Seagate's profit jump came from higher prices, not from shipping more drives

Seagate makes the high-capacity hard drives that cloud companies fill with data, and it measures what it sells in exabytes, each a billion gigabytes. In the September 2026 quarter its revenue rose 16.6% on the quarter before, to $4,233 million. The drives behind that revenue barely grew. Data-center shipments came to 198 exabytes against 195 a quarter earlier, a rise of 1.5% calculated from the company's figures. Nearly all of the growth came from earning more on each unit of capacity rather than shipping more of it, and that changes what the coming quarters depend on.

The quarter before had looked different. Revenue grew at the same rate then, but data-center shipments rose 11.4%, so volume did a large share of the work. Last quarter the volume part almost disappeared.

Higher prices on drives that cost about the same to build fall almost straight into profit, and the filed results show it. Revenue rose $604 million on the quarter before, while cost of revenue rose only $75 million. Gross profit climbed $529 million, so roughly 88% of the added revenue was kept as gross profit, calculated from the reported figures.

Management put the gain down mainly to contracts being renewed at new prices. Asked how much came from prices already agreed, chief executive William Mosley said that "most of it is on the, I'll call it, the rolling re-upping on the contracts once", and added that it did not come from pushing out more exabytes. Chief financial officer Gianluca Romano gave two qualifications. Part of the faster price rise is meant to cover parts Seagate buys from suppliers, which have become more expensive. And he credited the gross-margin gain to a better product mix as well as pricing. Larger drives fetch more per unit, so the filed figures cannot show how much of the gain is price per terabyte and how much is mix.

That makes the supply contracts the place where the next price step is decided. Mosley said the vast majority of Seagate's nearline supply, the high-capacity drives sold to data centres, is now allocated under long-term agreements through calendar 2028, with some cloud customers committed to 2030. Configuration and pricing are fixed only through calendar 2027; the terms for the following year are to be worked out over the next few quarters. The quantities for that year are spoken for. What customers will pay for them is still open.

The current quarter leans on volume returning. The company guided revenue of $4.8 billion, about 13% above last quarter at the midpoint, calculated from the reported figures. Mosley said he expects a meaningful step-up in exabyte shipments as the newest drive generation reaches a wider set of customers, while warning that shipments may vary from quarter to quarter. Seagate did clear its own bar last quarter: revenue came in above the top of the range around $4.1 billion that it had guided three months earlier. But that beat was built on price. The new guide asks for both.

The cash has started to show the change too. Seagate retired $1.2 billion of debt during the quarter, and Romano said share buybacks would rise noticeably from the quarter after this one, now that no further debt repayment is planned.