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Seagate (STX -3%) is trading lower after reporting Q3 (Mar) results. STX beat on EPS, although it was less robust upside than in Q2 (Dec). Revenues fell 11.0% yr/yr to $1.66 bln, which generally in-line. The outlook for Q4 (Jun) was pretty solid with the mid-point of EPS guidance above analyst expectations. In addition earnings, STX also announced that Broadcom (AVGO) acquired its ASIC assets, including development, engineering and related IP, for $600 mln.

• After three consecutive losses, STX has now posted back-to-back profitable quarters. However, STX has also reported eight consecutive quarters of yr/yr revenue declines, although the -11% result this time was the smallest decline during that timeframe.
• STX says nearline cloud demand trends are increasingly positive across both US and China customers, and it also saw a sequential improvement in its enterprise OEM markets. In terms of near-term end market dynamics, STX says cloud continues to lead the demand recovery. For a second consecutive quarter, STX realized strong double-digit revenue growth from sales to cloud customers. What stood out to us was STX saying that it believes the long-running cloud customer inventory correction is mostly complete and their end demand is also improving. Furthermore, STX expects healthy nearline demand growth to continue through the rest of calendar 2024.
• Within the enterprise OEM markets, demand stabilized in the second half of calendar 2023, and STX saw incremental improvement in MarQ. STX expects enterprise OEM revs to improve as server growth resumes. In its VIA markets, revenue was seasonally lower in MarQ but STX expects demand to trend higher through the calendar year.
• STX also touched on its AI opportunity. Over the next several years, the volume of AI-generated content is expected to increase and also shift towards more imagery and videos, which can be up to 1,000x larger than text. STX believes these trends bode well for HDD demand over the long-term as HDDs remain the most cost-effective means to store mass-capacity data.

Overall, this was a good quarter for Seagate. We suspect investors were pleased to hear that the long-running cloud customer inventory correction is now mostly complete. Also, demand in its enterprise OEM markets has stabilized with incremental improvement in MarQ. It sounds like Seagate's markets are finally recovering. We think this report bodes well for Western Digital (WDC), which reports tomorrow after the close.