Seagate Technology Holdings plc (NASDAQ:STX) Morgan Stanley Sustainable Futures Conference May 24, 2022 10:15 AMm. ET
Participating companies
Joan Motsinger, Senior Vice President, Sustainability and Business Transformation
Shanye Hudson – SVP-IR and Treasury
Conference Call Participants
Erik Woodring – Morgan Stanley
Erik Woodring
Hello everyone. My name is Erik Woodring. I am the senior hardware analyst at Morgan Stanley. Before I introduce everyone here on stage, let me temporarily read this warning. For curtain disclosures, visit morgan Stanley’s online Research Disclosure page in www. morganstanley. com/researchdisclosures. If you have any questions, please contact your Morgan Stanley sales representative.
Okay, with that in place, I’m thrilled to welcome Seagate Technology here on stage, I’m thrilled to be joined by Joan Motsinger, Seagate’s senior vice president of sustainability and corporate transformation, as well as Shanye Hudson, Director of IR. Joan has been at Seagate for about 4 decades. And I’m going to read this because I find it very impressive. the chairman of the board of directors of RBA, the world’s largest industrial coalition for corporate social duty and global supply chains. He remains an active member of the board of directors. So here we have the right user, obviously. Seagate was a founding member of the RBA. Es a big supporter of the United Nations Global Compact and there’s a lot to talk about here with Seagate, very exciting. Thank you for being with us this morning.
joan motsinger
It’s being here, Erik.
Q&A session
Q-Erik Woodring
So, I think it’s probably worth starting with a high-level introductory query or comment that would be and that is that some of us might be more ESG analysts than technology analysts, focused on hardware. Seagate and its product offerings? Then we’ll start from there.
Shanye Hudson
Of course. I’ll stick with this one, Joan. First, Erik, thank you. We were talking before we started, and it’s very smart to be face to face with people. So thank you for having us and thank you in the room here. Before we begin, I must say that we would possibly make forward-looking statements and inspire you to review our online page and our filings with the SEC to be more informed about the dangers associated with such statements. But as you said, some of you may not be familiar with Seagate, we’re a global leader in massive capacity, knowledge storage, and infrastructure solutions. We have been around for 4 decades. So Joan, when she started in her teens, started here.
I would say that in the last 12 months, we have 12: we have about $12 billion in profit and an operating margin of about 19%. and I buy our photos, memories and private data, right there with us on a laptop. Today, I buy most of that in the cloud and cloud data centers are part of what we call massive capacity data. And today, that’s about 70% of our hard drive business.
Seagate is one of only 3 corporations in the world that manufactures hard drives. And for cloud knowledge centers, approximately 90% of their exabytes are stored on disk, making it a very lucrative component of our business. And as a high-tech company, innovation is essential. And certainly, this longevity is due to the fact that we have been able to innovate and keep up with the conversion landscape of the garage industry. But one of the reasons we’re here today is that longevity is also due to the fact that we focus on sustainability and building a sustainable business.
And for Seagate, sustainability means building a strong, healthy supply chain, it means making an investment in our people. Because in the next 40 years, Joan and I may not be here, but Seagate will be there and nurture strong relationships with our customers. So, for us, that’s really what sustainability is.
Erik Woodring
Genial. Et this is the first time we welcome you here. Very exciting to have you here this year. So maybe Joan, I’ll move on to you with the next question. And again, I’m going to keep it at a higher level, and then we’re going to dig a little deeper, but speaking, how did Seagate integrate sustainability into its business practices, how did it replace that over the years while participating in various initiatives?
joan motsinger
Of course. So I think we’re all very committed to a sustainable business. And for us at Seagate, it’s living our values. At Seagate, ESG is synonymous with living our values of integrity, innovation, and inclusion. from Seagate. And it’s committed not only to long-term profitability, but also to our workers and our planet. That’s how it is in our culture. And that is: if you take a look at our 40-year-old company, you can see that we have been working on this for many years. For 20 years, we have been committed to transparent reporting on our energy, water and waste.
For 10 years, we have been very transparent with human rights, we do not tolerate any abuse and we are very transparent with our will to combat opposing conflicts, mining conflicts, the loose source of minerals, all essential. And for the past five years, we’ve focused on energy and greenhouse fuel emissions. So, modeling, where are we going to decrease our carbon footprint?also exceed.
Since we have a long history and it’s in our culture, we have published around 16 annual sustainability reports. And that’s our commitment to information and assurance. And right after we did that, right on Earth Day last month, we also committed to one hundred percent renewable energy through 2030 and carbon neutrality through 2040. Therefore, we are not making superficial compromises. So, it’s actually important, and that’s our priority. Thank you for asking the question.
Erik Woodring
No, and something that’s obviously attractive in my world is that some of my companies make products, right?So, sustainability in the environment is notoriously massive in terms of recycling and securing the source of fabrics in a sustainable and moral way. And then my introduction, my long introduction, I talked about the Responsible Business Alliance, you were a founding member of it. Again, I talked about you being the president, you’re a board member. Maybe it didn’t just help We perceive what RBA’s relevance is in today’s world and create a sustainable supply chain.
joan motsinger
Of course. Excellent question. And you may not be familiar with the Responsible Business Alliance. It is the world’s largest business coalition, focused on electronics, whether focused on accountability. So if we, if you’re a member of the Alliance of Responsible Business, and many high-tech corporations are, they are very much so. This means that we will run our businesses, our factories, our supply chain according to a code of conduct. And that means we’re going to have policies and we’re going to have processes and we’re going to be audited through a third party. So when we come across a company that says I’m a member of the RBA, I fully comply, it provides that seal of approval that we are responsible and we act with a code of conduct.
So this is a very smart thing that has been in position since 2004. And we’ve been founding members of it, with some of the largest hardware corporations or OEMs in the IT industry in recent years. You will now see that the RBA will not only be guilty of human rights and will ensure that this is respected. But we are also pioneers in climate replenishment and compliance to meet climate replenishment. We are not acting, achieving any project only in climate replenishment. So, the Responsible Business Alliance is that format, that design that allows us to achieve this. So, it’s a wonderful coalition.
Erik Woodring
Awesome, very useful. So, I think in terms of ESG, there are a lot of projects that he talked about. I think it’s useful if you can play with statistics or knowledge, right?Obviously, you’ve talked about some of your goals, however, is there anything you can cite to help us better understand how ESG has a positive effect on your culture, your operations, your costs, your products, and anything that can help us with that?
joan motsinger
I think you can take a look at this one.
Shanye Hudson
Well, I think one of the things we’re pretty proud of, at least in the last year, the groups have worked very hard. We have seven production plants around the world. And we got ISO 50001 certification in FY21 for us. And that’s for our energy control systems and that, again, is a testament to the commitment we have to reduce water, reduce waste, reduce energy, reduce ESG, reduce costs, okay. And it’s not just for Seagate, if you take a look at our supply chain, 70% of our suppliers are around 70% of our suppliers, they’re also committed to reducing and using less greenhouse gases or less water.
So I think that’s something for us on this kind of site, which we were pretty proud of, I think, maybe if I replace the gears and maybe I don’t communicate about the environment, for SeagateArray it’s not just about the good fortune of the business, but our commitment to the good fortune of our consumers. We are committed to serving our consumers with integrity and making sure we provide an overall positive visitor experience, we call it TCE. And we ask our consumers to measure us on a wide variety of metrics that encompass our generation roadmap, whether we’re delivering technologies that meet their desires, and in the time frame offered to them. Are we offering products of a quality that satisfies your desires?
Supply chain and logistics, which, if you think about the last two years, is suffering from not hearing about supply chain disruptions, and we’re able to. . . Can we deliver the products on time for them? So, TCE, Total Customer Experience, I believe, once again, that it’s up to us to build this sustainable business, which is not only bottom-up with our supplier, but also top-down with our customers.
Erik Woodring
He talked about the suppliers there, which is one of the best transitions to my next question, which is that he evidently has excellent relationships with his suppliers. In my world, the supply chain has been a vital factor, a huge headwind for many. Have you navigated the supply chain better than others?Can you go back to what you just said, based on what you just said, the footprint of your global supply chain, how your sustainability efforts have influenced your interactions with other parts of your supply chain?And that may be your — again, I’m focusing on sustainability here, but is it possible that your sustainability efforts will lead to a replacement in your supply chain?Or would it have to lead to a replacement in your supply chain?your chain of origin again, call it the next five years, something like that?
joan motsinger
Of course. I guess a healthy supply chain is pretty vital these days. So, and I think it’s based on solid data, we have a successful history and our industry is very strong. And that story is not just based on quotes, but it’s based on accepting as truth and also smart engineering, which means you have smart generation roadmaps, and you complement that with execution tactics. It’s the continuity of the source, the continuity of the business, if that helps ensure that we take care of the charges, you put all the points on the table. So I think you’re right, we’ve been given a lot of demanding situations in the last two years, even in the last 10 years, if you think about the floods and things like that. So we are not, we are used to demanding situations and we are used to being agile. And I think that for us, our suppliers are just an extension of our business. They are critical. They are right through our appearance as colleagues. And so that dating of accepting as true with integrity extends to them. Maybe just a thought, just as I talked about volume, load or generation, I think in recent years I accept as true it also means source chain security.
So, we have a lot more discussions with our vendors about what their cyber resilience is. What are your products?Are your electronic parts safe?Do you have smart privacy and knowledge protection? It is enough to continue to accentuate these types of discussions to ensure that acceptance as true with integrity is technically supported and executed. So, if you think about it, our quotes have been based on accepting as true with, for a long time, human rights, all those points that I mentioned. And now we’re adding the environment to that.
As Shanye said, if you can have most of your businesses already involved in water, already involved in electric power and greenhouse gases. I feel like we’re doing well together. So he’s smart and grateful.
Erik Woodring
And I’m just going to ask one more, because today’s component is about a kind of circularity and recycling. So what steps is Seagate taking to enable some sort of circularity within its generation ecosystem?
joan motsinger
Of course. Well, let’s take a little bit of a product: general research into the product life cycle will make it imaginable to exploit the return-to-earth approach. So when we think about circularity, and we’re manufacturers, it’s up to us and our suppliers to make that happen. We take this general lifecycle approach. Yes, we have a life cycle investigation. So we know what human toxicity is. We know what water depletion of metals is, so we can assume it.
So I think there are 3 parts, we’re here later. First, sustainable operations, we want us, our suppliers and customers, to be more sustainable in our operations. Think greenhouse gases or think energy efficiency. harmful chemicals. That’s what I think of when I think of our operations. And that’s fundamental. If we are going to allow circularity, then I think we can start designing much more sustainable products. There are eco-design criteria that can be implemented. We design for sustainability, and we’re on that path to get there. we to restore, reuse, recover, recycle materials more fluidly, all those are words that we want to incentivize our price flows to implement.
I believe it is helping consumers use, reuse and end the shelf life of our products. And then, at the end of the useful life, obviously we need to marry them in recovery, in recycling. We don’t need it to get back ashore. We know that we use finite infrequent lands. And we know in combination that we will have to do something about it. Therefore, circularity is absolutely imperative for us. And we need to motivate our industry to act quickly.
Shanye Hudson
Maybe if I could upload what Joan said in the last part. It’s not just ours, it’s not just Seagate to reduce greenhouse gases or to achieve carbon neutrality. In terms of partnering with consumers, we have very large consumers, very large global consumers who are running with us to help us with the return of products to help us reuse some of those materials, so it’s very much in our interest, but it’s also in our interest to visitors. Yes.
joan motsinger
Yes. C that’s right. A lot of statistics about aluminum recycling, infrequent earth recycling and that’s what we want to get out. Not just show the feasibility, but scale.
Erik Woodring
Well, basically I just had my next consultation, which is the best. No, it’s a very good transition, meaning we’ve communicated internally with you and then with your origin chain partners now. So now, what about consumers?Has this replaced over time?I think it’s probably essential. Again, just construction for Shanye, what did you just communicate about?
joan motsinger
Yes, visitors, visitors’ boards are very important. And they have been integrating sustainability into their boards for some time, which can be achieved through human rights. Through conflict, the supply of minerals, the supply of minerals without conflicts. not only are they seeing human rights, conflict-free procurement, but now more environmentally-targeted measures are emerging, they ask, when will we be 100% renewable energy?When will we work with them to achieve carbon neutrality together?it is very applicable. Our moonshots, as we call them, as we publish them, are very applicable and well aligned with the visitor. So, we feel pretty smart about it.
Everything is based on other things, is it rarely very?All of this is once again based on our Code of Conduct, back to RBA. If our customers are members and we are members, we can assume this duty of the price chain. So, as I said, human rights, minerals, the environment. , it’s pretty smart there and our dashboards are starting to reflect that and fortunately being at the forefront, we think it’s affecting our percentage, our market share in this industry. Therefore, we are super neutral.
Erik Woodring
Lead?
joan motsinger
Customers, yes.
Erik Woodring
The attractive thing is that you play an important role in what we call the age of knowledge, right? The ability of corporations and businesses to harness the knowledge they collect, use that knowledge, and make business decisions. So we almost have a circular conversation. But being able to buy a lot of that knowledge is absolutely essential, right? You want to be able to track your greenhouse gas emissions and energy consumption. And you have to buy that, you have to analyze that, obviously, you get technologists. So maybe you can just communicate your efforts to expand products, but maybe use instances or examples of consumers leveraging your build to meet their needs. Sustainable skills goals?
Joan Motsinger
Of course. Data is essential. Data is central to environmental and social efforts, and much of the knowledge lies at the edge or at the endpoint. Fortunately, we have the products to do so. And our consumers are excited to share with us on this. I think we’re all committed to working together. So first of all, we want to have the same non-unusual reporting frameworks, GRI SASB, TCFD, those are the 3 that we’re following right now. And, of course, inform and measure ourselves and functionality in this regard. And I think that creates an intelligent vernacular and not unusual for the paintings we make. Security, all of that is on the edge, well, fortunately, we perceive and our consumers perceive the price we want to make to bring all this together, add it.
So that we can have solid reports and assurances on those figures, we can report on the progress made in solving problems. So, our consumers depend on that, we depend on that, we also analyze it with our suppliers. Scope 3 not unless we work in the collective and add this knowledge. So, and I think we’re going to take a look at what the SEC or other environments are generating here about the requirements, but first and foremost in the collection and reporting of knowledge, and the aggregation is very critical if we’re going to make progress collectively.
Erik Woodring
So now, if we take a lot of what we just talked about in terms of sustainability, circularity, recycling, you’ve set science-based targets, by the end of 2020, to reduce your carbon footprint, to achieve carbon neutrality, again. , does it only help us perceive the ultimate relevance of these goals to Seagate?
joan motsinger
Of course, science-based goals. This is what corporations will do to prove that they are guilty and guilty for reducing their greenhouse fuel emissions, either to achieve carbon neutrality or simply to meet relief commitments. Science-based goals give everyone a commitment design to get there. So, it’s vital for us, we started modeling about five years ago, as I said, in our Scope 1, Scope 2, and Scope 3. So that we can make commitments based on clinical goals and now that we feel they are well supported and we have a line of sight, we feel we can beat them.
I inspire each and every company, it’s not a competition, let’s make each and every company dedicate themselves to science-based goals. Like I said, it’s about modeling, it’s about adding knowledge at the edge. they are very vital if we need to achieve this together, there are many trade-offs to be made. So that’s kind of what SBTs are.
Erik Woodring
And again, and when we think about achieving carbon neutrality, there are a lot of projects, a lot of steps that are vital to get there, what are the key enablers?What are the key projects and milestones at which Seagate will succeed at this point?
joan motsinger
Well, we are a manufacturer. Fields 1 and 2 are very important, whether they are direct emissions or energy use. Therefore, scopes 1 and 2, we are quite satisfied to have made many models in this area. Scope 3, which is the next big lever for carbon. neutrality, where we work with our suppliers and consumers and interact with them not only with standards, but also with measures and actions. So carbon neutrality for us now means running in parallel in the collective to move them forward. We’re going to have to compromise. I’m not a company that can neutralize carbon emissions, we’re going to have to do it in the industry. So when we say 2040, we have a great condiment here to make.
Fortunately, as Shanye said, our consumers are very motivated and are on our side, asking us, what is their renewable energy?What is ours, what do we do in those geos?We get those kinds of calls, and how we work with governments, with electric power providers. And then, of course, consumers and suppliers to make that happen. So, we believe that our commitment can be maintained, because we are all very motivated. Do you have any other comments?
Shanye Hudson
I was just going to say, and maybe you can interfere here, Joan. But one of the things you said, actually, while communicating with investors about our goals, one of the things you said really moves me and I’m saying this, because it was you who used it for me, before we committed, we actually did. So when we talk about Scope 1 and Scope 2, today we have factories that run on renewable energy, and we have a way to go, the rest of those that run on renewable energy. We make Pareto charts and know exactly what movements we want to make?I don’t know if you want to communicate about some kind of Scope 1, Scope 2 attitude, because as you said, Scope 3 is probably the longest store post for us, and probably for many brands, beyond us upstream and downstream.
joan motsinger
Oui. Si you are familiar with cutting-edge technology, there are many harmful chemicals. And we have to mitigate them, eliminate them. That’s what it’s all about. It’s about making white space production decisions and restricting carbon, with high-carbon fabrics combined with less virgin fabrics. That’s what it’s all about. That is our priority. Scope 2 renewable energy, so when Shanye mentions the seven plants, wherever they are located, Northern Ireland, Thailand, China, Malaysia, Singapore, Minnesota, we want to work with those governments to supply this grid that is renewable. our top priority. So when Shanye says, yes, we don’t make those comments lightly, it’s because we’ve done the heavy lifting not only on the model, but also to have interaction in the collective to make this happen. So I hope it’s helpful.
Erik Woodring
Oui. Et, I think, again, this is the best transition to my next question, because it has incorporated quantitative, environmental, and social goals into executives’ long-term pay plans. the march. So what are some of those goals?And just give more details about your resolution to integrate those goals into the executive?
Shanye Hudson
Go ahead, if you want?
joan motsinger
Of course. And thank you for uploading that. Because I think it’s a domain that has excited me personally. So, from this training, this training 22 for us, and we’ve incorporated two goals, one about the environment, and that’s really, I plan to move forward and achieve our science-based goals first. And then longer-term carbon neutrality, so we have underlying plans, and those are the ones that are similar to our executives’ pay. The moment is social and broadens our gender diversity. In fact, we are focused on improving a diverse, equitable and inclusive culture, we are a generation company, there are two women here and we are on getting better women in leadership positions, I think in FY21, we increased the percentage of women in leadership and administrative positions, that’s something we’re focusing on strongly. And so, walking in the march, we put our money where our mouth is literally. What do we do with that?
Erik Woodring
So yes, perfect. That leaves us with six minutes. So, I just need to make sure you have 4 more questions. So, I need to set priorities and make sure that in the end we deal with those big issues, because we talk a lot about sustainability. And again, externally, though, I think it would be helpful to spend a minute or two talking about ESG and integrating into your own corporate culture, okay, you just talked about that in terms of diversity, but there are more important points than you can integrate ESG as a whole into Seagate culture.
Shanye Hudson
I can take that. I communicated about living our values, integrity, innovation, inclusion and what the vernacular we use inside is like. And it’s helping us in our decision-making, our prioritization. Maybe just to pivot, I’m going to communicate a little bit. more about the company, the governance of it. I think that’s pretty vital too. I talked about GRI, SASB, TCFD and the reports. The board oversees our programs, so I communicate our ESG priorities with my colleagues every six months. The Audit and Finance Committee also audits our practices, particularly when they have monetary ties, the NAM and GOV committees review our performance-based pay. Therefore, it is quite well integrated. And, of course, it’s the control team that sets the tone at the top.
When we say profitability, long-term prosperity, and balance it with for-profit people, it sets the tone for the decisions we make. This is how paintings are made. Perhaps an undeniable mirror image about knowledge governance and knowledge privacy is so important. And that is our current state. Data privacy and knowledge coverage, provenance of knowledge, those are the words that are so critical, right?Your knowledge is your knowledge. And so we also take into account that ESG, living our values, is imperative in relation to knowledge and privacy, coverage and provenance of knowledge, so security threat control includes for us, as I said, not only cyber products, however, privacy and knowledge and trust coverage.
And then we integrate that into our corporate governance around ESG as well, when we think about governance, and then G, we think about knowledge, and we make sure that not only are we ethical, but also that our knowledge is safe and your knowledge is safe. So, this is one of the structures that we think is very applicable to us. So, and I think that’s it in terms of some of our areas of control.
Erik Woodring
Oh that’s great. It’s great. So now, let’s take a look into the future, as you think global and call it the next five years, what are Seagates’ top urgent ESG priorities and what are the steps it wants to take from point A to point B and beyond?
Shanye Hudson
I’ll let it go, thanks for completing. So, in short, and thank you for asking the question. If I have rambled on about the total and the environment, it is very important that we promote the circularity of products as a manufacturer and generator, we have the duty to do so. . So we’re going to push products, circularity, we’re also going to push renewables and carbon neutrality, it’s environmental. I think for the social, as Shanye said, women in the generation and women in leadership, their priority, not just for us at the table.
But we believe that inclusion brings better innovation, and it’s the integrity of our solutions, so women in tech, women in leadership. And then in governance, like I said, it’s about the data. And so that means data privacy, data protection, data provenance, as we call it, all of these are critical aspects that not only do we want to govern our company by, but we want to ensure our products have those provenance aspects to it. So those are the three priorities for us in environmental, social and governance.
Do you think I missed it?
Joan Motsinger
No, I think if I bring it back around, one of the things that we’re working with customers on we have something called Secure Erase, and if you think about your personal data on a hard drive customers too, are saying, well, we’re not really sure that we want to give that back to you. The Secure Erase gives them the confidence that that data is gone. And we can kind of take back those drives and your data is secure. So it almost is in the spirit of circularity, it sort of kind of closes that loop.
Shanye Hudson
Yes, I’ve probably talked about it. And my apologies, I’m going to make a mistake.
joan motsinger
To two technical facets that are actually vital for sustainability and circularity. And how many watts do you use in this knowledge center?And that’s a big priority for us. And the other issue shanye discussed was security, she wishes she could accept as true with us that we can protect her knowledge. And then we can erase and blank and you can reuse that, the more we build to accept as true within our knowledge markets, and we’ll do that with our technologists and continue to do that. I think you can be sure that we can build this circular economy. So thank you for raising that.
Erik Woodring
So Shanye, I’ll stay the last one for you. And in a way tie it all up in combination because at the end of the day, I’m a basic equity analyst. So, I’d be remiss if I didn’t just ask you: you just reported the effects for the March quarter or so. A month ago, did it help us all perceive the specific characteristics and captures of what shapes the existing environment for you when we think about the quarter?
Shanye Hudson
Yes, absolutely. And I can just, I can build on. . . his commentary on power. I’m going to weave that into that. But, you know, I think in the last two years, every quarter has brought a whole new set of demanding situations and the March quarter hasn’t disappointed, right?As I mentioned, we’ve gone through supply chain disruptions, I think Seagate has done an incredible job of securing the origin of the hard drives we want: we have a wonderful supply chain team, we’ve built strategic inventory, and we’ve met demand. In the March quarter we are talking about, a kind of additional disruption. First, the tragic war that is happening in Ukraine, and we stopped shipments at the beginning of the war, so it had an effect on our income, we rated it as about 1% to 2% of revenue.
Secondly, while in many parts of the world we sit here face to face, in many parts of the world there is still the pandemic that is having a huge impact on parts of our business. So in the massive capacity garage markets, video apps and symbols, or we call it through AI, a lot of exposure in China and China right now, with COVID lockdowns having what we would see restricting demand in the short term. So in the short term, we’re executing on some of the challenges, I think in the long term, as Joan has said several times today, it’s about data.
And the knowledge, especially in massive capacity storage, I discussed at the beginning of the session, the cloud as a strong driving force of expansion for us for more than two years, the cloud market has been very healthy. This is a component of our massive capacity markets. And those markets, we expect to double about once every one and every five years or so, I allocate massive capacity, achieving a TAM profit of about $26 billion consistent with the calendar year. 26. So, you know, I think again, each and every quarter has brought something new and we’re moving on to keep going through them in the short term, we think longer term, you know, the expansion of knowledge and, in the end, the desire to buy. that so you can extract the price exists and Seagate is in a very smart position to capture those opportunities.
Erik Woodring
Not bad. Ideal time. Thank you, Shanye, thank you so much for joining us.
joan motsinger
A pleasure to meet you.
shanye hudson
Thank you.
Erik Woodring
Thank you.