Evercore ISI: Seagate’s September-quarter price increases boost profit, while shipment-capacity growth slows

What drove the beat in the September quarter?

Seagate’s revenue in the September 2026 quarter was 4.23 billion dollars, up 61% year over year; earnings per share were 7.68 dollars. Both were above market consensus of 4.15 billion dollars and 7.45 dollars, respectively. Evercore ISI believes price increases were the main driver of the beat.
Data-center revenue reached 3.449 billion dollars, up 63.2% year over year and 17.6% quarter over quarter, supported by strong demand from large cloud customers. Overall, the company’s pricing rose more than 30% year over year. Gross margin reached 57.8%, up about 5.1 percentage points quarter over quarter and also above the market expectation of 56.9%.

Hard-drive shipment capacity in the September quarter was 220 EB, up 21.2% year over year, but only 1.1% quarter over quarter. Management attributed the slowdown to the timing of product transitions, not weaker demand, and expects shipment capacity to accelerate in the December quarter as Mozaic 4 hard drives already stocked pass customer qualification.
The decline in unit storage capacity costs slowed from as much as the low teens in percentage points in previous quarters to the mid-single digits; higher prices for external components offset some internal cost reductions. The company expects cost reductions to improve as HAMR-based Mozaic 4 and 5 drives account for a larger share of shipment capacity.

Most nearline hard-drive supply has been allocated through calendar year 2028, with some agreements extending to 2030; configuration and pricing terms have been set through 2027, while terms for 2028 are still being finalized. Evercore ISI believes this indicates a widening supply-demand gap, which is favorable for further price increases.
Mozaic 4 is ramping at two large cloud-service providers, and the company expects to secure more customer qualifications in the coming months; shipments of qualification samples for Mozaic 5 are planned for the end of calendar year 2027. HAMR has a longer manufacturing cycle, and the company is investing in equipment to keep hard-drive unit volume stable, with capacity growth relying mainly on increasing capacity per drive.
The company expects fiscal 2027 capital expenditure to remain at 4%–6% of revenue, with the September quarter at about 5%.

The company’s guidance for the December 2026 quarter is revenue of about 4.8 billion dollars and earnings per share of 9.20 dollars, above market consensus of 4.55 billion dollars and 8.66 dollars, respectively. The revenue guidance implies year-over-year growth of about 70% and quarter-over-quarter growth of about 13%. Evercore ISI estimates gross margin at about 60% based on the earnings-per-share guidance.
Free cash flow in the September quarter was 1.479 billion dollars, up 246.4% year over year; net debt at quarter-end fell to 1.125 billion dollars. Management said it had largely achieved its debt-reduction target, and capital allocation is shifting toward shareholder returns led by buybacks, with dividends playing a secondary role.
Evercore ISI maintains its Outperform rating and 1000 dollar price target. The firm also noted that slower capital spending by cloud customers, increased capacity at hard-drive manufacturers, and faster-than-expected declines in NAND costs could all affect nearline hard-drive demand or the competitive landscape.