0001137789-26-000088
SEC filingStrong demand for nearline drives drove revenue up 44% YoY, with gross margin expanding 12 points to 47%.
Seagate delivered a standout March 2026 quarter, with revenue rising to $3.1B (+44% YoY, +10% QoQ), driven by surging demand for high-capacity nearline drives and favorable pricing actions. Gross margin expanded 12 points YoY to 47%, reflecting pricing power, favorable product mix, and the non-recurrence of $10M restructuring costs from the prior year. Operating margin improved to 32% from 21% YoY, despite a $105M legal settlement charge. Net income more than doubled to $748M, while operating cash flow reached $1.1B, enabling $641M in debt retirement and $161M in dividends.
The company reported under a refined market segmentation: Data Center (80% of revenue) surged 54% YoY, underpinned by cloud and enterprise demand for nearline storage to support AI workloads. Edge IoT (20% of revenue) grew 15% YoY. HDD exabytes shipped totaled 199.4 EB, with nearline volumes up 47% YoY to 175.4 EB. Revenue by geography showed Americas at 52%, Asia Pacific 38%, and EMEA 10%. Sales incentives as a % of gross revenue decreased to 10% from 14% a year ago, aiding net revenue.
Management highlighted sustained strength in data center demand and increasing AI-related storage needs. While no specific revenue guidance was provided, the company expects FY26 capital expenditures to exceed FY25 levels, staying within 4-6% of revenue, as it ramps HAMR-based drives. The dynamic macroeconomic and trade policy environment remains a risk, but Seagate believes its liquidity ($1.1B cash, $1.3B revolver) and cash flows are sufficient for the next 12 months. Debt covenant compliance and a net leverage ratio requirement declining to 4.25x by FY27 underscore a focus on balance sheet discipline.
As of April 3, 2026, Seagate held $1.146 billion in cash and cash equivalents, up from $891 million at June 27, 2025. Total debt (net of issuance costs) stood at $3.863 billion, down from $4.995 billion, reflecting $1.142 billion in redemptions and repurchases during the nine months. The current portion of long-term debt was $398 million, representing the remaining $399 million principal of the 2028 Exchangeable Senior Notes. Shareholders' equity improved to $1.095 billion from a deficit of $453 million, driven by net income and share issuances. Inventory increased to $1.530 billion from $1.440 billion, with work-in-process rising significantly.
Seagate disclosed $422 million in unconditional long-term purchase obligations as of April 3, 2026, with scheduled payments of $192 million in fiscal 2027, $204 million in 2028, $14 million in 2029, $11 million in 2030, and $1 million thereafter. Additionally, the company had certain long-term market share based inventory purchase commitments. Deferred contract liabilities totaled $194 million. The company also maintains a $1.3 billion revolving credit facility, with no outstanding borrowings as of quarter end.
Seagate repurchased 0.3 million shares for $65 million during the nine months, with $4.9 billion remaining under the existing authorization. Dividends totaled $468 million paid, with a quarterly dividend of $0.74 per share, up from $0.72 in the prior year quarter. Debt reduction was a key priority: the company exchanged $1.1 billion of old notes for new notes and repurchased $40 million of New June 2029 Notes at a discount. Capital expenditures were $382 million, representing 4.46% of revenue.
Seagate operates as a single reportable segment. Revenue is disaggregated by channel: OEMs contributed $6.953B (81.1%), distributors $1.066B (12.4%), and retailers $0.547B (6.4%). Geographically, the United States generated $4.239B (49.5%), Singapore $3.511B (41.0%), The Netherlands $0.813B (9.5%), and other countries $0.003B. The geographic mix reflects billing locations, with a significant portion attributed to Singapore operations.
Operating cash flow (OCF) of $2,369M far exceeded net income of $1,890M, yielding a robust OCF/Net Income ratio of 1.25x. The primary non-cash adjustments were depreciation ($206M), share-based compensation ($159M), and net loss from debt transactions ($141M). Working capital provided $38M net (excluding deferred taxes), driven by a $346M increase in accrued expenses/income taxes/warranty, partly offset by a $238M rise in accounts receivable and $90M inventory build.
Capex of $382M was 16% of OCF, a moderate reinvestment rate. The company did not report free cash flow explicitly. Capital returns consisted of $468M dividends and $59M share repurchases, complemented by $1,142M debt redemptions. Financing cash flow was negative $1,746M, reflecting significant deleveraging. The cash balance increased by $254M to $1,147M.
Anomalies: The large working capital swing in accrued expenses/income taxes/warranty (+$346M) likely reflects timing of tax and warranty accruals. The net loss from debt transactions ($141M) is a non-cash charge that inflated OCF relative to net income. Overall, cash generation was strong, but capex and debt repayments consumed most of the OCF surplus.