Good afternoon and welcome to the Seagate Technology Fiscal Third Quarter 2020 Financial Results Conference Call. My name is Jason and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question-and-answer session. As a reminder, this conference is being recorded for replay purposes. At this time, I would like to turn the call over to Shanye Hudson, Vice President, Investor Relations. Please proceed, Shanye.

Thank you. Good afternoon, everyone and welcome to today’s call. Joining me are Dave Mosley, Seagate’s Chief Executive Officer and Gianluca Romano, our Chief Financial Officer. We posted our earnings press release and detailed supplemental information for our March 2020 quarter on the Investors section of our website. During today’s call, we will refer to GAAP and non-GAAP measures. Non-GAAP figures are reconciled to GAAP figures in the earnings press release posted on our website and Form 8-K that was filed with the SEC. We have not reconciled certain non-GAAP outlook measures, because material items that may impact these measures are out of our control and/or cannot be reasonably predicted. Therefore, reconciliation to the corresponding GAAP measures is not available without unreasonable efforts. As a reminder, this call contains forward-looking statements, including our June quarter financial outlook and expectations about our financial performance, market demand, industry growth trends, planned product introductions, ability to ramp production, future growth opportunities, possible effects of the economic conditions worldwide resulting from the COVID-19 pandemic and general market conditions. These statements are based on management’s current views and assumptions should not be relied upon as of any subsequent date. Actual results may vary materially from today’s statements. Information concerning our risks, uncertainties and other factors that could cause results to differ from these forward-looking statements are contained in our most recent Form 10-K filed with the SEC and our Form 8-K filed with the SEC today and the supplemental information posted on the Investors section of our website. Following our prepared remarks, we will open the call for questions. With that, I will turn the call over to you, Dave.

Thanks, Shanye. Good afternoon, everyone and thanks for joining us. I would typically start the call by sharing highlights from the quarter. However, we are living in an extraordinary time shaped by the coronavirus outbreak. Therefore, I would like to take a moment to send our thoughts to those affected by the virus and recognize the healthcare professionals and other workers who are selflessly supporting our communities through this crisis. For Seagate, the health and well-being of our employees, customers and suppliers have always been the top priority. Throughout this crisis, we have taken decisive actions to safeguard our global workforce and maintain continuity of the business to support our customers. In this period of unprecedented uncertainty, the Seagate teams performed very well. We delivered March quarter revenue and non-GAAP EPS above the midpoint of our guided ranges supported by record sales of our nearline products and strong cost discipline and we also continued to generate healthy free cash flow. In January, before our last earnings call, we mobilized our global enterprise crisis team and immediately put strong protective measures in place. This cross-organizational team has been very effective in identifying issues, developing protocols and mitigating risks which has enabled Seagate to rapidly deploy site-specific learnings and best practices across our entire global footprint and share them with our partners and suppliers. In addition to health and safety concerns, this very dynamic situation has caused disruptions in our supply chain and those of our manufacturing partners and our customers as they also adapt to rapid shifts in demand. Our teams acted with speed and agility to tackle a wide range of operational challenges from securing parts to produce our drives, obtaining materials to package them and addressing logistics challenges to shift finished goods in order to support customer demand in…

Thank you, Dave. Seagate has demonstrated its ability to adapt quickly to a changing market conditions. Over the past year, we’ve successfully managed the business so hyperscale digestion period, geopolitical challenges and macroeconomic uncertainty. All the while, we maintain our focus and discipline on managing expenses, optimizing profitability and generating strong free cash flow. The March quarter represented one of the most challenging operating environment and we continue to deliver toward the financial performance consistent with these objectives. We have achieved revenue of $2.72 billion, up 1% sequentially and up 18% year-over-year, non-GAAP operating margin of 15.5%, relatively flat quarter-over-quarter, and up 282 basis points year-over-year and non-GAAP earnings per share of $1.38, up 2% sequentially and 49% year-over-year. We also generated solid free cash flow, maintain a strong balance sheet and believe our liquidity and financial flexibility will continue to meet the need of the business and our dividend and opportunistically retire shares. Our operational execution was equally solid as we shipped 120-exabyte of HDD capacity, an increase of 12% quarter-over-quarter. Additionally, average capacity per drive topped 4-terabytes, a 26% jump from last quarter and nearly 70% from the prior-year period, reflecting the ongoing shift toward mass capacity storage in the cloud and at the edge. In the March quarter, mass capacity storage increased to 57% of total revenue and represented 62% of total HDD revenue. These figures are up from 49% and 53%, respectively in the December quarter. Exabyte shipments into the mass capacity storage market increased 28% sequentially top a record level of 91 exabyte. With strong sequential growth was underpinned by demand for nearline drives, attributed primarily to cloud and hyperscale customers. Revenue from 16-terabyte nearline drive more than doubled quarter-over-quarter, reflecting the strong momentum we see for these products. Total nearline shipments increased to 76-exabyte…

Thanks, Gianluca. In summary, our March quarter performance demonstrates the resilience of Seagate’s business model, our focus on execution and the dedication of our employees. Despite the current business environment, we are tracking to the financial model we outlined last September. We are delivering operating margins at the high-end of our target range of 13% to 16% of revenue. We are forecasting annual revenue growth of 2% based on our midpoint of our June guidance range. And we have remained committed to returning at least 50% of free cash flow to our shareholders. The start of fiscal year 2020 we shared an expectation for our mass capacity storage shipments to be well above the long-term compound annual growth rate of 35% to 40%. We still expect to exceed that range for the fiscal year as well as calendar year 2020. Increasing demand for data is fueling long-term secular growth for mass capacity storage. I shared examples today that suggest an even greater reliance on data in this new remote economy brought on by the pandemic and likewise a greater need for compute and storage in the cloud and at the edge. With our strong technology roadmap and broad product portfolio, I am confident that Seagate will emerge from this challenging business environment, well positioned for these opportunities. I would like to express my sincere appreciation to our employees for their extraordinary efforts during the quarter. I would also like to thank our suppliers and our partners and customers for their close collaboration through this period and for their ongoing trust in Seagate. With that, Gianluca and I are happy to take your questions.

[Operator Instructions] Your first question today comes from the line of Karl Ackerman from Cowen. Your line is open.

Hey, thank you everyone. And I hope you are healthy and safe during the current environment. Two questions if I may. The first one is I guess is more of a clarification if I may, how disruptive from a manufacturing standpoint or margin standpoint, were these shutdowns across Asia-Pacific countries in the March quarter and I was just kind of curious on how you expect any – if you expect any manufacturing disruptions in the June quarter? And I have a follow-up.

Yes, Karl. I would say, it’s fairly disruptive, not just for us in the specific facilities that we run, but also upstream in our supply chain, there were a number of shutdowns that affected us and started really in late January right after Chinese New Year. And then downstream of us as well, the ODMs and I think that’s gotten a lot of press were also disrupted. So quantitatively, we are not going to really break it out, but you can imagine the kinds of disruptions and then the biggest are logistics issues, because we did have inventory in a lot of positions that we are able to flex around, but – and we run multiple sourcing strategies as well, but just the logistics getting stuff through checkpoints and making sure we had the right parts in the right place at the right time was an issue.

And I guess just to follow-up on that if I may, I mean, sorry go ahead.

You were asking about the impact of the gross margin, I guess and...

Yes, correct.

And I described in the script is about 1%.

That’s helpful. Thank you. To the extent you can, how do we think about the exabyte trajectory in the June quarter and perhaps for the balance of the calendar year. Given an extension of the current investment cycle for nearline drives given the longer lead times associated with these nearline drives, what sort of order visibility or backlog do you have for your nearline production? Thank you.

Yes, again given the downstream of us there is a lot of disruption. Still, you don’t know exactly how people are going to build through or even be able to get the parts and the people required to build through what they need. But I would think of it as relatively flat. We do see demand, but is that demand – can that demand actually be monetized in this quarter as it push out and the reason that the demand we think is out there is because of all the changes and work location that we talked about. So, if that helps you.

Your next question comes from the line of Aaron Rakers from Wells Fargo. Your line is open.

Hi, this is Jake on for Aaron. Congrats on the great quarter. I was wondering if you could delve a little bit deeper into the competitive landscape for the 18 terabyte drive?

I don’t really know how much about – I can’t really speak that much about the competitor, I would say that it’s a fairly disruptive environment for all the customers right now. So certainty of supply on 16s is something that we are very focused on. Our 16 if you remember has the same platform as our 18, so we changed the heads, we changed the disk a few other minor changes. We get pretty good leverage now that we are way up the curve and we understand what the supply chain needs to look like for that. So we are fairly confident going to 18s. I think that over the next 6 months or a year, probably people are going to be a little bit more bashful on product transitions. That’s just how I think about it. They will go with more certainty towards what they can get, what they can integrate.

Okay. And then just to follow-up on that, can you talk a little bit about the adoption you are seeing for the 16 TB like the breadth of adoption, customer profile is anything along those lines?

Yes, I think that’s the growth has been good, this is the fastest ramp we have ever done in heads and disks and we talked about that last quarter as well. So, the ramp continues to go well and we are working with a lot of partners to make sure that we are getting them what they need through those transition period. So, adoption is clearly good with us being 3 million drives plus under our belts now and driving significantly north from there we have got good adoption across multiple customers in all geographies.

Okay, great. Thank you so much.

Your next question comes from the line of Ananda Baruah from Loop Capital. Your line is open.

Hi, good afternoon guys. Thanks for taking the questions. I have a couple if I could too as well. Luca – sorry Gianluca, could you – I just want to make sure I understand the full gross margin bridge it sounds like it’s 100 basis points from COVID related cost logistics etcetera? Could you also quantify for us you mentioned non-hard drive business gross margin impact? Is there any way to quantify that for us? And then my hunch is that there is sort of maybe other category given that you had such strong nearline exabytes shipments Q-over-Q. Is there something else you would have not allowed some of that to fall through to the bottom line? And then I have a follow-up if I could. Thanks.

Yes. Well, I would say, the mix has actually impacted our bottom line and we came out with a very strong EPS. In terms of gross margin impact from the COVID-19, we did not separate between those hard disk and non-hard disk, but in total for the corporation is about 100 basis points. The mix has actually helped the gross margin for the hard disk drive and with the increases in mass capacity and part of the business, we actually got more or less flat sequentially in terms of just hard disk gross margin. On the non-hard disk, we had, of course, the impact of COVID in terms of cost, we also had some impact on the supply chain. So our system solution part of the business were little bit lower than what we were expecting. And that is negatively impacted the non-hard disk part of the business in terms of gross margin. So overall, the gross margin was down 67 basis points. If you just look at the hard disk part of the business was basically flat and again if you take out the impact of COVID-19, we were actually little bit higher sequentially.

Gianluca, that’s helpful. I guess why would with 50% with such strong growth in nearline Q-over-Q and seemingly just backing into the implied. ASP sort of growth as well, why wouldn’t the margins of, kind of, apples-to-apples have been up more than the 100 basis points. I just want to make sure that we’re not missing anything here?

No, I don’t think you’re missing anything, I know – I think the big increase in volume, of course, has also some impact on the average decline in pricing, and I think we had a very good quarter, I think we moved the mix as it – now has a level that we want it, and we are well positioned for the next quarter and the near future. The mass capacity part of the business is really growing strongly.

Okay then. Yes, really is – okay one take – one quick follow-up, Dave, if I could. You had mentioned that some of the hyperscale demand could potentially move into the September quarter based on what you’re seeing? Do you have an expectation just in general, I know it’s super early, but that hyperscale demand could remain solid into the September quarter or for the September quarter, any context there would be helpful? Thanks.

Yes, Ananda, I made reference to the fact that we think that the change in locality of data is actually going to have – to get answered by the cloud customers and also by some edge installs as well. So if you listen to the prepared remarks there is specific comments about that. We still think that’s going to happen, it’s early relative to all the global disruptions is what we’ve seen is to know what exactly happens, when or what can happen when, because of the logistics of what’s going on this quarter. But from my perspective, I do think that this change in data locality and the growth of the cloud will affect the next cycle for sure.

Thanks a lot guys. That’s really helpful.

Your next question comes from the line of Katy Huberty from Morgan Stanley. Your line is open.

Thank you. Good afternoon and congrats on the really great execution this quarter. I guess first question for Dave a lot of companies as I’m sure you’ve seen have pulled guidance. And so can you put some context around the visibility you feel you have into demand and supply in the June quarter relative to a normal period? And then what do you think are the biggest potential variables that would put you at the upper end or lower end of the guidance ranges you provided? And then I have a follow-up.

Yes, thanks, Katy. I think that reflecting in the fact that our ranges are opened up. We’re still signaling to everyone that it’s a more volatile time then we are normally accustomed to. So exactly to your first point, these are not normal times for anyone. Supply has risks and demand has risk for the demand side, I would point to the question, I just answered as to why? On the supply side there has been a number of different shutdowns and border closures and things like that, that effect, not just our facilities, but also our upstream facilities. So we’re cognizant of that. So it’s not a normal quarter relative to visibility, but I do think that it’s incumbent upon our management team to come out and tell everybody what the visibility that we have is today given that we’re 2.5 weeks into the quarter already, so we’re doing that.

That’s great. Thank you. And Gianluca, I think you said on gross margin that the impact from COVID will be bigger in June than it was in March. So in that context, should we think about gross margins falling sequentially, because of that bigger headwind or does the strength in nearline offset COVID?

Yes, Katy, you know, we don’t guide gross margin. And, yes, we expect little bit higher cost, possibly higher cost related to the COVID-19, of course, it depends on how long those restrictions will be in place. In terms of gross margin, no, we expect a mix fairly similar quarter-over-quarter, so another very good quarter with mass capacity storage volume. And, of course, additional cost will impact little bit our EPS and our revenue is also – we guided to be lower sequentially.

Yes, so we factor that is – in as much as we could into the existing guide, Katy.

Okay, thanks. And just one quick follow-up to that on OpEx, Gianluca, I think you’ve talked about holding it relatively constant with the $340 million. Is that still the case or just COVID gave you some opportunity to remove costs in the next couple of quarters?

Well, we always look at opportunities mainly to get more efficient, not only to now reduce our cost. In the very short-term, I don’t think we will reduce our cost. Our fiscal Q3 in terms of OpEx was a very low cost. So we expect to be fairly similar in fiscal Q4, but now Dave and I are always looking at opportunities. So we will look and decide if we have anything – any opportunity, but we want to take in the next few quarters.

Yes, there are – to the point there are opportunities as well that we may want to redeploy against. So, the world has changed considerably and as we see some of those opportunities we may have missed slightly against them as well.

Okay, thank you so much.

Your next question comes from the line of Steven Fox from Fox Advisors. Your line is open.

Thanks, good afternoon. Dave, couple of questions on just the supply chain, so in prior downturns, there has been periods where some of your smaller component suppliers have run into trouble you’ve helped them out, but there has been interim issues down like this. But could you just sort of talk about the relative health of getting those last 5% of the bomb filled out right now? And then I had a follow-up.

Thanks. And it’s something I’m very mindful of it. At Seagate we have 40,000 people roughly streaming our supply chain, my estimate would be that’s 0.5 million people we need to make sure that economically they have – they’re getting what they need, because otherwise, if some of those companies go away then we have our own issues as well. So it’s important for us to make sure that our supply chain is healthy as it possibly can be. We feel that responsibility. There are issues, for sure, but we are working with suppliers very closely to make sure that they’re getting through those issues, and I think everyone under – who participates in our supply chain, since it’s a large understands and appreciates the complexities and understand how we’re all in this together in some respects, right? So that we have to make sure that we take care of each other.

That’s helpful. And then just so I understand sort of the base case thinking here in the guidance. You mentioned sort of some improvements in sort of manufacturing obviously, China, but is there a thinking here that like by the time you get to the month of June and things are materially better or operating about the same in terms of supply chain? How can we think about what kind of level of improvement broadly you’re thinking about logistically? Thanks.

I wish, I could say – I predicted well, but the period we’ve just been through from a supply chain disruption perspective was pretty big, compare it back to 2008, when I was running the operations for 2011. Very, very different times now global and there’s been a lot of – just call it multi-week disruptions. So, I do like to hope that some of this is becoming a little bit more predictable to manage, although I think that there will still be surprises, and that’s why we’ve got a whole to be very communicative up and down the supply chain. And I really appreciate that our customers appreciate this as well. They’re making sure that they help out and everybody is being as predictable demand as they can right now, because that’s the way that we can tell everybody exactly what we need.

That’s helpful. Thank you.

Your next question comes from the line of Jim Suva from Citigroup Investment Research. Your line is open.

Thank you very much. When you talked about the additional COVID expenses, I believe you said approximately a 100 basis points, if I heard correctly. Do you think that those are kind of permanent and we should just kind of build that in for quite a long time or have you learned through this quarter maybe those are near-term cost that you find a way to quickly get back out of the system? Thank you.

Thanks, Jim. Yes, I think, there is a couple of different buckets largely the ones that are impacting us are more temporary, because you look at under absorption from factories that we’re actually shuttered or running not at full capacity or if you look at logistics, in particular, February was so slow, March was so busy. A lot of air freight was needed and there just weren’t a lot of airplanes to be had. So we have a lot of logistics costs that went up in the period. And there is – we are still reverberations of that. Those – all those kinds of things are temporary, we do believe at some point we’ll figure that out or add a little bit of inventory to take advantage of other lanes and things like that. There are some – to back to the supply chain questions that Steven asked, I think, there’s some things that we have to watch upper in the supply base, as well that maybe more permanent, and so we’re still working with individual suppliers to make sure that helped throughout the entire supply chain doesn’t affect us all in demand.

Great, thank you so much for the additional details.

Okay. Thanks, Jim.

Your next question comes from the line of Tristan Gerra from Baird. Your line is open.

Hey guys. This is actually Dustin speaking for Tristan. I know you mentioned demand in China consumer segments coming back. I’m wondering if you could, give little more color on that, probably tracking and the potential impact on revenues just for this coming quarter and maybe for the rest of the year? Thanks.

Sure. Yes, thanks. It – as you can well imagine after Chinese New Year things turned off and especially on the consumer side, I would say the distribution channel as well. And then in places like Europe and the Middle East we saw that turn off later, but same kind of behavior later. There were also pockets of large pops, because as people went to working from home, there were large bicycles that went on, people are buying disk drives basically to move data around. So very intriguing to watch the tactical signals in the quarter. Some of it’s becoming a little bit more predictable in Q4, but there’s still fairly massive disruption, and it’s not back to a point where it’s not impacted by the week-to-week buying patterns of people, but this is not what we forecast for our fiscal Q3 or Q4 for that matter, and we’re just in the consumer markets in particular more and reactionary mode.

That’s great. Thank you.

Your next question comes from the line of Patrick Ho from Stifel. Your line is open.

Thank you very much, and glad to hear everyone as well. Dave, maybe on a qualitative level, given the strong demand that you continue to see for mass capacity drives and from the data center and cloud segments, can you just give you thoughts about what’s actual demand, and what potentially could be some inventory building even by that segment, even though we are hearing positive stuff on data center? Where do you think I guess that kind of, demarcation between inventory building versus actual demand that’s out there right now?

Yes, thanks, Patrick. I don’t think there was a lot of inventory demand building. I think people are very cautious with their investments right now, that’s from my discussions with most of my customers they understand that. Some of the larger cloud service providers know how fast it’s going to be before they can actually monetize the capacity that they’re putting online. So they are mindful of those lead times, but they also see demand that’s further out in time, than I do. I would also say that on some of the mass capacity drives surveillance is what I’m thinking about now, the market was actually quite soft. We talked about this in our prepared remarks. Although the capacity points moved up so things moved above 4 terabytes per drive for the first time there and could go to 6s and 8s over the next year or two. And so I think that mass capacity if you will, the demand will come back, because it was so impacted by the early days of this pandemic.

Great, thank you very much.

Your next question comes from the line of Mark Miller from Benchmark. Your line is open.

Thank you for the question and great job on handling the situation, which is difficult for everyone. Just was wondering give us an update on HAMR, does that still look like it goes out the door late in the year. And I’m just wondering about the margin profile of HAMR drives, compared to your other drives?

Yes, Mark, I think we’ve talked about before that the HAMR platform the platform that we’ve ramped with the 16’s is where we’re going to introduce HAMR as well. So from all the other complementary, if you look at it that way, the cost impact is we’re already down the cost curve quite a bit. So we think the economics of HAMR will still be very favorable. Yes is the answer to your question, we’re still on target with HAMR, it’s hard to do experiments at the same clip that we were doing them a few months ago, but the experiments also have long lead times. So things don’t change that much on some of the wafer lead times that we have now, and so we still have pretty good visibility and I’m really proud of the progress the team is making.

So I just wanted to clarify, do you think you’ll be shipping 20 terabyte by the end of the year of HAMR?

That’s right.

Okay, thank you.

Your next question comes from the line of Shannon Cross from Cross Research. Your line is open.

Thank you very much. I was just curious, have you seen any delays in customer qualifications for 16 terabyte drives given some of the challenges with the employees and the office and that related to COVID. And I have a follow-up. Thanks.

Shannon, I would answer that question is a no. We were already pretty deep into the qualification cycles when this thing first hit. I do think that running the big scale, say for example reliability test beds that are sometimes done as you ramp programs, there were a lot of people to plug those beds. Sometimes you couldn’t get the attention of the builders, because they weren’t even in the office, so yes there are impacts to some of the late stage qualification and maybe the early stage of the next generation I made reference to that earlier, but I don’t really it impacted our plans, because we were already so deep in 16.

Okay, great. And then just a question on capital return, are you – talked about maintaining a long-term framework, I am just curious in discussions, I mean, there has been a number of companies to be either halted share repurchase or others, you obviously have a strong balance sheet and cash flow. But I am just curious as to how some of those discussions are going when you talk to the board, what the puts and takes are as you look at sort of a questionable or I guess it’s sort of unknown second half at this point? Thank you.

Yes, Shannon. Well, as you said, we are still generating a very strong free cash flow and we have a very good liquidity level between our cash at $1.6 billion and our revolver of $1.5 billion. I think we can operate more or less in a – know it a normal way in term of capital allocation of course, we will focus as usual internally sourced so supporting our business, and of course paying our dividend. In term of share buyback, we always look at how attractive is opportunity. So we will do more or less depending from how we consider the share price to be attractive.

Thank you.

Our next question comes from the line of Mehdi Hosseini from SIG. Your line is open.

Yes. Thanks for squeezing me in. Dave just one follow-up question all the good ones have been asked. What would be your expectation for nearline exabyte shipment in calendar year 2020, if COVID-19 had not taken place?

Gosh, maybe that’s a tough question. I think we were talking about 35% to 40% and being above that range as well. Before and I think there has been a lot of dynamics, because of this locality change and locality of data, which suggests to me that maybe some of the typical cyclicality has changed. I don’t know that we can actually see that yet, because COVID has disrupted a lot more than just this of course there’s a lot of pieces of supply chain and your ability to build it through. But my thinking is from the fundamental data demand perspective there – the cycle is bigger next time, just because that all the working from home, the reliance on the cloud that everybody has. And then the frankly speaking, the data demand for AI and surveillance and other tools that might be used to go invest is bigger. I know, there are a lot of businesses that have been disrupted as well and so seeing our way through that into that final demand is still pretty hard, if that helps?

Yes, that’s right. Thank you for your answer. And so just one quick follow-up, could – if this shift to the cloud is permanent, could we see a scenario where nearline exabyte were to account for a much bigger mix of your total exabyte shipment, total revenue, to the extent that even if the new game console were to be disruptive to hard disk drive, the nearline strength would more than offset that?

Yes, you know, we have been involved in the gaming consoles for almost 20 years now, and I’m a big fan of the market. It’s from an exabyte perspective to your question, it’s relatively immaterial. I mean, in the last two quarters, we shipped 225 plus exabytes and only one less than one exabyte is going to gaming consoles. So when it comes to pivoting heads and discs over, I think we can very easily do that and we’ll continue to support that market, but you know, depending on what our customers need will be there to answer the call.

Okay, thank you.

Your next question comes from the line of Mitch Steves from RBC Capital Markets. Your line is open.

Yes. I had two questions. One on the OpEx side and the one that, kind of, on the demand side, so I’ll start with the OpEx one. So something we’ve heard from a lot of these companies in Silicon Valley is that they’re actually going to get savings long-term off of this virus or outbreak, however you want to phrase it, because they’re going to allow certain employees to start working from home, reducing travel costs and generally reduce OpEx. So I guess I’m wondering why or potentially if you guys are going to go down that path and why you wouldn’t go down that path to reduce OpEx?

I think that’s probably – I’ll let Gianluca answer, but I – which I think that’s probably less relevant for us. Most of our OpEx is around our core technology development and not as much SG&A, if you will, so go ahead.

Well in fiscal Q3, we reduced our OpEx by about $10 million, so I think we did a lot in term of cost reduction. In general, our OpEx as a percentage of revenue and also as a total value is fairly small. So we have always been very prudent and conservative with our OpEx spending. Of course, as I said before, we will continue to look for opportunity to even lower these costs or improve our efficiency. And now the travel or other benefit from the working from home, if it is something that will benefit the company. Of course, we will take a look at that.

Yes, we’re very happy with where we’re managing from an operating income at the top of our range again, if something changes yet in the world and there’s a lot of things changing, then we look for investments we may take advantage of that investment at the time, to go after some new revenue streams or somethings, but I look at it very differently, I think that most of that companies, because most of our OpEx is really pointed, our core technology rather than sales and marketing.

Okay, got it. And then the second one, I hate to be this blunt about it, but it’s kind of one of the big ones that we’re going to get a lot of. So since legacy was down pretty substantially Q-over-Q. I mean, do you guys have any conviction on this can potentially being some share shift? Because from what we’ve heard commercial PCs and kind of PCs in general actually little bit better than peers, at least from a channel check? So maybe you could help us understand what you guys think happened there? And what numbers you guys think would be surprising, if you saw out of the PC share shift?

Yes, PC becoming less and less relevant for us every day, to the point certainly, notebook to see. We’re continuing to support a few customers. But it’s really those parts of the legacy market aren’t as relevant. Legacy being consumer electronics or legacy which was dramatically disrupted in the quarter Q-on-Q, right? A little bit more than we even forecast, and then mission critical which to our point before has a fairly long tail out there just given the preponderance of slots that are out there in the world. There’s a lot going on inside the legacy. So it’s a little bit more pronounced than we thought, but not really because of PC cyclicality or anything like that, and a small temporary head fake PC bump is not going to help us tremendously either. We are just not as exposed to it.

Got it. Thank you.

Your next question comes from the line of Nik Todorov from Longbow Research. Your line is open.

Yes, thanks. Dave and Gianluca, can you please talk about the pricing environment for mass capacity? I mean in our few work we have heard of efforts by you and others in the industry to pass-through higher cost due to COVID to customers. And at the same time and looking at the flattish nearline exabyte comment for June quarter and that implies dollar per terabyte declines in the high-end of the historical range. So, can you give us any color if there is anything changing in the pricing environment right now?

I would say the pricing is relatively benign. The higher costs are largely associated with logistics. As you can imagine especially it has to get positively get there overnight, but we just don’t have the routes that are at the same cost as they were 3 months ago or 6 months ago. From my perspective, those are the hardest problems that we have operationally that are temporary. We will get through them at some point, but those are the hardest problems that we have and we are sharing some of the burden downstream, especially for people who are expediting us. I think over time we could obviously go to different routes, but I don’t think that, that’s a super meaningful – in the trajectory of nearline dollar per terabyte, if you look at that trajectory over the last couple of years, I don’t think it’s a meaningful shift.

Okay. And if I can just follow-up I think I maybe ask the question, but I am just trying to understand the impact to potential disruption to the June quarter. If there was no COVID-19, what do you think nearline exabytes would have been I mean you can give us a range for the June quarter?

Yes, I think just too hard to all the puts and takes there. There is too many disruptions, I think to really go there. I do think that cloud service providers are – we are continuing to invest against the secular growth of data that we see and some of that is disrupted whether or not at all times out in June or whether or not it gets pulled in, because people are more full than they thought they would be in the cloud and they can actually find ways to get it put online. I mean, that’s just – it’s too hard to say versus prior baseline. I will say that our capacity that we have is still a little bit underutilized and that’s affecting our costs. So, we could clearly have done more, but that we may – depending on how we see that on those very, very short lead time capital, we may pullback on that. On the long lead time capital we are still investing, because it’s against this massive secular growth.

Okay, got it. Thanks guys, good luck.

Your final question comes from the line of C.J. Muse from Evercore ISI. Your line is open.

Hi, this is Kevin on for C.J. So just want to think how to think of the contribution to quarter-over-quarter weakness in surveillance from maybe the COVID impact versus potentially maybe inventory they built kind of last Q. And so do you still think I guess normalized rate is like higher than what you shipped this quarter?

Interesting. Yes, I think it’s more COVID-related, because basically the month of February all the channels were turned off. So, I think companies are still out selling their solutions and some of these solutions are becoming more and more relevant in today’s world and like we talked about the rise of the edge we can see that, but the ability for us to get product to market that for those customers to integrate it and then get it to their end users, I mean, with everybody at home and around the world, I think that’s a primary driver of what’s going on in Q3.

Okay, thank you. And then I think you mentioned the similar platform on 18 terabyte versus 16. So curious if you will see potential sort of qualifying times there and if so, maybe like how many months could you shorten that pipe potentially?

Yes, we believe so. I think to your point, Kevin, it’s been a long – these technology transitions take a long time. They are not something we just turn on like a light switch and going through all the qualifications, all the different parts that we have in the drive. So we are really happy with the 16 platform being up the ramp. It’s the first time in a long, long time we have been able to leverage for multiple generations. And the confidence that we have in all those parts is going to translate into confidence in the timeline completion. I don’t really want to quantify it right now, because I think someone asked earlier, I think it was Shannon about the overall cycles given how disruptive everyone is that has to run these tests and things like that. I don’t really want to try to quantify it yet, but I do think from our perspective, it adds to our confidence for sure.

Thank you.

That concludes Q&A. And I would now like to turn the call back to management for closing remarks.

Okay. Thanks, Jason. To summarize, Seagate is doing an outstanding job of managing through these uncertain times and we continue to generate cash and have a strong balance sheet and liquidity to weather the storm. Over the long-term, we see no change to the strong secular growth in mass capacity storage and we will continue to execute our strategy to meet that demand. I would like to once again thank our customers, suppliers, business partners and our employees for their incredible efforts during the March quarter and our investors for their ongoing support of Seagate. Thanks everyone for joining us today.

That concludes today’s conference call. Thank you everyone for joining. You may now disconnect.