On October 27, 2026, Seagate Technology announced its results for the first quarter of fiscal 2027 (July–September 2026). Revenue rose 61% year over year, and non-GAAP operating profit expanded about 2.8-fold. Seagate's earnings release does not include HDD shipment volumes, so it is difficult to tell directly whether the revenue growth came from higher unit sales or higher prices. However, comparing it with Western Digital's (WDC) results for the same quarter lets us infer, to a degree, what lay behind the sharp improvement in profitability. Seagate's gross margin rose 17.7 percentage points from a year earlier, and roughly 80% of that improvement was also seen at WDC, which is still preparing for full-scale volume production of HAMR (heat-assisted magnetic recording). This suggests that Seagate's large profit increase owes much to changes in the market environment common to the entire HDD industry, and not only to cost reductions specific to HAMR.
Revenue up 61%, operating profit up 2.8x
Revenue for the quarter ended October 2, 2026 was $4.233 billion (about ¥665 billion), up 61% from $2.629 billion a year earlier. Non-GAAP operating profit grew about 2.8-fold, from $763 million to $2.147 billion, and the operating margin rose from 29.0% to 50.7%. Free cash flow was $1.479 billion (about ¥230 billion), roughly 3.5 times the $427 million of a year earlier. The yen conversions use a rate in the low ¥157-per-dollar range, based on the foreign exchange market report published by the Bank of Japan on October 22.
CEO Dave Mosley said the company again achieved record profitability in the quarter and posted record free cash flow. For the second quarter of fiscal 2027 (October–December 2026), the company expects revenue of $4.8 billion (±$100 million) and non-GAAP diluted earnings per share (EPS) of $9.20 (±$0.20). Compared with this quarter's results, the midpoints of that guidance imply growth of about 13% in revenue and about 20% in EPS.
Capital expenditures were $211 million, about double the $105 million of a year earlier and roughly 5% of revenue. On shareholder returns, the company repurchased $400 million of shares and paid $168 million in dividends, returning a total of $568 million to shareholders. It also raised its quarterly dividend by about 3% to $0.76 per share.
These results show that Seagate is converting revenue growth into substantial profit growth. However, because the release gives no shipment figures, it is unclear how much unit growth, price improvement and product mix each contributed. Clues to that breakdown can be found in the trend in cost of revenue and in a competitor's results.
Cost of revenue rose only 13%, and a rival's gross margin also improved sharply
Cost of revenue is revenue minus gross profit. Working backward from Seagate's reported revenue and non-GAAP gross margin, non-GAAP cost of revenue rose from about $1.575 billion a year earlier to about $1.786 billion this quarter. That is an increase of about 13%, far below the 61% growth in revenue. In other words, even as revenue grew sharply, the accompanying rise in costs was relatively small.
As a result, of the $1.604 billion increase in revenue, $1.384 billion flowed through to higher non-GAAP operating profit, or about 86% of the revenue gain. Non-GAAP operating expenses were nearly flat, moving from $291 million a year earlier to $300 million, which also supported the margin improvement.
Four main factors could explain why revenue grew so much faster than costs. First, higher shipment volumes may have spread fixed costs over more units. Second, a larger share of sales from high-capacity HDDs improved the product mix. Third, selling prices for the same storage capacity may have risen. Fourth, the increase in areal density from HAMR may have reduced manufacturing cost per unit of storage capacity. The last factor is specific to Seagate's technology strategy, but the others could apply equally to its competitors.
This is where Western Digital's results become relevant. Its first-quarter fiscal 2027 results, announced on October 22, cover a quarter that also ended on October 2, 2026, the same date as Seagate's. Revenue rose 55%, from $2.818 billion a year earlier to $4.381 billion, a growth rate close to Seagate's. Its non-GAAP gross margin also rose 14.2 points, from 43.9% to 58.1%. Seagate's non-GAAP gross margin, meanwhile, improved 17.7 points, from 40.1% to 57.8%.
WDC's 14.2-point gross margin improvement is equivalent to about 80% of Seagate's 17.7 points. WDC has not yet started volume HAMR production; according to a transcript of its earnings call, it plans to begin volume shipments of its first-generation HAMR products in the first half of calendar 2027. Even so, WDC saw a gross margin improvement of more than 14 points. This suggests that it is hard to explain Seagate's margin improvement through HAMR cost reductions alone.
WDC CFO Kris Sennesael likewise explained in the earnings release that solid growth in shipped capacity, measured in exabytes, and improved selling prices supported the strong results. Common factors could include price increases, lower fixed-cost burdens from higher shipment volumes, and a shift toward higher-capacity models. That said, the closeness of the two companies' margin improvements does not allow us to calculate precisely that 80% of Seagate's improvement came from common factors. What the financial figures do confirm is that a competitor that has not begun volume HAMR production has also seen a large margin improvement comparable to Seagate's.
How much did HAMR cost reductions contribute?
The first counterargument to this view is the effect of HAMR, which Seagate is rolling out. At the earnings release, CEO Mosley explained that the technology roadmap built on HAMR allows the company to raise areal density and meet growing exabyte demand. If a single disk can hold more data, fewer disks and related components are needed to produce the same storage capacity. The fact that Seagate's gross margin improvement exceeded WDC's by 3.5 points may include such HAMR-specific cost reductions.
However, that 3.5 points accounts for only about 20% of Seagate's total improvement. There is no need to deny the effect of HAMR, but it is hard to see it as the main driver of the margin improvement. The gap between the two companies also reflects differences in product mix, selling prices and manufacturing efficiency, so the 3.5 points cannot simply be treated as HAMR's contribution. At present, not enough information has been published to isolate precisely how much HAMR lowered costs.
Another important counterargument is that the main driver of the margin improvement common to both companies may have been higher shipment volumes or a changing product mix, rather than higher selling prices. When HDD shipments increase, fixed costs such as manufacturing equipment can be spread across more products. A shift toward higher-capacity models can also lower manufacturing cost per unit of storage capacity. Even if such factors were the main drivers, the view that industry-wide factors contributed heavily to both companies' margin improvement does not change. In that case, however, it could no longer be said that price increases were the main cause. Neither company discloses detailed shipment volumes or average selling prices in its earnings release, so the respective contributions of price, volume and product mix cannot be determined.
Over the medium to long term, expanding supply capacity could also push prices down. Toshiba Information Equipment (Philippines), a Toshiba subsidiary in the Philippines, announced on October 2 that it had begun producing nearline HDDs at its Laguna Technopark plant and made its first shipments from the expanded production line. Nearline HDDs are high-capacity storage products used mainly in data centers. The company aims to raise its annual production capacity to nearly double the fiscal 2025 level by fiscal 2027. That target is based not on the number of HDD units but on the total storage capacity of the products manufactured.
Seagate itself has roughly doubled its capital expenditures from a year earlier, and supply capacity is being expanded across the HDD industry. If supply catches up with growing demand, the current price improvement could slow and weigh on gross margins. Toshiba's capacity expansion, however, is a plan running through fiscal 2027 and is not reflected in this quarter's results. Whether the current high margins can be maintained at the same level will depend on the relative pace of growth in demand and supply.
What to check in the next results
The next quarterly results will be an important data point for testing this view. Seagate's guidance for October–December 2026 is revenue of $4.8 billion (±$100 million) and non-GAAP EPS of $9.20 (±$0.20). If actual results fall below the low end of that guidance, revenue of $4.7 billion or non-GAAP EPS of $9.00, we would need to consider that the currently favorable business environment may be changing sooner than expected.
However, a shortfall in those figures alone would not invalidate the analysis that industry-wide factors contributed heavily to this quarter's margin improvement. A decline in revenue or EPS can result not only from falling prices but also from lower shipment volumes or a change in product mix. To identify the cause, we need to see how Seagate's non-GAAP gross margin, 57.8% this quarter, changes in the next quarter.
WDC, the comparison point, expects a non-GAAP gross margin of 60–61% next quarter. If the two companies' gross margins continue to move in the same direction, that would strengthen the view that industry-wide factors such as pricing, supply and demand, and product mix continue to exert a major influence. If, on the other hand, only Seagate raises its gross margin further and keeps widening the gap with WDC, that would be a reason to consider whether HAMR-specific cost reductions are translating into a competitive advantage. Because that gap also includes differences in the two companies' product mix and sales terms, it must be distinguished from a figure that directly measures HAMR's effect.
Seagate's latest results show that growing HDD demand is translating into substantial profit growth. At the same time, its competitor WDC significantly improved its margins over the same period, so it would not be appropriate to attribute Seagate's improved profitability to HAMR alone. The focus going forward will be on comparing the two companies' gross margin trends and on how far industry-wide supply-demand improvement can be separated from the technological advantage provided by HAMR.