Seagate Technology (STX) Q1 2027 earnings review
Seagate's profit nearly triples, and its sales plan speeds up
Seagate Technology, the maker of mass-capacity computer hard drives, is raising prices and expanding margins while holding factory unit output flat. Reported sales rose 61% from a year ago, or 73% on a weekly basis by our math, and gross margin excluding one-offs hit 57.8%, above what the company's own plan pointed to. Chief executive Dave Mosley issued a second-quarter outlook that pushes revenue growth to 70%.
| Weekly revenue (like-for-like, 13 vs 14 weeks) | +73% reported revenue: $4.23B (+61% from a year ago) |
|---|---|
| Gross margin, excluding one-offs | 57.8% +17.7 percentage points from a year ago |
| Profit per share, excluding one-offs | $7.68 +194% from a year ago |
| Second-quarter revenue outlook | $4.8B middle of the range: +70% from a year ago |
⚖️ Verdict: 🟢 Bullish
The story got better because the second-quarter outlook shows pricing and product mix are still accelerating rather than levelling off. Record cash flow also let the company pay down $1.95 billion of debt since July and more than double its full-year share buybacks in a single quarter. One caution: capital spending doubled to upgrade factories for denser drives, while refusing to add unit capacity leaves no volume backup.
The question now is whether these record margins reflect a lasting shift in data-center contracts or a temporary supply squeeze that resets when current agreements expire in 2028. Either long-term contracts lock in higher prices as denser drives cut costs, or cloud buyers push prices back down once industry supply catches up. The exabyte shipment and pricing figures on the quarterly call will provide the next test.
🐂 Bull Case
Pricing and Product Mix Lifted Gross Margin Past 57%
Seagate makes high-capacity hard drives for cloud data centers and sells them under a "value-based pricing strategy", chief executive Dave Mosley said. The company is also shifting production to HAMR, its heat-assisted magnetic recording technology that packs more data onto each disk. Together, higher prices and denser drives lifted gross margin excluding one-offs to a record 57.8%, beating the 57.3% implied by the prior outlook.
- Cost of making products: 42.7% of revenue, down 17.9 percentage points from a year ago
- Product development costs: 4.7% of revenue, down 2.4 percentage points
- Marketing and administrative overhead: 3.8% of revenue, down 1.7 percentage points
- Operating margin excluding one-offs: 50.7%, up 21.7 percentage points from a year ago
Because management held operating expenses excluding one-offs flat at $300 million while sales grew 61%, almost every dollar of gross profit flowed into operating income. Profit per share excluding one-offs nearly tripled from a year ago to $7.68.
What to watch: total exabytes shipped (one exabyte is one billion gigabytes) on the quarterly call. Dividing $4.23 billion of revenue by exabytes shipped will show how much of the margin jump came from higher prices per exabyte versus denser drives.
Demand Visibility Accelerates Growth Into the Second Quarter
Cloud providers are buying storage for artificial intelligence data, giving the data-storage maker "long term customer demand visibility reinforcing our view of a multi-year growth phase", Mosley said. First-quarter revenue rose 61% from a year ago to $4.23 billion, topping the $4.0 billion to $4.2 billion outlook range for a fourth straight quarter.
The underlying growth was even faster because this quarter had 13 weeks against 14 weeks in last year's first quarter. By our math, weekly sales rose 73.4% from a year ago. For the second quarter, the US-listed group plans for $4.8 billion of revenue at the middle of the range, which means growth accelerates to 69.9% from a year ago.
What to watch: whether management updates its full-year revenue growth floor on the call. Because first-half revenue is on track for $9.03 billion, the prior floor of 34% annual growth would leave only 8.4% growth for the second half by our math.
Record Cash Flow Paid Down Debt and Doubled Buybacks
Seagate generated $1.48 billion in free cash flow, or 34.9% of revenue, up from $427 million a year ago. It "Retired $1.2 billion of debt and returned $568 million to shareholders through dividends and share repurchases" during the quarter, then paid off another $750 million of debt after the quarter closed to bring gross debt down to $1.6 billion.
With debt down by more than half from a year ago, the storage hardware company spent $400 million on share buybacks in one quarter, more than double the $176 million it spent across all of fiscal 2026. The board also raised the quarterly dividend by 3% to $0.76 per share.
What to watch: share count in the second quarter after the recent debt paydowns. Retiring convertible notes stops them from adding shares as the company's value rises, so future buybacks should begin reducing the total share count.
🐻 Bear Case
Refusal to Add Factory Units Caps Future Volume
Mosley said Seagate's HAMR technology lets it "address growing exabyte demand through areal density gains while maintaining supply discipline". In practice, the hard-drive maker refuses to build more drive units and relies entirely on fitting more terabytes onto each disk. That freeze keeps industry supply tight and pushes prices up today, but it leaves no volume cushion if density gains slow down.
Upgrading factories to build denser HAMR drives is also getting more expensive. Capital spending for property and equipment doubled from a year ago to $211 million, reaching 5.0% of revenue against 4.0% last year. Because each generation of HAMR requires longer factory cycle times and more tool touches, any manufacturing delay directly limits how much storage the business can ship.
What to watch: whether HAMR drives reach half of HAMR exabyte shipments on the newer Mozaic 4 platform exiting calendar 2026. Missing that target on the call would show that factory complexity is slowing down thecompany's only source of volume growth.
Risks this quarter didn't answer
Five standing concerns around pricing power, customer concentration, competing technology, and legal liabilities got no new numbers in the earnings release.
- Pricing sustainability: exabytes shipped were not in the release; the call will show if revenue per exabyte rose above last quarter's $16.65 million.
- Cycle reset in 2028: management cites multi-year visibility but still omits the dollar value of contracted orders; the quarterly filing will show if it keeps the reporting exemption.
- Customer concentration: three cloud buyers recently owed 44% of receivables, and total receivables jumped another 18.4% this quarter; the filing will disclose the updated percentages.
- Flash memory competition: cloud buyers also promote solid-state drives for bulk storage; the call will show whether management had to defend against flash substitution.
- Legal and regulatory costs: the release gives no update on the $175 million shareholder settlement hearing set for November 17 or the ongoing export-control payments; the filing's legal note will update both.
💲 Other KPIs
Money owed by customers rose 18.4% from last quarter and 69.3% from a year ago, outpacing the 16.6% quarterly and 61.0% annual rise in revenue. That build absorbed $283 million of operating cash flow during the quarter, up from a $114 million cash drain a year ago.
Stock on hand grew 8.2% from last quarter and 13.6% from a year ago, the fastest sequential build in four quarters as factories ramp HAMR drives. Even so, inventory grew less than a quarter as fast as sales, pulling $129 million from operating cash flow.
The share count used for profit per share excluding one-offs rose 4.0% from a year ago and 1 million shares from last quarter, even though Seagate spent $400 million buying back stock. Past exchanges of 2028 convertible notes added shares, offsetting the buybacks.
🔮 Guidance
New. The middle of the range is $4.80 billion, which means revenue grows 69.9% from a year ago and 13.4% from this quarter. By our math, against management's prior floor of 34% full-year growth, that leaves just 8.4% growth for the second half unless the full-year floor is raised. Seagate has beaten its midpoint for four straight quarters by an average of 5.1%, which would put second-quarter revenue at $5.04 billion if the pattern holds.
New. The plan calls for $9.20 at the middle of the range, up 195.8% from a year ago and 19.8% from the first quarter. It excludes $0.30 per share of estimated stock compensation. The storage group has beaten its profit outlook midpoint by an average of 13.3% over the last four quarters, which by our math would put second-quarter profit at $10.42 per share if the pattern holds.
❓ Key Questions
How many exabytes did Seagate ship this quarter?
The press release did not include total exabytes shipped. Without that figure, investors cannot calculate revenue per exabyte to see how much of the 57.8% gross margin came from price increases versus higher-capacity HAMR drives.
How much of the 2027 and 2028 order book is locked in?
Management says customer demand visibility supports a multi-year growth phase, but the company uses an accounting exemption to avoid reporting the dollar value of unfulfilled purchase orders. Investors need to know what share of capacity is under binding contracts.
Why did accounts receivable grow faster than revenue?
Receivables rose 18.4% from last quarter to $1.82 billion while revenue rose 16.6%, consuming $283 million in cash. With three customers recently accounting for 44% of receivables, any change in payment terms or concentration matters.
When will share buybacks start reducing the diluted share count?
Seagate spent $400 million repurchasing shares in the first quarter and retired $1.95 billion of debt since July, yet diluted shares still ticked up to 232 million. Investors need to know how much convertible note dilution remains.