Seagate Technology Holdings 10-Q 2023-12-29

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

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FORM 10-Q

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☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 29, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from: to

Commission File Number 001-31560

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SEAGATE TECHNOLOGY HOLDINGS PUBLIC LIMITED COMPANY

(Exact name of registrant as specified in its charter)

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Ireland						98-1597419
(State or other jurisdiction of						(I.R.S. Employer
incorporation or organization)						Identification Number)

121 Woodlands Avenue 5,

Singapore

(Address of principal executive offices)

739009

(Zip Code)

Telephone: (65) 6018-2562

(Registrant’s telephone number, including area code)

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Securities registered pursuant to Section 12(b) of the Act:

Title of each class						Trading Symbol(s)						Name of each exchange on which registered
Ordinary Shares, par value $0.00001 per share						STX						The NASDAQ Global Select Market

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer			☒			Accelerated filer			☐
Non-accelerated filer			☐			Smaller reporting company			☐
Emerging growth company			☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.									☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of January 22, 2024, 209,510,729 of the registrant’s ordinary shares, par value $0.00001 per share, were issued and outstanding.

INDEX

SEAGATE TECHNOLOGY HOLDINGS PLC

									PAGE NO.
PART I			FINANCIAL INFORMATION
Item 1.			Financial Statements						3
			Condensed Consolidated Balance Sheets - December 29, 2023 (Unaudited) and June 30, 2023						4
			Condensed Consolidated Statements of Operations - Three and Six Months Ended December 29, 2023 and December 30, 2022(Unaudited)						5
			Condensed Consolidated Statements of Comprehensive (Loss) Income - Three and Six Months Ended December 29, 2023 and December 30, 2022 (Unaudited)						6
			Condensed Consolidated Statements of Cash Flows - Six Months Ended December 29, 2023 and December 30, 2022 (Unaudited)						7
			Condensed Consolidated Statements of Shareholders’ Deficit - Three and Six Months Ended December 29, 2023 and December 30, 2022 (Unaudited)						8
			Notes to Condensed Consolidated Financial Statements (Unaudited)						9
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations						29
Item 3.			Quantitative and Qualitative Disclosures About Market Risk						37
Item 4.			Controls and Procedures						38
PART II			OTHER INFORMATION
Item 1.			Legal Proceedings						39
Item 1A.			Risk Factors						39
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds						58
Item 3.			Defaults Upon Senior Securities						58
Item 4.			Mine Safety Disclosures						58
Item 5.			Other Information						59
Item 6.			Exhibits						60
			SIGNATURES						61

PART I

FINANCIAL INFORMATION

Table of Contents												Page
Condensed Consolidated Balance Sheets												4
Condensed Consolidated Statements of Operations												5
Condensed Consolidated Statements of Comprehensive (Loss) Income												6
Condensed Consolidated Statements of Cash Flows												7
Condensed Consolidated Statements of Shareholders’ Deficit												8
Notes to Condensed Consolidated Financial Statements												9
			Note 1. Basis of Presentation and Summary of Significant Accounting Policies									9
			Note 2. Balance Sheet Information									11
			Note 3. Debt									14
			Note 4. Income Taxes									16
			Note 5. Restructuring and Other, net									16
			Note 6. Derivative Financial Instruments									17
			Note 7. Fair Value									20
			Note 8. Shareholders’ Deficit									23
			Note 9. Revenue									24
			Note 10. Guarantees									24
			Note 11. Loss Per Share									25
			Note 12. Legal, Environmental and Other Contingencies									26
			Note 13. Commitments									28
			Note 14. Subsequent Events									28

See Notes to Condensed Consolidated Financial Statements.

SEAGATE TECHNOLOGY HOLDINGS PLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

			December 29, 2023						June 30, 2023
			(unaudited)
ASSETS
Current assets:
Cash and cash equivalents			$	787					$	786
Accounts receivable, net			471						621
Inventories			1,053						1,140
Other current assets			317						358
Total current assets			2,628						2,905
Property, equipment and leasehold improvements, net			1,642						1,706
Goodwill			1,237						1,237
Deferred income taxes			1,074						1,117
Other assets, net			568						591
Total Assets			$	7,149					$	7,556
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Accounts payable			$	1,619					$	1,603
Accrued employee compensation			86						100
Accrued warranty			81						78
Current portion of long-term debt			—						63
Accrued expenses			743						748
Total current liabilities			2,529						2,592
Long-term accrued warranty			86						90
Other non-current liabilities			679						685
Long-term debt, less current portion			5,669						5,388
Total Liabilities			8,963						8,755
Commitments and contingencies (See Notes 10, 12 and 13)
Shareholders’ Deficit:
Ordinary shares and additional paid-in capital			7,377						7,373
Accumulated other comprehensive income			3						98
Accumulated deficit			(9,194)						(8,670)
Total Shareholders’ Deficit			(1,814)						(1,199)
Total Liabilities and Shareholders’ Deficit			$	7,149					$	7,556

See Notes to Condensed Consolidated Financial Statements.

SEAGATE TECHNOLOGY HOLDINGS PLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

(Unaudited)

			For the Three Months Ended												For the Six Months Ended
			December 29, 2023						December 30, 2022						December 29, 2023						December 30, 2022
Revenue			$	1,555					$	1,887					$	3,009					$	3,922
Cost of revenue			1,193						1,641						2,498						3,194
Product development			161						200						332						434
Marketing and administrative			108						125						213						254
Amortization of intangibles			—						—						—						3
Restructuring and other, net			(31)						81						(29)						90
Total operating expenses			1,431						2,047						3,014						3,975
Income (loss) from operations			124						(160)						(5)						(53)

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The following is a discussion of the financial condition, changes in financial condition and results of operations for our fiscal quarters ended December 29, 2023, September 29, 2023 and December 30, 2022, referred to herein as the “December 2023 quarter”, the “September 2023 quarter” and the “December 2022 quarter”, respectively. We operate and report financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to June 30. The December 2023 quarter, September 2023 quarter and December 2022 quarter were each 13 weeks.

You should read this discussion in conjunction with financial information and related notes included in this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended June 30, 2023. Unless the context indicates otherwise, as used herein, the terms “we,” “us,” “Seagate,” the “Company” and “our” refer collectively to Seagate Technology Holdings plc, an Irish public limited company, and its subsidiaries. References to “$” or “dollars” are to United States dollars.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical fact. These statements include, among other things, statements about our plans, programs, strategies and prospects; anticipated shifts in technology and storage industry trends, and anticipated demand for and performance of new storage product introductions; expectations regarding market demand for our products and technologies and our ability to optimize our level of production and meet market and industry expectations and the effects of these future trends on our performance; financial outlook for future periods; expectations regarding our ability to service debt, meet debt and credit agreement covenants and continue to generate free cash flow; expectations regarding our ability to make timely quarterly payments under the Settlement Agreement with BIS; the impact of macroeconomic headwinds and customer inventory adjustments on our business and operations; our cost saving plans, including our ability to execute such plans, the projected savings under such plans and the assumptions on which the plans and projected savings are based; expectations regarding our business strategy and performance; the sufficiency of our sources of cash to meet cash needs for the next 12 months; and our expectations regarding capital expenditures and dividend issuance plans. Forward-looking statements generally can be identified by words such as “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “should,” “may,” “will,” “will continue,” “can,” “could,” or negative of these words, variations of these words and comparable terminology, in each case, intended to refer to future events or circumstances. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. Forward-looking statements are based on information available to the Company as of the date of this Quarterly Report on Form 10-Q and are subject to known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from historical experience and our present expectations or projections. Therefore, undue reliance should not be placed on forward-looking statements. These risks and uncertainties include, but are not limited to, those set forth in “Part II, Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q. We undertake no obligation to update forward-looking statements, except as required by law.

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided in addition to the accompanying Condensed Consolidated Financial Statements and notes to assist readers in understanding our results of operations, financial condition and cash flows. Our MD&A is organized as follows:

*•*Overview of the December 2023 quarter. Highlights of events in the December 2023 quarter that impacted our financial position.

*•*Results of Operations. Analysis of our financial results comparing the December 2023 quarter to the September 2023 quarter and the December 2022 quarter.

• Liquidity and Capital Resources. Analysis of changes in our balance sheet and cash flows, and discussion of our financial condition including potential sources of liquidity, material cash requirements and their general purpose.

• Critical Accounting Policies. Accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results.

For an overview of our business, see “Part I, Item 1. Financial Statements—Note 1. Basis of Presentation and Summary of Significant Accounting Policies—Organization.”

Overview of the December 2023 quarter

During the December 2023 quarter, we shipped 95 exabytes of HDD storage capacity. We generated revenue of approximately $1.6 billion with a gross margin of 23%. Our operating cash flow was $169 million and we paid $146 million in dividends. Additionally, we recorded a net loss of $43 million from equity investments and recognized a gain of $30 million from the sale and leaseback of certain property.

Recent Developments, Economic Conditions and Challenges

During the December 2023 quarter, we experienced gradual recovery within the U.S. cloud market, reflecting progress in customer inventory adjustments along with more stable end-market demand, although the data storage industry and our business continued to be impacted by macroeconomic headwinds. As a result of these market dynamics, we continued to execute cost discipline, manage our factory production levels in light of the lower demand and implement pricing actions to improve operational efficiencies and profitability. We expect the dynamic macroeconomic environment will continue to moderate our business and results of operations in what we believe is the early stage of industry-wide demand recovery.

For a further discussion of the uncertainties and business risks, see “Part II, Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q.

Results of Operations

We list in the tables below summarized information from our Condensed Consolidated Statements of Operations by dollars and as a percentage of revenue:

						For the Three Months Ended																		For the Six Months Ended
(Dollars in millions)						December 29, 2023						September 29, 2023						December 30, 2022						December 29, 2023						December 30, 2022
Revenue						$	1,555					$	1,454					$	1,887					$	3,009					$	3,922
Cost of revenue						1,193						1,305						1,641						2,498						3,194
Gross profit						362						149						246						511						728
Product development						161						171						200						332						434
Marketing and administrative						108						105						125						213						254
Amortization of intangibles						—						—						—						—						3
Restructuring and other, net						(31)						2						81						(29)						90
Income (loss) from operations						124						(129)						(160)						(5)						(53)
Other (expense) income, net						(128)						(18)						122						(146)						42
Loss before income taxes						(4)						(147)						(38)						(151)						(11)
Provision for (Benefit from) income taxes						15						37						(5)						52						(7)
Net loss						$	(19)					$	(184)					$	(33)					$	(203)					$	(4)

						For the Three Months Ended																		For the Six Months Ended
						December 29, 2023						September 29, 2023						December 30, 2022						December 29, 2023						December 30, 2022
Revenue						100		%				100		%				100		%				100		%				100		%
Cost of revenue						77						90						87						83						81
Gross margin						23						10						13						17						19
Product development						10						12						11						11						11
Marketing and administrative						7						7						7						7						7
Amortization of intangibles						—						—						—						—						—
Restructuring and other, net						(2)						—						4						(1)						2
Operating margin						8						(9)						(9)						—						(1)
Other (expense) income, net						(8)						(1)						6						(5)						1
Loss before income taxes						—						(10)						(3)						(5)						—
Provision for income taxes						1						3						—						2						—
Net loss						(1		%)				(13		%)				(3		%)				(7		%)				—		%

Revenue

The following table summarizes information regarding consolidated revenues by channel, geography and market, and HDD exabytes shipped by market and price per terabyte:

						For the Three Months Ended																		For the Six Months Ended
						December 29, 2023						September 29, 2023						December 30, 2022						December 29, 2023						December 30, 2022
Revenues by Channel (%)
OEMs						73		%				71		%				72		%				72		%				74		%
Distributors						14		%				18		%				16		%				16		%				15		%
Retailers						13		%				11		%				12		%				12		%				11		%
Revenues by Geography (%) (1)
Asia Pacific						50		%				56		%				40		%				53		%				40		%
Americas						35		%				31		%				45		%				33		%				46		%
EMEA						15		%				13		%				15		%				14		%				14		%
Revenues by Market (%)
Mass capacity						68		%				70		%				66		%				69		%				67		%
Legacy						21		%				19		%				22		%				20		%				21		%
Other						11		%				11		%				12		%				11		%				12		%
HDD Exabytes Shipped by Market
Mass capacity						83						79						97						162						201
Legacy						12						11						16						23						30
Total						95						90						113						185						231
HDD Price per Terabyte						$	14					$	14					$	15					$	14					$	15

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(1) Revenue is attributed to geography based on bill from locations.

Revenue in the December 2023 quarter increased by $101 million compared to the September 2023 quarter, primarily due to an increase in mass capacity and legacy storage exabytes shipped, as we experienced gradual recovery within the U.S. cloud market and positive seasonality within the consumer market.

Revenue for the three and six months ended December 29, 2023 decreased by $332 million and $913 million from the three and six months ended December 30, 2022, respectively, primarily due to a decrease in exabytes shipped, reflecting broad-based demand slowdown resulting from weaker macroeconomic conditions.

We maintain various sales incentive programs such as channel and OEM rebates. Sales incentive programs were approximately 18% of gross revenue for the December 2023 quarter, 20% for the September 2023 quarter and 17% for the December 2022 quarter. Adjustments to revenues due to under or over accruals for sales incentive programs related to revenues reported in prior quarterly periods were less than 3% of quarterly gross revenue in all periods presented.

Cost of Revenue and Gross Margin

						For the Three Months Ended																		For the Six Months Ended
(Dollars in millions)						December 29, 2023						September 29, 2023						December 30, 2022						December 29, 2023						December 30, 2022
Cost of revenue						$	1,193					$	1,305					$	1,641					$	2,498					$	3,194
Gross profit						362						149						246						511						728
Gross margin						23		%				10		%				13		%				17		%				19		%

Gross margin for the December 2023 quarter increased compared to the September 2023 quarter, primarily driven by $118 million of order cancellation fees for the September 2023 quarter that did not recur, a $23 million reduction in factory underutilization charges, a $20 million decrease in depreciation expense due to the extension of useful lives of certain manufacturing equipment, $13 million of accelerated depreciation expense for certain capital equipment that did not recur, and favorable pricing actions undertaken by the Company.

Gross margin for the December 2023 quarter increased compared to the December 2022 quarter, primarily driven by $108 million of order cancellation fees for the December 2022 quarter that did not recur, a $43 million reduction in factory underutilization charges which included the decrease in depreciation expense due to the extension of useful lives of certain manufacturing equipment, and $39 million of accelerated depreciation expense for certain capital equipment that did not recur.

Gross margin for the six months ended December 29, 2023 decreased compared to the six months ended December 30, 2022 primarily driven by an increase of $6 million in order cancellation fees and less favorable product mix, partially offset by a $40 million reduction in factory underutilization charges which included the decrease in depreciation expense due to the extension of useful lives of certain manufacturing equipment, a decrease of $26 million in accelerated depreciation expense for certain capital equipment, and pandemic-related lockdown in one of our factories in fiscal year 2023 that did not recur.

In the December 2023 quarter, total warranty cost was 0.8% of revenue and included an unfavorable change in estimates of prior warranty accruals of 0.1% of revenue primarily due to changes to our estimated future product return rates. Warranty cost related to new shipments was 0.9%, 0.9% and 0.7% of revenue for the December 2023 quarter, September 2023 quarter and December 2022 quarter, respectively.

Operating Expenses

						For the Three Months Ended																		For the Six Months Ended
(Dollars in millions)						December 29, 2023						September 29, 2023						December 30, 2022						December 29, 2023						December 30, 2022
Product development						161						$	171					$	200					$	332					$	434
Marketing and administrative						108						105						125						213						254
Amortization of intangibles						—						—						—						—						3
Restructuring and other, net						(31)						2						81						(29)						90
Operating expenses						$	238					$	278					$	406					$	516					$	781

Product development expense. Product development expenses decreased by $10 million in the December 2023 quarter compared to the September 2023 quarter, primarily due to a $7 million decrease in compensation and other employee benefits from the reduction in headcount as a result of our restructuring plans.

Product development expenses decreased by $39 million in the December 2023 quarter compared to the December 2022 quarter, primarily due to a $36 million decrease in compensation and other employee benefits from the reduction in headcount as a result of our restructuring plans and temporary salary reduction and an $8 million decrease in depreciation expense, partially offset by $7 million increase in lease expense as we sold and leased back certain properties.

Product development expenses decreased by $102 million for the six months ended December 29, 2023 compared to the six months ended December 30, 2022, primarily due to a $75 million decrease in compensation and other employee benefits from the reduction in headcount as a result of our restructuring plans and temporary salary reduction and a $37 million decrease in depreciation expense, partially offset by a $13 million increase in lease expense as we sold and leased back certain properties.

Marketing and administrative expense. Marketing and administrative expenses increased by $3 million in the December 2023 quarter compared to the September 2023 quarter primarily due to a $2 million increase in advertising costs and a $1 million increase in compensation and other employee benefits due to the completion of the temporary salary reduction during the December 2023 quarter.

Marketing and administrative expenses decreased by $17 million in the December 2023 quarter compared to the December 2022 quarter primarily due to a $23 million decrease in compensation and other employee benefits from the reduction in headcount as a result of our restructuring plans and temporary salary reduction and a $3 million decrease in advertising costs, partially offset by a $7 million recovery in the December 2022 quarter of an accounts receivable previously written off in prior years.

Marketing and administrative expenses decreased by $41 million for the six months ended December 29, 2023 compared to the six months ended December 30, 2022 primarily due to a $26 million decrease in compensation and other employee benefits from the reduction in headcount as a result of our restructuring plans and temporary salary reduction, a $9 million decrease in advertising costs, an $8 million decrease in outside services expense, a $5 million decrease in legal costs and a $4 million decrease in travel expenses, partially offset by a $7 million recovery in the December 2022 quarter of an accounts receivable previously written off in prior years.

Restructuring and other, net. Restructuring and other, net for the three and six months ended December 29, 2023 was a $31 million benefit and $29 million benefit, respectively, primarily due to the net gain of $30 million from the sale and leaseback transaction during the December 2023 quarter.

Other (Expense) Income, Net

						For the Three Months Ended																		For the Six Months Ended
(Dollars in millions)						December 29, 2023						September 29, 2023						December 30, 2022						December 29, 2023						December 30, 2022
Other (Expense) Income, net						$	(128)					$	(18)					$	122					$	(146)					$	42

Other (expense) income, net. Other expense increased by $110 million for the December 2023 quarter compared to the September 2023 quarter primarily due to $104 million of net gain recognized from the termination of interest rate swaps associated with the repayment of term loans in the September 2023 quarter, partially offset by $29 million of net loss recognized from early redemption of debt in the September 2023 quarter and $43 million of net loss from equity investments in the December 2023 quarter.

Other expense increased by $250 million for the December 2023 quarter compared to the December 2022 quarter primarily due to $204 million of net gain recognized from the early redemption of debt in the December 2022 quarter and $43 million of net loss from equity investments in the December 2023 quarter.

Other expense increased by $188 million for the six months ended December 2023 compared to the six months ended December 2022 primarily due to $204 million of net gain recognized from the early redemption of debt in the six months ended December 2022, a $43 million net loss from equity investments and a $29 million net loss recognized from early redemption of debt in the six months ended December 2023 and a $20 million increase in interest expense. The increase is partially offset by $104 million of net gain recognized from the termination of interest rate swaps associated with the repayment of term loans in the six months ended December 2023.

Income Taxes

						For the Three Months Ended																		For the Six Months Ended
(Dollars in millions)						December 29, 2023						September 29, 2023						December 30, 2022						December 29, 2023						December 30, 2022
Provision for (benefit from) income taxes						$	15					$	37					$	(5)					$	52					$	(7)

We recorded income tax provisions of $15 million and $52 million for the three and six months ended December 29, 2023, respectively. The discrete items in the income tax provision were not material for the three months ended December 29, 2023. The income tax provision for the six months ended December 29, 2023 included approximately $36 million of net discrete expense, primarily associated with an increase in our valuation allowance to account for the impacts of new tax guidance which clarifies the treatment of specified research and experimental expenditures issued by the U.S. Treasury Department under Internal Revenue Code Section 174 during the September 2023 quarter, partially offset by net excess tax benefits related to share-based compensation expense. Additional guidance issued by the U.S. Treasury Department in December 2023 did not result in any impacts. We will have income taxes payable based on profits generated in various jurisdictions.

During the six months ended December 29, 2023, our unrecognized tax benefits, excluding interest and penalties decreased by approximately $8 million to $108 million, substantially all of which would impact the effective tax rate, if recognized, subject to certain future valuation allowance reversals. We do not expect material changes to our unrecognized tax benefits in the next twelve months beginning December 30, 2023.

We recorded income tax benefits of $5 million and $7 million for the three and six months ended December 30, 2022, respectively. The discrete items in the income tax benefit were not material for the three months ended December 30, 2022. The income tax benefit for the six months ended December 30, 2022 included approximately $5 million of net discrete tax benefit, primarily associated with excess tax benefits related to share-based compensation expense.

Our income tax provision recorded for the three and six months ended December 29, 2023 and December 30, 2022 differed from the provision for income taxes that would be derived by applying the Irish statutory rate of 25% to income before income taxes, primarily due to the net effect of tax benefits related to (i) non-Irish earnings generated in jurisdictions that are subject to tax incentive programs and are considered indefinitely reinvested outside of Ireland, (ii) increases in valuation allowance, and/or (iii) the generation of research credits during the current fiscal year.

Liquidity and Capital Resources

The following sections discuss our principal liquidity requirements, as well as our sources and uses of cash and our liquidity and capital resources. Our cash and cash equivalents are maintained in investments with remaining maturities of 90 days or less at the time of purchase. The principal objectives of our investment policy are the preservation of principal and maintenance of liquidity. We believe our cash equivalents are liquid and accessible. We operate in some countries that have restrictive regulations over the movement of cash and/or foreign exchange across their borders. However, we believe our sources of cash will continue to be sufficient to fund our operations and meet our cash requirements for the next 12 months. Although there can be no assurance, we believe that our financial resources, along with controlling our costs and capital expenditures, will allow us to manage the ongoing impacts of macroeconomic headwinds including higher inflationary pressures, inventory adjustments by our customers and the overall market demand disruptions on our business operations for the foreseeable future. However, some challenges to our industry and to our business continue to remain uncertain and cannot be predicted at this time. Consequently, we will continue to evaluate our financial position in light of future developments, particularly those relating to the global economic factors.

We are not aware of any downgrades, losses or other significant deterioration in the fair value of our cash equivalents from the values reported as of December 29, 2023. For additional information on risks and factors that could impact our ability to fund our operations and meet our cash requirements, see “Part II, Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q.

Cash and Cash Equivalents

(Dollars in millions)						December 29, 2023						June 30, 2023						Change
Cash and cash equivalents						$	787					$	786					$	1

Our cash and cash equivalents as of December 29, 2023 increased by $1 million from June 30, 2023 primarily as a result of net cash of $296 million provided by operating activities and net proceeds of $1.5 billion from the issuance of exchangeable senior notes, partially offset by $1.3 billion redemption of term loans, dividends paid to our shareholders of $291 million, $128 million debt fees relating to issuance of long-term exchangeable debt and capped call transaction and payments for capital expenditures of $140 million.

Cash Provided by Operating Activities

Cash provided by operating activities for the six months ended December 29, 2023 was $296 million and includes the effects of net loss adjusted for non-cash items including depreciation, amortization, share-based compensation and:

*•*a decrease of $150 million in accounts receivable, primarily due to lower revenue and higher accounts receivable factoring;

• a decrease of $87 million in inventories, primarily due to a decrease in units built to align with the prevailing demand environment;

• an increase of $54 million in accounts payable, primarily due to timing of payments; and

• an increase of $25 million cash proceeds received from the settlement of certain interest rate swap agreements; partially offset by

• a decrease of $28 million in accrued expenses primarily due to restructuring activities and BIS settlement penalty payment; and

*•*a decrease of $14 million in accrued employee compensation, primarily due to timing of payments.

Cash Used in Investing Activities

Net cash used in investing activities for the six months ended December 29, 2023 was $105 million, primarily attributable to payments of $140 million for the purchase of property, equipment and leasehold improvements, offset by proceeds of $35 million from the sale of assets, which included $34 million from the sale and leaseback transaction during the December 2023 quarter.

Cash Used in Financing Activities

Net cash used in financing activities of $191 million for the six months ended December 29, 2023 was primarily attributable to the following activities:

• $1.3 billion redemption of term loans;

• $291 million in dividend payments;

• $128 million debt fees relating to issuance of long-term debt and capped call transaction; and

• $28 million taxes paid related to net share settlement of equity awards; partially offset by

• $1.5 billion in net proceeds from the issuance of 2028 Notes and

• $44 million proceeds from issuance of ordinary shares under employee stock purchase plans.

Liquidity Sources

Our primary sources of liquidity as of December 29, 2023 consist of: (1) approximately $787 million in cash and cash equivalents, (2) cash we expect to generate from operations and (3) $1.5 billion available for borrowing under the revolving credit facility of the Credit Agreement (the “Revolving Credit Facility”).

As of December 29, 2023, no borrowings (including swing line loans) were outstanding and no commitments were utilized for letters of credit issued under the Revolving Credit Facility. The Revolving Credit Facility is available for borrowings, subject to compliance with financial covenants and other customary conditions to borrowing.

As of December 29, 2023, the existing Credit Agreement includes two financial covenants: (1) interest coverage ratio and (2) total net leverage ratio. The interest coverage ratio and total net leverage ratio covenants did not apply for the fiscal quarter ended December 29, 2023 and will not apply for the fiscal quarter ending March 29, 2024. Refer to “Part I, Item 1. Financial Statements—Note 3. Debt” for details of the financial covenants which will apply for the fiscal quarter ending June 28, 2024 and thereafter.

We believe that our sources of cash will be sufficient to fund our operations and meet our cash requirements for at least the next 12 months. Our ability to fund liquidity requirements beyond 12 months will depend on our future cash flows, which are determined by future operating performance, and therefore, subject to prevailing global macroeconomic conditions and financial, business and other factors, some of which are beyond our control. For additional information on risks and factors that could impact our ability to fund our operations and meet our cash requirements, see “Part II, Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q.

Cash Requirements and Commitments

Our liquidity requirements are primarily to meet our working capital, product development and capital expenditure needs, to fund scheduled payments of principal and interest on our indebtedness and to fund our quarterly dividend and any future strategic investments. As of December 29, 2023, our contractual cash requirements have not changed materially since our Annual Report on Form 10-K for the fiscal year ended June 30, 2023, except for the purchase obligations and long-term debt obligations.

Purchase obligations

Purchase obligations are defined as contractual obligations for the purchase of goods or services, which are enforceable and legally binding on us, and that specify all significant terms. From time to time, we enter into long-term, non-cancelable purchase commitments or make large up-front investments with certain suppliers in order to secure certain components or technologies for the production of our products or to supplement our internal manufacturing capacity for certain components. As of December 29, 2023, we had unconditional purchase obligations of approximately $3.7 billion primarily related to purchases of inventory components with our suppliers. We expect $1.1 billion of these short-term commitments to be paid within one year and expect $2.6 billion of these long-term commitments to be paid thereafter.

The Company recorded order cancellation fees to terminate certain purchase commitments related to the purchase of inventory components and equipment. During the six months ended December 29, 2023, we recorded order cancellation fees of $114 million, which were reflected under Cost of revenue on our Condensed Consolidated Statements of Operations. As of December 29, 2023, cumulative unpaid order cancellation fees on the Condensed Consolidated Balance Sheets were $144 million, with $127 million in Accrued expenses and $17 million in Accounts payable, all of which is expected to be paid within one year.

Long-term debt and interest payments on debt

On September 13, 2023, we issued the 2028 Notes of $1.5 billion and repaid Term Loans A1, A2 and A3 of $1.3 billion. The exchange was accounted for as a debt extinguishment and resulted in a net loss of $29 million for the six months ended December 29, 2023.

As of December 29, 2023, the future principal payment obligation on our long-term debt was $5.7 billion, which will mature in more than one year. As of December 29, 2023, future interest payments on this outstanding debt are estimated to be approximately $2.2 billion, of which $325 million is expected to be paid within one year. From time to time, we may repurchase any of our outstanding senior notes in open market or privately negotiated purchases or otherwise, or we may repurchase outstanding senior notes pursuant to the terms of the applicable indenture. Refer to “Item 1. Financial Statements—Note 3. Debt” for more details.

BIS settlement penalty

We accrued a settlement penalty of $300 million in the quarter ended March 31, 2023, related to BIS’ allegations of violations of the U.S. EAR, which were subsequently resolved by the Settlement Agreement in April 2023. As part of the Settlement Agreement with BIS, quarterly payments of $15 million are made over the course of five years beginning October 31, 2023, of which $60 million is expected to be paid within one year and $225 million thereafter. Refer to “Item 1. Financial Statements—Note 12. Legal, Environmental and Other Contingencies” for more details.

Restructuring

During the six months ended December 29, 2023, we made cash payments of $110 million related to the workforce reduction costs under the restructuring plans.

As of December 29, 2023, the future cash payments related to our remaining active restructuring plans were $10 million, of which $9 million is expected to be paid within one year.

Dividends

During the December 2023 quarter, we declared dividends of $0.70 per share, totaling $147 million, which was paid on January 9, 2024. On January 24, 2024, we declared a quarterly cash dividend of $0.70 per share, payable on April 4, 2024 to shareholders of record at the close of business on March 21, 2024. Our ability to pay dividends in the future will be subject to, among other things, general business conditions within the data storage industry, our financial results, the impact of paying dividends on our credit ratings and legal and contractual restrictions on the payment of dividends by our subsidiaries to us or by us to our ordinary shareholders, including restrictions imposed by covenants on our debt instruments.

Share repurchases

From time to time, at our discretion, we may repurchase any of our outstanding ordinary shares through private, open market, or broker-assisted purchases, tender offers, or other means, including through the use of derivative transactions. As of December 29, 2023, $1.9 billion remained available for repurchase under our existing repurchase authorization limit. We may limit or terminate the repurchase program at any time. All repurchases are effected as redemptions in accordance with our Constitution.

Other

For fiscal year 2024, we expect capital expenditures to be lower than fiscal year 2023. We require substantial amounts of cash to fund any increased working capital requirements, future capital expenditures, scheduled payments of principal and interest on our indebtedness and payments of dividends. We will continue to evaluate and manage the retirement and replacement of existing debt and associated obligations, including evaluating the issuance of new debt securities, exchanging existing debt securities for other debt securities and retiring debt pursuant to privately negotiated transactions, open market purchases, tender offers or other means or otherwise. In addition, we may selectively pursue strategic alliances, acquisitions, joint ventures and investments, which may require additional capital.

Critical Accounting Policies

Our discussion and analysis of financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of such statements requires us to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period and the reported amounts of assets and liabilities as of the date of the financial statements. Our estimates are based on historical experience and other assumptions that we consider to be appropriate in the circumstances. However, actual future results may vary from our estimates.

Other than as described in “Part I, Item 1. Financial Statements—Note 1. Basis of Presentation and Summary of Significant Accounting Policies”, there have been no other material changes in our critical accounting policies and estimates. Refer to “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023, as filed with the SEC on August 4, 2023, for a discussion of our critical accounting policies and estimates.

Recent Accounting Pronouncements

See “Part I, Item 1. Financial Statements—Note 1. Basis of Presentation and Summary of Significant Accounting Policies” for information regarding the effect of new accounting pronouncements on our financial statements.

We have exposure to market risks due to the volatility of interest rates, foreign currency exchange rates, credit rating changes and equity and bond markets. A portion of these risks may be hedged, but fluctuations could impact our results of operations, financial position and cash flows.

Interest Rate Risk. Our exposure to market risk for changes in interest rates relates primarily to our cash investment portfolio. As of December 29, 2023, we had no available-for-sale debt securities that had been in a continuous unrealized loss position for a period greater than 12 months. We determined no impairment related to credit losses for available-for-sale debt securities as of December 29, 2023.

We have fixed rate debt obligations, which we enter into for general corporate purposes including capital expenditures and working capital needs.

We previously entered into certain interest rate swap agreements to convert the variable interest rate on our Term Loans to fixed interest rates. The objective of the interest rate swap agreements was to eliminate the variability of interest payment cash flows associated with the variable interest rate under the Term Loans. We designated the interest rate swaps as cash flow hedges. On September 13, 2023, we terminated our interest rate swap agreements as we repaid the Term Loans.

The table below presents principal amounts and related fixed or weighted-average interest rates by year of maturity for our investment portfolio and debt obligations as of December 29, 2023:

						Fiscal Years Ended																																				Total						Fair Value at December 29, 2023
(Dollars in millions, except percentages)						2024						2025						2026						2027						2028						Thereafter
Assets
Money market funds, time deposits and certificates of deposit
Floating rate						$	91					$	—					$	—					$	—					$	—					$	—					$	91					$	91
Average interest rate						5.37		%																																		5.37		%
Other debt securities
Fixed rate						$	—					$	—					$	15					$	—					$	—					$	—					$	15					$	15
Debt
Fixed rate						$	—					$	479					$	—					$	505					$	1,500					$	3,245					$	5,729					$	6,094
Average interest rate						—		%				4.75		%				—		%				4.88		%				3.50		%				6.88		%				5.64		%

Foreign Currency Exchange Risk. From time to time, we may enter into foreign currency forward exchange contracts to manage exposure related to certain foreign currency commitments and anticipated foreign currency denominated expenditures. Our policy prohibits us from entering into derivative financial instruments for speculative or trading purposes.

We hedge portions of our foreign currency denominated balance sheet positions with foreign currency forward exchange contracts to reduce the risk that our earnings will be adversely affected by changes in currency exchange rates. The change in fair value of these contracts is recognized in earnings in the same period as the gains and losses from the remeasurement of the assets and liabilities. All foreign currency forward exchange contracts mature within 12 months.

We recognized a net loss of $5 million in Cost of revenue related to the de-designation on discontinued cash flow hedges during the three months ended December 29, 2023. We recognized a net loss of $6 million, a net gain of $11 million and a net gain of $104 million in Cost of revenue, Interest expense and Net gain recognized from termination of interest rate swap, respectively, related to the de-designation on discontinued cash flow hedges during the six months ended December 29, 2023.

The table below provides information as of December 29, 2023 about our foreign currency forward exchange contracts. The table is provided in dollar equivalent amounts and presents the notional amounts (at the contract exchange rates) and the weighted-average contractual foreign currency exchange rates:

(Dollars in millions, except weighted-average contract rate)						Notional Amount						Weighted-Average Contract Rate						Estimated Fair Value**(1)**
Foreign currency forward exchange contracts:
Singapore Dollar						$	228					$	1.32					$	2
Thai Baht						111						$	34.28					2
Chinese Renminbi						59						$	6.93					(1)
British Pound Sterling						45						$	0.80					2
Total						$	443											$	5

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(1) Equivalent to the unrealized net gain (loss) on existing contracts.

Other Market Risks. We have exposure to counterparty credit downgrades in the form of credit risk related to our foreign currency forward exchange contracts and our fixed income portfolio. We monitor and limit our credit exposure for our foreign currency forward exchange contracts by performing ongoing credit evaluations. We also manage the notional amount of contracts entered into with any one counterparty and we maintain limits on maximum tenor of contracts based on the credit rating of the financial institution. Additionally, the investment portfolio is diversified and structured to minimize credit risk.

Changes in our corporate issuer credit ratings have minimal impact on our near-term financial results, but downgrades may negatively impact our future ability to raise capital, our ability to execute transactions with various counterparties, and may increase the cost of such capital.

We are subject to equity market risks due to changes in the fair value of the notional investments selected by our employees as part of our non-qualified deferred compensation plan—the SDCP.

In fiscal year 2014, we entered into a TRS agreement in order to manage the equity market risks associated with the SDCP liabilities. We pay a floating rate, based on SOFR plus an interest rate spread, on the notional amount of the TRS. The TRS is designed to substantially offset changes in the SDCP liabilities due to changes in the value of the investment options made by employees. See “Part I, Item 1. Financial Statements—Note 6. Derivative Financial Instruments” of this Quarterly Report on Form 10-Q.

Evaluation of Disclosure Controls and Procedures

As required by the Exchange Act Rule 13a-15, we carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based on the evaluation, our management, including our chief executive officer and chief financial officer, concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective as of December 29, 2023.

Changes in Internal Control over Financial Reporting

During the quarter ended December 29, 2023, there were no changes in our internal control over financial reporting that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

**ITEM 1.**LEGAL PROCEEDINGS

For a discussion of legal proceedings, see “Part I, Item 1. Financial Statements—Note 12. Legal, Environmental and Other Contingencies” of this Quarterly Report on Form 10-Q.

Summary of Risk Factors

The following is a summary of the principal risks and uncertainties that could materially adversely affect our business, results of operations, financial condition, cash flows, brand and/or the price of our outstanding ordinary shares, and make an investment in our ordinary shares speculative or risky. You should read this summary together with the more detailed description of each risk factor contained below. Additional risks beyond those summarized below or discussed elsewhere in this Quarterly Report on Form 10-Q may apply to our business and operations as currently conducted or as we may conduct them in the future or to the markets in which we currently, or may in the future, operate.

Risks Related to our Business, Operations and Industry

• Our ability to increase our revenue and maintain our market share depends on our ability to successfully introduce and achieve market acceptance of new products on a timely basis. If our products do not keep pace with customer requirements, our results of operations will be adversely affected.

• We operate in highly competitive markets and our failure to anticipate and respond to technological changes and other market developments, including price competition, could harm our ability to compete.

• We have been adversely affected by reduced, delayed, loss of or canceled purchases by one or more of our key customers, including large hyperscale data center companies and CSPs.

• We are dependent on sales to distributors and retailers, which may increase price erosion and the volatility of our sales.

• We must plan our investments in our products and incur costs before we have customer orders or know about the market conditions at the time the products are produced. If we fail to predict demand accurately for our products or if the markets for our products change, we may have insufficient demand or we may be unable to meet demand, which may materially adversely affect our financial condition and results of operations.

• Changes in demand for computer systems, data storage subsystems and consumer electronic devices may in the future cause a decline in demand for our products.

• We have a long and unpredictable sales cycle for nearline storage solutions, which impairs our ability to accurately predict our financial and operating results in any period and may adversely affect our ability to manage inventory and forecast the need for investments and expenditures.

• We experience seasonal declines in the sales of our consumer products during the second half of our fiscal year which may adversely affect our results of operations.

• We may not be successful in our efforts to grow our systems, SSD and Lyve revenues.

• Our worldwide sales and manufacturing operations subject us to risks that may adversely affect our business related to disruptions in international markets, currency exchange fluctuations and increased costs.

• If we do not control our costs, we will not be able to compete effectively and our financial condition may be adversely impacted.

• We may not be able to execute acquisitions, divestitures and other significant transactions successfully and we may have difficulty or fail to successfully integrate acquired companies.

Risks Associated with Supply and Manufacturing

• Shortages or delays in the receipt of, or cost increases in, critical components, equipment or raw materials necessary to manufacture our products, as well as reliance on single-source suppliers, may affect our production and development of products and may harm our operating results.

• We have cancelled purchase commitments with suppliers and incurred costs associated with such cancellations, and if revenues fall or customer demand decreases significantly, we may seek to cancel or may otherwise not meet our purchase commitments to certain suppliers in the future, which could result in penalties, disputes, litigation, increased manufacturing costs or excess inventory.

• Due to the complexity of our products, some defects may only become detectable after deployment, which may lead to increased costs and adversely affect our operating results.

Risks Related to Human Capital and Corporate Responsibility

• The loss of or inability to attract, retain and motivate key executive officers and employees could negatively impact our business prospects.

• We are subject to risks related to corporate and social responsibility that could adversely affect our reputation and performance.

Risks Related to Financial Performance or General Economic Conditions

• Changes in the macroeconomic environment have impacted and may continue to negatively impact our results of operations.

• We may not be able to generate sufficient cash flows from operations and our investments to meet our liquidity requirements, including servicing our indebtedness and continuing to declare our quarterly dividend.

• Our quarterly results of operations fluctuate, sometimes significantly, from period to period, and may cause our share price to decline.

• Any cost reduction initiatives that we undertake may not deliver the results we expected and these actions may adversely affect our business.

• The effect of geopolitical uncertainties, war, terrorism, natural disasters, public health issues and other circumstances, on national and/or international commerce and on the global economy, could materially adversely affect our results of operations and financial condition.

• We are subject to counterparty default risks.

Legal, Regulatory and Compliance Risks

• Our business is subject to various laws, regulations, governmental policies, litigation, governmental investigations or governmental proceedings that may cause us to incur significant expense or adversely impact our results of operations and financial condition.

• Some of our products and services are subject to export control laws and other laws affecting the countries in which our products and services may be sold, distributed, or delivered, and any changes to or violation of these laws could have a material adverse effect on our business, results of operations, financial condition and cash flows.

• Changes in U.S. trade policy, including the imposition of sanctions or tariffs and the resulting consequences, may have a material adverse impact on our business and results of operations.

Risks Related to Intellectual Property and Other Proprietary Rights

• We may be unable to protect our intellectual property rights, which could adversely affect our business, financial condition and results of operations.

• We are at times subject to intellectual property proceedings and claims which could cause us to incur significant additional costs or prevent us from selling our products, and which could adversely affect our results of operations and financial condition.

• Our business and certain products and services depend in part on intellectual property and technology licensed from third parties, as well as data centers and infrastructure operated by third parties.

Risks Related to Information Technology, Data and Information Security

• We could suffer a loss of revenue and increased costs, exposure to significant liability including legal and regulatory consequences, reputational harm and other serious negative consequences in the event of cyber-attacks, ransomware or other cyber security breaches or incidents that disrupt our operations or result in unauthorized access to, or the loss, corruption, unavailability or dissemination of proprietary or confidential information of our customers or about us or other third parties.

• We must successfully implement our new global enterprise resource planning system and maintain and upgrade our information technology (“IT”) systems, and our failure to do so could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Owning our Ordinary Shares

• The

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Trading Plans or Rule 10b5-1 Trading Plans

The table below summarizes the material terms of trading arrangements adopted by our executive officers or directors during the December 2023 quarter. The trading arrangement listed below is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c):

Name						Title						Date of Adoption						End Date¹						Aggregate number of ordinary shares to be sold pursuant to the trading agreement
Kian Fatt Chong						Senior Vice President						12/4/2023						12/4/2024						11,353

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(1) The plan will expire on the earlier of the end date or the completion of all transactions under the trading arrangement.

												Incorporated by Reference
Exhibit No.						Description of Exhibit						Form						File No.						Exhibit						Filing Date						Filed Herewith
3.1						Certificate of Incorporation of Seagate Technology Holdings plc						10-K						001-31560						3.1						8/6/2021
3.2						Constitution of Seagate Technology Holdings public limited company as of May 18, 2021 (as amended by special resolution dated May 14, 2021)						S-8						001-31560						4.1						10/20/2021
31.1						Certification of the Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14 (a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002																														X
31.2						Certification of the Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14 (a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002																														X
32.1†						Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002																														X
101.INS						Inline XBRL Instance Document.
101.SCH						Inline XBRL Taxonomy Extension Schema.
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase.
104						Inline XBRL Cover page and contained in Exhibit 101.

+ Management contract or compensatory plan or arrangement.

† The certifications attached as Exhibit 32.1 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Seagate Technology Holdings plc under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

						SEAGATE TECHNOLOGY HOLDINGS PUBLIC LIMITED COMPANY
DATE:			January 26, 2024			BY:			/s/ Gianluca Romano
									Gianluca Romano
									Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)