Q4 2023 Western Digital Corp Earnings Call
Good afternoon, and thank you for standing by welcome to the Western Digital's physical Fourthquarter in fiscal 2023 conference call. Presently all participants are in a listen only mode. Later, we will conduct a question and answer session at that time, if you would like to ask a question you May press start.
One one on your telephone How's. The reminder, this call is being recorded now I would like to turn the call over to Mister Peter Andrew Vice President's financial planning and analyst and Investor Relations you may begin.
Thank you and good afternoon, everyone. Joining me today or David <unk>, Chief Executive Officer, and we used to have a job right Chief Financial officer before we begin let me remind everyone that today's discussion contains forward looking statements, including expectations for our product portfolio spend.
Cost reductions.
Plans and performance market trends and financial results 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-K, and or other filings with the F. C. C 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 reconciliation between the non-GAAP in 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'll now turn the call over to David for introductory remarks.
Thank you Peter good afternoon, and thank you for joining the call to discuss our fourth quarter in fiscal year 2000 twenty-three results.
Western Digital's physical fourth quarter revenue, it's exceeded expectations.
As our access to broad go to market channels enviable retail franchise and strong client SSP portfolio enabled us to capture demand upsides in both client and consumer end markets.
Reaffirming our strengths and a challenging market environment.
We reported fourth quarter revenue of 2.7 billion in non-GAAP gross margin of 3.9%.
non-GAAP loss per share was $1.98.
Before diving into the specifics of the quarter in the fall fiscal year I would like to take a moment to reflect on our accomplishments in fiscal year 2023.
Importantly, we continued to optimize our operations and successfully executed are innovative product roadmap primed.
Priming ourselves for greater profitability when demand rebounds across hard drives in flash.
Throughout the fiscal year, we were focused on enhancing our product leadership and reinforcing our business agility.
And H D. D. We have successfully qualified our latest family of capacity enterprise hard drives that all major customers in our shipping or 26 terabyte Ultra Xmr drive in high volume.
And slash we pioneered the use of wafer bonding an advanced three D Nan manufacturing and introduced the groundbreaking technology and <unk>, eight which sets the foundation for future <unk> scaling.
On the expense front, we streamlined investments across our HDD and slash portfolio, which enabled us to significantly reduce quarterly operating expense, while continuing to deliver innovative products and technologies that address customers growing storage needs fur.
Further we reduced our cash capital expenditure run right by over 50% in the fiscal second half and consolidated are hard drive manufacturing footprint.
These efforts enabled the western digital to preserve capital, while effectively executing on product strategies and aligning our supply with postponed demick demand environment.
Notably, we reduced our inventory by nearly $300 million sequentially and exited fiscal year of 2023 at a much healthier level than a few quarters ago.
And in June we successfully completed amendments to our credit agreements, which provide western digital with significant additional financial flexibility as we navigate macro dynamics.
In summary, we continued to proactively take action to bolster our agility enhance our liquidity position optimize our inventory levels across HED and flash and strengthened our position as an industry and market leader we.
We exited fiscal year, 2000, twenty-three well positioned to capitalize on improving market conditions and capture longterm growth opportunities and data storage spanning from client to urge to cloud.
Finally, I want to acknowledge that the strategic review is ongoing we continue to make progress on this process and will provide updates as appropriate.
Turning to the fiscal fourth quarter revenue.
Revenue in both client and consumer end markets return to sequential growth led by normalized and market demand and higher average capacity per unit in flash.
And consumer retail slash exceeded our expectations across all major product categories.
We saw similar results in client was upside in both ACD in flash.
And across almost all major product categories, including client SSD gaming Council embedded flash and client hard drives.
Cloud demand for both harddrive and flashed products remain subdued.
I will now turn to business updates starting with HDD.
Then the physical fourthquarter ongoing cloud weakness drove the overall decline in hte revenue, however, demand for both client and consumer hard drive has stabilized and exceeded our expectations.
The end of the fiscal fourth quarter, we have successfully qualified all variance of our 22 terabytes <unk> in 2006 terabyte Ultra S. M are hard drive platforms at all major cloud customers setting the stage to improve shipments and profitability.
In addition, we are about to begin product sampling of our 28th Terabyte Ultra SNR drive.
Cutting edge product is built upon the success of our <unk> Ultra <unk> technologies with features and reliability trusted by our customers worldwide. We're staging this product for quick qualification and ramp as demand improves.
Turning to flash revenue increase sequentially led by growth in both client and consumer flash pitch shipments, which exceeded our expectations with total bench shipments returning to year over year growth.
A stronger than expected bit growth is attributed attributable to normalizing PC in consumer demand as well as content growth.
Average capacity per consumer and client SSD increase over 40% and 20% year over year, respectively move.
Moving to technology developments, we continued to aggressively productize <unk> based on a chip bonded to array architecture, BIX eight solidifies western digital and <unk> leadership and cost capital efficiency in Iowa performance into the future.
Before I turn it over to <unk> I wanted to share some perspective on our outlook.
And H D D. As we look to the fiscal first quarter, we expect overall demand to remain stable beyond the fiscal first quarter, we anticipate both improving demand in new product ramps to drive growth in revenue and profitability.
And flash we are encouraged by several indicators signaling improving market dynamics, notably, our two largest and markets client and consumer a returning to growth inventories are normalizing content per unit is increasing in price declines have been moderating.
With that I'll turn it over to some.
Thanks, David and good afternoon, everyone.
As David mentioned fiscal fourth quarter revenue exceeded our expectations.
Total revenue for the quarter was 2.7 billion down 5% sequentially and 41% year over year.
non-GAAP loss per share was one dollar and 98 cents.
Looking at and markets for the fiscal fourth quarter.
Cloud represented 37% of thoughts of revenue at $1 billion down, 18% sequentially and 53% year over year.
Sequentially. The decline was primarily due to a decrease in your capacity to enterprise drive shipments.
Nearline Bitch shipments were 59 exit bites down 26% sequentially drill.
Driven by ongoing weakness at clouds customers.
The year over year decrease was primarily due to declines in both hard drive and flash product shipments.
Client represented 39% of total revenue at 1 billion.
Up 6% sequentially and down 37% year over year.
Sequentially, the increase was driven by growth and bitch shipments for gaming consoles.
The year over year decrease was due to declines in flash pricing and lower client SSD and hard drive unit shipments for P. C applications.
Consumer represented 24% of total revenue at zero point $6 billion.
3% sequentially and down 19% year over year.
Sequentially. The increase was primarily due to higher retail SSD shipments.
The year over year decrease was driven by price declines in flash and lower retail hard drive shipments.
For the fiscal year revenue was $12.3 billion down 34% from fiscal 2022.
non-GAAP gross margin declined 17.2 percentage points to 15.7%.
And non-GAAP operating margin decreased 21.8 percentage points to a negative 4.8%.
non-GAAP loss per share was $3.59.
Looking at and markets for fiscal year, 2023, cloud revenue decreased 34% year over year.
Primarily due to reduce shipments of capacity to enterprise hard drives and enterprise Ssds.
Client revenue decreased 39% year over year, primarily due to declines in flash pricing as well as lower client SSD and hard drive unit shipments for P. C applications.
Lastly, consumer revenue decreased 26% for the year as growth in retail SSD bit shipments was more than offset by broad based flash price decline and lower consumer hard drive shipments.
Turning now to revenue by segment.
And the fiscal fourth quarter acre D revenue was $1.3 billion down, 13% sequentially and 39% year over year.
Sequentially.
Total HDD exhibit shipments decreased 18% an average price per unit decreased 9% to $99.
On a year over year basis, HDD exabyte shipments decreased 38% an average price per unit decreased 17%.
Flash revenue was $1.4 billion up 5% sequentially and down 43% year over year.
Sequentially Flash Asp's decreased 6% on the Blendon basis, and 9% on a like for like basis.
Slash bit shipments increased 15% sequentially and 7% year over year.
Moving to costs and expenses please.
Please note that my comments would be related to non-GAAP results unless stated otherwise.
Gross margin for the fiscal fourth quarter was 3.9%.
Down 6.7 percentage points sequentially.
And 28.4 percentage points year over year.
This includes $272 million in costs or 10.2 percentage points for manufacturing under irritation flash inventory write downs and other items.
HDD gross margin was 27% down 3.6 percentage points sequentially, and 7.5 percentage points year over year.
Sequentially.
Decrease was primarily due to lower capacity enterprise volume as well as higher under utilization related charges.
Under your utilization charges were $76 million or 5.9 percentage points.
Flash gross margin was negative 11.9% down 6.9 percentage points sequentially and 47.8 percentage points year over year.
Under utilization charges due to the reduced manufacturing volumes were at $135 million.
An inventory write downs, where $27 million, resulting in at 11.8 percentage point reduction.
We continued to tightly manage our operating expenses of $582 million for the quarter down 20 million sequentially and $178 million year over year.
Operating loss in the quarter was 478 million driven mainly by underneath your physician charges inventory write downs and other items <unk> 272 million.
Income tax expense was $57 million for fiscal fourth quarter.
And $237 million for fiscal year 2023.
Despite that consolidated loss, we continue to have taxable income and searching geography's, resulting in taxes payable in those areas.
Fiscal fourth quarter loss per share was one dollar and 98 cents inclusive of 15 million dollar dividend associated with the convertible preferred equity.
Operating cash flow for the fourth quarter was an outflow of $68 million in free cash flow was an outflow of $219 million.
Cash capital expenditures.
Which include the purchase of property plant and equipment and activity related to our flash joint ventures on the cash flow statement, where $151 million.
Gross debt outstanding was $7.1 billion at the end of fiscal fourth quarter.
Trading 12 months adjusted EBITDA at the end of the fourth quarter as defined in Al Qaeda agreement was $1.6 billion, resulting in a gross leverage ratio of 4.5 times compared to 2.8 times in the fiscal third quarter.
As a reminder, the credit agreement includes zero point $7 billion depreciation add back associated with the flash joint ventures.
This is not reflected in the cash flow statement.
Please refer to the earnings presentation on the Investor Relations website for further details.
During the fiscal fourth quarter.
Security the amendment to our credit agreements. These amendments include modifications to their leverage ratio requirements.
<unk> through the fourth quarter of fiscal year 2025.
Which provide additional financial flexibility in the near term.
We also extended that commitment under the delayed dropped term loan agreement to August 14th 2023.
Please refer to our earnings presentation for details.
At the end of the quarter total liquidity was $4.9 billion, including cash and cash equivalents of $2 billion.
Undrawn revolver capacity of $225 billion.
In an unused delay and drop term loan facility of $600 million.
Before I covered guidance for the fiscal first quarter.
<unk> business outlook.
For fiscal first quarter sequentially, we expect both HDD and flash revenue to be relatively stable.
In fiscal first quarter, we are continuing to adjust production to better match demand and anticipate under utilization charges to impact both HED and flash gross margins.
Along with product mix pressures on flash ISP.
Beyond the fiscal first quarter, we anticipate both HDD and flash revenue to improve through the remainder of fiscal year 2024.
Driven by normalizing demand in storage as well as higher average content per unit and flash.
Gross margin is expected to gradually improve.
Given by higher HDD volume and lower under unionization charges in both slash and HDD.
We will continue to tightly manage our cost structure and expenses as we navigate the challenging environment.
For fiscal year 2024, we expect capital expenditures to decline significantly.
I will now turn to guidance.
For the fiscal first quarter or non-GAAP guidance is as follows.
We expect revenue to be in the range of $2 55 two.
Two two point 75 billion.
We expect gross margin to be between 2.5% and 4.5%, which.
Which includes under utilization charges across flash nhcd totaling $200 million to $220 million.
We expect operating expenses to be between 572 $590 million.
Interest and other expenses are expected to be approximately $90 million.
We expect income tax expense to be between 30 and $40 million for the fiscal first quarter and 132 $170 million for fiscal year 2024.
We expect that loss per share of one dollar and 80 cents to $2.10, assuming approximately 323 million shares outstanding.
I will now turn the call back over to David.
<unk>, let me just wrap up <unk>.
Fiscal year 2023, Mark the period of exceptional progress in strategic planning for Western digital we diligently optimize our operations and executed or innovative product roadmap priming ourselves for greater profitability as demand and that probably rebounds across hard drives in flash as.
As we move forward, we remain confident in our ability to capitalize on emerging opportunities and delivered continued success.
Before opening up for Q&A I would like to take a moment to recognize <unk>, our esteemed president of technology and strategy.
<unk> will be leaving western digital to pursue a great leadership opportunity in a different technology domain.
<unk> has made significant contributions to western digital in San disk over the past 10 years and he has a wonderful friend, we wish him all the best going forward.
Heater, let's start Q&A.
Thank you ladies and gentlemen.
I'd like to ask a question at this time, Please press star one one on your telephone.
You would like to withdraw your question. Please press star one one again, one moment, while the compiler Q&A roster.
Alright first question is going to come from the line of Joseph Moore with Morgan Stanley . Your line is open. Please go ahead.
Great. Thank you I Wonder if you could talk to <unk> in the current quarter. It looks like the under utilization charges are similar does that mean, you're utilization is unchanged and I guess it seems like you were able to make some inventory progress does that mean that you can at some point have.
Line of sight to bring that back up.
Yeah, Hey, Joe. Thanks for the question May end in the current quarter as we said we saw good I guess, a good market reaction and consumer and and the client business. Both return to growth on an expedited basis. They both were sequential growers. So we saw <unk>.
Incremental upside there. So we were happy about that we are still under utilizing the fab outlet. We saw him talk about that a little bit more detail, we do plan to under utilized for another couple of quarters, but.
We feel good about the overall you know the signs and the overall market.
Price declines are moderating our inventory is down that shipments are up we expected shipments to be up again double digits next quarter.
So.
Not quite wherever you want to be yet, but the market is stabilizing and we see a lot of good good things.
A lot of a lot of metrics going in the right direction.
Yes, Joe and with respect to under utilization, we saw similar type of under the physician charges in fiscal two four versus Q3.
For the flash side and when you look at the HDD, we had a bit more Ah Ah neutralization, but sticking with the flash also in our guidance. We've noted similar levels into fiscal Q1.
Albeit if you look at sort of the range of 200 to 220 I would say.
It is.
70% slash, 30% HDD.
And also.
If I think of let's say that fiscal Q too.
I anticipate more or less similar levels under utilization.
Troops from where we stand today.
Alright, Thank you and.
If I could ask job in terms of the uses of cash in the next few quarters and then you've got to convert it comes due early next year I think there are still some issues about a potential tax payment can you just update is there any sort of you know if you need to raise money to pay those.
So with respect to use of cash and as you know did we do have the convert 10 matures in February 24, and we plan to address that this quarter or the next one.
We also have the.
Yes.
Settlement that is coming up and we expect also this payment to be.
Very likely this quarter.
But with respect to the liquidity.
Exiting fiscal Q4.
We had approximately $4.9 billion of liquidity and so if you recall the delay dropped term loan was put in place in the event, we need to address the IRS settlement, so that will that will be drawn down.
To take care of the iron a settlement when it happens.
And with respect to the convert I mentioned would address it in the coming two quarters.
Okay. Thank you very much thanks.
You're welcome.
Thank you one moment please for our next question.
[noise] next question is gonna come from the line S. C. Jamie is with Evercore ISI. Your line is open. Please go ahead.
Okay.
Unfortunately.
Okay.
Yes.
Alright perfect.
[noise] How're you doing today.
Alright.
Yeah.
Okay, let.
CJ right CJ that was very it was.
Little tough to hear you there, but I think we got the gist of the question, which was supply and demand normalization is that is that right in flash.
Yeah, sorry about that yet.
Alright, Okay. So look I think as I said there.
A number of things we saw on the market this quarter we saw.
Sequential bit growth overall, we saw clients and consumer returning to to expedite growth on a year over year basis consumer SSD content up 40% client SSD.
20%, we saw our inventory down we think in the client and the.
Consumer and client markets PC markets basically shipping to demand at this point.
You know, we expect our for the fiscal year, we saw bits about flat year over year for the calendar year received them down low single digits, we probably see the industry down a little lower than that so.
Taking the actions to bring a supply and demand better into balance and I think we're seeing that.
Across our markets cloud is still you know there's still a couple of quarters to go over there and that's a larger story, but.
And our two biggest markets for flash we're seeing.
We're seeing that supply day supply demand balance start to move closer together put it that way.
Thank you.
Yeah.
Near you.
<unk>.
There was no.
Maybe.
Alright, that's it.
Alright excellent.
<unk>.
And.
Sure.
Okay, I think that was the strategic review and timing.
J.
So like the process is active we look forward to talking more about it when we reach a conclusion.
Thank you.
Thank you.
Thank you and one moment for our next question. Please.
Our next question is kind of come from the line in their makers with Wells Fargo. Your line is open. Please go ahead.
Thank you guys. This is Michael on behalf of the areas I wanted to ask how are you guys thinking with the recent uptick in investment in the data center. How do you think that impact that makes a flash or look at the H D D capacity being deployed or maybe how that will impact going forward and then kind of related to that would you know how our guys can.
You guys just give us an update on where you stand with your enterprise is the qualifications. Thank you.
Yeah.
I'm thinking a lot about generative AI, it's clearly a big topic. These days.
Obviously, a lot of spend going on to build out the infrastructure in the cloud which.
I think quite frankly is a great thing.
The cloud distribution model of new technology is something that is pretty amazing that's been built out over the last decade. So we all get access to this technology very rapidly.
And when I think about this in the storage domain clearly the compute infrastructure is being built out now, but what we're all going to be.
Enabled with her like incredible tools to automate data creation.
Many different levels, whether it's.
Tax data video day, whatever it happens to be I think that we're essentially going to.
Really accelerate our ability all of us to create.
Create information that needs to be stored so I I see this is kind of a catalyst.
For just a profound increase in the amount of data creation I think that.
Once those tools get distributed and we all start using them I think that drives incremental growth across ssds and hard drives I mean hard drives are the foundational storage in the cloud it's going to be that way for a very long time. So.
While Jen AI may have some disruptions on the business in the near term as the compute infrastructure gets built out.
Very optimistic that this is a as I said I think it was a profound.
It's a catalyst for profound increase in the rate of data creation. So quite excited about that we don't know exactly what it how you model that just yet except that there's new innovation drives new data creation, which drives the need for storage. So we look forward as these as this.
Infrastructure gets built out and rapidly adopted.
Impact, it's going to have on our business now.
<unk>, we still have the qualifications. We've recently qualified <unk> five in some of these places.
That market, along with Nearline HDD or capacity enterprise HED.
Is depressed right now are subdued so we're not seeing a lot of growth and that but we fully expect that when when that market comes back in that part of cloud infrastructure spending comes back that will be in a good position.
We're still investing in the products and feel good about the the the position we have with the major cloud vendors.
I appreciate that thank you.
Thank you.
Thank you and one moment for our next question.
Our next question is going to come from the line as time O'malley with Barclays. Your line is open. Please go ahead.
Good afternoon, and thanks for taking my question I just wanted to narrow it on the HDD side there's been.
A variance of timing of recovery across the industry could you just give us your your latest.
When you think the cloud portion of your H D. D business is going to recover I know you've previously you said the fourth quarter has there been any pushed out that expectation and could you also just comment on the health.
No it's down this quarter, but just the health of that HDD business as.
You are seeing it today, so just the timing of the recovery and how upset in today.
Yeah, I think as we moved so first of all we think we're going to see sequential <unk> growth in capacity enterprise HED throughout the fiscal year, but it's gonna be towards the end of the year into the first quarter, where we start.
Yeah, we started to get line of sight to all of the customers coming back I think we're having discussions across all of our customers about what they are we always have conversations but you know some of the big ones have been inventory digestion for quite a while so we are getting better line of sight to the end of that but I think we still have.
Couple of quarters to go, but but improving I think next quarter things will be stable.
That a mixed impact there we expect client to be.
A little bit more challenge than this quarter.
But I think as we move throughout the year things will get better.
And I think you're timing of a couple more quarters of getting through this phase and as we get into early next year, we expect things to look look better.
Helpful. And then also in the HIV visit you.
Your competitor to kind of talked about being more aggressive in certain areas on pricing have you guys also look to be more aggressive on pricing and any comments that you have on just your strategy with clients on the pricing side. Thank you.
Pricing really starts with innovation I mean, I think that's where we.
Staging are 28 T Ultra SNR product, we're really really happy with where ultra S. Samara is at <unk>.
<unk> and where we're already staging our next product for growth. There. That's that's the underpinnings of where we are able to bring your brother Tcl proposition to our customers and as we do that we're able to share in the benefits of that is those drives gets deployed the rest of the market is more market driven pricing, we have a lot of different channels.
While different markets, we sell into.
That type of pricing is just as more of what you would typically think in any any big market around supply and demand.
Thank you.
Thanks, Tom.
Thank you and one moment for our next question.
Our next question comes from the line of course.
Cowan Your line is open. Please go ahead.
Yeah, Hi, Thanks for taking my question I told them.
Slash.
June .
Listen sequence.
And then we'll get appears.
But the pricing should improve after a revenue should improve after December .
Is that a poetry of overall <unk> getting better.
<unk> exposure to retail and P. C. L. P U I've added a follow up.
I missed the first part of the question sorry.
Sorry could you please repeat.
There was a little bit of static on the line.
I apologize.
The pricing.
Mmm.
Mmm.
Is it a function.
Because that's what goes into your target.
He's going to get better.
Okay, Let me I think I got it that time, so nan pricing.
So first of all in the last quarter <unk>.
You saw.
Like for like pricing down nine blended down six so moderating from the quarter before next quarter, we expect.
Volume to pick up which will drive volume to pick up.
Margin to be impacted a little bit more from where it is today.
So continue to moderate volume picking up.
Does that help answer your question I don't know if I didn't get all of your question, Chris I'm, sorry, if I'm not answering it.
I think I did.
I was just trying to think about that.
I think anybody can look as P C retailer Oh, yeah well.
I gotcha, so consumed as we said we saw the client and consumer markets return to growth.
<unk> growth and sequential revenue growth. So we see those markets have kind of through their inventory digestion and more shipping to and demand.
So you know that.
We expect we expect that to continue as we go forward.
Got it Thanksgiving and then a quick follow up on hard drive you said that you're sampling the 20th <unk>.
<unk> you want to donate a roadmap and are you like doing that by increasing the number of the drive and how do you think about it grows larger.
[noise] adventure Bye bye.
Oh.
Okay. So let me let me I think I got most of the questions. So we're not we're not adding more desk cause I mean ultra <unk>.
It's a combination of our <unk> opting in an ultra <unk> technology is for the next step on the roadmap.
I think we've talked a lot over the last year plus about this.
Driving from 20 to 30, plus with a with a a set of technologies around <unk>.
Ultra <unk> and this is the next step in that in that roadmap. We still have a couple more steps to go so well announced the products one at a time, but we're happy with where we are and continue to drive innovation.
And as demand comes back we'll be ramping into a great setup products and these products that can be staged quickly and ramp in volumes very quickly very established technology.
And the 26 T drive Ultra Xmr drive, we really you know that.
Sold that scale this quarter and we expect a significant growth in that in the next quarter as well.
Awesome.
[noise] helpful.
Thank you.
Thank you and one moment for our next question.
Our next question comes from the line.
<unk> Bank of America. Your line is open and please go ahead.
Yes. Thank you so much so we've had a few head fakes on recovery in the on the cloud side, particularly in HD D's and.
Wondering as you think through sort of this improvement starting in fiscal two Q.
What's underpinning some of the confidence you know that demand recovery are you seeing particular signs.
From customers that are that are pointing to that and your your primary competitor also noted taking some changes, including a bill to order a philosophy curious if you guys are contemplating any any such changes and I will follow up.
Hey, Ramsey so first of all I mean, you hit it I mean, we have we have ongoing very significant conversations with our customers on a.
Many quarters out so that's what gives us.
That's what underpins the view, we have to your point things can change but.
That's the current view and the conversations are productive and positive.
On the build the order comment look I I think the industry is going to come out of the well let me let me speak about us so western digital will come out of this downturn is pretty pretty severe downturn in a cyclical industry, but we've done a lot of things that I think the business is going to be different on the other side of this first of all we've taken.
Can't amount of.
Capacity out of the system, we've talked about this shift from client to capacity entered enterprise at least as long as I've been here and it's been going on for many many years before that.
Think that transition is going to be essentially done there's a long tail on any technology, but if you look on the unit basis will come out of this with significantly less spending on our infrastructure will have the lowest fixed costs. We've had in a decade plus in our HED infrastructure.
Will really be focused exclusively on that client enterprise business going forward, that's not as will still have a client business don't get me wrong, it's still going to be there like I said, there's a long tail of technology, but.
I think as part of that the industry will come out we will come out of this is more of a bill.
Build the order if you will as opposed to a build to forecast. So that's why we're having these conversations with our customers because it is a.
It is a long build time on an HDD and we wanted to make sure that we've got the infrastructure in place we've got the components in place and we're running the right process to deliver what our customers need.
At the right time, so I think maybe the short answer to your question is yes, western digital will be <unk>.
Is going to more of that kind of process.
Okay, Thanks, though and just for clarification on the under utilization charges, which look roughly flattish quarter on quarter are those charges roughly similar in flash and a C. D. S. This past quarter or data definitely moving pieces underlying that part for September . Thank you.
Sure Wednesday, so when you look at the September quarter, the guy that $200 million to $220 million a month.
<unk> physician charges and there are split roughly 70%.
Slash, 30% to HDD.
And I would.
And just to clarify also to add with respect to probably to the the following quarter.
HD, sorry under utilization related charges to be and let's say, 5% to 10% down and most of the if not all of the decrease would be coming from HDD.
Think it was.
You're welcome.
Thanks <unk>.
Oh, one moment for our next question. Please.
Our next question comes from the line.
Thank your line is open. Please go ahead.
Thank you I wanted to ask about the cloud weakness again, I understand the cloud things that could be lumpy.
Curious about your conversations with a large hyperscale guys. How has that changed around a quarter to go are they giving you signals about when inventory and will start stabilizing I'd be worried about supply and the second half given production cuts biologist suppliers and are they more receptive to purchase.
[laughter].
Yeah.
I would say is the.
He's a very robust conversation given the amount of business, we do with with the Hyperscalers.
It's clear that some of them had been in a very severe inventory digestion phase.
And kind of took a pause on buying anything, but we're back to having conversations with those customers I mean, they're they're still growing and.
Storage is still being created and growing so.
We expect those conversations and those businesses too.
The buying will reemerge and we're having conversations on when that will happen and what what magnitude just to make sure that we've got all of our capacity aligned to deliver that I think we're getting very good reception on the product roadmap as we talked about.
Or 22, 24, 2006 terabyte platform and products have now been qualified by all of the major cloud vendors.
We're just we expect to ramp those significantly, especially the 26th <unk> next quarter.
That's really.
Becoming a.
A major capacity points for some of the biggest cloud cloud builders and right on the back of that we're launching at 28 Ultra <unk> drive. So the conversations are strong and it's about making sure we have a clear alignment on what their requirements are going to be in that we get the proper.
Manufacturing in place to deliver on them.
Okay. Thanks out maybe a quick follow up on the hot dry side, clearly you guys have been better better than last quarter I just wanted to hung in on the S. M. I will drive, which you said have qualified at all nature cloud customers can you give us an idea of what S. M. R adoption today and why do you think it will be.
Few qualities from now.
[noise] S M R.
It's very idiosyncratic <unk> I mean, the intersection of adoption an inventory digestion may.
It makes it.
Very lumpy and if you look at the current quarter or last quarter.
But I can say going forward that several of the major cloud providers are standardizing on an SLR deployment.
Ultra SNR for us and we expect to have a significant ramp of that technology over the next several quarters.
Okay. Thank you.
Thank you Sydney.
Thank you and one moment for our next question. Please.
And our next question comes from a line of tertiary with Goldman Sachs. Your line is open. Please go ahead.
Hi, guys. Good afternoon. Thank you so much for taking the question I had one clarification that a question David on <unk> for the current quarter.
I guess, you talked about bits being up double digits sequentially, and you're kind of guiding revenue to flat sequentially. So I guess the implied asp's are down perhaps a little bit more than what they were down in the June quarter, but you talked about moderation. So is the the.
The sharper price decline in September that's implied in guidance are embedded in guidance, primarily a function of mixer or am I missing something there.
Yep.
It's may be a little bit sequentially may be a little bit lower than what you're modeling. So I think that that's where it is so sure. We can follow up with you on kind of more details.
But.
I think that's probably the clarification.
Okay got it. Thank you and that is my follow up maybe one for we saw you mentioned that for fiscal 2004.
You you plan to to cut Capex significantly.
<unk>, if it's purely impacting your capacity decisions and then or are there any changes or shifts to how you think about the roadmap and uhm related to that I think on a bit shipments. David you mentioned for calendar 24, you guys are gonna be I think down low single digits, but how should we think about <unk>.
Production and calendar 24, given the capex and production costs that you're going through right now thank you.
Well, maybe let me start with the first part of the question on Capex till she.
Comment on Capex is.
Well when you look at Canada, sorry, physical twenty-three, we've taken quite a bit of capex.
Out from our fans as we continued to preserve cash you can see that we've spent thank you on the road down roughly 30% to 35%.
It's almost a billion dollars lower than the gross capex level, almost a billion dollars lower than.
What our plan was at the beginning of the year for fiscal twenty-three.
For fiscal 24.
Projecting to be significantly lower.
It's mostly and nine it doesn't impact 10 necessarily our product roadmap.
It is more or less what we see today relative to a one hour.
Or basically other types of investments, meaning northern transitions or other types of investments.
<unk>.
And so I wouldn't say, there's any major a major change in it to to what we have already been planning.
But given the and dynamic macro environment, we're operating in.
We will continue to monitor just like we've done in fiscal twenty-three on a quarterly basis and adjust as needed.
Thank you and thanks for sharing that question.
Our next question cashing in on line and it crashed.
Credit for each of your line is open. Please go ahead.
Thank you.
My question.
Wondering if you have any unique perspective, having both hdd's and apathy, there's commentary coming out of here and I'm hearing.
Some somebody other storage vendors.
<unk> alright.
Cloud with and data.
Great and you said SSD within a cloud and data centers and and almost like you know potential secular shift again peer takes it kind of to the extreme but I'm. Just wondering how you think about how the next will trend over time, maybe later in a I S y N.
Think about it.
Okay, and you said.
Worried that plenty of anything your customers and and then I have a follow up thank you.
[noise], Hey, Shannon. Thanks for the question we've talked about this a lot over the years I think that.
Both technologies are growing in the data center HGT is the predominant storage mechanism in.
In the data center.
We don't expect that to change our customers don't expect that to change as long as we continue to drive the HED roadmap forward you know we just.
You know, we're ramping 26 terrifying already launching 28 terabytes. So we're moving forward with capacity points on H G D.
And we expect.
Robust growth of of of of HED storage of the data center going forward. We also expect growth of.
Enterprise is the storage in the data center going forward.
Growing a little bit faster than.
Then ACD, but not in a way where you're looking at one as a substitute for the other they're highly complementary technologies and we expect that to be the case for.
Any useful planning horizon in the future, we look a decade out the cost differences are still significant.
And that's certainly the way we talk to our customers about how they're building mass scale data centers.
Okay.
Listen can you talk a little bit about opex.
Oh, you're thinking about it relatives and maybe a new one.
Realized level.
And and how much.
Okay, and the model AD revenues come back before you have to start spending more if I'm gonna Opex perspective. Thank you.
Yeah sure so on Opex.
So we continued to a.
Manage it very very tightly in a fiscal Q4, we ended at 582, which is.
$180 million lower than the same quarter last year.
As to your question.
Over the near term I think we're within.
We're within sort of the range, where where we expect to be but as.
As the business touch coming back.
There could be some small.
Small increase as we started learning up some of the variable expenses on that however, we should never we shouldn't expect the increase in opex to be faster than the increase in revenue and so we wouldn't be monitoring that and.
It can be agile.
And similarly, if there's a need for us to take additional action on Opex to continue to manage very tightly. We also have some room to do that.
Michelle.
We have the next question please.
Sure I can just one moment.
Our next question comes from the line of Timothy occurring with you B S. Your line is open. Please go ahead.
Thanks, a lot I had to with some the first one is on Ah under utilization charges and it and it's kind of like a two part question. So the first is what's the current utilization and Mad and then on Hte side is there kind of Ah Ah milepost as to where these could start to go away because you're guiding $70 million for September for under.
They should and you know HDD it sounds like it goes to maybe 60 to 65 in December colder, but when does it go away cause you started to take under utilization charges. I think when you know HD revenue once up 2 billion per quarter. So do we have to get all the way back to 2 billion a quarter to have those HD under utilization charges go away.
Okay. So Tim.
Respect to the Flash side, you know we continue to make these.
Decisions on an ongoing basis and you know from the numbers you can tell the <unk>.
<unk> really the charges were.
Are projected to be roughly flat from Q4 two Q1.
As for.
HDD I think the mass is.
Your math on Q1 is is is close to where the guidance, but I think in December quarter. If you think of.
The under utilization charges going.
Say from Q1, two <unk>, two going down five foot five or 10% and all of that decrease coming from a C. D. You start seeing some some declines.
<unk> and the HDD under utilization in the December quarter, and based on what we see today.
Too early to talk about the second half of the fiscal.
Fiscal year 2024.
To to the point you were making go down to 2 billion dollar revenue Mark.
We don't need to get to the $2 billion revenue Mark to really fully utilize our capacity and if you recall, we've restructured the quite a bit of flower.
Manufacturing capacity and the hard drive business.
And we continue to take and optimize the fixed cost aspect of the cost structure and so we.
We can be fully utilized at too.
Lower level than $2 billion, given the current cost structure.
Thanks, a lot for that with them and then just on the debt service costs. So you have the convert to in February I think that's pretty good right I think it's that.
5%.
So that that you're going to replace that with I imagine there's going to be pretty expensive. So it seems sort of you know I guess my question is sort of where does that leave you in the cap structure. Obviously it seems like that service costs are gonna go up maybe $20 million a quarter and once you have to issue new debt for that so can you just talk about sort of how you sell for all that thanks.
So yeah. The current the current right on the convert is 1.5% and given where the interest rate environment is today.
Expect that to be if replaced my dad can be.
When replaced by network to be roughly more expensive than that so look instead of a bit too early to talk about it and a lot of details, but this is something that is definitely.
It focused for us as we think through the various the various options that are available to us with respect to refinancing for instance, we look at the potential.
Yeah.
Cost of capital and.
Our goal is to make sure that we maintain a fake.
Lower cost of capital to the extent possible, but I expect it to be.
Slightly up from here.
<unk>.
Thanks, a lot with them.
Thank you and one moment for our next question.
Our next question comes on the line, Okay arrive with Luke capital of your line is open. Please go ahead.
Yeah. Thank God I appreciate you taking the question. Thanks, So much court.
Thanks, David.
Two quick ones, if I could when would you expect twenty-six terabyte and Navy I'll, even through 28 and there since you mentioned that David crossover.
Crossover [laughter] and and then I just have a quick follow up to that day.
Crossover.
Well, let me say that.
There's a lot of there's multiple different capacity point. So I think we need to maybe talk about this a little bit different it doesn't just moved from.
14, 16, 18, maybe like it did two three years ago now there is a bit of distribution of different customers.
And what kind of technologies are using whether it's 20 or 22 or 26 is or go into 28th or even some 24. So.
As I look at where things are going to be.
In the next couple of quarters, you're going to see a pretty even distribution across three or four different capacity points all of them shipping half a million dollars or more drive so.
We expect very substantial ramp of 2000 section I don't want to take away from the ramp that's going to happen there it's going to be very quick and very rapid now that's qualified.
And.
Getting close to being a leading capacity point in the next couple of quarters.
Thanks for making those mistakes.
Really helpful.
And the follow up is that you guys have any do you get any opinion on.
We think normal lives out in the hard drive if the Hyperscalers return to what their classic utilization levels.
Have been historically.
How they run the capacity or do you think the settlement somewhere somewhere different.
Deliberation.
[noise] Okay. Thank anytime you go through a period like this there is some work done on optimization of infrastructure consolidation I think that's happening.
But I would I would expect things.
You you go through that and use incrementally get better like anything in technology are constantly improving constantly getting more efficient I think that that.
Is something that's always going to go on.
And we're still going to see the the growth and <unk> on top of that so I think we're still looking at <unk>.
<unk> 2025 per cent expedite growth in the <unk> business and I think we clearly haven't seen that in the last year, but we know it's a cyclical business and.
And we expect to get back to those levels.
Alright that that's awesome. Thanks, a lot.
Thank you.
Mmm.
Thank you.
And our last question is going to come from the line.
Carl Anchormen before we have a short statement by our CEO could you discuss how we should think about a recovery in near line units and unit pricing as you and your peer implement a bill to order process and.
And as you address that question could you discuss how this bill to order process may differ from longterm agreements signed in 2021.
That.
We're a bit challenging to implement overtime. Thank you.
[noise] so units I expect to recover right I mean, we're gonna get extra by growth for a new low point on Unix, we expect units to recover and get back to where they were in a clips that actually as we continue to get exabyte growth I'll put in.
Say once again once again I am very excited about generative AI I know everybody is but I think it's going to come to our world on storage once all of its gets deployed and so I expect to see units units recover.
To build the order process is going to be a fairly straightforward process, because we have deep relationships with a <unk> with with the setup customers here. It's a it's a big market, it's a big relationship.
And I think it's just getting the business model to a place.
Where there is better alignment between the infrastructure we have in place again, we've been talking about this for many years now.
And a lot of ways cloud is significantly benefitted from the reduction in client and there has been a consistent.
Availability of infrastructure to build hard drives and we're at the end of that transition now. So we have to just have more planning around that I think the long term agreements were a step into that.
I think this is maybe the next step into how do we run our franchise to make sure. We've got the best alignment between delivering a great product and value proposition to our customers, which is extremely important to storage is incredibly important part of the data center.
And making sure that we have the right infrastructure in place to fuel that growth. So.
I expect it to be a pretty natural.
Change or evolution of the business model.
I expect it to be a very positive.
On all sides.
Thank you Carl.
Alright, everyone. Thanks for joining the call we look forward to talking to you all throughout the quarter take care.
That concludes today's conference call. Thank you for joining you may now disconnect.
Mmm.
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Yeah.
[music].
Okay.
Mmm.
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[music].
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[music].
Good afternoon, and thank you for standing by welcome to the Western digital successful Fourthquarter and She's got 2023 conference call presently I'll protect serpentine I'll listen only mode. Later, we will conduct a question and answer session at that time, if you would like to ask a question you may <unk>.
One line on your telephone has a reminder, this call is being recorded now I would like to turn the call over to Mister Peter Andrew Vice President financial planning, an analyst and Investor Relations you may begin.
Thank you and good afternoon, everyone. Joining me today are David Keckler, Chief Executive Officer, and we <unk> Chief Financial Officer before we begin let me remind everyone that today's discussion contains forward looking statements, including expectations for our product portfolio spending and <unk>.
Cost reductions.
Business plans and performance market trends and financial results 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.
Please refer to our most recent financial report on Form 10-K, and our other filings 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 reconciliation between the non-GAAP in 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.
Thank you Peter good afternoon, and thank you for joining the call to discuss our fourth quarter in fiscal year 2023 results.
Western Digital's fiscal fourth quarter revenue exceeded expectations.
As our access to broad go to market channels enviable retail franchise and strong client SSD portfolio enabled us to capture demand upsides in both client and consumer end markets.
Reaffirming our strength and a challenging market environment.
We reported fourth quarter revenue of $2.7 billion and non-GAAP gross margin of 3.9%.
non-GAAP loss per share was one dollar and 98 cents.
Before diving into the specifics of the quarter and the full fiscal year I would like to take a moment to reflect on our accomplishments in fiscal year 2023 and.
Importantly, we continued to optimize our operations in successfully executed are innovative product roadmap priming ourselves for greater profitability when demand rebounds across hard drives in flash.
Throughout the fiscal year, we were focused on enhancing our product leadership and reinforcing our business agility and.
In HDD, we have successfully qualified our latest family of capacity enterprise hard drives that all major customers in our shipping or 26 terabyte Ultra ASMR drive in high volume.
And flash we pioneered the use of wafer bonding an advanced three D Nan manufacturing and introduced the ground breaking technology and <unk> eight.
Which sets the foundation for future <unk> scaling.
On the expense front, we streamlined investments across our HDD and slash portfolio, which enabled us to significantly reduce quarterly operating expense, while continuing to deliver innovative products and technologies that address customers growing storage needs.
Further we reduced our cash capital expenditure run right by over 50% in the fiscal second half and consolidated are hard drive manufacturing footprint.
These efforts enabled western digital to preserve capital, while effectively executing on product strategies and aligning our supply with posts pandemic demand environment.
Notably, we reduced our inventory by nearly $300 million sequentially and exited fiscal year of 2023 at a much healthier level than a few quarters ago.
And in June we successfully completed amendments to our credit agreements, which provide western digital with significant additional financial flexibility as we navigate macro dynamics.
In summary, we continued to proactively take action to bolster our agility enhanced our liquidity position optimize our inventory levels across HED and flash and strengthened our position as an industry and market leader we.
We exited fiscal year 2023, well positioned to capitalize on improving market conditions and capture long term growth opportunities and data storage spanning from client to urge to cloud.
Finally, I want to acknowledge that the strategic review is ongoing we continue to make progress on this process and will provide updates as appropriate.
Turning to the fiscal fourth quarter revenue in both client and consumer end markets return to sequential growth led by normalized and market demand and higher average capacity per unit in flash.
And consumer.
Retail flash exceeded our expectations across all major product categories.
We saw similar results in client was upside in both ACD in flash and across almost all major product categories, including client SSD Gaming Council embedded flash and client hard drives.
And cloud demand for both harddrive and flashed products remain subdued.
I will now turn to business update starting with HDD and.
Then the physical fourthquarter ongoing cloud weakness drove the overall decline in HDD revenue, however, demand for both client and consumer hard drive has stabilized and exceeded our expectations.
The end of the fiscal fourth quarter, we have successfully qualified all variance of our 22 terabytes TMR in 2006 terabyte Ultra ASMR hard drive platforms at all major cloud customers setting the stage to improve shipments and profitability.
In addition, we are about to begin product sampling of our 28th Terabyte Ultra ASMR drive.
Cutting edge product is built upon the success of our <unk> Ultra SNR technologies with features and reliability trusted by our customers worldwide. We are staging this product for quick qualification and ramp as demand improves.
Turning to flash revenue increase sequentially led by growth in both client and consumer flash pitch shipments, which exceeded our expectations with total bench shipments returning to year over year growth.
A stronger than expected bit growth is attributed attributable to normalizing PC in consumer demand as well as content growth.
Average capacity per consumer and client SSD increase over 40% and 20% year over year, respectively move.
Moving to technology developments, we continue to aggressively Productize <unk> based on a chip bonded to array architecture BIX eight solidifies western digital <unk> leadership and cost capital efficiency in Iowa performance into the future.
Before I turn it over to we some I wanted to share some perspective on our outlook.
And HDD as we look to the fiscal first quarter, we expect overall demand to remain stable beyond the fiscal first quarter, we anticipate both improving demand and new product ramps to drive growth in revenue and profitability.
And flash we are encouraged by several indicators signaling improving market dynamics, notably, our two largest and market client and consumer a returning to growth inventories are normalizing content per unit is increasing in price declines have been moderating.
With that I'll turn it over to eat some.
Thanks, David and good afternoon, everyone.
As David mentioned fiscal fourth quarter revenue exceeded our expectations.
Total revenue for the quarter was 2.7 billion down 5% sequentially and 41% year over year.
non-GAAP loss per share was one dollar and 98 cents.
Looking at and markets for the fiscal fourth quarter.
Cloud represented 37% of total revenue at $1 billion down, 18% sequentially and 53% year over year.
Sequentially. The decline was primarily due to a decrease in capacity to enterprise drive shipments.
Nearline bit shipments were 59 exit bites down 26% sequentially drill.
Driven by ongoing weakness at cloud customers.
The year over year decrease was primarily due to declines in both hard drive and flash product shipments.
Client represented 39% of total revenue at 1 billion ups.
6% sequentially and down 37% year over year.
Sequentially, the increase was driven by growth in bits shipments for gaming consoles.
The year over year decrease was due to declines in flash pricing and lower client SSD and hard drive unit shipments for P. C applications.
Consumer represented 24% of total revenue at zero point $6 billion.
3% sequentially and down 19% year over year.
Sequentially. The increase was primarily due to higher retail SSD shipments.
The year over year decrease was driven by price declines in flash and lower retail hard drive shipments.
For the fiscal year revenue was $12.3 billion down 34% from fiscal 2022.
non-GAAP gross margin declined 17, two percentage points to $15, 7%.
And non-GAAP operating margin decreased 21.8 percentage points to negative 4.8%.
non-GAAP loss per share was $3.59.
Looking at and markets for fiscal year, 2023, cloud revenue decreased 34% year over year.
Primarily due to reduce shipments of capacity to enterprise hard drives and enterprise Ssds.
Client revenue decreased 39% year over year, primarily due to declines in flash pricing as well as lower client SSD and hard drive unit shipments for P. C applications.
Lastly, consumer revenue decreased 26% for the year as growth and retain SSD bitch shipments was more than offset by broad based flash price decline and lower consumer hard drive shipments.
Turning now to revenue by segment.
And the fiscal fourth quarter, HED revenue was $1.3 billion down, 13% sequentially and 39% year over year.
Sequentially.
Total HDD exited bite shipments decreased 18% an average price per unit decreased 9% to $99.
On a year over year basis, HDD exabyte shipments decreased 38% an average price per unit decreased 17%.
Flash revenue was $1.4 billion up 5% sequentially and down 43% year over year.
Sequentially Flash Asb's decreased 6% on a blended basis and 9% on a like for like basis.
Slash bit shipments increased 15% sequentially and 7% year over year.
Moving to costs and expenses please.
Please note that my comments would be related to non-GAAP results unless stated otherwise.
Gross margin for the fiscal fourth quarter was 3.9%.
Down $6 seven percentage points sequentially.
And 28.4 percentage points year over year.
This includes $272 million in costs or 10.2 percentage points for manufacturing <unk> nation Flash inventory write downs and other items.
HDD gross margin was 27% down 3.6 percentage points sequentially, and 7.5 percentage points year over year.
Sequentially.
A decrease was primarily due to lower capacity enterprise volume as well as higher under utilization related charges.
Under utilization charges were $76 million or 5.9 percentage points.
Flash gross margin was negative 11.9% down 6.9 percentage points sequentially and 47.8 percentage points year over year.
Under utilization charges due to the reduced manufacturing volumes were $135 million.
An inventory write downs, where $27 million, resulting in at 11.8 percentage point reduction.
We continued to tightly manage our operating expenses of $582 million for the quarter down 20 million sequentially and $178 million year over year.
Operating loss in the quarter was 478 million driven mainly by underneath utilization charges inventory write downs and other items totalling $272 million.
Income tax expense was 57 million for fiscal fourth quarter.
And $237 million for fiscal year 2023.
Despite the consolidated loss, we continue to have taxable income and searching geography's, resulting in tax is payable in those areas.
Fiscal fourth quarter loss per share was one dollar and 98 cents inclusive of 15 million dollar dividend associated with the convertible preferred equity.
Operating cash flow for the fourth quarter was an outflow of $68 million in free cash flow was an outflow of $219 million.
Cash capital expenditures.
Which include the purchase of property plan and equipment and activity related to our flash joint ventures on the cash flow statement, where $151 million.
Gross debt outstanding was $7.1 billion at the end of fiscal fourth quarter.
Trading 12 months adjusted EBITDA at the end of the fourth quarter.
As defined in Al Qaeda agreement was $1.6 billion, resulting in the gross leverage ratio of 4.5 times compared to 2.8 times in the fiscal third quarter.
As a reminder, the credit agreement includes zero point $7 billion depreciation add back associated with the flash joint ventures.
This is not reflected in the cash flow statement.
Please refer to the earnings presentation on the Investor Relations website for further details.
During the fiscal fourth quarter were executed amendment to our credit agreements. These amendments include modifications to the leverage ratio requirements.
<unk> through the fourth quarter of fiscal year 2025.
Which provide additional financial flexibility in the near term.
We also extended the commitment under the delayed dropped term loan agreement to August 14th 2023.
Please refer to our earnings presentation for details.
At the end of the quarter total liquidity was $4.9 billion, including cash and cash equivalents of 2 billion.
Undrawn revolver capacity of $2 $25 billion.
In an unused delayed drop term loan facility of $600 million.
Before I covered guidance for the fiscal first quarter.
Discuss our business outlook.
For fiscal first quarter sequentially, we expect both HDD and flash revenue to be relatively stable.
In fiscal first quarter, we are continuing to adjust production to better match demand and anticipate under utilization charges to impact both HED and flash gross margins.
Along with product mix pressures on flash ISP.
Beyond the fiscal first quarter, we anticipate both HDD and flash revenue to improve through the remainder of fiscal year 2024.
Driven by normalizing demand in storage as well as higher average content per unit and flash.
Gross margin is expected to gradually improve.
Given by higher HED volume.
Lower under unionization charges in both flash and HDD.
We will continue to type you manage our cost structure and expenses as we navigate the challenging environment.
For fiscal year 2024, we expect capital expenditures to decline significantly.
I will now turn to guidance.
For the fiscal first quarter or non-GAAP guidance is as follows.
We expect revenue to be in the range of $2 55 two.
Two two point 75 billion.
We expect gross margin to be between 2.5% and 4.5%.
Which includes under utilization charges across flash nhcd totaling $200 million to $220 million.
We expect operating expenses to be between 572 $590 million.
Interest and other expenses are expected to be approximately $90 million.
We expect income tax expense to be between 30 and $40 million for the fiscal first quarter and 132 $170 million for fiscal year 2024.
We expect the loss per share of $1.80 to $2.10, assuming approximately 323 million shares outstanding.
I will now turn the call back over to David.
Thanks, <unk>, let me just wrap up.
Fiscal year 2023, Mark to period of exceptional progress in strategic planning for Western digital we diligently optimize our operations and executed or innovative product roadmap priming ourselves for greater profitability as demand inevitably rebounds across hard drives in flash as.
As we move forward, we remain confident in our ability to capitalize on emerging opportunities and delivered continue success.
Before opening up for Q&A I would like to take a moment to recognize <unk>, our esteemed president of technology and strategy.
<unk> will be leaving western digital to pursue a great leadership opportunity in a different technology domain.
<unk> has made significant contributions to western digital and sandisk over the past 10 years and he has a wonderful friend, we wish him all the best going forward.
Heater, let's start Q&A.
Thank you ladies and gentlemen.
I'd like to ask a question at this time, Please press star one one on your telephone.
You would like to withdraw your question. Please press star one one again, one moment, while the compiler Q&A roster.
Our first question is going to come from the line of Joseph Moore with Morgan Stanley . Your line is open. Please go ahead.
Great. Thank you.
I Wonder if you could talk to <unk> in the current quarter. It looks like the under utilization charges are similar does that mean, you're utilization is unchanged and I guess it seems like you were able to make some inventory progress does that mean that you can at some point.
Have line of sight to bring that back up.
Yeah, Hey, Joe. Thanks for the question May end in the current quarter as we said we saw good I guess, good market reaction and consumer and and the client business. Both return to growth on an expedited basis. They both were sequential grower. So we saw <unk>.
Incremental upside there so.
So we were happy about that we are still under utilizing the fab outlet. We saw him talk about that a little bit more detail, we do plan to under utilized for another couple of quarters, but.
We feel good about the overall you know the signs and the overall market.
Price declines are moderating our inventory is down that shipments.
Shipments are up we expected shipments to be up again double digits next quarter.
So not quite wherever you want to be yet, but the market is stabilizing and we see a lot of good good things a lot a lot of metrics going in the right direction.
Yeah, Joe and with respect to under utilization, we saw similar type of hundreds musician charges in fiscal two four versus Q3.
For the flash side and.
When you look at the HDD, we had a bit more on.
Ah neutralization, but sticking with the flash and also in our guidance. We've noted similar levels into fiscal Q1.
Albeit if you look at sort of the range of 200 to 220 I would say.
It is.
70% flash, 30% HDD.
And also.
If I think of let's say the fiscal Q too.
I anticipate more or less similar levels of underneath utilization.
Troops from from where we stand today.
Great. Thank you.
And if I could ask job in terms of.
Uses of cash in the next few quarters and you've got to convert it.
It comes through early next year I think there are still some issues about a potential tax payment can you just update is there any sort of.
Do you need to raise money to pay those.
So with respect to use of cash and as you know did we do have the convert 10.
Matures in February 24, and we plan to address.
That this quarter or the next one.
We also have the I R S.
Settlement that is coming up and we expect also this payment to be very.
Very likely this quarter.
But with respect to Ah.
The liquidity exiting fiscal Q4.
We had approximately $4.9 billion of liquidity and so if you recall the delay dropped term loan was put in place in the event, we need to address the IRS settlement, so that will that will be drawn down.
To take care of the iron settlement when it happens.
With respect to the convert I mentioned would address it in the coming two quarters.
Okay. Thank you very much.
Next year.
Thank you one moment please for our next question.
Alright next question is gonna come from the line S. C. Jamie is with Evercore ISI. Your line is open. Please go ahead.
Happiness.
Unfortunately.
[noise], yes.
Mr. <unk> perspective, we haven't.
[noise] Hello.
How're you doing today.
Okay.
Yeah.
Okay.
CJ right CJ and it was very it was Ah.
A little tough to hear you there, but I think we got the gist of the question, which was supply and demand normalization is that is that right in flash.
Yeah, sorry about that yet.
Okay. So look I think as I said.
A number of things we saw on the market this quarter we saw.
Sequential growth overall, we saw clients and consumer returning to.
Two extra bite growth on a year over year basis, consumer SSD content up 40% client SSD.
20%, we saw our inventory down we think in the client in the.
Consumer and client markets P C markets basically shipping to demand at this point.
You know.
We expect our for the fiscal year, we saw bits about flat year over year for the calendar year received them down low single digits, we probably see the industry down a little lower than that so [noise].
We're taking the actions to bring a supply and demand better into balance and I think we're seeing that.
Across our markets cloud is still you know there's still a couple of quarters to go over there and that's a larger story, but.
And and our two biggest markets for flash we're seeing.
We're seeing that supply demand supply demand balance start to move closer together put it that way.
Thank you.
Q U.
Right now it's for everybody.
Alright.
Alrighty.
Absolutely.
Alrighty.
Area.
Okay. I think there was a strategic review and timing CJ.
So like the process is active we look forward to talking more about it when we reach a conclusion.
Thank you.
Thank you.
Thank you and one moment for our next.
Next question please.
Our next question Afghani come from the line in Air makers with Wells Fargo. Your line is open. Please go ahead.
Thank you guys. This is Michael on behalf of the area.
I wanted to ask how are you guys thinking with the recent uptick in investment in the data center. How do you think that impact that makes a flash or look at the H D D capacity being deployed or maybe how that would impact going forward and then kind of related to that.
How are you guys can you guys just give us an update on where you stand with your enterprise is the qualifications. Thank you.
Yeah, I've been thinking a lot about generative AI, it's clearly a big topic. These days.
Obviously, a lot of spend going on to build out the infrastructure in the cloud which.
I think quite frankly is a great thing.
Cloud distribution model of new technology is something that is pretty amazing that's been built out over the last decade. So we all get access to this technology very rapidly.
And when I think about this in the storage domain clearly the compute infrastructure is being built out now, but what we're all going to be any.
Enabled with her like incredible tools to automate data creation.
Many different levels, whether it's.
Tax data video day, whatever it happens to be I think that we're essentially going to.
Really accelerate our ability all of us to create.
Create information that needs to be stored so I see this is kind of a catalyst.
For just a profound increase in the amount of data creation I think that.
Once those tools get distributed and we all start using them I think that drives incremental growth across ssds and hard drives I mean hard drives are the foundational storage in the cloud it's going to be that way for a very long time. So.
While Jen AI may have some disruptions on the business in the near term as the computer infrastructure gets built out.
Very optimistic that this is a as I said I think it has a profound.
It's a catalyst for profound increase in the rate of data creation. So.
Quite excited about that we don't know exactly.
How you model that just yet.
Except that there's new innovation drives new data creation, which drives the need for storage. So we look forward as these as this infrastructure gets built out and rapidly adopted the impact it's going to have on our business now.
Enterprise SSD, we still have the qualifications. We've recently qualified <unk> five in some of these places.
Market, along with Nearline, HDD or capacity enterprise HED.
Is depressed right now are subdued so we're not seeing a lot of growth and that but we fully expect that when when that market comes back in that part of cloud infrastructure spending comes back that will be in a good position.
We're still investing in the products and feel good about the the the position we have with the major cloud vendors.
I appreciate that thank you.
Thank you.
Thank you and one moment for our next question.
Our next question is going to come from the line of time O'malley with bright Klebs. Your line is open. Please go ahead.
Good afternoon, and thanks for taking my question I just wanted to narrow it on the HDD side there's been.
A variant of timing of recovery across the industry could you just give us your your latest.
When you think the cloud portion of your H D. D business is going to recover I know you previously you said the fourth quarter has there been any pushed out that expectation.
Could you also just comment on the health I know, it's down this quarter, but just the health of that HDD business. As you are seeing it today. So just the timing of the recovery and how upset in today.
Yeah, I think as we moved so first of all.
We think we're gonna see sequential extra by growth in capacity enterprise HED throughout the fiscal year, but it's going to be towards the end of the year into the first quarter, where we start.
We start to get line of sight to all of the customers coming back I think we're having discussions across all of our customers about what they're we always have conversations but some of the big ones have been an inventory digestion for quite a while so we're getting better line of sight to the end of that but I think we still have.
Couple of quarters to go but but.
But improving.
Think next quarter things will be stable.
Mixed impact there, we expect client to be.
A little bit more challenge than this quarter.
But I think as we move throughout the year things will get better.
And I think you're timing of a couple more quarters of getting through this phase and as we get into early next year, we expect things to look look better.
Helpful. And then also the Ht visit.
Your competitor kind of talked about being more aggressive in certain areas on pricing have you guys also look to be more aggressive on pricing and any comments that you have on just your strategy with clients on the price it. Thank you.
Yeah pricing really starts with innovation I mean, I think that's where we.
We're staging are 28 T ultra SNR product, we're really really happy with where ultra <unk>.
<unk> and we're we're already staging our next product for growth. There. That's that's the underpinnings of where we're able to bring your brother Tcl.