Seagate Technology Holdings PLC (STX, Financial) reported revenue of $1.6 billion, in line with expectations, and a non-GAAP loss of 18 cents per share, slightly better than the midpoint of the guided range. Total hard disk drive revenue declined 14% sequentially to $1.4 billion, primarily due to softer demand in the cloud nearline market. However, there was an improvement in the VIA business. Mass capacity shipments also declined, reflecting the expected slowdown in the cloud business.
So why did Seth Klarman (Trades, Portfolio) from The Baupost Group double his holdings in Seagate Technology, increasing its weight in his equity portfolio from 0.28% to 0.51%?
Seagate and AI
Generative AI, a subset of artificial intelligence, is gaining significant attention and is expected to be a major driver of long-term growth in the technology industry. AI requires compute power and data to function. Companies like Seagate are closely monitoring the developments in generative AI and its implications for storage demand and stand to profit from the increased demand in data storage needs.
Long-term growth drivers in generative AI
Dave Mosley, the CEO of Seagate Technology, discussed the potential impact of generative AI on the demand for both hard disk drives and solid-state drives. He highlighted that data center infrastructure, including new data center build-outs and power infrastructure, is currently a priority for cloud service providers and organizations utilizing AI technologies.
Mosley emphasized that as AI technologies continue to advance and find applications in various industries, the need for data to feed these AI engines will increase significantly. He referred to this as a "bow wave" that will create a surge in demand for mass capacity infrastructure. This surge in demand is expected to be a net positive for companies like Seagate, which specialize in storage solutions.
When asked about the timeline for storage demand uplift as data creation accelerates, Mosley acknowledged there are aging drives in data centers that will eventually need to be replaced. While unit shipments of drives may decrease, the overall storage capacity (exabytes) can still increase due to the higher capacity of newer drives. He expressed confidence that unit shipments will rebound as cloud service providers continue to invest in infrastructure and AI capabilities.
The growth of generative AI and its impact on storage demand is expected to be a long-term trend. As new AI applications emerge and cloud service providers compete to harness the power of AI, the need for robust storage solutions will continue to grow. Companies like Seagate are well-positioned to benefit from this trend, as they provide the necessary storage infrastructure to support the increasing data requirements of generative AI.
Higher capacity, higher profits
In the world of data storage, the demand for higher capacity drives is constantly growing. As businesses and individuals generate and store more data than ever before, storage solutions need to keep up with this increasing demand. Two technologies that are playing a crucial role in meeting this demand are perpendicular magnetic recording and heat-assisted magnetic recording.
PMR has been the dominant technology in hard disk drives for many years. It works by aligning the magnetic particles on the disk surface vertically, allowing for higher data density. However, as data storage requirements continue to rise, PMR has reached its limits in terms of capacity. To address this, storage companies have been working on developing new technologies, such as HAMR.
HAMR is a breakthrough technology that enables even higher data densities in hard disk drives. It works by using a laser to heat a tiny spot on the disk surface, allowing for more precise magnetic recording. This technology allows for significantly higher storage capacities, making it a promising solution for the future.
Seagate, one of the leading storage companies, has been actively working on both PMR and HAMR technologies to meet the increasing demand for higher capacity drives.
Seagate's PMR and HAMR technologies
Mosley mentioned that Seagate has been working on PMR variants that can achieve capacities in the mid-20s terabytes. However, the company believes that with shingled magnetic recording variants, they can achieve capacities in the high-20s terabytes. SMR is a technology that allows for overlapping tracks on the disk, further increasing data density.
The transition from PMR to HAMR is a planned and strategic move for Seagate. The company has been developing a platform that can support both PMR and HAMR technologies, allowing for a smooth transition. Mosley expressed confidence in the technology and mentioned that Seagate is ready to produce 40 terabyte drives in the not-too-distant future.
It is important to note the development of these technologies is not solely focused on increasing capacity. Mosley highlighted other technology vectors are also being worked on to improve overall performance and efficiency. Additionally, HAMR can also utilize SMR technology, providing even more flexibility in terms of capacity options.
Seagate's focus on meeting customer needs and providing competitive products in the market was also emphasized. Mosley mentioned the company is cautious about forcing products into the market if there is no immediate demand, as it could potentially erode the value proposition for future products. This approach ensures the company can deliver the right solutions at the right time, maximizing customer satisfaction and market potential.
In terms of financial implications, Mosley mentioned the cost per terabyte can vary depending on factory utilization and market conditions. However, Seagate's product roadmap includes new PMR and HAMR products that will help reduce the cost per terabyte, ensuring competitiveness in the market.
Conclusion
Generative AI is poised to be a significant driver of long-term growth in the technology industry. The increasing demand for data center infrastructure and the need for mass capacity storage to feed AI engines present opportunities for companies specializing in storage solutions. As the AI landscape evolves and new applications emerge, the importance of efficient data tiering infrastructure and advanced storage technologies will become even more critical.
The development of PMR and HAMR technologies is crucial in meeting the increasing demand for higher capacity drives. Seagate Technology's focus on these technologies and their strategic approach to product development positions it well to address the evolving needs of the data storage market. As businesses and individuals continue to generate and store more data, the advancements in PMR and HAMR technologies will play a vital role in enabling efficient and cost-effective storage solutions.
