Seagate Technology Fiscal Q4 2026 Earnings Highlights: Revenue of $3.63 Billion Up 48% Year-over-Year, Record Non-GAAP Gross Margin of 52.7%, Adjusted EPS of $5.71 Significantly Beats Expectations, Driven by Strong Data Center Growth

Core View

Seagate Technology (NASDAQ: STX) reported fiscal fourth-quarter (ended July 3, 2026) and full-year 2026 results that exceeded expectations on both revenue and non-GAAP earnings per share, with gross margin and operating margin reaching record highs. Q4 revenue was $3.629 billion, up 48% year-over-year and 17% sequentially. Non-GAAP diluted EPS reached $5.71, up 121% year-over-year. Full-year revenue totaled $12.195 billion, up 34%, with non-GAAP EPS of $15.58 and record free cash flow of $3.105 billion. Performance was primarily driven by robust cloud data center demand and strong execution on HAMR technology.

The company provided strong guidance for fiscal Q1 2027, expecting revenue of $4.1 billion (±$100 million) and non-GAAP EPS of $7.30 (±$0.20). Shares closed down approximately 8.53% on the day, with some recovery in after-hours trading following the beat.

Detailed Breakdown

1. Overall Revenue and Profit Performance
   • Q4 revenue: $3.629 billion, up 48% year-over-year (from $2.444 billion) and 17% sequentially (from $3.112 billion), above the midpoint of guidance.
   • GAAP gross margin: 52.3%; non-GAAP gross margin: 52.7% (record high), up 570 basis points sequentially and 1,480 basis points year-over-year.
   • Non-GAAP operating margin: 44.6% (record), up 710 basis points sequentially and 1,840 basis points year-over-year; GAAP operating margin: 43.0%.
   • Non-GAAP net income: $1.319 billion; GAAP net income: $1.294 billion.
   • Non-GAAP diluted EPS: $5.71 (up 121% year-over-year from $2.59); GAAP diluted EPS: $5.58 (from $2.24), both well above Wall Street consensus of approximately $5.10.
   • Cash flow from operations: $1.305 billion; free cash flow: $1.118 billion (up 163% year-over-year).
   • Full year: Revenue $12.195 billion (up 34% from $9.097 billion); non-GAAP gross margin 46.1%, GAAP 45.6%; non-GAAP operating margin 36.5%; non-GAAP EPS $15.58 (up approximately 92%); GAAP EPS $13.90; operating cash flow $3.674 billion; free cash flow $3.105 billion (record); retired $1.4 billion in debt and returned $810 million to shareholders via dividends and share repurchases.
2. Data Center Business Performance
   • Data center revenue: $2.933 billion, up 57% year-over-year, representing approximately 81% of total revenue.
   • Nearline (data center) exabyte shipments: 195 EB, up 43% year-over-year and 11% sequentially.
   • Total hard drive shipments: 218 EB, up 34% year-over-year; approximately 90% shipped into data center markets.
   • Cloud customers achieved three consecutive years of sequential quarterly exabyte growth; enterprise/OEM data center markets delivered double-digit year-over-year growth in both revenue and exabyte shipments.
   • HAMR products accounted for approximately 40% of nearline exabyte shipments; Mozaic 3+ is qualified and in volume production with all major cloud customers, while Mozaic 4+ is ramping with the two largest global CSPs.
   • Key drivers: Sustained demand for mass-capacity storage fueled by AI-accelerated data generation, combined with the company’s pricing discipline and operational execution.
3. Other Business Segments Performance
   • Edge IoT revenue: $697 million, up 20% year-over-year and 14% sequentially, representing approximately 19% of total revenue.
   • Non-nearline shipments: 23 EB, down 10% year-over-year.
   • Business mix continues to shift toward data center, with Edge IoT’s share declining from 24% in the year-ago quarter to 19%.
4. Future Plans and Capital Structure
   • Technology roadmap: Mozaic 4+ (supporting up to ~44 TB) is expected to represent the majority of HAMR shipments by the end of calendar 2026; Mozaic 5+ (higher density) is on track for qualification shipments starting in late calendar 2027. Nearline capacity is largely allocated through calendar 2028, with customers extending planning horizons into 2029 and beyond.
   • Debt and shareholder returns: Retired $302 million of debt in Q4 and returned $283 million to shareholders; for the full year, retired $1.4 billion of debt, reduced net debt to approximately $1.9 billion, and improved net leverage to 0.4x. Plans to further retire high-yield notes and convertible notes, targeting gross debt of roughly $2.4 billion by the end of fiscal Q1 2027.
   • Liquidity: Cash and cash equivalents of $1.704 billion; total liquidity of approximately $3.0 billion (including undrawn revolving credit facility).
   • Capital expenditures expected to remain in the 4%–6% of revenue range, focused on supporting HAMR capacity and technology advancement.
5. Fiscal Q1 2027 Guidance
   • Revenue: $4.1 billion (±$100 million).
   • Non-GAAP diluted EPS: $7.30 (±$0.20).
   • Non-GAAP operating expenses: approximately $300 million; non-GAAP operating margin expected at approximately 50% at the revenue midpoint.
   • Non-GAAP tax rate: approximately 16%; diluted share count: approximately 231 million (including ~2 million shares of estimated dilution from the 2028 Exchangeable Senior Notes).
   • Management expects fiscal 2027 revenue growth to exceed the 34% recorded in fiscal 2026, with sequential improvement in revenue, margins, and cash generation throughout the year.
6. Market Context and Investor Concerns
   • Core drivers: Persistent structural demand for high-capacity, cost-efficient storage from AI workloads and cloud data centers, with Seagate benefiting from its HAMR/Mozaic platform advantages in both volume and pricing. High visibility from capacity allocations provides additional confidence.
   • Potential concerns: Shares had risen sharply prior to the report, raising valuation sensitivity; the approximately 8.53% intraday decline reflected some profit-taking and broader market sentiment. Longer-term monitoring points include the pace of HAMR ramp execution, competitive dynamics, pricing sustainability, and potential macroeconomic impacts on enterprise IT spending.
   • Management reiterated that momentum is expected to continue into 2027, supported by durable long-term demand for mass-capacity storage as AI increases both the volume and value of data.

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Disclaimer This content is for reference only and does not constitute any investment advice.