Good afternoon, welcome to the Seagate Technology fiscal first quarter 2014 financial results conference call. My name is Regina, and I will be your coordinator for today. At this time, all participants are in listen only mode. Following the prepared remarks, there will be a question and answer session. As a reminder, this conference is being recorded for replay purposes. At this time, I would like to turn the call over to Kathryn Scolnick, Vice President of Investor Relations. Please proceed, Kate.
Thank you. Good afternoon, everyone, welcome to today's call. Joining me today in Cupertino are Seagate's executive team, our Chairman and CEO, Steve Luczo, EVP and CFO, Pat O'Malley, President, Global Markets and Customers, Rocky Pimentel, President, Operations and Technology, Dave Mosley, and EVP and General Counsel, Ken Masteroni. We have posted our press release and detailed supplemental information about our fiscal first quarter 2014 on our investor relations site at seagate.com. Please note we have combined our supplemental data and CFO commentary into one document. During today's call, we will review the highlights from the September quarter and provide the company's outlook for the fiscal second quarter 2014. After that, we will open up for questions.
As a reminder, this conference call contains forward-looking statements, including, but not limited to, statements related to the company's historical and currently anticipated future operating and financial performance in the December quarter and thereafter, includes statements regarding customer demand and general market conditions. These forward-looking statements are based on information available to Seagate as the date of this conference call and are based on management's current views and assumptions. These forward-looking statements are subject to a number of known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from those anticipated by these forward-looking statements. Such risks and uncertainties, such as global economic conditions and other factors may be beyond the company's control and may pose a risk to the company's operating and financial performance.
Information concerning additional factors that could cause results to differ materially from those projected in the forward-looking statements are contained in the company's annual report on Form 10-K, as filed with the SEC on August 7th, 2013, in the supplemental information presented and posted to our website. These forward-looking statements should not be relied upon as representing the company's view of any subsequent date, and Seagate undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date they are made. We'll also refer to non-GAAP measures, which are reconciled to GAAP figures in our supplement. I would now like to turn the call over to Steve Luczo. Please go ahead, Steve.
Thank you, Kate. Good afternoon, everyone, and thank you for joining us today. Seagate demonstrated excellent execution this quarter and achieved revenues of $3.5 billion and on a non-GAAP basis, gross margin of 28.5%, net income of $473 million, and diluted earnings per share of $1.29. We had a strong cash flow quarter, generating operating cash flow of $682 million and free cash flow of $521 million. In terms of our product portfolio, we shipped a record 48.7 exabytes of storage, up 14% year-over-year, and averaged a record 875 gigabytes per drive across our portfolio, up 19% over last year. Our non-GAAP operating margin for the quarter was 15.1%. In inventory terms and days sales outstanding were within our targeted ranges.
Our balance sheet remains healthy. We ended the quarter with $2.5 billion in cash and investments. During the September quarter, S&P raised its corporate rating on Seagate to double B plus, further reflecting our strong financial position. Returning value to shareholders through share redemptions and dividends remains a top priority for Seagate. In early October, we completed a private share redemption transaction with Samsung of 32.7 million shares for $1.5 billion. In addition, our board last week approved raising our quarterly dividend $0.05 or 13% to $0.43 per share. Through these activities, we expect to meet our goal of returning approximately 70% of operating cash flow to shareholders this fiscal year. At our strategic update in September, we discussed the major dynamics we see in the storage industry and the expanding and changing opportunities for Seagate in mobile, cloud, and open source computing.
Looking out to 2020, we believe that data growth and demand for storage is continuing at a pace that is higher than what the drive industry infrastructure is capable to produce. We estimate that approximately 60% of this data will be stored in both home and enterprise cloud environments. Seagate's research and development is focused on advancing our product offerings to align with these emerging market trends. Some recent examples of our R&D success include our four terabyte nearline product delivering a competitive combination of capacity and energy efficiency. The storage industry's first enterprise and desktop hybrid drives. An enterprise-level NAS offering leveraging our LaCie software expertise. The announcement of our Seagate Kinetic Open Storage Platform, designed to simplify data management and improve performance and scalability while lowering the total cost of ownership of cloud computing.
Developing products that our customers value and which solve their storage needs is one of our highest priorities. We believe we have a very competitive portfolio, from traditional HDDs to the highest performance flash-based enterprise products. We also continue to focus development efforts on improving magnetic recording areal density. We are leading the transition to shingled magnetic recording technology, or SMR, and are currently shipping drives utilizing this technology in significant volume. We will be incorporating this technology into additional products over the coming year. In addition, we are integrating flash technology across our product portfolio. We are pleased with the traction we are seeing in our solid-state hybrid drives as well as our enterprise SSD products. For the September quarter, non-GAAP product margins were 28.5%, reflecting market demand for our storage portfolio, effective supply chain management, and cost improvements.
Maintaining margins within our long-term target range of 27%-32% will continue to enable us to further invest in advancing our storage technology and manufacturing efficiency. non-GAAP operating expenses this quarter were $469 million, within our targeted range of 12%-14% of revenue, and reflecting investments in our core infrastructure and aligning our organization for our cloud, mobile, open source, and flash technology opportunities. Turning to our December quarter outlook, we see the revenue and unit demand environment remaining relatively similar to what we have seen the last several quarters. While global macroeconomic conditions and technology transitions continue to provide a level of uncertainty with our customers, and we are mindful of those factors, and we are confident that we can continue to execute effectively. For the December quarter, we expect revenues of approximately $3.5 billion-$3.6 billion, and non-GAAP gross margin relatively flat sequentially.
Seagate is well-positioned for this era of ongoing data growth and technology transformation, and we will continue to focus on executing to our financial model and delivering strong operating results. I'm pleased with our performance this quarter, and on behalf of the entire management team, I'd like to thank our employees for their solid performance and thank our customers, partners, and suppliers for their support and commitment. Before we open the call for questions, I want to take a moment and acknowledge the well-deserved executive promotions we announced today. Rocky Pimentel, named President, Global Markets and Customers, and Dave Mosley, named President, Operations and Technology. By elevating Dave and Rocky to lead our core product technology, operations, and customer engagement, Seagate is even better positioned for continued operational excellence and to further our ability to capitalize on our growing opportunities in the storage marketplace.
This new leadership alignment also allows me to focus more on the longer-term strategic opportunities for our company and to increase my efforts around accelerating our mobile and cloud technology strategies. I am pleased to continue to be Chairman and CEO of Seagate, and I have no plans to leave the company anytime soon. Regina, we're now ready to open up the call to questions.
Ladies and gentlemen, if you would like to ask a question today, you can do so by pressing star followed by one on your touch-tone phone. If your question has been answered, or you would like to be removed from the queue for any other reason, you can press star followed by two. Your first question today comes from the line of Amit Daryanani with RBC Capital Markets.
Good afternoon, guys. Two questions from me. One, maybe you could just talk about the buyback program as you go forward. Given the repurchase of shares from Samsung, what implications does it have to the Section 382 limitations that you had on your buyback as you go through the next 12 months?
Well, the Samsung shares were not subject to the 382 restrictions. As you may know, and I'll have Pat go into this in a little more detail, the 382 requirements were changed a little bit in a mode that makes it more favorable for Seagate in terms of giving us more flexibility quarter-to-quarter. The buyback redemption from Samsung didn't affect us, and the 382 changes provide us a little more flexibility going forward.
Yeah. With the recent IRS relaxation or amendment of the 382, companies like Seagate that have been buying back their shares were in the same ilk of other companies buying other companies. We got relaxation on that. Now, the 382 should not be a gate or anything with our buying back our shares. Our buying back redemption of shares will be totally the function of the cash flow generated by the entity.
Fair enough. Thank you. Then maybe just touch on ASP declines you had sequentially of about $1. I'm assuming it might be more due to the consumer side of the business, but maybe you could talk about on a like-to-like basis, what did you see in terms of pricing in September quarter, and how do you expect that to shake out in December quarter? Thank you.
Less than 2%, we expect that environment to continue. On a like-to-like basis, not mix, of course, but like for like.
Perfect. Thank you.
Your next question is from the line of Andrew Nowinski with Piper Jaffray.
Good afternoon. Just wanted to get a little bit more color on your SMR drives. Your competitor launched a seven-platter helium drive that is expected to come out this quarter with one use case definitely targeted at the cloud. Do you think your drives leveraging SMR will be effectively positioned against those drives in both cloud and enterprise?
Yes, we're pretty confident in our cloud nearline portfolio right now, and we look forward to the product launches that are coming next year.
Okay, just a last follow-up on gross margin. It certainly came in a little bit higher, and I think you guided flat, you said. I guess, can you just talk about what drove that up this quarter, and why you think it's going to just continue to remain flat? Is that just a matter of mix?
I'll let Rocky go into that in a little detail, and Dave, let me just give you some macro thoughts. This is Steve. One is, we've continued to emphasize our focus on quality of revenue. We're starting to focus a lot more on revenue market share and exabyte market share, and we feel that in certain segments, it just didn't make sense to participate, given the rather lackluster revenue boost that would have provided maybe margin pressure. I think part of it is that we were selective in the business we pursued from a margin perspective. Rocky will talk to that a little bit more in terms of quality share. On the operating side, the factories really performed extremely well. We had some really great execution from Dave's organization, and he can go into a little more detail following Rocky.
Yeah, this is Rocky. I think, to echo Steve's comments, there has been a lot of operational go-to-market discipline that we've tried to build over the last several quarters through processes and behavior. We're focusing on preserving or gaining share in those key categories of the portfolio that give us margin leverage and being very disciplined at the low end of the portfolio where the competition is maybe looking for volume upticks, et cetera. Anyway, that gives you the color on it.
Got it. Thanks.
From the operations perspective, we continue to manage the things that are under our control, scrap and freight lanes and warranty and things like that, very well. We're pretty comfortable with the portfolio we have, and we could keep driving it.
Very good. Thank you.
Your next question is from the line of Monika Garg with Pacific Crest Securities.
Hi, thanks for taking my question. First one here is, could you maybe kind of talk about the momentum you see from your cloud or web-scale customers buying directly from you guys? Maybe if you could provide some idea of how much of the revenue, your enterprise revenue is from these kind of segment.
I'll just, again, let me just say, generally, the purchases by the cloud service providers or Internet service providers or any of the big web-based companies, they're very choppy. We've said that over the last several quarters. They're these large volume orders, but they tend to come and go in big blocks, and sometimes those companies are buying from our traditional OEMs, and sometimes they shift their purchasing to direct, kind of depending on what type of architectures they're deploying. I think it's a bit early to kind of get a read on how that's going to play out consistently. In fact, it's my personal belief that the traditional OEMs are probably going to reestablish themselves pretty effectively in this marketplace just because of their go-to-market capabilities.
It's dynamic, and it's choppy, and then I can let Rocky talk a bit about how we view what percentage of our drives go into what I just think of cloud-based architectures.
Yeah, I think we were really pleased this last quarter, despite in the cloud market, some softness overall. We were able to gain market share in some of the key categories. I know we talked a few quarters ago about estimating our cloud business at somewhere around 10%-12%, and now it's continued to escalate and probably 15%-20%, because some of it's direct and some of it's indirect, but we're really seeing a lot of traction. With our recently announced Kinetic HDD, we're getting a lot of interest from all the key cloud customers across the globe. I think we're continuing to build a great relationship with all those key customers to give us a preferred competitive position.
Thanks. Last one from me. Regarding your hybrid enterprise drive, could you maybe talk about the traction you see in the market and kind of where you think the growth could be in that segment?
Yeah. We've had a limited release of the enterprise hybrid drive with a couple of our key OEM customers, but it's benchmarking really well, particularly as we noted against our 15,000 RPM class drive in the marketplace. As we continue to kind of uptick the marketing effort with our key OEM customers, we see that continue to grow for the foreseeable future. We were really satisfied as well in our desktop hybrid introductions and in our client class, commercial class hybrid drives. I mean, we crossed over 1 million units this quarter of shipments and see that continuing to grow as an important part of the client compute part of the TAM, basically.
Thank you so much.
Is from the line of Nehal Choksi with TechInsights.
Thank you. Can we go a little bit more into what's underpinning the guidance of effectively a flat Q-over-Q market by segment? Maybe I might have a follow-up on that.
We generally don't break it out by segment. If you take a look at the even going back the last 8 quarters, we've been running above our new target range of 27-32. While that period's been going on, the visibility is nothing stronger than it has been in the past. We're in a world that has limited visibility. We're playing in a world that's relatively flat on unit, but growth in exabytes, that's how we're taking the approach of business. We're going after the quality of revenue. We're trying to manage the business accordingly and deploy capital appropriately. That's the world we're living in, and that's the world we're operating in.
Okay. Within that context, would you be expecting flattish going out into calendar as well? Also, given that you typically see seasonality in the December quarter, looking at the year-ago compares where you had the iPad mini being significantly cannibalistic, there doesn't appear to be any new tablet cannibalistic device. Is there an opportunity for upside, do you feel, or do you feel that this is actually an aggressive target, basically?
It seems like you're focused on unit TAMs still. Is that right?
Yeah. I'm sorry. That's right. That's with respect to unit TAM.
That's the only world you're talking about. Again, that's not the only world we think about. We think unit TAM probably trends as it has over the last several quarters, which seems to be this kind of 140, give or take. Like we said, I think last call and the call before that, whether or not when you're within 10 million units of either side of that type of TAM for the drive industry now, that's things that the industry can manage pretty easily given the way we're producing. It's really the mix within that that's more critical. I think that just the architectural trends that we see, one is the continued advancement of mobile technologies and then the network effect that has on where data is created and stored, doesn't seem to us to be any trend to break away from that.
Hopefully, with some of the new mobile products, you get an even greater network effect because maybe there's more endpoints of people sharing rich content. The reason we kind of feel December is the same as the last five or six quarters is because we don't really see any big macro changes, negative or positive, and we don't really see any shifts away from the mobile and cloud future that we've been pretty solid on speaking to. I think you're going to see relatively flat TAMs with the shift to increasing capacity per drive, which of course, for the vertically integrated drive companies means absorption and heads and disk, which is good for us. Then the higher capacity drives, of course, are higher value-added technology because they're harder drives to make and harder drives to test.
Your next question is from the line of Jung Pak with BMO Capital Markets.
Hi. Thanks for taking the question. I had a question on your hybrids and SSDs. In your analysis, you guys indicated that you guys would have about $100 million in hybrids and SSDs. Can you provide an update on that for if you guys are still tracking that?
I would say we succeeded in those comments that we made previously. We're not giving specific numbers on that, but we met or exceeded that comment that we made in the September analyst update.
The question on the ASPs, it was down roughly 3% sequentially. When I look at the product mix, your consumer electronics was roughly flat and your hybrid shipments were much higher than we expected. Can you help us understand why ASPs were down 3%? Was there anything in terms of each product where pricing was more aggressive or not?
Overall, the portfolio, like I said, was less than 2%. What you're seeing in ASP is much more mix-adjusted based on how between segments. If you take a look at the breakdown of where the revenue came from, it was on a higher mix of, I'd say, client drive versus within compute, I mean, the enterprise side. What you're seeing is all affected by the market mix.
All right. Thank you.
Your next question is from the line of Rich Kugele with Needham & Company.
Thank you. Good afternoon. A couple questions from me. I guess first, when it comes to the highest capacity drives that the cloud can buy today, it's basically four terabyte, correct? On the three-and-a-half-inch form factor. I'm just interested in what the next areal density point is, when we should see that, and will you launch it on the cloud first?
Hey, Rich, this is Dave. We probably will launch it on the cloud first. We won't make a product announcement today. You can imagine that it's that segment that's really demanding the capacity points that we're talking about, and we're working hard on it.
still keeping to the four-platter universe?
It's pretty competitive information, Rich, so we're not going to talk about what platter counts we're putting inside of our devices.
Okay. I guess within that vein, if you're right about where the exabyte growth is going and the industry's ability to fulfill it, the supply chain will need to invest as well, especially on the head side. At the same time, heads are one of those categories where one of your competitors buys almost all of their business. I'm just interested in your views of the strategic level of commitment that the head supplier has to you guys and your view of CapEx in that area, if you want to keep it more in-house.
I think we've talked about this a little bit at the Analyst Day in New York. We're great partners with the external head vendor, TDK, we don't foresee changing that going into the future. They have other customers, obviously, what they do with those other customers are up to them. We'll continue to maintain the technology and manufacturing synergies that we get with them going forward.
Okay. Last question is just, Pat, what should we be assuming from a share count perspective on a blended basis for the second quarter?
I think if you take a look at the December quarter, based on what we've transacted with Samsung, I'd use a 328 million for the actual shares, and approximately 346 for fully diluted, and I'd just plan for that.
Okay, great. Thank you very much.
Your next question is from the line of C.J. Muse with Barclays.
Hi. Thanks for taking my question. Your competitor last week had talked about a modest potential improvement on the PC side. I'm just wondering if you guys are seeing anything to substantiate that looking out into the end of the year and into next year. Thanks.
Yeah. I think right now, we still see a pretty choppy situation among the different OEMs. There's clearly some that are still suffering and some that are doing better than the overall market segment. I think as we look out to next year, in the early stages, we're hopeful that the new designs the OEMs are coming out with will stimulate consumer demand. It's still just a pretty murky segment of the market, and that's why I think we're very selective and cautious about how we continue to look at the client level of the marketplace.
Any of a different view on the corporate PC side?
Yeah, I think we're much more optimistic on the corporate PC side. We've got a couple of initiatives that should bear very positive fruit as we go into 2014. We're much more optimistic on that side for sure.
Okay, great. Thank you.
Your next question is from the line of Rob Cihra with Evercore.
Hi, it's Rob Cihra. Thanks. Two questions if I could. One just real quick, I guess, for Pat. With OpEx, do you think OpEx keeps increasing in dollar terms into the December quarter, I guess particularly with options, but anything outside the ordinary? Then more sort of strategic product-wise, can you tell us, I know it's early, but when you look at the ultra-mobile drive, targeting tablets, as you say, where is the early OEM interest do you think most focused? Is it literally tablets, or is it convertibles? And is it going for using capacity or sort of bang for the buck as a differentiator, or is it trying to create a different-looking product? I'm just trying to see where the demand is there. Thank you very much.
Thanks, Rob. I'll answer the first part, then I'll hand it off to Rocky. In the first part, we're committed, for the December quarter, stay in the 12%-14% revenue range for OpEx, and it's probably close to the high end, as you said, with options and our continued investment in cloud mobility. It's probably at the higher end of that range for the December quarter, then it should probably moderate after that. Then for Rocky for the ultra.
This is Rocky. We have a number of OEM programs currently addressing the ultra-mobile class product that we announced back in September. One of the benefits of our design kit is the ability for the OEM to either buy the drive in a native format or buy it as a hybrid, which gives a lot of flexibility. We provide the microcode in the mobile enablement kit according to what the OEM wishes to do. Certainly, as we see 2014 unfold, this is where there could be a new pop in the consumer side of the business, as the new form factor and design packaging comes out to be more of a convertible device that functions the benefits of both the tablet and the traditional notebook world, this is certainly something we think could stimulate consumer demand.
Also commercial demand, we think that there'll be some commercial platforms also introduced that better fit the enterprise environment. We're actually very hopeful on the ultra-mobile side. Maybe Dave's got a couple more comments on that.
I guess the other thing I would say is that we're pretty confident in that five-millimeter design point as being robust enough to handle it, and a lot of that'll depend on the market adoption of those form factors. It's still pretty slow, but over the next year, we should see more, and hopefully, that's a compelling play out there in the notebook space.
Great. Thank you very much.
Your next question is from the line of Aaron Rakers with Stifel.
Yes, thanks for taking the question. A couple if I can as well. I think in the past, and I have not seen the supplemental commentary stuff yet, but I think in the past, you've talked about the breakdown of your 8.1 million units that you've shipped in total enterprise between mission-critical and nearline. Can you disclose that? Also, I'm interested to understand what you view as your share position in the higher capacity point with the 4-terabyte solution starting to ship this last quarter. I have a follow-up.
Hi, Aaron. This is Pat. I'll answer the first part, I'll let Rocky answer the high capacity. When we look at the products in the markets for whether it's nearline, business-critical, and mission-critical, they're very similar in their technical applications and their customer sets. Therefore, we feel it's more appropriate to aggregate these for presentation purposes. We'll continue to do that in the future. Rocky could take the high capacity.
Yeah. On the high-capacity side, we actually gained some good market share in the nearline this last quarter with our 4-terabyte solution. We have a quarter or two late to market against the competition. We've gained our traditional market share in that category. In the enterprise class products, we also gained this last quarter. We were very happy with the performance of the upper end of the portfolio.
Okay. As my follow-up, just looking at the continued return of cash or free cash flow to shareholders, it looks like, coming out of this quarter with the $32.7 that you're spending on the shares from Samsung, we're already talking about $1.8 billion spend thus far this year. How do we take that in the context of the 90% cash flow from operations of return that you expect to do? I think on top of that, are we still kind of sticking to the target of $250 million exiting calendar 2014? I just want to be clear that those shares from Samsung aren't on top of that.
We committed to return 70% of operating cash flow, this puts us well in line to do that. For the rest of the shares beyond this level, because of 382 rules now, we're going to view those as fairly synonymous going forward. Now it's going to be a function of cash flow. Given when we started this program, when the stock was at $19, it's now going to be a function of the stock price and how we want to look at dividends and redemption of shares. We'll continue to monitor that, we'll engage appropriately. From our standpoint, we're committed for the return of cash flow in the most efficient and effective way to our shareholders.
Okay, the $1.5 billion for the Samsung shares is inclusive or should be included in that 70% number?
That's correct.
Okay. Thank you.
Sure thing.
Our next question is from the line of Sherri Scribner with Deutsche Bank.
Hi, thanks. I just wanted to ask a little bit about your CapEx plans going forward. I think historically, you've had a goal of 6%-8% of revenue for your CapEx. You've been well below that clearly with the market being relatively flat. I wouldn't expect you to increase that, but just wanted to understand your views on spending for CapEx. What do you need to spend on? What do you think the industry is spending on? Does that tick up at any point? Thanks.
Yeah, as we've talked about before, we're still pretty much in line with 6%-8% for this year, although as we see that we have enough capacity online to meet the demands quarter-over-quarter, we'll sometimes pull the brakes a little bit. We did that starting a little bit last quarter, which is reflected in the CapEx numbers that we talked about. I think that we can replace equipment and keep our technology migrating along for something well under that 6%-8%. Occasionally from time to time, we will pull back, but we'll be ready to go should we see any upsides in either heads, disks, or drives as the exabyte march goes on. Right now I'm a little bit just concerned that we won't see that for another year. We pulled back this last quarter.
Okay, that's helpful. Just thinking about the long-term targets that you have for the gross margins, 27%-32%. You guys are sort of at the lower end of that. How do we get to the higher end of that range? What needs to happen? Thanks.
Yeah, it's Dave. I think on that, Sherri, it's really a function of the, again, kind of the relative growth of the cloud service providers, again, just because of the value associated with those drives, really just macroeconomic traction. I think as long as the petabyte growth is where it's at, the industry does all right to maintain the margins because of the absorption. I think really to push the industry, let's say above 30%, I think it's probably going to take some overall growth that I think the world is still a bit cautious on. Maybe that plays into some of the things we talked about here earlier in terms of what happens with the drives that are more targeted towards the mobile market, that with the next generation of products from the OEMs could be compelling.
You could get some exabyte growth with HDDs in the markets that today are just purely SSDs. We've seen that even a little bit on the high-end notebook market that is all Flash-based. Our hybrid drives now represent about 20% of that market, which is a market that I think a year ago people would have said we wouldn't have anything of. I think it just plays into a bunch of things, but I think the real driver is going to be a better macro outlook with generate just a higher rate of global demand for storage, both in terms of exabytes and units across the board.
Thank you.
Your next question is from the line of Joe Wittine, Longbow Research.
Hi, thanks. The big introduction of new SSDs was in May. I'm hoping you can maybe talk through how the adoption has gone and maybe how you're competing there, too. What's the relative mix of OEM versus channel? Then maybe as a third point, what's the ultimate share opportunity within Pure SSDs? Thanks.
This is Rocky making comments. We're still in the early stages of the SSD. I think we were really pleased with this quarter's performance on SSDs. Obviously, making the comment that we did over $100 million of solid state related storage in a quarter tells you that our SSD business unit performed very well relative to a quarter-to-quarter performance. I think as we look out and actually look at this quarter's performance, the unit is probably as big as anything that's been acquired recently by other companies. We were very pleased with that. I think we're still working on our technology roadmap of the sustainable strategic advantages we can have in each of the key product portfolios.
I don't know that we made a bold statement as to how much of the market share we're going to have, but I think that we feel with our presence and our existing storage portfolio and the response that we've been getting from our major accounts in both the cloud service area as well as the OEM area, the opportunity is there for us to execute to have a pretty handsome share in the SSD market. It's still early on, and there's a lot of plays to be executed and a lot of competitive developments that are going to happen. We have to go and attack it.
Yeah, this is Steve. It's pretty dynamic right now, and we expect it will be over the next couple of years as all these different technologies play out in terms of which application spaces they're successful in and what kind of workload requirements are needed by what type of customer. I think for Seagate, certainly, we've always targeted the enterprise SAS market as one that we believe we have a competitive advantage and value add as a result of our experience in the higher-end compute market as it exists. Obviously, Hitachi has the same advantage. I think relative to some of the other players that haven't been as exposed to those enterprise workloads as we have, the drive industry has a natural advantage, and I could see that those shares reflect what we see in the mission-critical space.
I think the SATA space gets a little more confusing just because it's currently under a lot of price pressure from the people that control media. The PCIe market space, whether or not you call that storage or fast memory, is also, I think, extremely challenged right now by a lot of competitors in the space. While there's value add to the software, the companies that are providing the media, I think, are making it difficult for anyone to really have an attractive margin there. For us, we're really focused on enterprise assets. That's where we think we have our best opportunity and the most capabilities, and where we're most excited about our partnership with Samsung.
The other areas we'll proceed with cautiously, but with the same mindset that we're really focused on margins here, and want to make sure that we deploy something that we can sustain over a number of years with a competitive advantage.
Great overview. Thanks. As my quick follow-up, Pat, what's a sustainable or a go-forward quarterly interest expense, net interest expense number after the $1.5 billion went out the door in October? Thanks.
The interest expense, if you're just talking pure interest expense, it's around $40 million-$45 million in that range. Obviously, if you're talking the net line of the interest income, the interest income is still going to be relatively low, whether we have the cash or not. You're not getting much on your investment these days, so that won't marginally change. I think if you're just looking for the interest expense model around $45 million, and you'll be okay.
Great. Thanks.
Your final question today comes from the line of Steven Fox with Cross.
Thanks. Good afternoon. Just two questions from me. I was wondering if we could get some highlights around the branded business for the quarter, whether it looked like it was up marginally from fiscal Q4 and sort of the outlook for the rest of the calendar year. Secondly, just on the Kinetic announcement, probably do not understand the technology as well as I should, but from a go-to-market standpoint or your ability to commercialize this platform, can you just sort of talk about, I do not know if timeframe is relevant, but just sort of how you would go about realizing revenues from this announcement? Thanks.
Yeah, this is Rocky. I will take the branded one, and then on Kinetic, I will turn it over to Dave. On branded, I would say we were very pleased with the performance of the branded division. We succeeded in higher capacity drives in that category in the marketplace. There was legitimately a very challenging low end of the market price environment for branded. Despite that characteristic, our branded team did execute well against the market that made sense for our quality of business. We were really pleased with that. Now, having said that, there is a key product segment in the branded business, two terabyte, that has been pretty successful in the marketplace for the last quarter or two, and we are now shipping that product into the marketplace, and that was not present through our September numbers in volume.
We are optimistic about what we can continue to do on the branded side as we get to volume on our two-terabyte products. We will keep you posted on that, and I will turn over to Dave then for Kinetic.
Yeah, Steven, on the Kinetic announcement, it is really a development kit at this point in time. It is some electronics added to our printed circuit board on our hard drive. Not tremendously difficult to do, but the ecosystem that is outside of the drive is not developed yet, so we need to get the product out so that people can get working on that development. As you know, in the past, we have kind of spearheaded the changes, whether it is SCSI or Fibre Channel or Serial Attached SCSI in the enterprise world to new interfaces. This is the same along that line, although it is not a block-based interface, it is really a key value Ethernet interface, if you will. The largest reason that we did it was because, well, we have got a bunch of customers asking us for things like this.
What's happening, what they see is that the objects themselves are being disaggregated into blocks in order to be passed across the block-based interfaces into the drive, and that's costing money outside of the disk drive, whether it's software or silicon or whatever. By virtue of us having exposed this kind of interface to them, they can go integrate without some of those added costs, and then the total cost of ownership goes down. We're pretty excited about it right now, you need everybody's help to go help develop that ecosystem outside the drive.
Great. Thanks a lot. I appreciate the call.
All right. Great. Thanks, everyone. On behalf of the Seagate team, we thank you for joining us today, and we look forward to speaking with you next quarter. Thanks a lot.
Ladies and gentlemen, this concludes today's presentation. Thank you so much for your participation. Have a great day.