Q1 2021 Western Digital Corp Earnings Call

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Good afternoon. Thank you for standing by welcome to the Western Digital's for fiscal first quarter 2021 conference call.

Presently all participants are in listen only mode.

Later, we will conduct a question answer session at that time, he like to ask a question press star one on your phone.

As a matter of this call is being recorded now I will turn the call over to Mr., Peter Andrew you may begin.

Thank you Shannon and good afternoon, everyone. Joining me today are David Keckler, Chief Executive Officer, and Bob You Lowe Chief Financial Officer before we begin let me remind everyone that today's discussion contains forward looking statements, including product portfolio expectations business plans trends and financial outlook.

Based on management's current assumptions and expectations and as such does include risks and uncertainties. We assume no obligation to update. These statements. Please refer to our most recent financial report on form 10-Q filed with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially.

We will also make references to non-GAAP financial measures today reconciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the Investor Relations section of our web site with.

With that I will now turn the call over to David for introductory remarks.

Thanks, Peter and thanks, everyone for joining us to discuss our fiscal first quarter results.

Got you and your families are staying healthy and safe.

Before we dive into our results I'd like to take this opportunity to provide some color on our new business unit structure, which we announced in September.

I have strong conviction in the market opportunity from growth rapid global adoption of the technology architecture built with cloud infrastructure tied to intelligent endpoints in connected by high performance networks, the value and urgency of data storage at every point across this architecture has never been clearer.

Customers need solutions that can best address the requirements across a variety of use cases and end markets. The ability to capture this opportunity at every stage highlights the criticality of having a broad portfolio, both flash and hard drive products, we have the best and most comprehensive storage platform in the industry and I believe over the coming quarters.

Yes, we will continue to see the compelling benefits of this strategy.

In particular, there are significant operational and go to market synergies with our integrated flash and HDD portfolios, which are important competitive differentiators for WD.

There is also a great deal of customer overlap between our flash and HDD businesses, and we believe our long standing deepened collaborative customer relationships will be a key factor in achieving strong performance over time.

A great example is that following the acquisition of Sandisk, we built on our strong HDD customer base to drive impressive adoption of SSD solutions on the client side.

As a result of our established trusted relationships. Our HDD customers then turned to us to also provide them with fat Flash solutions.

In fact, we now equip all of our top 20 customers with both flash and HDD products.

Our demonstrated ability to support our customers by providing a breadth of options that gives us confidence that we can do the same in enterprise SSD space in the years ahead.

Ultimately, we understand our customers needs and we can work with them to address their evolving and growing storage ecosystem to provide them with a wide range of solutions.

At the same time, there are technical dynamics between flash and HDD that are very different.

While we develop.

Innovative compelling technologies in both areas each require separate dedicated focus on product development technical strategy and execution on our roadmap and product commitments to that end one of my first observations when I arrived at WD was that we could do a better job of capitalizing on these dynamics.

Mix, so to help us accelerate our strategy, we have created flash and HDD business units each with a dedicated general manager.

This new structure is designed to accelerate growth and drive agility sharper focus in business accountability throughout the organization.

Within each business unit engineering and product management teams will be responsible for driving product strategy roadmap in pricing with overall PML responsibilities. The GMV of each unit will work with their work.

Work with their peers and operations memory technology sales finance legal and human race resources to drive their businesses with accountability for results.

As part of this reorganization, Rob salivary joined WD in September as exact as executive Vice President and General manager of the New Flash business unit revenue.

Rob as a 30 year technology industry veteran with outstanding experience, leading enviable product franchises at scale and has deep technology and product management expertise.

Earlier this afternoon, we announced that Ashley Gorakhpur Wala is joining us as executive Vice President and General manager manager of our HDD business unit.

Ashley brings 30 years of technology experience to the team and has spent the majority of his career at Dell technologies, and many different engineering and business leadership roles focused on complex datacenter infrastructure.

Most recently he was president and GM of servers and infrastructure systems, we had full PML responsibility for a $20 billion business and a global team of 4500 technologists. We are thrilled to have both of these exceptional leaders on board.

Now turning to our financial results in the first quarter results were at the upper end of the guidance ranges. We provided in August we reported revenue of $3.9 billion and non-GAAP earnings per share of 65 cents.

Results were strengthened by retail where we are executing a compelling innovation story reinforced by our powerful brand recognition and reputation for exceptional performance.

Encouraging economic and market dynamics supported this performance as coated restrictions ease during the period, while consumer flash pricing stabilized. In addition continued work from home and distance learning trends drove some upside in hard drive demand for desktops and notebooks.

In general some of the uncertainty we saw last quarter is starting to dissipate. For example, we have better clarity today on geopolitical dynamics, while way concerns and stability and consumer flash pricing. We're also seeing positive indications around the progression of the fiveg ramp and the growth of Pud.

Central gaming the growth potential of gaming excuse me.

However, some near term headwinds remain demand trends continued to be mixed than there have been recent cobot related thought lockdowns an upsurge in several countries. While we are not out of the woods on these macro impacts we are more optimistic than we were last quarter on some of these issues abating in calendar 2021.

Turning to a recap of performance in our flash business.

Our broad flash product portfolio technical leadership deep customer relationships extensive distribution channel and a low cost architecture continue to differentiate us from our peers.

Product highlights in the quarter included.

Within retail, we refreshed our entire SSD product line, including introducing the armor lock security platform armour lock is a data encryption platform featuring state of the art security technology in.

And ease of use in enabling secure storage.

The first product to leverage this technology is the armor lock encrypted nvme Pcie SSD.

The initial reaction this product has been terrific terrific, particularly with professionals and content creators in the media and entertainment industry.

As we enter a seasonally strong quarter, we are well positioned in the retail space and expect the fiscal second quarter to be another growth quarter in retail.

For WD Black product line has been expanding has been expanding and continues to add innovative solutions for gamers, including the recently launched WD Black Sn 850.

This is our first SSD to feature next generation Pciethree for technology and early reception has been very positive.

In fact over 850000 gamers streamed our twitch launch in early October.

Our comprehensive portfolio is enabling us to provide flash products directly into consoles as well as provide leading flash and HDD retail solutions for the broader consumer gaming market.

In total gaming represented about 10% of our flash revenue this quarter gaming.

Gaming continues to be a promising growth area for us and we are excited about the future of this end market.

We continued the enterprise SSD momentum, we discussed last quarter, having now completed over 100 qualifications of our second generation Nvme products.

Over the next two quarters, we expect to start qualifications and additional cloud type tightens and one of our largest Oems, which will further expand our addressable market.

We have large cloud and OEM partners, having large cloud and OEM partners completed qualification cycle can be a multi quarter process with deep commitment and investment from both parties required but they typically lead to high volume purchases, we are well versed in this process, having having undertaken thousands of qualifications.

Over the past several years, which are inevitably successful the energy enterprise SSD market has immense untapped potential and remains a key area of focus for US I'm also confident the recent organization changes. We've made we will further sharpen our execution in this critical market.

More broadly our successful 20 year partnership with Kyocera continues to be a strength of the business. Our joint memory technology roadmap remains strong with impressive fixed for the next five yields and associated strong crop cost improvements underpinning our entire portfolio.

We also regularly worked with Q on future facilities facility planning to that end. This afternoon coach announced the construction of the shell for fab seven annual KCG, which is expected to commence in the spring of 2021.

We expect to continue our joint venture investments for Fab, seven and look forward to our ongoing successful partnership.

On the HDD side of the business, we continue to align our product portfolio towards growth markets, particularly in cloud and smart video. These.

These end markets demand high performance high capacity drives and we are continuing to innovate and head and media design firmware and mechanical suspension to take advantage of this opportunity.

We achieved important HDD business and product milestones in the quarter, which which highlights our commitment to innovation and our focus on sharpening execution first.

First I am pleased to announce that we reached our goal of producing over 1 million energy assisted drives we are seeing strong engagement with customers as we build on our on our capacity to aggressively ramp. This platform. We have completed nearly 100 qualifications, including with one cloud Titan and have an additional 125 qualify.

Locations in process, including with two more cloud Titans were excited about the progress we've made and expect the 18 terabyte capacity points to be the sweet spot in the industry.

Second on Monday, we announced qualifications have been completed on the 20 terabyte platform and we have already started shipping for revenue.

You may recall several years ago, we committed to delivering a 20 terabyte product to our customers by 2020, reaching this critical milestone is a significant achievement.

And testament to our ability to deliver on our product roadmaps.

Finally in our OEM and retail end markets rates Gd, we saw upside in demand driven by the work from home and distance learning trends and expect this to continue through the current quarter.

I'm very proud of the team for the focus and commitment to achieving these important milestones and am excited about how we are positioned for success moving forward.

I will now ask Bob to share details on our first quarter results.

Before I talk about what we see going forward.

Thanks, Dave and good afternoon, everyone.

Overall results for the first quarter were at the upper end of guidance range of the guidance ranges. We provided in August we continue to make a number of long term structural changes in the way we are running the business to accelerate growth and drive agility focus and business accountability throughout the organization.

We are evaluating whether any changes are needed to already comprehensive disclosure as a result of the new business unit structure that Dave described today, However, I will focus on our traditional disclosures.

For the first quarter revenue was $3.9 billion down, 9% sequentially and 3% year over year recall the last fiscal year period was a 14 week quarter.

Looking at our end markets client devices revenue was $1.9 billion, a bit better than expected up 2% sequentially and 20% year over year.

Within this end market client SSD revenue declined sequentially from a record level of our customers adjusted some excess inventory and we faced lower flash pricing.

Notebook and desktop our drive revenue declined sequentially as the market continued to transition to SSD based products, but demand was better than expected due to work school and game from home trends.

Smart video demand was better than expected as this market started to recover.

Gaming revenue experienced very strong sequential growth as we increased our shipments in preparation for the upcoming new game console launches.

And finally mobile flash revenue grew on a sequential and year over year basis, driven by demand from several China based customers and new Fiveg product Roadmaps here in the U.S.

Moving on to data center devices and solutions.

Revenue was $1.1 billion down, 33% sequentially and 26% year over year.

Both capacity enterprise hard drives and enterprise SSD revenue were down sequentially due to digest in at both cloud and OEM customers.

Next client solutions revenue was above expectations at $847 million up 23% sequentially as brick and mortar stores continued recovery and online and curbside pickup trends continued client.

Client solutions was down 5% year over year.

The work school and gaming from home trend benefited both hard drive and flash based products again, highlighting the powerful synergies.

We will go to market synergies of this channel.

As Dave mentioned flash pricing and retail has been fairly stable. Traditionally this has been a leading indicator to pricing trends in other portions of a flash market.

Turning to revenue by technology wise.

Whilst revenue was $2.1 billion down, 7% sequentially, but up 27% year over year flat.

Flash Asps were down 9% sequentially on a blended basis and down 6% on a like for like basis, good shipments were up 1% sequentially.

Our drive revenue was $1.8 billion down, 10% sequentially and down 23% year over year.

On a sequential basis total exabyte shipments were down 7%.

While the average price for hard drive decreased 9% to $79.

Reflecting the digestion, we noted for our capacity enterprise drive products.

As we move into cost and expenses. Please note all of my comments will be related to non-GAAP results unless stated otherwise.

Gross margin for the first quarter was down 2.6 percentage points sequentially to 26.3% slightly above the midpoint of our guidance range.

Flash K, one startup costs were $66 million co. Good related costs were $28 million essentially all attributable to hard drives down from $96 million in the prior quarter.

Our flex gross margin was 26.4% down 4.1 percentage points from last quarter.

Pricing was down more than anticipated.

We continue to seek to achieve good cost reductions, which help to partially offset the decline in pricing.

Our hard drive gross margin was 26.2% down 1% percentage points sequentially due to product mix and costs associated with the early ramp of our next generation energy assisted hard drives.

Hi, good related costs represented about 1.1 percentage point on our hard drive gross margins.

Non-GAAP earnings per share was 65 cents.

Operating cash flow for the first quarter was $363 million and free cash flow was $196 million.

Capital expenditures, which include the purchase of property plant and equipment and activity related to flash joint ventures on our cash flow statement was a cash outflow of $167 million.

In the fiscal first quarter, we reduced debt by $213 million, including an optional debt payment of $150 million.

Our liquidity position continues to be strong.

At the end of the quarter, we have $3 billion in cash and cash equivalents and our gross debt outstanding was $9.5 billion.

Our debt to adjusted EBITDA ratio was four times in the first quarter.

Our adjusted EBITDA as defined in our credit agreement was $3.4 billion flat sequentially, resulting in a leverage ratio of 2.8 times.

As a reminder, our credit agreement includes $980 million in depreciation add back associated with the joint ventures.

This is not reflected in our cash flow statement.

Please refer to the earnings presentation on the Investor Relations website for further details.

Moving on to our outlook.

As Dave mentioned, we are optimistic that conditions will improve next calendar year. However.

However, our visibility remains limited in the near term as a result of the uncertainty of a pandemic and global economic contraction.

Despite this uncertainty we continue to execute effectively and build on our strong foundation of great products deep customer relationships and large and growing end markets.

We are working on a number of substantial product transitions that will set us up well for the long term.

By technology, we expect hard drive revenue will be up and flash revenue will decline.

During the fiscal first quarter, we experienced a pull forward in demand due to geopolitical dynamics. The most significant was from walkaway, which represented mid to high single digit percentage of sales.

We are now planning on zero sales to wawa in the fiscal second quarter.

With all these factors in mind, our fiscal second quarter guidance is as follows.

We expect revenue to be in the range of $3.75 billion to $3.95 billion.

Non-GAAP gross margin to be between 24 and 26%.

This range includes approximately $30 million in costs associated with Covance and $50 million in costs associated with the K one fab.

We expect the fiscal second quarter to be the final quarter in which we incur meaningful period expenses associated with the startup of the K one fab.

We expect operating expenses to be between 680 and $700 million.

Interest and other expense is expected to be between 70 and $75 million.

The tax rate is expected to be between 21 and 25% in the second quarter.

And we expect non-GAAP earnings per share to be between 40, and 60 cents in the second quarter, assuming approximately 306 million fully diluted shares.

In summary, we are managing well in an uncertain environment and positioning ourselves in both the flash and hard drive markets for the significant long term growth opportunities that are ahead.

Now I'll turn it back to Dave.

Thanks, Bob.

Heading into the holiday season into calendar 2021, we are optimistic about what lies ahead.

As the technology industry evolves and grows and data becomes more critical invaluable we will be positioned for success by continuing our history of innovation delivering on our product roadmap across flash and HDD building on our strong customer relationship as their trusted storage provider of choice in continuing to sharpen our execution.

Across the business. The recent organizational changes will be integral to accelerating in enhancing our ability to address and capture major opportunities in front of us.

Consider change catalyst of opportunity and I am very excited about the future of western digital.

We will continue to think strategically and AXOS fully with the best interests of our shareholders customers and employees in mind.

Ill now turn the call over to the operator to begin QNX.

Yes.

Ladies and gentlemen, we will now begin the question and answer questions on today's call.

I have a question. Please press star one on your phone.

We'll try your question please press the pound key.

Good morning.

Next question.

Our first question comes from Joe Moore.

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Great. Thanks. Thanks.

Thank you.

What if you could talk a little bit about the NAND pricing that you saw in Q3, you talked about 6% like for like declines. It seems like the markets that are more favorable pricing like solid state drives were down more than that so ill.

No surprise that was kind of benign and then maybe a little bit about how you see NAND pricing in the fourth quarter.

Sorry, Amit.

Hi, Joe It's Bob I'll go ahead and start so yes, I mean, we obviously.

Obviously, it's still saw a pretty significant price declines during the quarter. We were fortunate we were able to offset some of that with pretty good cost reductions during the quarter and we think we're going to continue to see some price pressure going forward as we said in our comments in the retail channel.

Things seem to have stabilized.

From an OEM perspective, our prices are down in the December quarter, but we're hopeful that they will begin to stabilize as well.

How are you guys seeing solid state drive speed worse than like at a component level men's health.

Or is it the same.

Yes, I don't know that we want to get to that level of detail I'd say, it's roughly the same I don't think there's a big difference between the two.

Okay, great. Thank you.

Our next question comes from Toshiya Hari with Goldman Sachs. Your line is open.

Hi, guys. Thanks for thanks for taking the questions.

With that.

Hi, you mentioned that you sell pull forward in the quarter and you sized hallway has sort of a mid single digit to high single digit customer.

I was hoping you could quantify how big the pull forward was not just from Norway, but from I guess, all your customers, particularly in China. If you do have a number and I guess maybe related to that your inventory was up a little bit on a sequential basis was that mostly on the NAND side or was it across.

Both your businesses and then sorry, one more.

How would you assess the Euro Cup.

How would you assess customer inventory levels as of today, both on the downside and should decide thank you.

I'll start and then Bob can add on.

So I think the pull forward, we did see some clearly I think it was fairly modest maybe 1% to 2%.

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So.

And then of course once the Commerce Department Bullshit.

Stopped.

Second question on inventory inventory, you want to start with inventory bomb, yes. So the IRI the inventory was up quite a bit, but quench, Italy and some of that was really due to particularly low levels of inventory in the June quarter.

And most of it is on the hard drive side.

And as we have talked about this year, it's been a very disruptive supply chain. So we we really are taking actions with inventory to assure that we have the components that we need to build the products. We also are trying to have enough inventory. So we can ship on the ocean rather than air as you probably know the air freight rates are very high coming out of Asia right.

Now.

And then finally, we are in a very significant ramp with ours 16, 18, 20 terabyte products. So all those factors play into the increase in inventory and.

We're confident obviously, it's mostly our newer products, we'll be able to sell that inventory.

And then I think your other question was with respect to customer inventory levels and I would say first of all in the channel retail and commercial distribution. We think inventory levels are very normal I don't see any issues there.

From an OEM and from a cloud perspective, we're definitely seeing some customers who still are in the process of normalizing their inventory levels. So their inventories are still a bit high but again, we are hopeful that that'll that'll get normalized in the December quarter.

Yes, just to reinforce one thing Bob said, there I mean, the ramp on the 16 18 product is the fastest ramp we've ever done to a new capacity point by a significant amount so.

We are getting prepared for demand for that product as we go forward and so.

Yes that that that's been an impact on the system as well.

Thank you good luck.

Thank you. Thank you.

Our next question comes from Karl Ackerman with Cowen. Your line is now open.

Thank you two questions as well. Please the first question I have is.

Your your Opex outlook of 690, I think is very impressive.

But what are your thoughts on opex from that level, considering the new change in organizational structure and initiatives on enterprises, These and energy Nearline drives.

Yes, so opex is something I mean, clearly we've been focused on.

I mean, especially given the market we're in but I think the new organization structure gives us more focus to make sure we're spending our opex on the most valuable thing so.

I view, the fact that we've got two highly experienced general managers coming in to drive the business as continuing to drive that focus to make sure we're investing in the right.

The right places so Bob you want to say anything. In addition, yes I can just add I mean, I think that the second fiscal quarter is going to be unusually low in terms of opex, we got some.

Seasonal factors there that are are benefiting us.

As we move forward I would expect as we get a visit to ultimately get back to normal we started having more employees in the office more travel.

I would say Opex will probably go up a bit.

But we are pleased with the cost controls and I think the new structure will give us a lot of focus.

Some were going to keep a very close eye on.

Understood.

For my follow up some investors are concerned or have been concerned that NAND profitability will remain subdued next year.

As some Korean peers ration of NAND capex, despite soft demand I guess, what sort of initiatives have you taken to respond to such a scenario and then separately because net prices are dictated by supply and demand do you think it's going to take several more quarters for NAND inventory to burn off and reached an equilibrium or.

Or I guess or your earlier comments.

Indicative that pricing will be more benign. Thank you.

Well I mean, so first of all I mean, the market requires a lot of ongoing investment just to keep up with the 30% demand increase in fits and climbing clearly there's we're working through an oversupply situation, but we continue to have a point of view that.

The most part the industry has done a pretty good job of being vigilant with Capex.

We're we're certainly we we invest with our partner in key options. So together, we're very big player and we're we've been very much on top of Capex and we.

Really got a tight process around that to make sure that we are.

That were of S. investing appropriately.

On the demand side, we do see a lot of things ramping up I mean, we see we talked about gaming in our prepared remarks.

10% of our our business this past quarter.

We obviously have fiveg ramp starting now.

We're hearing from our customers in 21 on the cloud side that.

I think we can all we all would agree that coming out of Cove is that the demand for the cloud keeps going up.

And we're seeing that so we it's hard to call that to a specific quarter.

But but we feel we feel better about 2021 about anything you want to add on top of them No I agree I mean, I think there definitely is some exciting trends in 2021 as fiveg starts to take hold in a more significant way and we aren't as big in mobile, but our competitors will be serving that market and that will consume a lot of.

Bids so I think overall 2021 shaping up to be a good year.

Our next question comes from and the Lakers with Wells Fargo. Your line is now open.

Yes, thanks for taking the questions I guess I have to laugh too as well so.

I guess the first question if you could help us unpack the gross margin guide of 24% to 26%.

In this current quarter between the NAND business than the hard disk drive business and relative to the HDD business I can appreciate that you're ramping the first generation of the energy assist drive, but I do I think about the progression back to.

Call it 30% gross margin what needs to happen there and I do have another follow up thanks.

So I'll take the second one first I mean, it is about the business shifting to higher capacity points right. I mean, we're in we're in a big transition now to adapt to a new platform. So is that is that transition starts to ramp that will be accretive.

Gross margins.

You know I think on pricing, we're getting more disciplined on pricing as well I mean, it's very important technology and making sure we keep our eye on that side as well is is very important, but we certainly see a path to it.

Increasing gross margins as we drive through the ramp of this capacity enterprise products.

You want to and wondering what are you assuming in the quarter Kirk undergrad.

But what do we sit I'm, sorry, I'm, assuming on what England's on.

May it may end versus hard drive margin.

So okay I'll do the I'll do the unpacking on on hard drives so.

Obviously, it benefits us quite a bit as the market shifts Dick across the enterprise and we do expect to have over time significantly better gross margins of about the enterprise becomes a bigger percentage of the total in the December quarter. It turns out we're seeing a lot of strength in retail and so that means the mix is unfavorable.

In the December quarter from the hard drive standpoint, and we do expect that to recover as we launch the new products going into next year. So so I think on the hard drive side, we'll definitely see recovery on the flash side. It's.

It's really a matter of how things go with pricing as we mentioned, we're seeing some stabilization in the more transactional markets and.

Obviously, a couple of months away from negotiating for next quarter with the Oems, but we're hopeful that we'll start to see to the pricing situation improve on the flash side as well.

Okay, and then as a quick follow up can you tell us just housekeeping wise, what the near line capacity ship was either sequentially or year over year growth.

Yes, we don't break that out specifically on a quarterly basis I'll try to see if I can dig up a exabyte number on a year over year basis.

Okay. Thank you.

Thank you thanks.

Our next question comes from CJ Muse with Evercore. Your line is now open.

Yeah. Good afternoon. Thank you for taking the question.

I guess first question can you speak to.

How you balance.

The obvious need to lower your costs and increased layer count with the fact that that add that as bits to the market. So would love to hear kind of your philosophy today given.

Good.

Persistent oversupply that were.

Yes, so I think there's a number I mean, there's a number of levers there I mean first of all we're always driving.

The roadmap for over at the memory roadmap forward. So we can drive the cost down so making sure that we in it we keep the innovation up there is is very important and again I spoken about this.

Many times I think Thats, where our partnership with our JV partnership we we have a lot of cloud cloud.

Collaboration with key option on the R&D side of this business as well, which is is super helpful to driving the best cost position.

And then we want to drive to that and then there is the mix in the fab, how we treat allfast, we transitioned to the new nodes as far as the DMR.

Supply, we're going to get done and some of that is based on the products, we're putting it into and are those products ready to take the new nodes and just making sure. We got that mix all right and then making sure we look at that whole equation and understand.

Where the industry is at on bit growth in where how much capex, we're going to invest in those transitions to the new nodes to make sure that we keep the keep the balance right and get the cost in the right spot.

Very helpful.

As a quick follow up can.

Can you talk a bit about I guess, where you stand in terms of visibility to cloud recovery any any green shoots there.

Yes, I think as I think coming out of.

Out of out of Covidien, we theres no doubt that there has been more adoption of the cloud and we're hearing good things for our customers going into 21.

I think as Bob said, we see the HDD market is kind of.

Slightly up next quarter and then into 21, we see we see greater recovery. So.

We're hearing good things from our customers about demand in the cloud.

Thank you.

Thank you.

Our next question comes from Lindsay Mohan with Bank of America. Your line is now open.

Yes. Thank you you articulated many and drives in energy assessed.

Currently where does not need to be for HDD margins to turn back higher and would that incremental demand for you be more on the cloud side or on Prem side. What are you expecting to see first and I have a follow up.

I think well we see I.

I Didnt.

Expand on the second part of the question incremental demand for.

And as far as the high capacity drives.

On on cloud or on Prem.

I think we see some softness in the on Prem market, but the cloud on the cloud side, we see we see very good demand. There. So I think that's where you'll see incremental demand as far as.

As far as what does it need to be I mean, we're going to ramp very quickly on that platform and were always using that to drive yields up across the especially the head yields so.

We just keep driving that as high as possible and that'll that'll help drive the gross margins on the products I.

I don't know that exactly gets to your your question but.

If not I can follow up.

Okay. Thanks for that and as a follow up your cash Capex for this year. This fiscal year is projected at 1.3 billion. Your free cash flow is not tracking to that level at least as of yet.

Should we assume that there won't be any meaningful other progress on either reducing data on capital return for for the fiscal year.

Well first of all you are right I mean, our cash capex will be about $1.3 million.

And we're good at every every incremental.

All of our free cash flow, we're going to use to reduce our total debt. So I'm not going to give a cash flow forecast for the year, but after investing in the business. It's the number one priority.

Thanks, Bob.

Thank you.

Our next question comes from Mehdi Hosseini Psyche. Your line is now open.

Yes, so tense for taking my question.

I have two follow ups.

Two questions with no funded lumps I understand the rationale behind separating the flash from SDB you have a highlight the key strategic rationale, which mostly focus has been on the top line.

Generating revenue synergy it little good not sure about the cost synergies. It seems to me that you would require.

We'll be required to invest more in each sector before they become self sufficient so any color on costs.

Well cost synergy or cost increase.

This division would be helpful. And then my second question has to do with the mix you know hard disk drive.

18 20.

It's interesting to me how are.

You and your peers.

Highlighting Tony Terabyte outflows in high volume manufacturing into next year, but we're just beginning to start with the 18 to our base is that simply reflects the competitive nature of the near line or how should I think about 18 versus 20 because to.

To me one could cannibalize the other so any insights here would also be great. Thank you.

Okay. So first of all on the flash and HDD side, it's about focus on the roadmap and execution different businesses I mean there.

There.

I mean, obviously there are different businesses are sold to the same customers anything that's kind of.

To summarize it I mean, what we're doing from an organization point of view is getting what I think is the best of both worlds is the fact that we've got one customer relationship when we got to focus on two different portfolios.

And that's going to lead to the best I think the best allocation of our resources into.

The portfolio, it's going to I think it's going to lead to better execution I think when I got here. This was one of the things that I saw that we could use more precision execution. We had there's just too many people that we're thinking about two businesses at the same time as far as far as how you build them and that drives the roadmap.

So getting that separated yet keeping the customer facing pieces together is the strategy from an organization perspective, I think from a cost perspective, they each have R&D costs associated with them.

This is about getting the most focus on that and getting making.

Making sure that that that investment is going into what is going to be the highest return from a portfolio perspective.

On 18 versus 20% 20 is an SLR products and so that is a little different technology and Thats, what you Thats, where you get the Thats, where you get the additional density from so some customers have adopted SM arent. Some haven't so they're not really I wouldnt really think about that as a substitute there if you.

Adopted SM are you're going to get better density on the products. Some customers have adopted at some are looking at it.

And it's just another technique, we can use to drive density in our products.

But if you're looking at though from a volume and a revenue production basis. It should really be the TNT that we'll be the leader there, yes, theres no doubt about that.

Our next question comes from Shannon Cross with Cross Research. Your line is now.

Thank you very much first of all David I, just wanted to say actually it's a great hire we met with them several times during his.

Every gallon.

Yes, it really good reputation within the company. So I'm just curious looking at the HDD business, what what do you think are the first sort of.

Key initiatives our area of focus for him.

Coming in from two separate background and then have a follow up thank you.

So first of all.

Thanks for the comments I am really really happy that he is joining.

WD and I've been super impressed with them.

As we've gone through the process to to identify leader.

I think the issues around the HDD business or kind of some of the things that we've been talking about here. It's a tremendous business. It's got it's pivoting from this what was the big client business into capacity enterprise.

Capacity enterprise is going to be a growth business for the foreseeable future.

You know we have essentially anybody that's building a public cloud is going to be using hdds and there is not going to be a substitute for a long time theres going to be complementary technologies of enterprise Ssds, but there is a very very big difference in my mind in the SSD side.

Phase where in that on the client business you have two technologies, which are essentially substitutes and in the cloud space, they're complementary technologies. So.

Ashley is going to focus on is how do we make that making sure we drive through that transition.

And we can deliver on first of all the enormous growth in our customer customers are asking us to deliver on the growth rate in the public cloud is I think we would all agree is huge scale and stunning growth in our storage portfolio is the foundation of that make sure that we can we can drive to this.

His transition and return this business to growth.

And then we can meet that demand and then we can feel also focus on the profitability side of the equation and make sure where we're delivering a high value solution to our customers and that.

We're also delivering the right right value to our shareholders as well and getting that balance correct and I think very very focused leadership on that by somebody that has been in the data center infrastructure business for a long time and understands the dynamics and the architecture.

And comes in and looks at the industry with a fresh perspective is is something I'm very excited about.

Our next question comes from Sidney Ho with Deutsche Bank. Your line is now open.

Great. Thanks for taking my question. So I have two questions. The first question is on high side.

The.

The unit number 80 to 1 million units Panicky assist tries that you talked about is steady production number or shipment number and then how quickly does your production capacity could go up in the next few quarters.

Yes, Thats a production number we had an aspirational goal to ship that many we didn't quite make it on the shipment side, we're probably.

Several hundred thousand charter that we still shift a pretty fair number.

We expect a ramp that number into many many millions over the next.

Two to three to four quarters like I said this is the fastest ramping capacity point we've ever had.

In the company that anybody can remember I won't say in the history of the company because I haven't been here that long, but I talked to a lot of folks have been here a long time and.

The pace at which we have gone from 100000 units to a million units is like a third of the time of the previous capacity point and as we talked about as we look into 21. We're hearing we are hearing from our customers have good demand trends that are going to drive drive adoption of that product. We're.

We're happy where the product is.

We're working through the qualifications on Ed at really big customers and.

It will ramp quite quickly.

Our next question comes from Mitch Steves with RBC capital. Your line is now open.

Hey, guys. Thanks for taking my question. So what I wanted to touch up on really quick just Intel divesting their their NAND business I realize it's new but you guys probably had a chance at least looking to get an idea for what do you guys think so so how do you think this impacts western digital's NAND business going forward, if any any sort of comments you can make on what they divest shut down.

As the industry.

I guess, what I'll say is.

We have it and go back to like put little bit talked about earlier, we have an unbelievably productive JV relationship with key okay.

That makes us a scale producer in the industry and I can imagine if I was in a position where I didnt have the scale benefits I would be looking for how to get them and so it doesn't surprise me at all.

You know and I think we'll take it from there, it's it's pretty new but.

It doesn't surprise me that there are some consolidation in the industry.

Our next question comes from Stephen talks with Sox Advisors. Your line is now open.

Thanks. Good afternoon, two quick questions from me first of all on the Fab seven launch when that gets.

When that starts in terms of their ramp process. There should we expect some.

Extra cost to be run through your income statement and then secondly, Dave sticking about the new structure, you threw out a lot of debt.

From benefits to it if we look out like say 12 months, what would be the key things that you would like to accomplish or metrics that would say that you've had a success in terms of splitting up the business. This way. Thank you.

It will be around execution, and really clear roadmap fidelity that the roadmap we have in place and where we have our engineers focus is going to deliver the best value for our customers and then that will in turn show up in our financial results.

I'll, let Bob talk a little bit about the costs one thing I will say about fab seven it's a it's very different than 10-K, one first of all in the fact that it's an expansion of an existing site.

I'll also say, it's something in this industry in this market, we have to continue to invest and so it's in that vein.

And it's also just starting to build the shell of the building. So I think it's going to be a while before we get to the details of of of spending but that.

It's a little more yes, I think you hit the key points, Dave I mean, we're still understanding the details of how it's going to evolve it looks like the show the coming online somewhere in the spring and 22.

From our standpoint like Dave said, it's very different it's an additional fab on a major site and there will not be nearly the incremental costs that we saw in Q economy. So it'll.

It will be pretty modest and that's what we saw with fix there as well so so it won't it anything like what we've experienced with K one.

Our next question comes from a number of long with capital. Your line is now open.

Hi, Good afternoon, guys. Thanks for taking the question I have.

Two quick ones, if I could with the K with kailong costs coming off.

Bob I think you mentioned this quarter December quarter will be the final quick isn't as simple as for going forward starting March quarter, just removing the 50 million.

From the P analysis in the balance.

Well I guess, just sort of ongoing which is about 200 million a year.

I'll ask my follow up pretty Swift Q.

As in your prepared remark made banking.

I think just sort of.

One of the context on this we expect the 18 terabyte could you get sweet spot in the industry. It can you give us a timeframe on that.

And really what I'm asking is that what you think for an indefinite period of time.

Just want to be clear on that so those two thanks.

Yeah. So on the second one yes.

Yes, we do expect that probably a couple of quarters out.

We see all of the big customers interested in that capacity point, I mean, obviously at different points in time, but.

We're engaged with lots of customers on that capacity point, but it'll be a quarter or two.

Bob on the K one yeah. The K one I think most of the 50 million will either be going away as it'll it'll go out as a.

As part of that Cogs on products, we're shipping or it'll be in inventory, but you're going to have a lot of dynamics between here in the March quarter in terms of what goes on with the cost of sales.

Our next question comes from using the cash Mckinsey how are you.

One is now open.

Yeah, Hi, David and Bob just a couple of questions here. When you look at the non site that didn't get since the past the big Spike.

100 been led gives you a much better cost.

On the NAND side. So just wondering what the mix was on that said now and how do you see that in the first half.

Okay.

You want me to fix five is still very low percentage of the total I mean, mostly shipping into retail right now and that will be the case through at least the first half of the calendar year, and then I think you'll start to see more thats fine.

Our next question comes from Rob Longbow. Your line is open.

Yeah. Good afternoon, guys I love to hear your thoughts on whether you need for the over HDD capacity footprint optimization simply want to understand the near line demand recovery and the ramp up of energy assist the only two months or so close to home closing revenue recovery on base. So thanks.

Yes, I think I mean, there is couple of things Bob talked about a couple of things. One is coal that expenses were still incurring some relatively.

Relatively significant covert expenses.

Hope for all of US those are true.

Transitory and we get back to normal as soon as possible.

We have some mix issues in their retail has been strong I think we started talking about retail being strong back in June and its continued.

And so that that drive some demand and some mix, which which is not as good as capacity enterprise within and again, but the big picture is there is a large shift going into capacity enterprise and as that starts to be is that continues to be more and more of the portfolio will drive the margins higher.

Our next question comes from Jim Suva with Citi Investment Research Your line is open.

Thank you and Bob It's probably a question for you and I only have one question because I'm just going to say.

Thats right.

Why on gross margins stronger in the quarter I wanted to do to K, one or or other things or why aren't margins stronger what are the puts or takes.

When you say the quarter I mean December quarter.

December.

Yeah well.

Well again I tried to talk about on on the hard drive side. The mix is not that good right. Now is we're still seeing digestion with capacity enterprise and we're seeing retail stronger which tends to be lower margin business. So that's kind of the story on on the hard drive, but I think we're getting ourselves very well position for next year are there.

And ER and then on the Flash side again, we saw some stabilization in pricing in the transactional markets, but we're we're seeing pressure this quarter from the OEM customers and hopefully that'll that'll start to get better from a price perspective, as we move forward, but those are those are real.

Really that the major dynamics for the December quarter.

Your last question comes from Kevin Cassidy with Rosenblatt Securities. Your line is now open.

Hi, Thanks for squeezing me in just the simple question with your new business unit structure, how does the customer see changes for western digital.

I thought you know.

Primarily our customers see our company through our go to market teams and I think Thats a part of you know again I talked about this the best of both worlds. The go to market team is still integrated they represent the whole portfolio.

So I think from the moat for the most part the customers will see the company the same way however.

Really good general managers spend lot of time talking to customers to make sure. They really understand the market they understand where the market is headed so I think customers will see two very experienced very talented general managers that are talking to them about where the portfolio is going and where their needs are going and make.

I'm sure that we have those two things aligned.

Thank you I would now like to turn the call back over to the CEO, David Blackman for closing remarks.

Thank you.

I'd like to take this opportunity to thank our shareholders customers and importantly, our employees for your support of Western digital.

There's been a lot of developments over the last year, and we value your confidence and trust in us to deliver long term success in value.

An important component of our long term success is promoting responsible and sustainable business practices. We recently released our 2020 sustainability report.

And are proud to share all of the progress. We have made please visit our web site to see this report and to stay up to date on upcoming events. Thank you for joining us today.

Thanks, everyone.

This concludes today's conference call. Thank you for joining you may now disconnect.

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Good afternoon, and thank you for standing by welcome to the Western Digital's for fiscal first quarter 2021 conference call.

Finally, all participants are in listen only mode.

Later, we will conduct a question answer session at that time, she would like to ask the question you May Press star one on your phone.

I heard of called scale. Accordingly, now, we'll turn the call over to Mr., Peter Andrew You may begin.

Thank you Shannon and good afternoon, everyone. Joining me today are David got Chlor, Chief Executive Officer, and Bob Eulau, Chief Financial Officer before we begin let me remind everyone that today's discussion contains forward looking statements, including product portfolio expectations business plans trends and financial outlook based.

On management's current assumptions and expectations and as such does include risks and uncertainties. We assume no obligation to update. These statements. Please refer to our most recent financial report on form 10-Q filed with the FCC for more information on the risks and uncertainties that could cause actual results to differ materially we.

We will also make references to non-GAAP financial measures today reconciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the Investor Relations section of our website with that I will now turn the call over to David for introductory remarks.

Thanks, Peter and thanks, everyone for joining us to discuss our fiscal first quarter results.

I hope that you and your families are staying healthy and safe.

Before we dive into our results I'd like to take this opportunity to provide some color on our new business unit structure, which we announced in September.

I have strong conviction in the market opportunity from growth rapid global adoption of the technology architecture built with cloud infrastructure tied to intelligent endpoints in connected by high performance networks.

The value and urgency of data storage at every point across this architecture has never been clearer.

Customers need solutions that can best address the requirements across a variety of use cases in end markets. The ability to capture this opportunity at every stage highlights the criticality of having a broad portfolio, both flash and hard drive products, we have the best and most comprehensive storage platform in the industry and I believe over the coming quarters.

We will continue to see the compelling benefits of this strategy.

In particular, there are significant operational and go to market synergies with our integrated flash and HDD portfolios, which are important competitive differentiators for WD theirs.

There was also a great deal of customer overlap between our flash and HDD businesses, and we believe our long standing deep and collaborative customer relationships will be a key factor in achieving strong performance over time.

A great example is that following the acquisition of sand as well.

We built on our strong HDD customer base to drive impressive adoption of SSD solutions on the client side.

As a result of our established trusted relationships RH D. customers, then turned to us to also provide them with that flash solutions.

In fact, we know equip all of our top 20 customers with both Flashman HDD products.

Our demonstrated ability to support our customers by providing a breadth of options that gives us confidence that we can do the same in the enterprise SSD space in the years ahead.

Ultimately, we understand our customers needs and we can work with them to address their evolving and growing storage ecosystem to provide them with a wide range of solutions.

At the same time, there are technical dynamics between flash and HDD that are very different while.

While we develop innovative.

Innovative compelling technologies in both areas each require separate dedicated focus on product development technical strategy and execution on our roadmaps and product commitments to that end. One of my first observation is when I arrived at WD was that we could do a better job of capitalizing on these dynamics.

So to help us accelerate our strategy, we have created flash and HDD business units each with a dedicated general manager. This new structure is designed to accelerate growth and drive agility sharper focus and business accountability throughout the organization.

Within each business unit engineering and product management teams will be responsible for driving product strategy roadmap in pricing, but overall piano responsibilities. The gems of each unit will work with her work with their peers and operations memory technology sales finance legal and human race resources.

To drive their businesses with accountability for results.

As part of this reorganization, Rob sort of very join WD in September as exact as executive Vice President and general manager of the New Flash business unit.

Rob as a 30 year technology industry veteran with outstanding experience, leading enviable product franchises at scale and has deep technology and product management expertise.

Earlier this afternoon, we announced that Ashley Gorakhpur Wala is joining us as executive Vice President and General manager unit manager of our HDD business unit.

Ashley brings 30 years of technology experience to the team and has spent the majority of his career at Dell technologies, and many different engineering and business leadership roles focused on complex data center infrastructure.

Most recently he was president and GM of servers and infrastructure systems, We had full PML responsibility for a 20 billion dollar business and a global team of 4500 technologists. We're thrilled to have both of these exceptional leaders on board.

Now turning to our financial results in the first quarter results were at the upper end of the guidance ranges. We provided in August we reported revenue of 3.9 billion and non-GAAP earnings per share of 65 cents.

Results were strengthened by retail where we are executing a compelling innovation story reinforced by our powerful brand recognition and reputation for exceptional performance encouraging economic and market dynamics supported this performance as covenant restrictions eased during the period, while consumer flash pricing stabilized.

In addition continued work from home a distance learning trends drove some upside in hard drive demand for desktops and notebooks.

In general some of the uncertainty we saw last quarter is starting to dissipate. For example, we have better clarity today on geopolitical dynamics, why wait concerns and stability and consumer flash pricing. We're also seeing positive indications around the progression of the fiveg ramp and the growth up.

Potential gaming the growth potential of gaming excuse me.

However, some near term headwinds remain demand trends continued to be mixed and there have been recent kobin related thought lockdowns an upsurge in several countries. While we are not out of the woods on these macro impacts we are more optimistic than we were last quarter on some of these issues abating in calendar 2021.

Turning to a recap of performance in our flash business.

Brian Flash product portfolio technical leadership deep customer relationships extensive distribution channel and a low cost architecture continue to differentiate us from our peers.

Product highlights in the quarter included.

Within retail, we refreshed our entire SSD product line, including introducing the armor lock security platform armour lock is a data encryption platform featuring state of the art security technology.

And ease of use in enabling secure storage.

The first product to leverage this technology is the armor lock encrypted nvme Pcie SSD.

Initial reaction to this product has been terrific terrific, particularly with professionals and content creators in the media and entertainment industry.

As we enter a seasonally strong quarter, we are well positioned in the retail space and expect the fiscal second quarter to be another growth quarter in retail.

Our WD Black product line has been expanding has been expanding and it continues to add innovative solutions for gamers, including the recently launched WD Black Sn 850.

This is our first SSD to feature next generation PCIA for technology and early reception has been very positive.

In fact over 850000 gamers streamed our twitch launch in early October.

Our comprehensive portfolio is enabling us to provide flash products directly into consoles as well as provide leading flash and HDD retail solutions for the broader consumer gaming market.

In total gaming represented about 10% of our flash revenue this quarter gaming.

Gaming continues to be a promising growth area for us and we are excited about the future of this end market.

We continued the enterprise SSD momentum, we discussed last quarter, having now completed over 100 qualifications of our second generation NV products over.

Over the next two quarters, we expect to start qualifications and additional cloud Titans and one of our largest Oems, which will further expand our addressable market.

We have large cloud and OEM partners, having large cloud and OEM partners completed qualification cycle can be a multi quarter process with deep commitment and investment from both parties required but they typically lead to high volume purchases, we are well versed in this process, having having undertaken thousands of.

Since over the past several years, which are inevitably successful the energy enterprise SSD market has immense untapped potential and remains a key area of focus for us.

Also confident the recent organization changes we have made we will further sharpen our execution in this critical market.

More broadly our successful 20 year partnership with key Osha continues to be a strength of the business. Our joint memory technology roadmap remains strong with impressive fix for index five yields and associated strong crop cost improvements underpinning our entire portfolio.

We also regularly worked with coaching on future facilities facility planning, so that and this afternoon coach announced the construction of the shell for Fab. Seven then you'll keiichi, which is expected to commence in the spring of 2021, we.

We expect to continue our joint venture investments for Fab, seven and look forward to our ongoing successful partnership.

On the HDD side of the business, we continue to align our product portfolio towards growth markets, particularly in cloud and smart video. These.

These end markets demand high performance high capacity drives and we're continuing to innovate and head and media design firmware and mechanical suspension to take advantage of this opportunity.

We achieved important HDD business in product milestones in the quarter, which which highlights our commitment to innovation and our focus on sharpening execution first.

First I'm pleased to announce that we reached our goal of producing over 1 million energy assistant drives we're.

We are seeing strong engagement with customers as we build on our on our capacity to aggressively ramp. This platform. We have completed nearly 100 qualifications, including with one cloud Titan and have an additional 125 qualifications and process, including with two more cloud Titans were excited about the progress we've made.

Made and expect the 18 terabyte capacity points to be the sweet spot in the industry.

Second on Monday, we announced qualifications have been completed on the 20 terabyte platform and we have already started shipping for revenue you may recall several years ago, we committed to delivering a 20 terabyte product to our customers by 2020.

Reaching this critical milestone is a significant achievement.

And testament to our ability to deliver on our product roadmaps.

Finally in our OEM and retail end markets for HD, we saw upside in demand driven by the work from home and distance learning trends and expect this to continue through the current quarter.

Im very proud of the team for their focus and commitment to achieving these important milestones and I am excited about how we're positioned for success moving forward.

I'll now ask Bob to share details on our first quarter results.

Before I talk about what we see going forward.

Thanks, Dave and good afternoon, everyone. Overall results for the first quarter were at the upper end of guidance range of the guidance ranges. We provided in August we continue to make a number of long term structural changes in the way, we're running the business to accelerate growth and drive agility focus and business accountability.

Throughout the organization.

We are evaluating whether any changes are needed to already comprehensive disclosure as a result of the new business unit structure that Dave described today, However, I will focus on our traditional disclosures.

For the first quarter revenue was $3.9 billion down, 9% sequentially and 3% year over year recall the last fiscal year period was a 14 week quarter.

Looking at our end markets client devices revenue was $1.9 billion, a bit better than expected up 2% sequentially and 20% year over year.

Within this end market client SSD revenue declined sequentially from a record level as our customers digested some excess inventory and we faced lower flash pricing.

Notebook and desktop our drive revenue declined sequentially as the market continued to transition to SSD based products, but demand was better than expected due to work school and game from home trends.

Smart video demand was better than expected as this market started to recover.

Gaming revenue experienced very strong sequential growth as we increased our shipments in preparation for the upcoming new game console launches.

And finally mobile flash revenue grew on a sequential and year over year basis, driven by demand from several China based customers and new Fiveg product Roadmaps here in the us.

Moving on to data center devices and solutions.

Revenue was $1.1 billion down, 33% sequentially and 26% year over year.

Both capacity enterprise hard drives and enterprise SSD revenue were down sequentially due to digestion at both cloud and OEM customers.

Next client solutions revenue was above expectations at $847 million up 23% sequentially as brick and mortar stores continued recovery and online and curbside pickup trends continued clients.

Client solutions was down 5% year over year.

The work school and gaming from home trend benefited both hard drive and flash based products again, highlighting the powerful sinnott.

Well go to market synergies of this channel.

As Dave mentioned flat pricing in retail has been fairly stable. Traditionally this has been a leading indicator to pricing trends in other portions of a flash market.

Turning to revenue by technology.

Revenue was $2.1 billion down, 7% sequentially, but up 27% year over year.

Bosch Asps were down 9% sequentially on a blended basis and down 6% on a like for like basis, good shipments were up 1% sequentially.

Our drive revenue was $1.8 billion down, 10% sequentially and down 23% year over year.

On a sequential basis total exabyte shipments were down 7%.

While the average price for hard drive decreased 9% to $79.

Reflecting the digestion, we noted for our capacity enterprise drive products.

As we move into cost and expenses. Please note all of my comments will be related to non-GAAP results unless stated otherwise.

Gross margin for the first quarter was down 2.6 percentage points sequentially to 26.3% slightly.

Slightly above the midpoint of our guidance range.

Flash K, one startup costs were $66 million covered related costs were $28 million essentially all attributable to hard drives down from $96 million in the prior quarter.

Our flash gross margin was 26.4% down 4.1 percentage points from last quarter.

Pricing was down more than anticipated.

We continue to seek to achieve good cost reductions, which help to partially offset the decline in pricing.

Our hard drive gross margin was 26.2% down 1% percentage points sequentially due to product mix and costs associated with the early ramp of our next generation energy assisted hard drives.

Oh, good related costs represented about 1.1 percentage point on our hard drive gross margins.

Non-GAAP earnings per share was 65 cents.

Operating cash flow for the first quarter were $363 million and free cash flow was $196 million.

Capital expenditures, which include the purchase of property plant and equipment and activity related to flash joint ventures on our cash flow statement was a cash outflow of $167 million.

In the fiscal first quarter, we reduced debt by $213 million, including an optional debt payment of $150 million.

Our liquidity position continues to be strong.

The end of the quarter, we had $3 billion in cash and cash equivalents and our gross debt outstanding was $9.5 billion.

Our debt to adjusted EBITDA ratio was four times in the first quarter.

Our adjusted EBITDA as defined in our credit agreement with $3.4 billion flat sequentially, resulting in a leverage ratio of 2.8 times.

As a reminder, our credit agreement includes $980 million in depreciation add back associated with the joint ventures. This.

This is not reflected in our cash flow statement.

Please refer to the earnings presentation on our Investor Relations website for further details.

Moving on to our outlook.

Dave mentioned, we are optimistic that conditions will improve next calendar year. However.

However, our visibility remains limited in the near term as a result of the uncertainty of a pandemic and global economic contraction.

Despite this uncertainty we continue to execute effectively and build on our strong foundation of great products deep customer relationships and large and growing end markets.

We are working on a number of substantial product transitions that will set us up well for the long term.

By technology, we expect hard drive revenue will be up and flash revenue will decline.

During the fiscal first quarter, we experienced a pull forward in demand due to geopolitical dynamics there.

Most significant was from walkaway, which represented mid to high single digit percentage of sales.

We are now planning on zero sales to walk away in the fiscal second quarter.

With all these factors in mind, our fiscal second quarter guidance is as follows.

We expect revenue to be in the range of $3.75 billion to $3.95 billion.

Non-GAAP gross margin to be between 24 and 26%.

This range includes approximately $30 million in costs associated with Cove, it and $50 million in costs associated with the K one fab.

Expect the fiscal second quarter to be the final quarter in which we incur meaningful period expenses associated with the startup of the K one fab.

We expect operating expenses to be between 680 and $700 million.

Interest and other expense is expected to be between 70 and $75 million.

The tax rate is expected to be between 21 and 25% in the second quarter.

And we expect non-GAAP earnings per share to be between 40, and 60 cents in the second quarter, assuming approximately 306 million fully diluted shares.

In summary, we are managing well in an uncertain environment and positioning ourselves in both the flash and hard drive markets for the significant long term growth opportunities that are ahead.

Now I'll turn it back today.

Thanks.

Heading into the holiday season into calendar 2021, we are optimistic about what lies ahead.

As the technology industry evolves and grows and data becomes more critical invaluable we will be positioned for success by continuing our history of innovation delivering on our product roadmap across flash and HDD building on our strong customer relationship as their trusted storage provider of choice in continuing to sharpen our execution.

Across the business. The recent organizational changes will be integral to accelerating in enhancing our ability to address and capture major opportunities in front of us.

I consider change catalyst of opportunity and I am very excited about the future of western digital.

We will continue to think strategically an act thoughtfully with the best interest of our shareholders customers and employees in mind.

I will now turn the call over to the operator to begin QNX.

Yes.

Ladies and gentlemen, we will now begin the question and answer questions on today's call.

Do you have a question. Please press star one on your phone.

You will now withdraw your question. Please press the pound key.

Please for the first question.

Our first question comes from Joe Moore with Morgan.

Only.

Great. Thanks.

Thank you.

What if you could talk a little bit about the NAND pricing that you saw in Q3, you talked about 6% like for like decline is it seems like the markets that are more favorable pricing like solid state drives were down more than that so ill.

I was surprised that was kind of benign and then maybe a little bit about how you see NAND pricing in the fourth quarter.

Yes, sorry on me.

Hi, Joe It's Bob I'll go ahead and start so yes, I mean, we obviously.

Obviously, it's still saw a pretty significant price declines during the quarter. We were fortunate we were able to offset some of that with pretty good cost reductions during the quarter and we think we're going to continue to see some price pressure going forward as we said in our comments in the retail channel.

Things seem to have stabilized.

From an OEM perspective prices are down in the December quarter, but we're hopeful that they will begin to stabilize as well.

How are you guys seeing solid state drive speed worse than like at a component level nantel.

Or is it the same.

Yes, I don't know that we want to get to that level of detail I'd say, it's roughly the same I don't think there is a big difference between the two.

Okay, great. Thank you.

Our next question comes from Toshiya Hari with Goldman Sachs. Your line is open.

Hi, guys, Thanks, and thanks for taking the question.

You mentioned that.

Hi, you mentioned that you saw pull forward in the quarter and you sized hallway has sort of a mid single digit to high single digit customer.

I was hoping you could quantify how big the pull forward was not just from all way, but from I guess, all your customers, particularly in China. If you do have a number and I guess maybe related to that your inventory was up a little bit on a sequential basis was that mostly on the NAND side or was it across.

Both your businesses and then sorry, one more.

How would you assess your costs.

How would you assess customer inventory levels as of today, both on the downside and should decide thank you.

I'll start and then Bob can add on.

So I think the pull forward, we did see some clearly I think it was fairly modest maybe 1% to 2%.

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So.

And then of course once the Commerce Department Bull's head that off.

Stopped.

The SEC.

Second question on inventory and I want to start with inventory about yeah. So you're right inventory was up quite a bit sequentially and some of that was really due to particularly low levels of inventory in the June quarter.

And most of it is on the hard drive side.

And as we have talked about this year, it's been a very disruptive to supply chain. So we really are taking actions with inventory to assure that we have the components that we need to build the products.

We also are trying to have enough inventory. So we can ship on the ocean rather than air as you probably know the air freight rates are very high coming out of Asia right now and and then finally, we are at a very significant ramp with our 16 18 in 2000 terabyte products. So all those factors play into the.

Increase in inventory and.

We're confident obviously, it's mostly our newer products, we'll be able to sell that inventory.

And then I think your other question was with respect to customer inventory levels and I would say first of all in the channel reach.

Retail and commercial distribution, we think inventory levels are very normal I don't see any issues there.

From an OEM and from a cloud perspective, we're definitely seeing some customers who still are in the process of normalizing their inventory levels for their inventories are still a bit high but again were hopeful that that'll that'll get normalized in the December quarter, Yes, just to reinforce one thing Bob said, there I mean, the ramp on the 16 18.

Product is the fastest ramp we've ever done to a new capacity point by a significant amount so.

We are getting prepared for demand for that product as we go forward. So.

Yes that does that that's been an impact on the system as well.

Thank you good luck.

Thank you. Thank you.

Our next question comes from Karl Ackerman with Cowen. Your line is now open.

Thank you two questions as well. Please the first question I have is.

Your your Opex outlook of 690, I think is very impressive.

But what are your thoughts on opex from that level, considering the new change in organizational structure and initiatives on enterprises.

And Jason your line drives.

Yes, so opex is something I mean, clearly we've been focused on.

I mean, especially given the market we're in but I think the new organization structure gives us more focus to make sure we're spending our opex on the most valuable thing so.

I view, the fact that we've got two highly experienced general managers coming in to drive the business as continuing to drive that focus to make sure we're investing in the right.

The right places so Bob you want to say anything. In addition, yes I can just add I mean, I think that the second fiscal quarter is going to be unusually low in terms of opex. We got some seasonal factors. There that are are benefiting us as.

As we move forward I would expect as we get a visit to ultimately get back to normal you start having more employees in the office more travel.

I would say Opex will probably go up a bit.

But we are pleased with the cost controls and I think the new structure will give us a lot of focus.

Some were going to keep a very close eye on.

Understood.

For my follow up some investors are concerned or have been concerned that NAND profitability will remain subdued next year.

Some Korean peers ration of NAND capex, despite soft demand I guess, what sort of initiatives have you taken to respond to such a scenario and then similarly, because now prices are dictated by supply and demand do you think it's going to take several more quarters for NAND inventory to burn off and reached demand equilibrium.

Or I guess or your earlier comments.

Indicative that pricing will be more benign. Thank you.

Well, let me answer first of all the I mean, the market requires a lot of ongoing investment just to keep up with that 30% demand increase in fits and climbing clearly there's we're working through an oversupply situation, but we continue to have a point of view that.

Most part the industry has done a pretty good job of.

Being vigilant with Capex.

We're we're certainly we we invest with our partner in key Okay. So together, we are a very big player and we're we've been very much on top of Capex and we.

Really got a tight process around that to make sure that we are.

Now that we're a best investing appropriately.

On the demand side, we do see a lot of things ramping up I mean, we see we talked about gaming in our prepared remarks was 10% of our our business this past quarter.

We obviously have a fiveg ramp starting now.

We're hearing from our customers in 21 on the cloud side that.

I think we can all.

We all would agree that coming out of Cove is that the demand for the cloud keeps going up.

And we're seeing that so we it's hard to call that to a specific quarter, but but we feel we feel better about 2021 above anything you want to add on top of them No I agree I mean, I think there definitely is some exciting trends in 2021 as fiveg starts to take hold in a more significant way and we aren't as big in mobile.

Our competitors will be serving that market and that will consume a lot of bits.

So I think overall 2021 shaping up to be a good year.

Our next question comes from an rakers with Wells Fargo. Your line is now open.

Yes, thanks for taking the questions I guess I will pass to as well so.

I guess the first question if you could help us on path the gross margin guide of 24% to 26%.

This current quarter between the NAND business in the hard disk drive business and relative to the HCV business I can appreciate that you're ramping the first generation of the NRG assess drive but.

I do I think about the progression back to call it 30% gross margin what needs to happen there.

There and I do have another follow up thanks.

So I'll take the second one first I mean, it is about the business shifting to higher capacity points right. I mean, we're in we're in a big transition now to two new platforms. So is that is that transition starts to ramp that will be accretive.

To gross margins.

You know I think on pricing, we're getting more disciplined on pricing as well I mean, it's a very important technology.

And making sure we keep our eye on that side as well is a is very important but we certainly see a path to.

The increase in gross margins as we drive through the ramp of this capacity enterprise products.

And wondering what are you assuming in the quarter current quarter guide.

But what we said I'm, sorry, I'm assuming that on what.

Yeah.

Let me add versus hard drive margin.

Okay I'll do the I'll do the unpacking on on hard drives so obviously it benefits us quite a bit as the market shifts to capacity enterprise and we do expect to have over time significantly better gross margins of the enterprise becomes a bigger percentage of the total in the December quarter. It turns out we're seeing a lot.

The strength in retail and so that means the mix was unfavorable in the in the December quarter from a hard drive standpoint, we do expect that to recover as we launch the new products going into next year. So so I think on the hard drive side, we'll definitely see recovery on the flash side. It's.

Really a matter of how things go with pricing as we mentioned, we're seeing some stabilization in the more transactional markets and.

Obviously, a couple of months away from negotiating for next quarter with the Oems, but we're hopeful that we'll start to see to the pricing situation improve on the flash side as well.

Okay, and then as a quick follow up can you tell us just housekeeping wise, what the near line capacity shift was either sequentially or year over year growth.

Yes, we don't break that out specifically on a quarterly basis I will try to see if I can dig up a exabyte number on a year over year basis.

Okay. Thank you.

Thank you thanks.

Our next question comes from CJ Muse with Evercore. Your line is now open.

Yeah. Good afternoon. Thank you for taking the question.

I guess first question can you speak to.

How you balance.

Obvious need to lower your costs and increased layer count with the fact that that add that adds to the market. So would love to hear kind of your philosophy today given.

This Uh huh.

Persistent oversupply, but weren't.

Yes, so I think there's a number of I mean, there's a number of levers there I mean first of all we're always driving.

The roadmap for over at the memory roadmap borrowers. So we can drive the cost down so making sure. We keep the innovation up there is is very important and again I spoken about this.

Many times I think Thats, where our partnership with our JV partnership we we have a lot of club.

Operation with the option on the R&D side of this business as well, which is the super helpful to driving the best cost position.

And then we want to drive to that and then there's the mix in the fab with how we track how fast we transitioned to the new nodes as far as the supply.

Supply, we're going to get done and some of that is based on the products, we're putting it into and are those products ready to take the new nodes and just making sure. We've got that mix all right and then making sure we look at that whole equation and understand.

Where the industry is at on bit growth and where how much capex, we're going to invest in those transitions to the new nodes to make sure that we keep the keep the balance right and get the cost in the right spot.

Very helpful and.

As a quick follow up can.

Can you talk a bit about I guess, where you stand in terms of visibility to cloud recovery any any green shoots there.

Yes, I think as I think coming out of.

Out of out of Covidien, we theres no doubt that there's been more adoption of the cloud and we're hearing good things for our customers going into 21.

I think as Bob said, we see the HDD market is kind of.

Slightly up next quarter and then into 21, we see we see greater recovery. So we're hearing good things from our customers about demand in the cloud.

Thank you.

Thank you.

Our next question comes from one team Mohan with Bank of America. Your line is now open.

Yes. Thank you you articulated a million drives and energy assessed currently where does that need to be for HDD margins to turn back higher and would that incremental demand for you will be more on the cloud side or on Prem side. What are you expecting to see first and I have a follow up.

I think well we see.

And expand on the second part of the question incremental demand for that.

As far as the high capacity drives.

On on cloud or on Prem.

I think we see some softness in the on Prem market, but the cloud on the cloud side, we see we see very good demand. There. So I think thats, where youll see incremental demand as far as.

As far as what does it need to be I mean, we're going to ramp very quickly on that platform and were always using that to drive yields up across the especially the head yields so.

We just keep driving that as high as possible and that'll that'll help drive the gross margins on the products I don't know.

No Thats exactly gets year your question, but.

If not we can follow up.

Okay. Thanks for that and as a follow up your cash Capex for this year as fiscal is projected at 1.3 billion. Your free cash flow is not tracking to that level at least as of yet.

Should we assume that there won't be any meaningful other progress on either reducing data are on capital return for this fiscal year.

Well first of all you are right I mean, our cash capex will be about 1.3 million.

And we're going to every every incremental.

Dollar our free cash flow, we're going to use to reduce our total debt. So I'm not going to give a cash flow forecast for the year, but.

After investing in the business, it's the number one priority.

Thanks, Bob.

Thank you.

Our next question comes from Mehdi Hosseini Psyche. Your line is now open.

Yes, it tends for taking my question.

I have two follow ups, but.

Two questions with no follow ups I understand the rationale behind separating the flash from SVB you have a highlight the key strategic rationale, which mostly focus is on the top line generating revenue synergy it little good not sure about the cost synergies is seems to be.

Me that you would require.

It will be required to invest more in each sector before they become sort of sufficient so any color on costs.

For cost synergy or cost increase.

Is this division will be helpful. And then my second question has to do with the mix hard disk drive.

18 20.

It's interesting to me how are you.

Your.

Peter highlighting Tony Terabyte.

Hi, Bobby manufacturing into next year, but we're just beginning to start with the 18 toward.

Is that simply reflects competitive nature of the near line or how should I think about 18 versus 20 because.

To me one could cannibalize the other so any insights here would also be great. Thank you.

Okay. So first of all on the flash and HDD side, it's about focus on the roadmap and execution different businesses I mean there.

There.

I mean, obviously, they're different businesses are sold to the same customers I think thats kind of.

To summarize it I mean, what we're doing from an organization point of view is getting what I think is the best of both worlds is the fact that we have got one customer relationship when we got to focus on two different portfolios.

And that's going to lead to the best I think the best allocation of our resources into.

The portfolio, it's going to be I think is going to lead to better execution I think when I got here. This was one of the things that I saw that we could use more precision execution we had.

Just too many people that we're thinking about two businesses at the same time as far out as far as how you build them and that drives the roadmap.

And so getting that separated yet keeping the customer facing pieces together is the strategy from an organization perspective, I think from a cost perspective, they each have R&D costs associated with them.

This is about getting the most focus on that and getting making.

Making sure that that that investment is going into what is going to be the highest return from a portfolio perspective.

On the 18 versus 20% to 20 is an awesome our products. So it's a little it's a little different technology and Thats, what you Thats, where you get the that's where you get the additional dense.

Density from so some customers have adopted SM are in some haven't so they're not really I wouldnt really think about that as a substitute there if you've adopted SM are you're going to get better density on the products.

Some customers have adopted and some are looking at it.

And it's just another technique, we can use to drive density in our products yes.

But if you're looking at though from a volume and a revenue production basis. It should really be the TNT that we'll be the leader there, yes, theres no doubt about that.

Our next question comes from Shannon Cross with Cross Research. Your line is now open.

Thank you very much.

So David I, just wanted to say actually it's a great hire we met with him several times during his covering gallon, yes. It really good reputation within the company. So I'm just curious looking at the HDD business. What what do you think are the first sort of key initiatives our area of focus for him.

You know coming in from two separate background and then I have a follow up thank you.

So first of all.

Thanks for the comments I am really really happy that he is joining.

WD and I've been super impressed with them.

As we have gone through the process to to identify leader.

I think the issues around the HDD business or kind of some of the things that we've been talking about here. It's a tremendous business. It's got it's pivoting from this what was the big client business into capacity enterprise.

Capacity enterprise is going to be a growth business for the foreseeable future.

You know we have essentially anybody that is building a public cloud is going to be using hdds and there is not going to be a substitute for a long time, there's going to be complementary technologies of enterprise ssds, but there's a very very big difference in my mind in the SSD side.

Phase where in that on the client business you have two technologies, which are essentially substitutes and then in the cloud space, they're complementary technologies. So.

Ashley is going to focus on is how do we make that making sure we drive through that transition.

And we can deliver on first of all the enormous growth in our customer customers are asking us to deliver on the growth rate in the public cloud is I think we would all agree is huge scale and stunning growth in our storage portfolio is the foundation of that make sure that we can we can drive to this.

His transition and return this business to growth.

And then we can meet that demand and then we can file also focus on the profitability side of the equation and make sure where we're delivering a high value solution to our customers and that.

We're also delivering the right right value to our shareholders as well and getting that balance correct and I think very very focused leadership on that by somebody that has been in the data center infrastructure business for a long time and understands the dynamics of the architecture.

And comes in and looks at the industry with a fresh perspective is.

Something I'm very excited about.

Our next question comes from Sidney Ho with Deutsche Bank. Your line is open.

Great. Thanks for taking my question. So I have two questions. The first question is on high side.

The the unit number 1 million units panicky assist trials that you talked about is that any production number or shipment number and then how quickly does your production capacity could go up in the next few quarters.

Yeah, that's a production number and we had an aspiration goal to ship that many we didn't quite make it on the shipment side, we are probably.

Several 100000 charter that we still shift.

Pretty fair number.

We expect to ramp that number into many many millions over the next.

Two to three to four quarters like I said this is the fastest ramping capacity point we've ever had.

In the company that anybody can remember I won't say in the history of the company because I haven't been here that long, but I talked to a lot of folks have been here a long time and.

The pace at which we've gone from.

Hundred thousand units to a million units is like a third of the time of the previous capacity point and as we talked about as we look into 21. We're hearing we are hearing from our customers a good demand trends that are going to drive drive adoption of that product, where we're happy where the product is.

We're working through the qualifications on Ed at really big customers and it.

It will ramp quite quickly.

Our next question comes from Mitch Steves with RBC capital. Your line is now open.

Hey, guys. Thanks for taking my question. So what I wanted to touch up on really quick just Intel divesting their NAND business.

Right, it's new but you guys probably had a chance at least looking to get an idea for what do you guys think so so how do you think this impacts western digital's NAND business going forward, if any any sort of comments you can make on what that divestiture density industry.

I guess, what I'll say is.

We have a panic.

To go back to what Mike talked little bit talked about earlier, we have an unbelievably productive JV relationship with Coke.

That makes us a scale producer in the industry.

And I can imagine if I was in a position where I didnt have those scale benefits I would be looking for how to get them and so it doesn't surprise me at all.

As you know and I think we'll take it from there, it's it's pretty new but.

It doesn't surprise me that there are some consolidation in the industry.

Our next question comes from Steven Fox will talk with Barclays. Your line is now open.

Thanks. Good afternoon, two quick questions from me first of all on the Fab seven launch when that gets.

When that starts in terms of their ramp process. There should we expect some.

Extra cost to be run through your income statement and then secondly, Dave sticking about the new structure, you threw out a lot of.

Different benefits to it if we look at like say 12 months, what would be the key things that you would like to accomplish or metrics that would say that you've had a success in terms of splitting up the business. This way. Thank you.

It will be around execution.

And ill really clear roadmap fidelity that the roadmap we have in place and where we have our engineers focus is going to deliver the best value for our customers and then that will in turn show up in our financial results.

I'll, let Bob talk a little bit about the costs one thing I will say about fab seven it's a it's very different than 10-K, one first of all on the fact that it's an expansion of an existing site.

I'll also say, it's something in this industry in this market, we have to continue to invest and so it's in that vein.

And it's also just starting to build the shell of the building. So I think it's going to be a while before we get to the details of UBS.

Up of spending, but I would say a little more yes, I think you hit the key points, Dave I mean, we're still understanding the details of how it's going to evolve it looks like the show the coming online somewhere in the spring at 22.

From our standpoint like Dave said, it's very different it's an additional fab on a major site and there will not be nearly the incremental costs that we saw coming so it.

It will be pretty modest and that's what we saw with fix there as well. So so it won't anything like what we've experienced with K one.

Our next question comes from a number of the Lula with capital. Your line is now open.

Hi, Good afternoon, guys. Thanks for taking the question I have two.

Two quick ones, if I could I would the K was slow on cost coming off.

Bob I think you mentioned this quarter December quarter will be the final quick is it as simple as for going forward starting March quarter, just removing the 50 million.

From the P. announced in the balance.

Well I guess, just sort of ongoing which is about 200 million a year.

I'll ask you asked my follow up was pretty Swift Q.

As in your prepared remarks made banking.

I think it's sort of and I want the context on this and expect the 18th there, but could you get sweet spot in the industry.

Can you give us a timeframe on that.

And really what I'm asking is that what you think for an indefinite period of time I just want to be clear on that so those two thanks.

Yeah, so on the second one.

Yes, we do expect that probably a couple of quarters out.

We see all of the big customers interested in that capacity point, I mean, obviously at different points in time, but.

We are engaged with lots of customers on that capacity point, but it'll be a quarter or two.

Bob on the K one yeah. They came one I think most of the 50 million will either be going away as it'll it'll go out as a.

As part of the Cogs on products, we're shipping or will be in inventory, but you're going to have a lot of dynamics between here in the March quarter in terms of what goes on with.

Cost of sales.

Our next question comes from DG with cash flow from Mizuho. Your line is now open.

Yes, Hi, David and Bob just a couple of questions here. When you look at the demand side that can get to in the past because 500 been lab gives you a much better cost.

On the NAND side. So just wondering what the mix was on that said now and how do you see that into first half.

You immediately picked.

Fixed five is still very low percentage of the total I mean, mostly shipping into retail right now and that will be the case through at least the.

First half of the calendar year, and I think you'll start to see more bits five.

Our next question comes from Nick on Rob Longbow. Your line is open.

Yeah, good afternoon guys.

Good to hear your thoughts on what are you need for HDD capacity footprint optimization simply want to understand.

Near line demand recovery and ramp up of Energous Goldman two factors that preclude you from closing wondering recovery on the site. Thanks.

Yes, I think I mean, there's a couple of things Bob talked about a couple of things one is coal that expenses were still incurring some.

Relatively significant coven expenses.

I hope for all of US those are true.

Transitory and we get back to normal as soon as possible.

We have some mix issues in their retail has been strong I think we started talking about retail being strong back in June.

And it's continued.

And so that that drive some demand and some mix, which which is not as good as capacity enterprise, but then and again, but the big picture is there is a large ships going into capacity enterprise and as that starts to be is that continues to be more and more of the portfolio will drive the margins higher.

Our next question comes from Jim Suva with Citi Investment Research Your line is open.

Thank you and Bob It's probably a question for you and I only have one question Columbus.

Okay. That's good.

Why on gross margins stronger in the quarter routing the due to K, one or or other things or why aren't margins stronger what are the puts or takes.

When you say the quarter out even December quarter.

December.

Yeah well.

Well again I try.

Good to talk about on on the hard drive side. The mix is not that good right. Now is were still see digestion with capacity enterprise and we're seeing retail stronger which tends to be lower margin business. So that's kind of the story on on the hard drive, but I think we're getting ourselves very well position for next year are there.

And then on the flash side again, we saw some stabilization in pricing in the transactional markets, but we're we're seeing pressure this quarter from the OEM customers and hopefully that'll that'll start to get better from a price perspective, as we move forward, but those are those are really the major.

The dynamics for the December quarter.

Your last question comes from Kevin Cassidy with Rosenblatt Securities. Your line is now open.

Hi, Thanks for squeezing me in just the simple question with your new business unit structure, how does the customer see changes for western digital.

It's primarily.

Primarily our customers see our company through our go to market teams and I think thats a part of again I've talked about this the best of both worlds of go to market team is still integrated they represent the whole portfolio.

So I think from the moat for the most part the customers will see the company the same way however.

Really good general managers spent a lot of time talking to customers to make sure. They really understand the market they understand where the market is headed so I think customers will see two very experienced very talented general managers that are talking to them about where the portfolio is going and where their needs are going and make.

I'm sure that we have those two things aligned.

Thank you I would now like to turn the call back over to the CEO, David Kaplan for closing remarks.

Thank you.

I'd like to take this opportunity to thank our shareholders customers and importantly, our employees for your support of Western digital.

There's been a lot of developments over the last year, and we value your confidence and trust in us to deliver long term success in value.

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And are proud to share all of the progress. We have made please visit our web site to see this report and to stay up to date on upcoming events. Thank you for joining us today.

Hi, Sarah.

This concludes today's conference call. Thank you for joining you may now disconnect.