Seagate Q1 FY2027 Profit Hits Records on Data Center Demand

Seagate Technology Holdings plc (NASDAQ: STX) reported record profitability and free cash flow for its fiscal first quarter of 2027, as sustained data-center demand, favorable pricing and operational execution lifted revenue 61% from a year earlier. The storage company also projected further sequential growth in the second quarter, with non-GAAP diluted earnings per share expected to reach $9.20 at the midpoint of its guidance.

Revenue for the quarter ended in fiscal Q1 rose to $4.23 billion from $2.63 billion a year earlier and increased 17% sequentially. Data Center revenue, which accounted for 81% of the total, climbed 63% year over year to $3.45 billion, supported by continued cloud and enterprise/OEM demand.

Non-GAAP gross margin reached a record 57.8%, up 17.7 percentage points year over year and 5.1 points from the preceding quarter. Non-GAAP operating margin rose to a record 50.7%, compared with 29.0% a year earlier and 44.6% in fiscal Q4. Operating expenses on the same basis were $300 million, up 3% year over year.

Non-GAAP net income more than tripled to $1.78 billion from $583 million. Non-GAAP diluted EPS increased 194% to a record $7.68, which the company said was above its guidance. On a GAAP basis, net income was $1.76 billion, diluted EPS was $7.59, gross margin was 57.3% and operating margin was 48.8%.

Data Center demand drives shipment mix

Seagate shipped 220 exabytes of HDD capacity during the quarter, up 21% from a year earlier. Nearline shipments increased 24% to 198 exabytes and represented 90% of total exabyte shipments, while non-nearline volume was 22 exabytes.

Cloud remained the primary demand driver and recorded its 12th consecutive quarter of revenue growth, according to the presentation. Enterprise/OEM revenue grew for a sixth straight quarter, rising by double-digit percentages both sequentially and year over year as demand strengthened across hybrid-cloud environments.

The company said the vast majority of its data-center nearline supply is allocated through calendar 2028, with some cloud supply agreements extending through 2030. Edge IoT revenue also increased, rising 52% year over year and 13% sequentially to $784 million, although its share of total revenue remained at 19%.

Seagate is using its HAMR-based technology roadmap to increase capacity per drive rather than expand drive-unit production. Its Mozaic 4 products are ramping with two leading cloud service providers, while additional cloud and enterprise/OEM qualifications are expected to be completed in the coming months. Qualification shipments for Mozaic 5 remain scheduled to begin toward the end of calendar 2027. The company also reported demonstrating 8 terabytes per disk in laboratory testing.

Cash generation supports debt reduction

Operating cash flow reached a record $1.69 billion, up 218% year over year, while free cash flow rose 246% to a record $1.48 billion after $211 million of capital expenditures. Seagate ended the quarter with $1.26 billion of cash and cash equivalents.

Gross debt principal declined 53% year over year to $2.35 billion, while net debt fell to $1.13 billion from $3.93 billion. The total leverage ratio based on net debt and last-12-month adjusted EBITDA decreased to 0.2 times from 1.5 times. Last-12-month adjusted EBITDA was $6.09 billion, and cash interest expense for the period declined to $272 million.

Seagate reported total liquidity of $2.6 billion, consisting of approximately $1.3 billion in cash and a $1.3 billion revolving credit facility. The company also extinguished another $750 million of high-yield senior notes after the close of fiscal Q1.

Fiscal Q2 outlook

For fiscal Q2 2027, Seagate expects revenue of $4.8 billion, plus or minus $100 million. Non-GAAP operating margin is projected toward the mid-50% range, while non-GAAP diluted EPS is expected to be $9.20, plus or minus $0.20.

At the midpoint of the outlook, non-GAAP operating expenses are expected to be approximately $300 million, the non-GAAP tax rate is projected at about 16% of pretax income, and diluted shares used for the EPS calculation are expected to be roughly 233 million. The EPS guidance excludes estimated share-based compensation expense of $0.30 per share.

The outlook remains subject to demand conditions, production execution and the pace of product qualifications. Seagate also identified uncertainty related to tariffs, trade restrictions and evolving global trade policy, as well as its ability to meet demand and execute timely payments under its settlement agreement with the U.S. Department of Commerce’s Bureau of Industry and Security. The company noted that material items affecting future GAAP results cannot be reasonably predicted, preventing a full reconciliation of its fiscal Q2 non-GAAP guidance.