legacy markets, some of them have longer tails. But we forecasted for a while that some of those markets are going to go down in volume quite a bit in exabyte shares quite a bit and they really have. I mean notebook is a shadow that’s worn yourself from a hard drive perspective. Desktop, same thing, the low capacity.

There still are high capacity applications in desktop, for example, in the distribution channel and even in PCs, where we still see healthy growth. And we think that that tail should assume to somewhat. Right now, legacy markets are a small fraction, a smaller fraction than mass capacity are and that’s why we’ve pivoted quite some time ago towards our investment there. There are other legacy markets to your — exactly to your point where because the install base of, say SaaS lots out in the world mission critical isn’t going to go away, right away. It’s been generally declining, because nobody’s really investing in it, but it’s still a great cost performance solution for some aspects of that market.

Consumers is another example, to your point about people working from home. The consumer business is a gaming business inside the consumer, have actually been quite healthy. But those are still legacy markets where we’re not really investing a lot.

Jim Suva

And how should we think about industry growth rates? I think many of you are kind of pin pointing around ballpark 40% CAGR. Is that right? Is the pandemic influencing this at all? And when I hear 40%, I tend to think about wow. Is there enough supply to meet demand?

Dave Mosley

Well, that — so that’s where we have come from. If you think about the CAGR for mass capacity most of that’s been satisfied by oversupply, if you will, of heads and media that we have during the client server explosion. And remember the peak of client server was 2012, so this is, you know, it’s not ancient history, at least not to me. But we’ve had to pivot factories quite quickly off of making so many notebook drives out in the world into so many mass capacity drives on the world.

I think to your point, I think we’re largely through that. 40% sounds like a great CAGR. We’ve already achieved the point where more than half of our revenue is mass capacity. And you know from an exabyte perspective, it’s even stronger than that. So we think at some point then legacy becomes de minimus and it’s all mass capacity at that 40% CAGR, in which case you get some kind of stabilization, I think that’s your question.

Jim Suva

Right. Now here’s the headscratcher to me. High data growth yet the industry and Seagate and all the players have struggled to have consistent revenue growth and margins. We’ve seen a lot of volatility to margins, and a lot of data growth whether I store locally, in a cloud, hybrid, public cloud, private cloud, all these things, and there’s been consolidation in industry. Why theoretically has revenue growth and margins not been stronger and more predictable?

Dave Mosley

Yeah, I think over the last couple of years, our revenue has been relatively flat I’d say. And so when do we see that high CAGR that you’re referring to the 40% CAGR really kicking in, I think COVID is actually accelerating that CAGR. That’s my opinion. I think the cloud is — people are getting to become more depending upon the cloud and less dependent on legacy, but all of this is an interchange right now between some of the legacy businesses hanging around, we’re hanging around and hyper competitively too.

I mean, there was a lot of competition for that last leg — those last legacy slots. Eventually data growth just overwhelms. And I think we’re at that inflection point the question is does it happen, you know, two months ago or two years ago, you know, I don’t get really into that. It’s more — we’re making the investments over the long haul for, you know, those mass capacity applications and I think we’ve made the right investments.

Jim Suva

Got you. Let’s talk about the recent June quarter results. I think you saw pretty good demand in mass capacity, if my memory is correct. But I believe the surveillance saw some softness and of course, small midsize businesses saw bit of a pause too. Can you talk us through a little bit about those end markets? And would you expect some type of recovery or resumption from some of these, especially the surveillance, I mean, small and midsize, you drive around, you can see which restaurants and small companies are being affected. But what about the surveillance side and do you you think that will come back and if so, what necessitates a return to those areas?

Dave Mosley

Yeah, I do think on the mass capacity side that surveillance market’s already coming back. I’d count that as some of the smart city applications that you’re starting to see, some are reflective of COVID and some of it’s just the normal mass capacity migrations we were seeing in the market anyway. If I think about facilities for large enterprises, they’re becoming more and more data intensive. They need that data stored locally to process it to make good decisions off of it. Lot of that data is video data, video and image data but there’s other kinds of sensors as well. And we think there’s lot of opportunities, not just smart cities but factories and hospitals and all the other things that will become smarter over time with new applications. That’s what we’re seeing right now is the demand for some new applications. I don’t think there is going to be a lot of new camera installs first up, but I do think that using that video data to garner some more information out of the existing video streams will happen. So that’s usually where the hard drives lie, where the mass capacity storage lie there.

On the cloud side, you know, I would say that COVID disrupted everything. It certainly did on the cloud side as well. It’s driven a lot of demand that’s — you can see it and the cloud vendors talk about this a lot. But not all that demand comes straight away the very first day, sometimes they have to make sure that they meet service level agreements and everything else with their customers. So they have to call some really hard priorities and juggling the growth that’s happening in the cloud is a tough, tough problem. We’re convinced that these transitions we’re talking of because of the new economy, if you will, the new data economy, will actually celebrate the cloud. But it’s going to be a little bit choppy at the start, I think. And we like the fact that we have such a great portfolio. Our 16 terabyte is off the ramp. Our 18 terabyte is ready to go. We can meet this demand whenever it comes.

Jim Suva

And Dave, we actually dovetailed exactly into my next question. Can you talk a little bit about the technology and the roadmap a little bit, what you can about? I believe 16 terabyte is doing well, and I think 18 terabytes is kind of getting ready to ramp. Is my memory correct in that? And how should we think about we hear a lot about HAMR and MAMR and customers, and do they have readiness for that to adopt to it? Or how should we think about the roadmaps of your technology outlook?

Dave Mosley

Yeah, our 16 terabyte platform, we made a conscious decision about five or six quarters ago, just say let’s cut from the old and go onto this new platform, because we have a lot of confidence in it. It’s leverageable that’s why we don’t have to change platforms every two or four terabytes. We can actually leverage this thing way up. So the 16 is quite far up the ramp now. We’re really happy with the performance.

And importantly, in order to turn to 18 we should change the heads, change the media and change a little bit more. It’s not a big change. And so, we have a lot of confidence in our ability to pivot whenever the customers want to go there. The complementary, if you will, is way down the cost curves. We don’t have to pay to amortize cooling. We’re really confident in the cost structure of the platform. The quality of the platform, there is no initial startup hiccups, if you will. And you know, since we control the heads in media, I think we can actually control the ramp as well.

There’s not — it’s leveraging the PMR technology of the past. So there’s — none of the new heat assisted or other energy associated, people are talking about technologies in there. Although, with our 20 terabyte, which we will ship it by the end of the calendar year here, we are going to introduce HAMR. So HAMR is heat assisted. It’s actually markedly similar technology from a wafer perspective. There’s some differences. Sure, there’s differences. But it’s not a complete wafer rip up. And importantly, it goes into the same platform that we’ve been staging the same 16 terabyte, 18 terabyte platform. So that de-risks the technology transition that we have to go on.

What we’ve said in the earnings call in July is we’re going to introduce this to the market and we’re going to learn. So we have to get some out there in the field. We learned from controlling the products in our factory, releasing in the field and learn from the field. There’s a lot of customers that are very interested in what we want to learn, because, look, at the end of the day, they don’t want to build more data centers, they’d rather have higher capacity drive satisfying all the extreme data demand inside smaller footprint of data centers and the way they do that is getting higher and higher capacity drives. So we have a very attentive audience on this. They’re going to help us in some cases and we’re pretty excited about it.

Jim Suva

And then how should we think about gross margins looking ahead? You mentioned 16 terabytes doing well, the ramping of it. Also, I’m just kind of wondering about puts and takes. I think if my memory is right, you have a long-term gross margin target around 29 to 33. I don’t know if that’s accurate or if you can correct me on that. But you talked about the puts and takes of margins and how we should think about that versus all the good things you talked about the ramping and the technologies that are going on behind the scenes?

Dave Mosley

Yeah, the way we plan the business is, I’d say midpoint of those ranges and we have to — there’s a lot of variables, obviously, that come into how we plan that. The first order think of it is how much supply are we going to need for the demand, what do we think the business picture looks like one, two, three, four years from now, as to how we’re planning. So, we’re still planning for those ranges. I think COVID has changed everything. So we obviously took some cost increases as a function of that. And the demand picture has been fairly choppy because of COVID.

So the tactical fight that we’re in the middle of right now is largely more, from a market perspective largely more driven by those dynamics. Long-term expect certain parts of the market to continue to slough off like the legacy. We expect a lot of growth in — secular growth in mass capacity. We’re pivoting all of our plans, our CapEx and everything else towards that. And I’m very confident we can stay in those margin ranges, maybe even grow them. I think we’re going to be thinking about that as fundamental constituents of the building materials become more in our control heads and media, that’s what we make. And that will have to do with how much capacity do we really want to add versus what we’re getting paid for.

Jim Suva

And that 29% to 33%. Is that still accurate? Or is that my memory that I have from a long time ago that you take that off the table, or how should I think about that?

Dave Mosley

Well, I think — yes, you remember that from a long time ago. I think and tactically we don’t really manage the business like that. But if it serves you to model somewhere as far as how you model this up in time, that’s still the way I think about it.

Jim Suva

COVID, the impact to your earnings, I think you quantified it or bracketed last quarter. I think you said if I remember right, $0.25 or $0.35 or something? Is that accurate? And will that kind of step down like a nickel per quarter or dime per quarter, or how long will this happen [Technical Difficulty] prolong and I’m sure a lot of it has to do with what the government allows you to do, doing a lot you do and outside your control. But assuming the world progresses and we don’t have another hiccup, how should we think about the impact that is impacting your earnings right now and am I also correct to that $0.25 to $0.35?

Dave Mosley

Yes, that’s right. And I think you’re thinking about it right. We’re working hard operationally to make sure we find a way to improve our costs all the time. We do have to comply with all the laws. We have to make sure we’re doing all the right safety things for employees and that does have a cost. It’s not as a it’s not s big as what you just talked about. Most of that impact is freight and logistics, because frankly speaking airplanes weren’t moving in the world. There’s some other stuff that was very, very tactical last quarter and some of that should abate overtime.

We’ll find other routes to market. For example, we could use ocean freight to mitigate some of the costs of air freight and of the extreme costs — air freight went out there, just weren’t very many airplanes in the air. So some of our costs went up and I think that will abate overtime. We’ll figure out operationally how we deal with this to get back into those margin ranges.

Jim Suva

How should we think about your cash flow and prioritization? I will note that Seagate maintain its dividend. Many other companies that I cover in tech have suspended stock buybacks, or dividends, or reduce them, or completely suspended them all together. How should we think about cash flow and your capital allocation strategy?

Dave Mosley

Yeah, still very committed to the same capital allocation plans that we had before. We have faith in our long-term cash flow, because the data is growing and we have a lot of levers to pull to make sure we satisfy. So we make investments in ourselves, OpEx, CapEx and then we share with shareholders the cash that we have extra. We’ll continue to always look at this. But from my perspective, one quarter or two quarters where your cash may dip because you’re dealing with something operationally is not a reason to change your long-term capital plan.

If anything I think there’s opportunity because we have such faith in the long-term cash generations of this business. I think we’ll be continuing to look at what else we might do in the next 10 years. We’ve said that at our Analysts Day last year expressing long term cash confidence. And from my perspective, the recent new economy, if you will, has actually driven data demand even stronger for mass capacity. So we’re going to be looking at that.

Jim Suva

And with HAMR coming, as well as 16, 18, 20 future expansions and more platters and more memory that you’re doing. Are there any CapEx needs we should be thinking about for cash flow that maybe isn’t normal, whether it’d be expansions, or we see that the government in China is getting into some trade war tariffs about where technology can be? How should we think about CapEx spending for your company?

Dave Mosley

Yeah, I think not yet. I mean, we’d have to see the whites of the eyes of the mass capacity really exploding before we need to do anything fundamentally different. The way I would think about us is that when client server came down, we spent money to reorganize our factories away from client server devices and into mass capacity devices.

So that was done a couple years ago. For the last few years, we’ve just been investing in the long lead time wafer capital, media capital and so on to meet the mass capacity ramps. We can still add a little bit from time to time. Our model is 6% to 8%. We’ve been running — we’ve been under running that a little, and we’ll watch cash very carefully. If the demand isn’t there then we’re not going to invest. We can run the capital a little bit lighter. But I think, that’s something that we have a very, very firm grip on.

And from my perspective, we kind of control our own destiny in this front. I don’t think we have to do anything extraordinary by making a massive investment to go make this happen. We can add a little bit incrementally when we see times are good and we can pull back when we see the demand picture isn’t shaping up the way we thought it was.

Jim Suva

And when we — talking about demand and if we can kind of think about how you view things, Dave, about demand. On your last earnings call, I believe guidance for fiscal ’21 was relatively flat with ’20. What are the puts and takes, especially with coronavirus to make such assumptions like exabyte growth assumptions, or how should we think about what it takes to bridge from where we are now to then at flat? And again flat is not a big bridge to cross but there’s a lot of uncertainty given coronavirus that’s going on right now.

Dave Mosley

Right. And I think some of this has been borne out by the way we’re seeing the market shape up. Certainly in the cloud, we recognized some of the disruption that was happening near term in the cloud. You can’t build data centers if you can’t get people on prem to build the data centers, but you need to build more data centers. So that tension and those complex problems are they’re not only build more but also just replace the old. You’re repurposing something that’s four or five years old, it might be a four terabyte or six terabyte drive and you’re replacing it with a 16 or an 18 terabyte drive. You know, that’s a fairly easy set of discussions I think to have, but what’s hard about it is the logistics.

On the other side, things like surveillance and some of the smart city applications that we all see coming were just so muted in our fiscal Q4 and our fiscal Q1 what we saw that we had, we knew we were in the middle of that muted cycle, but we know that cycle will come back. So some of that is assumed. And then the legacy, legacy is — some of the legacy markets are slowly fading out, some of them are more stable for a while on revenues. Consumer, for example, is fairly stable and benefiting from the fact that people are moving data all over the world. Our consumer business, is just more than 10x device a quarter. So if you think about that, there’s no real reason that that demand goes away in a year or two. And that’s why we can actually forecast our revenue out in that much time.

The other thing is we spend a lot of time with our top 10 or 20 customers, and they’re all planning long term now. They’re not, you know, it’s not a short term, I’ll buy two extra pallets just to get me through this. I think we have the broadest portfolio in the market. So we’re addressing a lot of legacy markets and transitionary markets to mass capacity or on prem for them. And so we have great discussions with our customers about exactly what their forecasts are. Nobody’s perfect at this but we have enough competence to blend it all together and give it that flat revenue guide.

Jim Suva

And Dave, in that flat revenue guide, did you actually say what the exabyte growth should be, and — or you just trying to see versus trend line of what the exabyte growth is to you?

Dave Mosley

No, we didn’t talk about it. But you know, you can imagine it will be profound, because you know it’s still mass capacity continuing to grow at a clip of 35% plus plus and then — which we did talk about. And then you know some of the stuff that’s actually lagging is the lower capacity points. You remember our average capacity per drive is over four terabytes. So you know that just keeps growing every quarter. And some of the stuff that’s frankly 500 gigabytes or one terabyte isn’t even really relevant anymore. So even with flat revenue you’ll see fairly profound exabyte growth.

Jim Suva

On edge, I’m a big believer that edge computing is going to change a lot of things that we do live and add more [technical difficulty] edge opportunity for storage say want to talk about edge a little bit. Do you subscribe to that? When you think it’d really kick in and start to materialize just to impact Seagate for edge computing?

Dave Mosley

Yeah, it’s a really interesting space and changing as well because of the new economy. I would say kind of snarky comment from me would be, you can’t do edge computing without data. And that doesn’t mean that everything needs a hard drive right next to it. What it means is that there’s going to be the, data in the workflow is very important asset. It’s not just the compute processor. It’s what happens to the data before you compute, after you compute and how much longer before you have to pull it back in, all that’s huge. And so there are a lot of mass capacity application spaces coming at the edge. We’re very focused in this. And by the way, there’s a lot of confusion about what exactly does the edge mean. Does that mean at colo that’s you know fairly close to the cloud, I’ll say, or does that mean you know a neighborhood pop or a data center or something like that.

I think the answer right now is all of the above. We actually, you know, might even argue that mass capacity in the surveillance box or smart city box as the edge. But as the application space grows, as the data just keeps on growing with IoT with improved connectivity via 5G, that means there will be more of those points of presence for mass capacity, and we’re actually pretty excited about it. We see this all the time in discussions we’re having with customers.

Jim Suva

Dave, sometimes we hear about customers sweating their assets, whether it’d be servers or extending life of servers longer, or on storage and things like data deduplication, additional compression standards. Any thoughts around, are we at a point that’s kind of just equilibrium right now, or are there new technologies coming that you find very exciting or new technologies coming that you’re like, oh, that’s something new because Jim Siva used to send my model to Shanye all the time. Now it’s all sent in via a link and therefore, it’s probably about storage. How should we think about sweating of assets and technologies about? Is there anything that could accelerator or be a bit of a slowdown that we should be mindful of it as you’re CEO of a storage company?

Dave Mosley

People are always really smart to your point. They don’t want to spend extra money if they don’t have to. They’ll pivot to the cheaper model. But I would also say that the kind of data growth that we’re seeing now is not really individual files and folders, it’s more unstructured data growth. And the idea of throwing that data away before you know what kind of value you can garner out of it is probably — the people who can actually garner the data or garner the value are actually probably the ones who are going to win. So it all becomes a game of economics. Can I afford to just throw things away or should I keep them for some kind of data processing later, is a really interesting question. I’m sure there are a lot of people who throw stuff away who turned around later and say I wish I had that back. And we see this dynamic in customers right now.

And again, it’s not about small files or what we always think about, the Christmas list or something like that. Although, that data is important too. But we’re usually talking in mass capacity about large data sets, large video data sets, large data sets about how factories operate and things like that. Stuff you don’t exactly know where the value is in the data when you first get it. And if you throw it away, it’s gone for good. So I think you’re going to see less and less of that. You’re going to see more people storing things for longer and having to make those tough trade offs that you just talked about.

Jim Suva

That’s for sure. I’ve been known to get in trouble many times for throwing away something that I shouldn’t have and regret it. As we kind of round things out, I have two questions, one is between you and Shanye. Are there any key investor questions that you get asked that maybe you think people are off base or need some clarification or education on resolving such concerns? And then I want to wrap it up by Dave asking you the two or three top things you think investors need to know about why they should be buying and owning Seagate technologies and what keeps you so excited there as Chief Executive Officer. So first of all, on the industry education anything that keeps coming up?

Dave Mosley

Thanks, Jim. I’ll let Shanye have a crack here in a second, because obviously she’s pretty tied in with the community. But what I would say is that my frustration, it kind of ebbs and flows, sometimes questions come up and it usually has a flavor of isn’t all — aren’t SSDs taking over hard drives or something like that. The answer to that question is maybe in some spots, but probably not anywhere else.

And as we’ve seen with the architectures in the cloud, mass capacity architectures, hard drives have a very, very solid footing in our world. The question is, how does some of those architectures actually go down into the edge and so on? We have strong opinions on that, but it all comes down to value terabytes for dollar, terabytes for — terabytes per watt, all kinds of other metrics. I hear people say all the time that for example, this type of flash will take over hard drives in this market. And I don’t think they understand those markets.

I don’t think they talk to those customers very much. And that kind of stuff gets frustrating to me because we have to answer all those things. But it waxes and wanes, doesn’t it? Over time, I think some of these things have been proven to be more just market hype than it is the reality of if you talk to customers about their architecture and what provides value. So we get grounded again. Shanye, I’ll let you chime in as well.

Shanye Hudson

Yes. And I — it’s funny. What you said, Dave, is the first thing that came to mind because, Jim, maybe just going back to your earlier question around things like dedup and whatnot, do you think about how much data is being generated and how much data is being stored. The gap between those 2 is astronomical. And I think that our customers, our large data center customers specifically are looking to the disk drive industry to support just being able to store what they need. And so I think there’s a heavy reliance on us executing our technology road map, and we have a lot of confidence in that. So I think Dave answered that very distinctly.

I think — the other thing that we get asked a lot is around the long-term revenue growth trajectory for the HDD business. And it’s been masked a little bit, and it’s a key reason that we talk about our business in 2 key segments, the mass capacity and the legacy markets. Legacy has a long tail, but it is declining over time, and that provides us with great profit and great free cash flow contribution. What you’re seeing, and actually, for the first time in fiscal ’20, mass capacity actually overtook the legacy markets from a revenue perspective. And if you just look at that portion of the business, it’s been growing very nicely. And so it supports our financial model of 2% to 6% revenue growth over the long term. And I think that, that’s something that we spend a lot of time trying to help investors understand.

Jim Suva

Great. Thank you, Shanye. And Dave, as we conclude and wrap it up, as CEO, what’s the kind of the two or three things you want investors to walk away from this virtual conference to know about why they should be owning your company, buying the stock and what keeps you excited as Chief Executive Officer of Seagate?

Dave Mosley

Yes. I used to say I set my mood to how the market is going, and I set my mood to how the areal density is going. I think we’re right on the cusp of the big transition. We own the factories that really control it, the heads and media factories, the wafer fabs, it’s a very sophisticated process. I think probably, to your point about investors, do they really understand how sophisticated a wafer fab is, what the lead times are, how hard it is to run. The world needs our products.

And so I think more than ever, we have a firm grasp on that control point. It’s a tough world, very competitive out there, but I think the world’s going to need mass capacity products for a long, long time. It’s not just about 2024, 2025. I mean, obviously, data just continues to grow. We provide the best value out there for it. And we’re — and our technology is making progress. So that — in that sense, I’m very excited.

If I think back five years ago, watching client server decline was painful because you didn’t know exactly where all those trends were happening. Now we’re in the mode of secular growth of mass capacity, watching smart cities and watching big data centers continue to grow and knowing they’re going to grow even more. I think it’s a great firm footing for us.

Jim Suva

Well, I want to personally thank Seagate for joining us, the Chief Executive Officer, Dave Mosley; and SVP and Head of Investor Relations and Treasury, Shanye Hudson for joining us here on Citi’s Global Technology Conference. We certainly hope next year, it will be live in person. But until then, this is the best we can do. It’s Jim Suva and Seagate technologies signing off at least for this meeting with Seagate. Thank you so much, Dave and Shanye.

Dave Mosley

Thanks, bye.

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