Welcome to Seagate Technologies Fiscal 4th Quarter and Year End 2010 Financial Results Conference Call. My name is Anicia, and I will be your coordinator for today. As a reminder, this conference is being recorded for replay purposes. This conference call contains forward looking statements, including, but not limited to, statements related to the company's future operating and financial performance in the September 20 10 quarter and thereafter and include statements regarding expected revenue, gross margin, customer demand for disk drives and general market conditions. These forward looking statements are based on information available to Seagate as of the date of this conference call, but are subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from those anticipated by these forward looking statements.
Information concerning additional factors that could cause results to differ materially from those projected in the forward looking statements is contained in the company's annual report on Form 10 ks as filed with the U. S. Securities and Exchange Commission on August 19, 2009, and in the company's quarterly report on Form 10 as filed with the U. S. Securities and Exchange Commission on May 5, 2010.
These forward looking statements should not be relied upon as representing the company's views as of any subsequent date and Seagate undertakes no obligation to update forward looking statements to reflect events or circumstances after the date they were made. I would now like to turn the conference over to your host, Mr. Steve Lusso, CEO. Please go ahead.
Thank you, Alicia. Good afternoon, everyone, and thank you for joining us today. On the call with me are Pat O'Malley, our Chief Financial Officer Bob Whitmore, our Chief Technology Officer and Head of R and D and Manufacturing Operations and Dave Mosley, Executive Vice
President of Sales, Marketing
and Product Line Management. Vice President of Sales, Marketing and Product Line Management. Beginning with today's call, we are implementing a new format for our quarterly results announcements. As you've hopefully already seen, we have posted supplemental information about the quarter on our Investor Relations website. The majority of the information that Dave, Bob and Pat have previously conveyed verbally on our earnings conference is in that document, which we posted about 2 hours ago in order to give investors and analysts time to review it.
Our goal with this format is to give all of you more time with the basic factual information about the quarter in a form you can download yourselves and then focus the call on topics and issues that are most important to you. At the end of my prepared remarks, we will address a few questions of particular interest to our investors and then open the call up for questions. I want to start with a few observations about the fiscal year that we just completed and then turn to fiscal Q4. For the year, we saw record shipments of 193,200,000 units, record profitability of $1,610,000,000 record operating margin of 15.3 percent and record diluted earnings per share of 3 nearly $2,000,000,000 of cash from operations, enabling us to continue to strengthen the capital structure by improving our net debt position by $775,000,000 and repurchasing $584,000,000 worth of Seagate common stock. We also had a series of important product announcements this year, including our successful entry into the enterprise SSD market with our PULSAR product, our ground external storage products.
These products are expected to broaden our product leadership and provide opportunities for incremental revenue growth in fiscal year 2011 beyond. We introduced these and many more products while successfully managing through a volatile supply and demand environment and continuing to improve the fundamentals of our business. Global demand for storage remained strong throughout the year, reflecting the pace at which digital content and information is being created. However, in the June quarter, demand throughout the industry began to slow and exhibited linearity more typical of a June quarter. The biggest issue that we faced in the quarter was that the broader macroeconomic conditions deteriorated during the quarter, particularly in Europe.
The economic slowdown and debt crisis in Europe and to a lesser extent, the global interruption due to the Iceland volcanic eruption caused inventory disruption and contributed to an industry TAM near the low end of the expected range. These effects were more pronounced in the consumer market versus the commercial market, which in turn negatively mix and pricing. In addition, we believe the economic slowdown resulted in a supply demand imbalance in the quarter of quarter against the decreasing TAM. There was at least 1 competitor, which significantly increased production during the quarter. As we generated revenue of $2,660,000,000 and gross margin of 27.4% and produced the highest operating profit for Seagate in the June quarter.
This was also our 4th most profitable quarter in Seagate history. In addition, Seagate ended the quarter with 4 weeks of inventory on hand in the distribution channel with the inventory balanced across all of our product lines. While we While we continue to expect that demand will strengthen as we progress throughout the remainder of the calendar year, there are many conflicting data points concerning the strength of second half growth. On negative side, there was a deceleration in hard drive demand in the June quarter, negative macroeconomic events impacting exchange rates, availability of credit and other forms of liquidity. The U.
S. Commerce Department reported lower than expected retail sales for the month of June and the recent Federal Reserve forecast of slower second half growth in the United States.
On the
positive side, there is increased indication that the corporate technology refresh is accelerating and certain Overall, we still believe that the industry TAM for the full calendar year will be approximately 650,000,000 to 670,000,000 units. However, given the mounting negative influences I just discussed, we have shifted our view from one where we might be accelerating through the between 165,000,000 and 175,000,000 units. Our key underlying assumptions for our No meaningful shifts in market share with Seagate expecting to hold about 30% share. No attempts to shift market share through overproduction or aggressive pricing, weeks of inventory on hand to remain at or around current levels and that the corporate the to respond to upsides if demand proves to be at the high end of our forecast. As such, we expect revenue of $2,700,000,000 to $2,900,000,000 and gross margin as a percent of revenue at or near the low end of our target range of 22% to to 26%.
Given that Seagate's business is over 70% OEM, where pricing contracts are negotiated well in advance of the quarter, a large part of our business was insulated from price declines in the June quarter. Therefore, we were able to effectively manage our gross margins in the June quarter. In the September quarter, however, the aggressive pricing environment now carries through to our entire product portfolio and will have a more pronounced impact on our gross margin. We believe that being closely aligned with our OEMs is a strategic benefit to Seagate over the long term. Finally, we expect R and D and SG and A for the September quarter to be flat sequentially.
Before we open up the call for questions, we will address the questions I referenced earlier. I'm going to take the first question, which is we've had a lot of calls from investors inquiring about the success of iPad and other types of tablet or slate devices and what the possible impact might be on the demand for hard disk drives. I think and I haven't had the opportunity to listen to the Apple call yet other than to look at the top line results, which obviously were impressive and obviously the iPad sales were impressive as well. It's still our belief though that devices like this, which are for the most part, I would contend not really compute devices, but maybe more content viewing devices. They obviously have some capabilities for compute, but on the most part, it's a content viewing device.
We still believe that those devices,
at the end of the
day, increase the requirement for storage throughout the ecosystem. And in particular, if they're going to be used for content rich video, as one of the applications that's being pursued with those devices. Maybe a better example is the Cisco slate, which is certainly being targeted more in the business environment to enable telepresence, which again we think is going to drive a lot of back end storage throughout not just the server, but the storage subsystem architectures. To the extent that those devices cannibalize notebook market, which again the notebook systems vendors would have a better view on than us, then clearly it has the potential for impacting hard disk drives. But to date, we just don't believe that a lot of people are buying those devices to supplant what they were doing with a normal computer.
So our view on it still is that we think this is a net positive for the storage industry. And we also believe, by the way, that those devices, not speaking to specific products, but at the end of the day, we'll obviously have access to external storage in 1 or more forms that will probably be a benefit to Seagate and any other drive company that's in the retail business. 2nd question is, why will September gross margins be well below the run rate of the last three quarters? And when might a recovery to the mid to upper end of the target range occur? And I'm going to turn that over to Pat and perhaps to Dave to weigh in on Pat.
Thanks, Steve. So I'll address that in 2 aspects. 1, just the gross margin bridge from where we performed over the last fiscal year to where we expect to perform in the September quarter. And a simple breakdown on that is that what we're seeing in the September quarter visavis coming off the 4th quarter is that product. So that itself is probably having the more significant portion of the decrement on our gross margin out the quarter very tight, is leading to higher production costs, inventory and which could lead to higher per unit cost.
Now, as part of the recovery, when they can the margins could accrete back to the higher end of the range. Obviously, you have to make some assumptions that the macroeconomics of the U. S. Consumer and the Eurozone, whether that's in the countries or just the currency of the Euro, production being brought into demand in line with demand. So having that a balanced equation and with no attempt for share gains by any competitor without really product advantage.
So having a balanced pricing environment with supply and demand. I don't know, Dave, if you want to add to that, but
No, I think I'm okay. So why don't we just segue into the 3rd question, which somewhat related. How much did supply exceed demand in the June quarter? And what is the expectation for the September quarter? And I'll state mostly weighing in on that.
Yes. This is addressed in the supplemental that Steve referenced earlier. If you haven't had a chance to read it yet, we quantify it and say it's 5,000,000 drives that where supply exceeded demand and were actually moved in the quarters. Putting an exact number on this is always difficult, but I'd say that I'd break into really 2 dynamics. 1 very early in the quarter where the consumer demand, particularly in Europe fell off very quickly, particularly high cap.
So, mix was affected as well. And there are a lot of dynamics for that. There are various components pricing that affect these things and obviously consumer sentiments and other big driver for these shifts that we see going on. At that time, I believe that people were still putting out units above what the true demand signals were and putting them into that region. We've got to At the back At the back end of July or sorry, back end of June, it's a little bit different.
As typically this quarter, as Steve referenced, linearity is 50% of the quarter is done in the month of June. I think we were even a little bit higher than that this time. And in my opinion, right now, some of the deals that were taken that I saw taken, probably really could have been fulfilled with July supply anyway. So I think like not controlling production there at the back end is probably causing some of those other behaviors also. So that's why that's how I'd rationalize $5,000,000 or it's fairly easy number and maybe a tad higher than that even.
We'll probably have to get through the 1st few weeks of July into August to probably see exactly what the how the dynamic should have played. But that's our opinion on it for now.
Okay. Alicia, we're ready to open up the call for
questions. And the first question comes from the line of Rich Kukui with Needham and Company. Please proceed.
Thank you. Good afternoon. A few questions. First, relative to history, when a lot of the stereotypes people use were really formed, How quickly do you think that Seagate and the industry responded to those changes in demand? I mean clearly through exiting at 4 weeks of inventory, you responded to the difference in demand relative to the guidance you had provided.
So any comments there would be helpful.
I
think that's a good point, Rich, is to look at the 3.5 inches inventory in the channel, for example, going out. We talked about this in our supplemental a little bit. The industry is still not in bad shape some capacity points, the high capacity points that I made reference to earlier. But I do think that over the course of the quarter, there was definitely controls being put in place.
Rich, this is Pat. I'd say, historically, the historical perspective, it may have taken up to 2 quarters before. So as much as we may have liked to see a quicker response, it is getting tighter. And so as Dave said, we saw signs
the the question we always get is on trough earnings potential. If you look at your current and projected platforms, the cost base is on those, a more normal gross margin range. I mean, what do you think both for Seagate and the industry, the trough earnings really are? I mean, do you think industry has moved beyond where the trough is negative?
Yes.
Yes. I mean, I think we're talking about where we're going. Obviously, the key, as you know, Rich, in this industry is product transitions and product positioning with through technology is how one competitor outweighs the other and as supply and demand stays in balance as a second. And I think as to your first question, as the industry saw it was getting ahead, it pulled back. So I think, to Steve's point, a quick yes is sufficient because I think the industry is trying to manage to a tighter range in the profit pool.
I think, Rich, the difficult thing, the rest of this year and really into fiscal year 'eleven is against what macroeconomic environment. And I think fiscal year 'eleven for the drive industry on the whole is it's a challenging year because most of us are in product transitions, which means the products we're shipping are going to probably stay in production for the mass amount through the fiscal year and what we're doing is developing next generation technology under that. You don't see that in terms of the benefit of the ramp really till the end of fiscal year 'eleven and then then scenario is more volatile, then you have to have the ability to either change scenario is more volatile, then you have to have the ability to either change your mix or change your builds pretty quickly. And I would say that this quarter showed that some of the industry participants have those controls in place and able to respond quickly, change mix, reduce build. And maybe not the entire industry is there, but is it a lot better than it has been historically?
Yes. And we believe that it gets a lot better over the next year or 2 as well as companies continue obviously to streamline their operations. It doesn't help anyone to overbuild on a sustained basis because as we all know, you can't sustain market share gains by overbuilding and pricing. It's all about new products.
Okay. Just the last one is on the buyback. Is there anything left on the buyback that you have out there for the anti dilution and any thoughts? You should still be generating a a significant amount of cash flow in fiscal 'eleven and so any comments there?
Yes, Rich, in January to your point, the Board approves for management to execute an anti dilution plan. Given with the shares outstanding and the outstanding options, we still have the ability to continue to buy back shares if we deem it appropriate. And we probably would have a run rate where we've just accomplished in the last quarter. We'd probably have a couple more quarters of that if all things were in line, I. E.
Where the stock price is and a few other variables, but we do have more ability to buy back shares under that board authority.
Okay, great. Thank you.
Thanks Rich.
And the next question comes from the line of Mark Miller with Noble Financial. Please proceed.
Just wondering as you noted, the OEM pricing is kind of cast in stone. I assume there's no ability that pretty much will exist throughout the whole quarter. My question was more about do you anticipate the channel pricing to be more
quarter?
I definitely think things stabilize. Sorry, it wasn't just the back end of the quarter, it was also the very front of the quarter because of the dynamics I mentioned earlier. But I because they've already come because they've already come down to levels. If you look at various capacity points and as Steve said, what products are playing there, there's not any major industry transitions coming for the next couple of quarters foreseeably. So, I just don't see the cost coming out, so I think those pricing points will stabilize.
And the OEM pricing will probably be as you just said it in the auctions a few weeks ago, is that correct or there's very little latitude that's going to change, is that correct?
Yes, that's correct.
Yes. And then of course they were reflective of the aggressive pricing that occurred in the June quarter market.
Thank you.
And the next question comes from the line of Keith Bachman with Bank of Montreal. Please proceed.
Hi, thanks very much. I was hoping if you could talk about your expectations on the enterprise side of your business for not only September quarter, but December quarter? What's the feedback from the demand side? And then more specifically, what are you thinking about potential share shifts in this part of your business? And then I have a follow-up please.
Yes, I think in terms of share shifts, again, we last quarter, I think it was the quarter before, we hit a very high market share, which was as we indicated pretty reflective of a lack of execution at one of the big enterprise players and we'd like to hold that. However, we do believe that the 62% -ish share that we're Seagate and we'd probably expect to hold that share and potentially do a little better if there's execution issues, which there tends to be in the enterprise because it's a difficult portfolio. I think in terms of demand, maybe just a little bit cautious still in terms of the crosscurrents that I indicated before. Against, I would say, it's the one area where there seems to be a recurring theme of strength, whether or not it's out of Intel or whether or not it was out of IBM or we'll see what we hear from some of the other systems level companies. But maybe we're a little more cautiously optimistic about enterprise in the September quarter.
And then clearly through the end of the year and through calendar 2011, we would expect that to be impacted by the refresh, the corporate technology refresh and that's going to be probably more a function of just what's the macro scenario feel like. David, if you want to weigh back?
No, I think, yes, most of the comments that we said about consumer don't really hold in the enterprise. It's been off the levels that we're at right now, but seasonally up just slightly. And that goes for the mission critical and business critical products that we're talking about.
And I would assume given your share and whatnot that prices have been fairly stable in the enterprise?
Yes, I think there's been some aggressiveness there as well. Big picture, I think Seagate has a really strong broad portfolio and our OEM customers understand that. So, we can manage it. Okay. Okay.
That's it
for me. Thanks very much guys.
Thanks.
And the next question comes from the line of Sherry Scribner with Deutsche Bank. Please proceed.
Hi, thank you. I wanted to ask a couple of clarifications and then a question. Did you guys provide EPS guidance? I'm not sure if I missed it.
No, we gave enough of the assumptions. I think you come up with a good range sharing.
Okay. And then on the gross margin, I just want to clarify, you you'd be at the low end of your 22% to 26% range?
That's how we're planning our business for this quarter to be conservative. We certainly, as Steve said, we hopefully, we hit a conservative forecast based on everything that we see, but we just want to manage business on that level of optics right now given the level of uncertainty that, as Steve called, crosscurrents that we're getting.
Okay. I mean, I think it's definitely prudent to be conservative right now. But I guess if I think about the gross margins when you go from the June September quarter, we've never seen a 500 basis point say decline in gross margin.
Typically the margins are up. So I'm I know pricing
was a bit worse, but pricing is always to get a better understanding of why that might be down so much.
Generally, the pricing in the September quarter over the last couple of years has been fairly benign. And I would say that given the June dynamics, we're certainly the channel where we'd be somewhat insulated because we have over 70% of our business OEM, that sort of crossed the whole portfolio. So I would say that September is not I would not call it a traditional pricing quarter for a September quarter.
Okay.
Yes. And I would say that a typical September quarter, not to overly beat, I guess, a dead horse, but a typical September quarter doesn't have as many of the crosscurrents that we're currently facing right now. I mean, we've definitely transitioned, I think, from an environment that 3 to 5 months ago, most CEOs of technology companies were planning for the upside and reacting to the downside and I would say that most of them have probably shifted more to a plan for the downside and be able to react to the upside. Seagate certainly has the operational flexibility to address a TAM that is at the high end of the range or frankly even higher than the high end of our range pretty quickly. And if that's how it turns out, great.
On the other hand, there was certainly enough going on in the June quarter and pricing that occurred at OEMs and in the channel that make us believe that the more prudent way to address the quarter from an investor that's fair.
And then in that's fair. And then in terms of the CapEx, you mentioned in the supplemental information that there are some stuff that was deferred, you'll pay the cash in the September quarter. I wanted to get a sense of how much cash will there be that you're spending on CapEx in the September quarter? So roughly how much will CapEx be in September? And then also because of the lower demand environment we saw in June, did you adjust your CapEx plans down for the calendar year?
So one on the latter, we have continued to adjust our CapEx, what we see with production line. So Bob would comment, but we constantly we have a fairly dynamic capital planning process. Even with long lead times, we try to manage that. So what rolls over? We have a cash based receipt method.
So I'd say what rolls over, you might have some that we buy in September rolls over, and we'll manage the CapEx about 6% to 8% of our revenue. We think that's long term model sustained technology production at a healthy level to support the business. So as opposed to a number, we'll just manage it within that range.
Yes. But to answer your question, our capital budgets have come down significantly. Whether or not they're significantly relative to the models the street has, I don't know because ours are obviously very dynamic. And again, when we were entering the quarter, there was a possibility, as you may remember, that we actually thought we'd be at or above 165,000,000 units for the June quarter and then accelerating through the half back half of the year that was driving an expectation of a lot of capital. I think the dynamics have changed and up to the point now where we've definitely our capital and reduced our budget significantly.
Okay. That's great. Thank you very much.
And the next question comes from the line of Aaron Rakers with Stifel Nicolaus. Please proceed.
Thanks guys. A couple of questions as well if I can. Obviously, I think everybody's touched on the has touched on the pricing dynamics in the context of gross margin. But what I'd like to understand is the second point on the gross margin impact going into the quarter and obviously it sounds like more fixed cost coverage from a production standpoint eclipsing what was slower production in June. So can you help us bridge the gap between let's say 27.4% down to let's call it 23%?
How much of that is associated with that fixed cost coverage dynamic?
Roughly fifty-fifty with the pricing mix and the fixed cost dynamic of the other fifty-fifty. As Steve said, if we have upside, we certainly could go manage that. But given that we see a long term growth in the industry, we could certainly shed fixed costs, but that wouldn't be the wise thing to do in the short term. So we'll manage the business conservatively until we see line of sight where the maybe upsides are if there are, but we'll manage that through the quarter and try to keep inventory tight,
which will drive to a higher production cost through the beginning part
of the quarter. Additionally, I thought one comment that you had made
was that, additionally, I thought one comment that you had made was that one competitor, and I think we all know who that might be, continues to add production capacity you actually said through the quarter. Are you guys saying that that hasn't necessarily changed despite the challenges that the industry has seen or did that start to show some improvement, let's say, late May into June? And then I have one final question.
I think we talked about adding continuing to build, not adding capacity.
Yes. Whether or not they added capacity or not, I don't know. But I mean, from our perspective, in a downtime of 8%, it doesn't really make sense to be up in build by 10 percent depending on how you account for the last 500 or 1,000,000 drives that got shipped. So and I think that that was
a
control issue or a goal to take was a control issue or a goal to take market share for revenue growth or some other dynamic, we don't understand. And how they're going to adjust for next quarter, obviously, we don't know. That's where we're competitors, but it's just hard to say right now. I don't know, Dave. I think you said it.
Okay, fair enough. Final question for me is more of a longer term thought. Aerial density and I think you guys talk about lack of kind of meaningful platform transitions through the next couple of quarters. Can you remind us Seagate's thoughts as it pertains to aerial density growth areal density growth slowing and how that relates to underlying fundamental dynamics in the hard drive industry?
Yes, I'll let Bob handle that.
Yes. Aaron, I don't know if you remember a couple of quarters ago, I gave an update of where we thought we were aerial density wise and at that time I said that we continue to invest to stay on what I'll call industry trajectories of aerial density what we expect the compounded annual growth rate to be and I said that we were happy with the way things were going that the results were in line with those trajectories. And I'd say 6 months later, we feel the same way. We continue to see our internal components demonstrated at a rate that will keep us on track with what I'll call again traditional trajectory. So we don't see that there will be a fundamental shift in the way we have to do business as it relates to aerial density.
Thanks, guys.
And the next question comes from the line of Jason Nolan with Robert Baird. Please proceed.
Thank you. There's been some talk in the distributor channel of HDD prices coming up in the September quarter and that's obviously not in your guidance, is it even possible that we would see more stability in September? I guess it's somewhat surprising that 5,000,000 drives would cause that sort of a decline in June?
I think it's Bob. Yes, I know what I think you're referring to about channel pricing behaviors that are stabilizing and that's what I'd say at this point right now is it's just stability, which is good. There is the declines were so dramatic at the
is the declines were so
dramatic at the start of last quarter that I think the exit points that we have being stabilized and in some cases probably stable from here. That's exactly what was the biggest driver last quarter. And I think something to watch this quarter if you can.
And Jason, we're not saying that $5,000,000 caused this impact. As Dave said, it started early in the quarter and continued through. So, the pricing environment just didn't
end on
those $5,000,000 dollars drivers.
Yes. I think, Jason, you have to look at it from a little bit different perspective. Early when in the quarter, April, May timeframe,
when consumer is so soft
and people are just trying to ending trajectory is, right? That's big too. So it's really hard to see what the ending trajectory is, right. That's setting those knobs properly is I think some of the and versus the inventory that people had in the chains. That's the thing we're questioning, right.
Now we ended with as an industry with okay inventory levels, but obviously the price is set where it is now. Now as we see, as we enter the next quarter seeing people stabilizing those pricing and in some cases saying, this isn't good economics for me, I'm going to raise the prices. I mean, that makes sense to me. But I don't see that trend going on a lot of that. I guess
that's just Yes, but I'd also caution you not to industry was 5,000,000 units short consecutive for 3 or 4 quarters, you saw price stability that we haven't seen in a decade. So 5,000,000 units of overproduction, especially since most of it's going into very limited customer base. It's a lot of units to be all of a sudden trying to move and you have to remember that those prices are very transparent, notwithstanding this is just a special deal for you, and it impacts pricing across the board very quickly.
Okay. I appreciate the color there. And last question from me, Steve, you mentioned new products and we heard and are you seeing OEM qualifications?
Yes, it's I mean, we're really excited about the product. I think and we've indicated I think for about the last year that we believe that the hybrid drives whether or not ultimately that's what we should be calling them, but a drive where you basically utilize silicon technology in combination with HDD is probably by far and away a better solution for the vast majority of client computing. I think in enterprise, clearly there is a play for SSDs, which Seagate feels very good about its roadmap right now. But in the mid range of enterprise and clearly in the client, the hybrid drive has basically all the benefits of an SSD. In fact, you might argue some that you can't do with an SSD because you can actually cash between the rotating media and the silicon.
And of course, with the cost and capacity advantages of HDD. So, we do good about it. It's a very interesting question about OEMs. There are classes of OEM customers who you basically you can't even finish the presentation and they understand it and they run hard. There are others who I think are stuck more on some of the cost benefits, if you will.
But we feel really good about the product and I think as I've said on occasion looking out 5 years, I wouldn't be shocked if 80% of our portfolio is hybrid.
Thanks, guys.
We take one more question.
And the final question comes from the line of Katy Huberty with Morgan Stanley. Please proceed.
Thanks. Good afternoon, guys. What did linearity look like in Europe? Did you actually see some stabilization in June early July or is it still continuing to decelerate?
It stabilized to the lower numbers that we kind of amended through the quarter, Katie. Okay. And I would from my not holding the fence, it's still not great going into the following quarter now. We know a lot about vacations and consumers and affecting consumer behaviors in Europe through the month of July. But I'm still very, very cautious on what the true demand is.
There's indications and we're watching, Steve made comments about this in his script there that calendar Q4 may actually tick up in Europe. But I think we're going to have to get solidly into August probably before we know what the consumer spending patterns are in Europe and whether they've started to recover.
Yes. And to that point, we're coming off a low base just given consumer weakness
in calendar 2Q and 3Q
and then for the have Europe coming back seasonally. We talked about commercial enterprise being a recurring theme of strength. Is there a potential setup where 4th quarter unit seasonality could be even better than we've seen in past years? I know it's there's a lot of bad stuff going on and so you don't want to make a heroic call, but is there a potential setup for calendar 4th quarter strength here?
I mean, I think maybe, Katie and I think that the only one piece of adovit and so you could throw out there as so as opposed to wishful thinking is the strength of the Intel numbers. And obviously, Intel has a 13 week lead cycle or more. And they're certainly seeing a different scenario than we feel because we're at the closer end of the integration chain and it may just be that indicative of a possibility of strong demand and people obviously aren't going to walk away from Intel because if they close down a fab that's something that shuts off supply for 6 months like what happened a year ago. And so, yes, there's a possibility of that. And then again, it's just back to how does the industry manage itself in terms of inventory and the we we certainly wish that we could get better visibility earlier in the September quarter, but the nature of the September quarter is you don't get great visibility probably till mid to late August.
But I think that at least there's the shot of that, sure.
And then as it relates just last question on gross margin, same sort of play on the Q4. The industry is going to hopefully take care of the extra 5,000,000 units. If you end up seeing a mix shift back to enterprise and prices stabilize at these new lower levels, could we actually see gross margins tick up nicely sequentially in December?
Yes, I think so.
Okay, great. Thank you.
I'd like to thank everyone for joining us on the call today. Please give us your feedback on the format. I'd also like to thank our customers, our suppliers and our employees for their continued effort over the year and during the quarter and a great year to all the Seagate employees. And again, thanks to our customers and suppliers. We look forward to speaking with you next quarter.
Thank you.
Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.