Q1 2024 Western Digital Corp Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to the Western digital first quarter fiscal 2024 earnings call.

All participants will be in a listen only mode.

Should you need assistance. Please signal conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May press Star and then one on a touchtone telephone withdraw.

Withdraw your question you May press Star two.

Please also note today's event is being recorded.

This time I'd like to turn the floor over to Peter Andrews V. P. S. T N E and Investor Relations. Sir. Please go ahead.

Thank you and good morning, everyone. Joining me today are David <unk>, Chief Executive Officer, and we some job Ray Chief Financial Officer before I begin we have a lot of exciting items to discuss today. In addition to the earnings press release and slides. We also have a press release and slides regarding the conclusion of our strategic review.

All of these materials will be posted in the Investor Relations section of our web site shortly.

Let me remind everyone that today's discussion contains forward looking statements based on management's current assumptions and expectations and as such does include risks and uncertainties. These forward looking statements include expectations for our product portfolio.

Spending on cost reductions business plans and performance market trends financial results the outcome of a potential separation of our HDD and flash businesses, including the form 10.

Timing and tax free status of the transaction.

Our ability to complete the transaction the future performance of our separate businesses.

And the creation of shareholder value by separating our businesses, we assume no obligation to update. These statements. Please refer to our most recent financial report on Form 10-K.

And 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.

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.

Okay.

Morning, and thank you for joining our call.

I will first discuss the completion of the strategic review and then turn to our first quarter results were.

We're thrilled to announce the completion of our strategic review and plans to form two independent public companies focused on capitalizing on the data storage industries growth in HDD and flash.

After evaluating a comprehensive range of alternatives the western digital management team and board determined that spinning off its flash business is the best executable alternative at this time to fully realize value for shareholders.

This transaction will allow each franchise to execute on its product and innovation road map and capitalize on the unique growth opportunities in their respective end markets.

Each company will benefit from streamline management focus operational flexibility and the ability to set its own distinct capital allocation and shareholder return policies. We.

We are excited for the opportunities this transaction creates to better serve our customers support our suppliers partners and employees and then locked and unlocked significant value for our shareholders.

Before discussing the details let me walk you through the journey that brought us to this point.

In March 2020, I joined Western digital with a strong conviction in the company's unique position to accelerate and benefit from the digital transformation that is reshaping every industry every company and how all of US live our daily lives and importantly, I saw an opportunity to create value for a leader in both.

NAND flash and hard drives.

During my early days at the company I spent considerable energy into rebuilding and refocusing the company, including the formation of the HDD and flash business units.

Soon became clear that our focus on driving two distinct technology portfolios was the right strategy and the new management team that I brought in work together to transform western digital by bolstering business agility and reinvigorating innovation.

Unknown Executive: Good morning, ladies and gentlemen, and welcome to the Western Digital First Quarter fiscal 2024 earnings call. All participants will be in a listen-only mode, should you need assistance, please signal a confidence specialist by pressing the star key, followed by zero. After today's presentation there will be an opportunity to ask questions, to ask a question you may press star and then one on a touch of telephone to withdraw your questions you may press star into.

In addition, we promptly focused on strengthening our balance sheet, we made the tough decision to suspend our dividend, which allowed western digital to speed up debt reduction and paid down $2 7 billion of debt over a couple of years following the suspension.

We further enhanced our liquidity by bringing in $900 million of strategic investment from Apollo and Apollo Global management, and Elliott investment management and amended our credit agreements.

Peter Andrews: Please also note today's event is being recorded, and this time I'd like to turn the floor over to Peter Andrews, VP of F-PMA and Investor Relations. Sir, please go ahead. Thank you and good morning everyone. Joining me today are David Goeckeler, Chief Executive Officer, and Wissam Jabre, Chief Financial Officer. Before I begin, we have a lot of exciting items to discuss today. In addition to the earnings press release in slides, we also have a press release and slides regarding the conclusion of our strategic review.

We also settled a long standing tax dispute to increased strategic optionality.

The groundwork we laid over the past several years, including the additional actions taken in fiscal year 'twenty three to right size. The business have enabled us to navigate a dynamic environment, all while staying focused on delivering a range of industry leading products.

Peter Andrews: All of these materials will be posted in the Investor Relations section of our website shortly. Let me remind everyone that today's discussion contains forward-looking statements based on management, current assumptions and expectations, and as such, does include risks and uncertainties. These forward-looking statements include expectations for our product portfolio, spending and cost reductions, business plans and performance, market trends, financial results, the outcome of a potential separation of our HDD and Flash businesses, including the form, timing, and tax-free status of the transaction.

Each business is now in a strong operational position to succeed on its own and the actions. We are announcing today will further enable each company to drive long term success in the years to come.

The Western digital team and board completed the strategic review after evaluating a comprehensive range of alternatives and determined that spinning off its flash business is the best executable alternative at this time to fully realize value for shareholders.

During our strategic review process, we evaluated material opportunities for each of our businesses. However, given current constraints, it's become clear to the board in recent weeks that delivering a standalone separation is the right next step in the evolution of western digital and puts the.

Peter Andrews: Our ability to complete the transaction, the future performance of our separated businesses, and the creation of shareholder value by separating our businesses. We assume no obligation to update these statements. Please refer to our most recent financial report on Form 10K and 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-GAP financial measures today. Reconciliation between the non-GAP and comparable GAP financial measures are included in the press release and other materials that are being posted in the Investor Relations section of our website.

Company in the best position to unlock value for our shareholders, while providing strategic optionality for both businesses.

Given the confidential nature of the strategic review, we will not be discussing any of the other alternatives that were considered during the process.

On page six of the presentation, we present, a separation transaction summary.

The HDD business will retain the western digital name and become an independent public publicly traded company.

David Goeckeler: With that, I will now turn the call over to David for introductory remarks. Thank you, David.

The flash business is expected to be spun off in a tax free transaction to western digital shareholders and the name of the publicly traded company will be determined at a later time.

David Goeckeler: Good morning, and thank you for joining our call. I will first discuss the completion of the strategic review and then turn to our first quarter results. We're thrilled to announce the completion of our strategic review and plans to form two independent public companies focused on capitalizing on the data storage industries growth in HDD and Flash. After evaluating a comprehensive range of alternatives, the Western Digital Management team in board determined that spinning off its flash business is the best executable alternative at this time to fully realize value for shareholders.

We target to complete these plans in the second half of calendar year 'twenty four subject to the principal closing conditions described in the slide.

Page seven provides a bit more visibility into some of the end market exposure for our flash and HDD businesses on a trailing 12 month basis.

Moving to the individual businesses on page eight.

In HDD Western digital is a well known leader in the mass storage market with an ability to generate consistent cash flow on a standalone basis.

David Goeckeler: This transaction will allow each franchise to execute on its product and innovation roadmap and capitalize on the unique growth opportunities in the respective end markets. Each company will benefit from streamlined management focus, operational flexibility, inability to set its own distinct capital allocation and shareholder return policy.

Our ability to lead the industry in bringing new innovations to the hard drive market to enable higher capacity points for mass market adoption has established western digital is a key strategic supplier to the world's global cloud service providers storage Oems and distributors.

David Goeckeler: Industries. We are excited for the opportunities this transaction creates to better serve our customers, support our suppliers, partners and employees, and unlock significant value for our shareholders.

The massive opportunity is driven by the ongoing expansion of the cloud infrastructure connected to intelligent endpoints and powered by high speed networks.

Industry analysts estimate the ACD addressable market to grow at approximately 12% compounded annual growth rate to $25 billion over the next three years with cloud representing over 90% of the total addressable market.

David Goeckeler: Before discussing the details, let me walk you through the journey that brought us to this point. In March 2020, I joined Western Digital with a strong conviction in the company's unique position to accelerate and benefit from the digital transformation that is reshaping every industry, every company, and how all of us live our daily lives. And importantly, I saw an opportunity to create value for a leader in both NAND Flash and hard drives.

David Goeckeler: During my early days at the company, I spent considerable energy into rebuilding and refocusing the company, including the formation of the HDD in Flash business units. It soon became clear that our focus on driving two distinct technology portfolios was the right strategy and the new management team that I brought in worked together to transform Western Digital by bolstering business agility and reinvigorating innovation. In addition, we promptly focused on strengthening our balance sheet.

<unk> represents an incredibly large and growing end market for western digital and we are well positioned to address customer storage needs.

Moving to our flash business on page 10.

The Western digital Flash business is well known for its broad go to market channels enviable premium brand retail franchise and strong client SSD portfolio.

Industry analysts forecast the flash market to grow at approximately 15% compounded annual growth rate over the next three years $289 billion in calendar year 2025.

We believe content increases in the consumer and client and markets as well as explosive growth of data created in the cloud by emerging applications, such as generative AI virtual reality and autonomous driving are driving a faster growth in flash versus HDD.

David Goeckeler: We made the tough decision to suspend our dividend, which allowed Western Digital to speed up debt reduction and paid down 2.7 billion of debt over a couple of years following the suspension. We further enhanced our liquidity by bringing in $900 million of strategic investment from Apollo Apollo Global Management and Elliott Investment Management and a men-adart credit agreements. We also settled a longstanding tax dispute to increase strategic optionality. The groundwork we laid over the past several years, including the additional actions taken in fiscal year 23 to rightsize the business, have enabled us to navigate a dynamic environment all while staying focused on delivering a range of industry leading products.

The highlight of our consumer end market is the strength of our sandisk brand of retail products in our suite of high performance SSD for gaming enthusiasts.

The brand recognition and affinity combined with our unmatched presence across the world is a great setup for the business on a standalone basis.

Our successful 23 year partnership with <unk> continues to provide us a reliable source of high performance low cost flash together, we have successfully brought to market numerous generations of flash technology with the industry's lowest cost and best capital efficiency.

David Goeckeler: Each business is now in a strong operational position to succeed on its own and the actions we are announcing today will further enable each company to drive long-term success in the years to come. The Western Digital team in board completed the strategic review after evaluating a comprehensive range of alternatives and determined that spinning off its flash business is the best executable alternative at this time to fully realize value for shareholders. During our strategic review process, we evaluated material opportunities for each of our businesses.

The joint venture Fabs produced over 30% of the world's bids and our joint memory technology roadmap remains incredibly well positioned, especially as we lead the industry's transition to wafer bonding.

David Goeckeler: However, given current constraints, it has become clearer to the board in recent weeks that delivering a standalone separation is the right next step in the evolution of Western Digital and puts the company in the best position to unlock value for our shareholders while providing strategic optionality for both businesses.

We will likely host an investor day closer to the time of the spinoff of our flash business to give investors greater clarity into the historical and future outlook for each of our businesses along with the intended capital structures for each business.

With that I'd like to turn to first quarter fiscal 'twenty four earnings review and business update.

Western Digital's first quarter results exceeded our expectations as the team teams' efforts to bolster our business agility drive innovation and rightsize the business have enabled us to capitalize on enhanced earning power in an improving environment.

We reported first quarter revenue of $2 $75 billion.

And a non-GAAP loss per share of $1 76.

David Goeckeler: Given the confidential nature of the strategic review, we will not be discussing any of the other alternatives that were considered during the process. On page 6 of the presentation, we present a separation transaction summary.

Our ability to develop differentiated and innovative products across a broad range of end markets has resulted in sequential margin improvement across both flash and HDD businesses.

David Goeckeler: Company.

David Goeckeler: The HDD business will retain the Western Digital name and become an independent publicly traded company. The Flash business is expected to be spun off in a tax-free transaction to Western Digital shareholders, and the name of the publicly traded company will be determined at a later time. We target to complete these plans in the second half of calendar year 24, subject to the principal closing conditions described in the slide. Page seven provides a bit more visibility into some of the end-market exposure for our Flash and HDD businesses on a trailing 12-month basis.

And flash healthy inventory levels on our balance sheet and signs that flash pricing is beginning to inflect have laid the groundwork for further gross margin improvements are broad go to market channels enviable retail franchise and strong client SSD portfolio have enabled us to shift bits to the Moe.

Attractive end market categories, and achieved 26% sequential bit growth as well as upside in gross margin.

In HDD, our industry, leading 26 terabyte Ultra SME drive became the highest near line volume runner in just two quarters, which demonstrates western digital's aerial density leadership.

David Goeckeler: Moving to the individual businesses on page eight, in HDD, Western Digital is a well-known leader in the mass storage market with an ability to generate consistent cash flow on a standalone basis. Our ability to lead the industry in bringing new innovations to the hard drive market to enable higher capacity points for mass market adoption has established Western Digital as a key strategic supplier to the world's global cloud service providers, storage OEM, and distributors.

And ability to deliver high volume innovative technologies to data center customers worldwide.

During the quarter demand in consumer and client continued to improve exceeding our expectations.

In consumer Flash revenue has returned to growth on a year over year basis led by strong content increases and unit growth.

And client PC and component demand also exceeded our expectations and demand for gaming consoles and mobile remained resilient.

David Goeckeler: The massive opportunity is driven by the ongoing expansion of the cloud infrastructure connected to intelligent endpoints and powered by high-speed networks. Industry analysts estimate the HDD addressable market to grow at approximately 12 percent compounded annual growth rate to $25 billion over the next three years with cloud representing over 90 percent of the total addressable market. The cloud represents an incredibly large and growing end-market for Western Digital and we are well positioned to address customer storage needs.

In cloud demand for both hard drive and flash products remained subdued.

I'll now turn to the business updates starting with flash.

During the quarter Flash revenue increased sequentially led by record exabyte shipments and continued content growth in consumer and client end markets, including Pcs and all retail products as we continue to optimize bid placement in an improving environment.

David Goeckeler: Moving to our Flash business on page 10, the Western Digital Flash business is well-known for its broad-go-to-market channels, enviable premium brand retail franchise, and strong client SSD portfolio. Industry analysts forecast the Flash market to grow at approximately 15 percent compounded annual growth rate over the next three years to $89 billion in calendar year 2025. We believe content increases in the consumer inclined end markets, as well as explosive growth of data created in the cloud by emerging applications such as generative AI, virtual reality, and autonomous driving are driving a faster growth in Flash versus HDD.

WD Black, which is optimal optimized for gaming continued to perform well with bit shipments more than doubling in content per unit, increasing over 50% year over year.

We are in an excellent position from both a flash technology and capital efficiency perspective.

Today, a majority of products. We are shipping are based on <unk> five the most capital efficient node in the <unk> era. The continues to provide an amazing cost structure and official efficient capital spending.

As we look into calendar year 'twenty four we're ramping an array of QL Sea based client Ssds based on <unk> technology to lead the expected industry transition to <unk>.

After big six we remain on track to introduce a broad range of high performance products based on <unk> <unk> technology with its unique chip bonded on a re architecture.

David Goeckeler: The highlight of our consumer end market is the strength of our Sandisk brand of retail products and our suite of high-performance SSDs for gaming enthusiasts. The brand recognition and affinity combined with our unmatched presence across the world is a great setup for the business on a standalone basis. Our successful 23-year partnership with Kyokshia continues to provide us a reliable source of high-performance low-cost Flash. Together we have successfully brought to market numerous generations of Flash technology with the industry's lowest cost and best capital efficiency. The joint venture fabs produce over 30 percent of the world's bits. In our joint memory technology roadmap remains incredibly well-positioned, especially as we lead the industry's transition to wafer bonding.

Turning to HDD revenue declined due to lower near line exabyte shipments driven driven by subdued demand from our cloud customers and slower than expected recovery in China, However, demand for consumer and client hard drives was stable.

Western digital has continued to lead the industry in driving innovation within the near line market.

Our ability to bring innovation into mass market drives they are quickly deployed into cloud data centers is reflected in our results as we successfully led the industry's transition to <unk> base near line drives.

Specifically, our 26 terabyte Ultra <unk> drive, which we first announced at our Investor day accounted for nearly half of our near line exabyte shipments with total SMS shipments exceeding the 40% goal we laid out in the same quarter a year prior.

David Goeckeler: We will likely host an investor day closer to the time of the spin-off of our flash business to give investors greater clarity into the historical and future outlook for each of our businesses along with the intended capital structures for each business.

We are on track with our 28 terabyte Ultra SLR drive qualification and have a clear road map of <unk> and ultra <unk> based innovations into the 40 terabyte range. These developments are a result of the choices. We have made in the past few years through a combination of product R&D in.

David Goeckeler: With that, I'd like to turn to first quarter fiscal 24 earnings review and business update. Western Digital's first quarter results exceeded our expectations as the team's efforts to bolster a business agility, drive innovation, and right-size-the-business have enabled us to capitalize on enhanced earning power in an improving environment. We reported first quarter revenue of $2.75 billion and a non-gap loss per share of $1.76. Our ability to develop differentiated and innovative products across a broad range of end markets has resulted in sequential margin improvement across both flash and HDD businesses.

Manufacturing capabilities and we are proud of how we've been executing against our strategy.

Looking ahead to the fiscal second quarter in Flash, we expect both modest bit and ASP improvement and a decline in underutilization charges to drive continued sequential improvement in both revenue and gross margin.

In HDD, we expect higher near line shipments and seasonal demand and consumer end markets to drive sequential revenue growth we.

David Goeckeler: In flash, healthy inventory levels on our balance sheet and signs that flash pricing is beginning to inflict have laid the groundwork for further gross margin improvements. Our broad-go-to-market channels, enviable retail franchise and strong client SSD portfolio have enabled us to shift bits to the most attractive end market categories and achieve 26% sequential bit growth as well as upside and gross margin. In HDD, our industry leading 26-terabyte ultra-SMR drive became the highest near-line volume runner in just two quarters which demonstrates Western Digital's aerial density leadership and ability to deliver high-volume innovative technologies to data center customers worldwide.

We anticipate our value based pricing efforts and lower Underutilization charges will lead to sequential revenue and gross margin improvement in the quarter and through the rest of fiscal year 'twenty four.

We continue to execute against our HDD product roadmap.

We are setting the stage for profitable growth for years to come.

With that I'll turn it over to Michelle.

Thank you and good morning, everyone.

As David mentioned fiscal first quarter results exceeded the guidance ranges provided in July.

Total revenue for the quarter was $2 $75 billion up 3% sequentially.

And down 26% year over year.

non-GAAP loss per share was $1 76.

David Goeckeler: During the quarter, demand and consumer and client continue to improve exceeding our expectations. In consumer, flash revenue has returned to growth on a year-over-year basis led by strong content increases in unit growth. In client, PC and component demand also exceeded our expectations and demand for gaming councils and mobile remained resilient. In cloud, demand for both hard drive and flash products remains subdued.

Looking at end markets for the fiscal first quarter.

Cloud represented 32% of total revenue at zero point $9 billion down 12% sequentially and 52%.

Percent year over year.

Sequentially. The decline was primarily due to lower near line hard drive shipments to data center customers.

The year over year decrease was primarily due to declines in shipments for both hard drive and flash products.

Clients represented 42% of total revenue at $1 1 billion.

David Goeckeler: I'll now turn to the business updates starting with flash. During the quarter, flash revenue increased sequentially led by record exabytes shipments and continued content growth in consumer and client end markets including PCs and all retail products as we continue to optimize bit placement in an improving environment. WD Black, which is optimized for gaming, continued to perform well with bit shipments more than doubling and content per unit increasing over 50% year-over-year. We are in excellent position from both the flash technology and capital efficiency perspective. Today, a majority of products we are shipping are based on Bix5, the most capital-efficient node in the 3D era that continues to provide an amazing cost structure in efficient capital spending.

11% sequentially and down 7% year over year.

Sequentially, the increase was due to growth in flash bit shipments.

The year over year decrease was primarily due to declines in flash pricing.

Consumer represented 26% of revenue at zero point, $7 billion up 14% sequentially and 8% year over year.

On both a sequential and year over year basis. The increase was driven by both higher content per unit and increased unit shipments in flash.

Turning now to revenue by segment.

In the fiscal first quarter Flash revenue was $1 6 billion.

Up 13% sequentially.

And down 10% year over year.

This marks the second consecutive quarter of sequential increase.

David Goeckeler: Team. As we look into calendar year 24, we are ramping an array of QLC-based client SSDs based on BIC-6 technology to lead the expected industry transition to QLC. After BIC-6, we remain on track to introduce a broad range of high-performance products based on BIC-8 technology with its unique chip-bonded-on-array architecture. Turning to HDD, revenue declined due to lower near-line exabyte shipments driven by subdued demand from our cloud customers and slower than expected recovery in China.

Sequentially Flash Asps decreased 10% on a blended basis and 4% on a like for like basis.

We shipped a record amount of flash bits in the quarter with shipments, increasing 26% sequentially and 49% year over year.

HDD revenue was $1 $2 billion down, 8% sequentially and 41% year over year.

Sequentially total HDD exabyte shipments decreased 5%.

And average price per unit increased 13% to $112.

David Goeckeler: However, demand for consumer and client hard drives was stable. Western Digital has continued to lead the industry and driving innovation within the airline market. Our ability to bring innovation into mass-market drives that are quickly deployed into cloud data centers is reflected in our results as we successfully led the industry's transition to SMR-based near-line drives. Specifically, our 26-terabyte ultra-SMR drive, which we first announced in our investor day, accounted for nearly half of our near-line exabyte shipments, with total SMR shipments exceeding the 40% goal we laid out in the same quarter a year prior.

On a year over year basis, so that HDD exabyte shipments decreased 42% and average price per unit decreased 10%.

Moving to gross margin and expenses. Please note that my comments will be related to non-GAAP results unless stated otherwise.

Gross margin for the first quarter was four 1%, which was at the higher end of the guidance range provided in July and included $225 million in Underutilization expenses and $9 million and other one time charges.

In total these charges represented an eight five percentage point headwind to gross margin.

David Goeckeler: We are on track with our 28-terabyte ultra-SMR drive qualification and have a clear roadmap of EPMR and ultra-SMR-based innovations into the 40-terabyte range. These developments are a result of the choices we have made in the past few years through a combination of product R&D and manufacturing capabilities, and we are proud of how we have been executing against our strategy. Looking ahead to the fiscal second quarter, in flash, we expect both modest bit and ASP improvement, and a decline in under-utilization charges to drive continued sequential improvement in both revenue and gross margin.

Flash gross margin was negative 10, 3%.

Underutilization charges due to reduced manufacturing volumes were $142 million.

And flash inventory write downs were $9 million.

<unk> in a combined nine 7% touch points.

<unk> to gross margin.

HDD gross margin was 22, 9%.

Underutilization charges were higher than expected at $83 million or a seven percentage point headwind.

The gross margin.

We continue to tightly manage our operating expenses, which were down 19% year over year to $555 million well below our guidance range.

David Goeckeler: In HDD, we expect higher near-line shipments and seasonal demand in consumer and market to drive sequential revenue growth. We anticipate our value-based pricing efforts and lower under-utilization charges will lead to sequential revenue and gross margin improvement in the quarter and through the risk of fiscal year 24. As we continue to execute against our HDD product roadmap, we are setting the stage for profitable growth for years to come.

Operating loss was 443 million, which included Underutilization charges and inventory write downs totaling $234 million.

Income tax expense in the fiscal first quarter was $25 million.

Net loss per share was $1.76 inclusive.

Inclusive of the $15 million dividend associated with the convertible preferred equity.

Wissam Jabre: With that, I'll turn it over to Asam. Thank you and good morning, everyone. As David mentioned, the fiscal first quarter results exceeded the guidance ranges provided in July. Total revenue for the quarter was $2.75 billion, up 3% sequentially, and down 26% year over year. Non-gap loss per share was $1.76. Looking at end markets for the fiscal first quarter, cloud represented 32% of total revenue at $0.9 billion, down 12% sequentially, and 52% year over year.

Operating cash flow for the first quarter was an outflow of $626 million.

And free cash flow was an outflow of $544 million.

Free cash flow included a payment of $523 million for the IRS settlement and $191 million cash receipt from the sale and leaseback of our facility in Milpitas, California.

Inventory declined to $101 million sequentially to $3 5 billion.

Days of inventory declined 10 days to 120 days.

Flash inventory declined by nearly $400 million driven by record bit shipments in the quarter and proactive actions taken to reduce wafer starts.

Wissam Jabre: Situentially, the decline was primarily due to lower near-line hard drive shipments to data-center customers. The year-over-year decrease was primarily due to declines in shipments for both hard drive and flash products. Consumer represented 26% of revenue at 0.7 billion dollars, up 14% sequentially and 8% year-over-year. On both a sequential and year-over-year basis, the increase was driven by both higher content per unit and increased unit shipments in flash.

Days of inventory for flash have reached the lowest level in nearly four years.

HDD inventory grew by nearly $200 million.

Due to the timing of certain purchases and lower than expected shipments.

Cash capital expenditures, which include the purchase and sale of property plant and equipment, including the proceeds from our sale leaseback of our Milpitas facility.

And activity related to our flash joint ventures on the cash flow statement.

We presented a net cash inflow of $82 million.

In the fiscal first quarter, we fully drew the $600 million delayed draw term loan facility.

Gross debt outstanding was $7 7 billion at the end of the fiscal quarter.

Wissam Jabre: Turning now to revenue by segment. In the fiscal first quarter, flash revenue was 1.6 billion dollars, up 13% sequentially and down 10% year-over-year. This marks the second consecutive quarter of sequential increase. Sequentially, flash ASPs decreased 10% on a blended basis and 4% on a live for live basis. We shipped a record amount of flash bits in the quarter with shipments increasing 26% sequentially and 49% year-over-year. HDD revenue was 1.2 billion dollars, down 8% sequentially and 41% year-over-year. Sequentially, total HDD exabyte shipments decreased 5%, an average price per unit increased 30% to 112 dollars. On a year-over-year basis, total HDD exabyte shipments decreased 42%, an average price per unit decreased 10%.

At the end of the quarter total liquidity was $4 3 billion, including cash and cash equivalents of 2 billion and Undrawn revolver capacity of $2 25 billion.

Before I cover our guidance for the fiscal second quarter discuss the business outlook.

Okay.

For fiscal second quarter, we expect total revenue growth to be led by higher near line HDD shipments and improved pricing in flash.

We continue to adjust production into the second quarter to better align supply with demand and anticipate lower underutilization charges in both flash and HDD.

For our fiscal second quarter, our non-GAAP guidance is as follows.

We expect revenue to be in the range of $2 85 to 3.05 billion.

We expect gross margin to be between 10% and 12%.

Which includes underutilization charges across flash and HDD totaling $110 million to $130 million.

Wissam Jabre: Moving to gross margin and expenses, please note that my comments will be related to non-gap results unless stated otherwise. Gross margin for the first quarter was 4.1%, which was at the higher end of the guidance range provided in July and included 225 million dollars in underutilization expenses and 9 million in other one-time charges. In total, these charges represented an 8.5 percentage point headwind to gross margin. Flash gross margin was negative 10.3%, underutilization charges due to reduced manufacturing volumes were 142 million, and flash inventory write downs were 9 million, resulting in a combined 9.7% to which points headwind to gross margin.

We expect operating expenses to be between 560 and $580 million.

Interest and other expenses are expected to be approximately $105 million.

We expect income tax expenses to be between 20, and $30 million for fiscal second quarter and $80 million to $120 million for fiscal year 'twenty to 'twenty four.

We expect that preferred dividend of $15 million.

We expect the loss per share of $1 35.

The $1 five assuming approximately 325 million shares outstanding.

I'll now turn the call back over to David.

Thanks.

Let me wrap up and then we'll open up for questions.

We are now emerging from a historic storage cyclical downturn, where all of the changes made in the past several years were evident in how well each business performed relative to peers.

Wissam Jabre: HDD gross margin was 22.9%, underutilization charges were higher than expected at 83 million dollars or a 7% point headwind to gross margin. We continue to tightly manage our operating expenses which were down 19% year-over-year to 555 million dollars well below our guidance range. College. Operating loss was $443 million, which included under utilization charges and inventory write-downs totaling $234 million. Income tax expense in the fiscal first quarter was $25 million. Net loss per share was $1.76, inclusive of a $15 million dividend associated with convertible preferred equity.

The first quarter of fiscal 'twenty four builds upon the improvements we made in fiscal year 'twenty three around disciplined supply and capital expenditure management, while executing on our product innovation roadmap.

We continued to tightly manage our operating expenses and are closely monitoring demand in our end markets to appropriately manage our inventory in both flash and HDD all to improve sequential and year over year upside in our results moves.

Moving forward as we progress through fiscal year 'twenty, four we see an improving market environment in both businesses.

With an improved position to separation of the company unlocks value by creating two independent public companies with market specific strategic focus better positions each franchise to execute innovative technology and product development.

Wissam Jabre: Operating cash flow for the first quarter was an outflow of $626 million, and free cash flow was an outflow of $544 million. Free cash flow included a payment of $523 million for the IRS settlement, and $191 million cash receipt from the sale and leaseback of our facility in Milpidas, California. Inventory declined $201 million sequentially to $3.5 billion. Days of inventory declined 10 days to 120 days. Flash inventory declined by nearly $400 million, driven by record bid shipments in the quarter, and proactive actions taken to reduce wafer starts.

Capitalize on unique growth opportunities extend respective leadership positions and operate more efficiently with distinct capital structures.

Okay, Peter let's open up for Q&A.

Ladies and gentlemen, we will now begin the question and answer portion of today's conference.

If you have a question. Please press star and then one on your phones.

To answer all your questions you May press star two.

Again that is star and then one to join the question queue.

One moment please for the first question.

Wissam Jabre: Days of inventory for Flash have reached the lowest level in nearly four years. HDD inventory grew by nearly 200 million due to the timing of certain purchases and lower than expected shipments. Cash capital expenditures, which include the purchase and sale of property, plant and equipment, including the proceeds from our sale leaseback of our Milpidas facility, and activity related to our Flash joint ventures on the cash flow statement, represented a net cash inflow of $82 million.

And our first question today comes from Joe Moore from Morgan Stanley. Please go ahead with your question.

Great. Thank you and congratulations on the decision here can you talk to you a little bit anything preliminary in terms of.

Out of the Opex might be a portion between the two businesses and you mentioned, maybe I'll go to the capital structure at a later date, but just anything.

Unlike what you think the right amount of debt is to a portion of the two businesses.

Okay.

Hey, Joe Good morning, Thanks for the question.

Look it's a little bit.

It's too premature to talk about details with respect to each side of the business. So each company as we get closer to the.

Wissam Jabre: In the fiscal first quarter, we fully drew the $600 million delayed drought-term loan facility. Gross debt outstanding was $7.7 billion at the end of the fiscal quarter. At the end of the quarter, total liquidity was $4.3 billion, including cash and cash equivalence of $2 billion, and underground revolver capacity of $2.25 billion.

The separation will be in a better position to talk about much more details with respect to opex apportionment as well as capital structures.

Yeah.

Leverage targets.

And capital return policies et cetera.

Hey, Joe This is David Thanks for the question good to hear from you. This morning, one thing I will say is were.

Wissam Jabre: Before I cover guidance for the fiscal second quarter, I'll discuss the business outlook. For fiscal second quarter, we expect total revenue growth to be led by higher near-line HDD shipments and improved pricing in Flash. We continue to adjust production into the second quarter to better align supply with demand and anticipate lower under utilization charges in both Flash and HDD. For our fiscal second quarter, our non-gap guidance is as follows. We expect revenue to be in the range of 2.85 to 3.05 billion.

We're very happy with the level of efficiency, we've driven into the business over the last year, especially during this downturn and we think has put us in a very good position to go through this transaction I think.

Sure.

Opex over two years is down over the last two years is down over $200 million.

So we put ourselves in a position, where we've got very efficient business and some flexibility to go through a transaction like this so as Tom said, we'll have more to say as we get as we get closer.

Okay, Great and then I wonder if I could just ask more tactically in terms of.

Wissam Jabre: We expect gross margin to be between 10% and 12%, which includes under-utilization charges across Flash and HDD totaling $110 to $130 million. We expect operating expenses to be between 560 and 580 million. Interest and other expenses are expected to be approximately 105 million. We expect income tax expenses to be between 20 and 30 million dollars for fiscal second quarter and 80 to 120 million for fiscal year, 20, 24.

The need to pay down debt.

Convert early next year, how youre thinking about that and whether this.

Strategic change here changes anything in terms of your ability to convert instruments or things like that.

Yes, Joe.

The announcement does not affect our ability to.

Address the convert as we've said before our plan is to address the convert that's maturing in February 24 by the end of this calendar year.

Thank you very much.

Welcome.

Our next question comes from Aaron Rakers from Wells Fargo. Please go ahead with your question.

Yes. Thank you for taking the question two if I can as well real quick.

I guess the first question is just thinking about the separation.

Appreciating that you're not going to give up anything at this point around the capital structure I'm, just curious, though the relationship with <unk>.

So in the past there's been certain attributes of rights as part of the JV any kind of context about the dialogue moving to the separation as it relates to that JV rights or should we be thinking about any approval processes that are involved in that.

David Goeckeler: We are now emerging from a historic storage cyclical downturn where all of the changes made in the past several years were evident in how wealth each business performed relative to peers. The first quarter of fiscal 24 builds upon the improvements we made in fiscal year 23 around discipline supply and capital expenditure management while executing on our product innovation roadmap. We continue to tightly manage our operating expenses and are closely monitoring demand in our end markets to appropriately manage our inventory in both Flash and HDD.

No.

First off the the relationship with key auction is outstanding and it has been for a very very long time. So we expect that to continue on absolutely.

Provides a tremendous foundation for our NAND business with both very capital efficient NAND.

And a tremendous roadmap is where we're going into big eight here, but we we can execute this transaction without any other approvals.

David Goeckeler: All to improve sequential in year over year upside in our results. Moving forward, as we progress through fiscal year 24, we see an improving market environment in both businesses. With an improved position, the separation of the company unlocks valued by creating two independent public companies with market specific strategic focus, better positions each franchise to execute innovative technology and product development, capitalize on unique growth opportunities, extend respective leadership positions and operate more efficiently with distinct capital structures.

Okay, and then as a quick follow up I'm, just curious on the hard disk drive business I know that cloud revenue in total was down consistently again quarter over quarter.

Just how would you characterize what youre seeing from a near line perspective from the cloud.

Have you started to see demand pull again, just kind of context of how youre thinking about the shaping of kind of a recovery here as we move forward.

Yes, we think this past quarter was the bottom Aaron and we see improving demand as we move throughout the throughout the fiscal year on a quarter over quarter basis.

We've had certain customers that have been on the sidelines for a while and they are starting to come back and.

Peter Andrews: Okay, Peter, let's open up for Q&A. Ladies and gentlemen, we will now begin the question and answer portion of today's conference. If you have a question, please press star and then one on your phones. If you'd like to withdraw your questions, you may press star and two. Once again, that is star and then one to join the question queue. One moment please for the first question.

And give us visibility into ordering so we expect the market to recover from here going forward.

Okay. Thank you.

Our next question comes from Krish Shankar from TD Cowen. Please go ahead with your question yes.

Yes, hi, Thanks for taking my question I had two of them to a plus one.

Again, sorry to harp on the separation.

It makes a lot of sense I'm, just kind of curious in the past David you had spoken about some of the synergies in R&D and how the HDD product line uses some of the.

Joe Moore: And our first question today comes from Joe Moore from Morgan Stanley. Please go ahead with your question. Great. Thank you. And congratulations on the decision here. Can you talk to a little bit anything preliminary in terms of how the op-x might be a portion between the two businesses? And you mentioned, you know, maybe you'll give us the capital structure to later date, but just anything early on unlike, you know, what you think the right amount of that is to a portion of the two businesses. Hey, Joe, good morning. Thanks for the question.

<unk> from <unk>, NAND et cetera, I'm, just kind of curious that would change post the separation.

There's going to be no strategic shift on that and then I had a follow up.

So there is no separation doesn't imply any change in strategy for either business. So both of them will continue to go forward.

No change in our product road maps, we feel very good about what's been built over the last two.

David Goeckeler: Look, it's a little bit too premature to talk about details with respect to each side of the business or each company. As we get closer to the separation, we'll be in a better position to talk about much more details with respect to op-x apportionment, as well as capital structures, leverage targets and capital return policies, etc. Hey Joe, this David. Thanks for the question. Good to hear from you this morning. One thing I will say is we're we're very happy with the level of efficiency we've driven into the business over the last year, especially during this downturn.

Three four years, we feel like we're in a market leading position in both franchises.

Both from a product point of view, if you look at what's happened in the hard drive business.

It's very very clear now the adoption of <unk> as the next big step in the cloud data center, and that's progressing very well.

2016 drive just became the highest shipping drive in.

In the quarter.

And we announced the next generation of that within 2018 as well. So no change there <unk> NAND is still a big part of that architecture and the team will be able to procure that and continue to drive that part of the strategy and on the flash side of the business portfolio is also in great shape with both from a product strategy and also the branding strategy.

David Goeckeler: And we think has put us in a very good position to go through this transaction. I think, you know, op-x over two years is down over last two years is down over 200 million. So we put ourselves in a position where we've got very efficient business and some flexibility to go through a a transaction like this. So as with some said, we'll have more to say as we get as we get closer.

Sandisk and WD Black these brands continued to perform extremely well. So we think it's a great setup for both businesses going.

Going forward.

Got it thanks for that.

Quick follow up.

Your peers spoke about it.

Technology getting adopted next year and your roadmap shows EPA monitored extending to 32%, but I'm kind of curious how you think about <unk> and <unk>.

David Goeckeler: Okay, and then I wonder if I could just ask more tactically in terms of the need to pay down the the convert early next year. How you're thinking about that and whether this strategic change here changes anything in terms of your ability to convert it to things like that. Yeah, Joe, the current announcement does not affect our ability to address the convert. As we've said before, our plan is to address the convert that's ensuring in fact 24 by the end of this calendar year. Thank you very much.

Your road map.

Due to the catch up with Seagate.

Well look we put a lot of optionality in our roadmap a number of years ago.

Unknown Executive: You're welcome.

So that we could extend the.

The capacity points with things like opting in SME <unk> Ultra <unk> <unk>.

So that strategy is working very very well, we're leading the industry in capacity points, we expect to be able to drive this strategy into the 40 terabyte range on our drives hammer is in development and that's going well and we'll be able to fold that into our roadmap at the appropriate time, but for now we've got a great <unk>.

Aaron Rakers: Our next question comes from Aaron Rakers from Wells Fargo, please go ahead with your question. Yeah, thank you for taking the question to if I can as well real quick. I guess the first question is just thinking about the separation, appreciating that you're not going to give anything at this point around the capital structure. I'm just curious, though, that the relationship with Kyoksia, you know, I know in the past, there's been certain attributes of rights as part of the JV.

Roadmap, we've got a market leading roadmap, we're leading the adoption of <unk> into the cloud data center and we expect we have many more generations to go on our current roadmap and then we'll move to hammer at the appropriate time, when it's mature and we can we can build it at scale.

And it will be the next leg of growth into the future.

Thanks Peter.

Thank you Krish.

Aaron Rakers: Any kind of context about the dialogue, you know, moving to this separation as it relates to that JV rights or, you know, should we be thinking about any approval processes that are involved in that. No, so first off, the relationship with Kyoksia is outstanding and it has been for a very, very long time. So we expect that to continue on. Absolutely. It provides a tremendous foundation for our NAND business with both very capital efficient NAND and a tremendous road map as we're going into big eight here.

Our next question comes from <unk> Mohan from Bank of America. Please go ahead with your question.

Hi, yes. Thank you so much good morning.

Back to the transaction I guess.

Can you maybe talk a little bit.

All the actions that you've taken that might be.

Preventing some of the dis synergies that typically occur in terms of stranded cost when when there was a separation of the business.

Can you maybe address that and be on your comments on on the road map.

David Goeckeler: But we can execute this transaction without any other approvals. Okay. And then as a quick follow up, I'm just curious on the hard disk drive business. I know the cloud revenue and told us down, you know, consistently again quarter of a quarter. Just how would you characterize what you're seeing from a near line perspective from the cloud? Have you started to see demand pull again? And just kind of contact with how you're thinking about, you know, the shaping of kind of a recover here as we move forward.

Ultra Tomorrow <unk>.

A lot of options you've noted scaling up to 40 TV can you just talk about what the cost of that how that would compare to.

Your own future.

Have a road map.

And give us some sense of how cost competitive you are paying these products would be thank you.

Okay. So on the first one I mean, one thing I think you kind of laid it out there we've been going through a whole series of actions that have set us up for this this announcement.

David Goeckeler: Yeah, we think this past quarter was the bottom, Aaron. And we see improving demand as we move throughout the fiscal year on a quarter over quarter basis. You know, we've had certain customers that have been on the sidelines for a while and they're starting to come back and give us visibility into ordering. So we expect the market to recover from here going forward.

It was really about execute the business better and give ourselves as much strategic optionality as possible. So.

Unknown Executive: Okay. Thank you.

As I talked about in the prepared remarks, we've.

We separated ourselves in the business units on the product side that allows us to really get get very focused on the portfolio and all of the Opex, we spend on building our products make sure we get the best return for it I think that's worked out well.

Chris Shankar: Our next question comes from Chris Shankar from TD Cowan. Please go ahead with your, question. Yeah, hi. Thanks for the question. I had two of them. First one, again, sorry to harp on the on the separation. It makes a lot of sense. I'm just kind of curious. In the past, David, he has spoken about some of the synergies in R&D and how the HDD product line uses some of the bomb from Optine and etc. I'm just kind of curious that would that change post separation or there's going to be no strategic shift on that. And then I'd follow up. So there's no.

We then did the same thing in operations.

We've now divided those organizations around HDD and flash.

And then we've optimized taken out costs everywhere, we can.

So that we can operate them independently and also have just the most efficient business possible as I said, we've we focused on our balance sheet.

So I think we've put ourselves in a very good position, where we can go through this separation and the organization is as prepared as we possibly can before it. We've also as I said earlier, we've taken a lot of opex out of the business. So we've driven the opex down to a very efficient numbers. So we believe we can we can go through there.

David Goeckeler: The separation doesn't imply any change in strategy for either business. So both of them will continue to go forward. No change in our product road map. We feel very good about what's been built over the last three, four years. We feel like we're in a market leading position in both franchises, both from a product point of view. If you look at what's happened in the hard drive business. It's very, very clear now the adoption of SMR is the next big step in the cloud data center and that's progressing very well.

We can go through the separation and end up with two very well structured companies that can execute very well and they come out of the gate.

With market, leading portfolios on each side and into into a recovering market. So we feel good about that cost of the portfolio look I mean as you continue we feel the roadmap we have in place.

David Goeckeler: Our 2016 drive just became the highest shipping drive in the quarter. And we announced the next generation that with the 28T as well. So no change there. Optine and still a big part of that architecture and the team will be able to procure that and continue to drive that part of the strategy. And on the flash side of the business portfolio is also in great shape with both from product strategy and also the branding strategy. Sandist, WD Black, these brands continue to perform extremely well.

Can produce ultra <unk> NAND drives very high scale very quickly very high yields on all of the products. So we think the cost position is very advantageous you see that in our results.

<unk>.

So when hammer comes will fold that in and we want to get to the point, where we have the same level of yields we have the same level of confidence as we do something like a 2016 drive that we just launched and now it's the nearly half of our exabyte quarter.

David Goeckeler: So we think it's a great setup for both businesses going forward. Thanks for the quick follow-up. Your peers spoke about the hammer technology getting adopted next year and your road map shows EPMR to extending to 32% of item telecurious. How do you think about handle and your roadmap in case you catch up with C8? Look, we put a lot of optionality in our roadmap a number of years ago so that we could extend the capacity points with things like Optine and SMR, ultra SMR, EPMR.

A quarter or two in and Thats, how we think about launching new products. So when we get there I think that will we.

We will have that same kind of cost structure on hammer and we have a great <unk>.

Very very strong position.

To drive very efficient very high scale very quickly.

<unk> drives for many generations on the on the technology that we've put in place over the last three or four years.

David Goeckeler: So that strategy is working very, very well. We're leading the industry and capacity points. We expect to be able to drive this strategy into the 40TB range on our drives. Hammer is in development. It's going well and we'll be able to fold that into our roadmap at the appropriate time. But for now, we've got a great roadmap. We've got a market leading roadmap. We're leading the adoption of SMR into the cloud data center. And we expect, you know, we have many more generations to go on our current roadmap and then we'll move to hammer at the appropriate time when it's mature and we can build it at scale.

Thanks, Dave.

<unk>.

Our next.

Comes from Sidney Ho from Deutsche Bank. Please go ahead with your question.

Okay.

Thank you.

Congrats on the announcement today.

Understanding you have amended the debt covenants back in June given the announced transaction how are you thinking about the covenant.

Next few quarters, specifically free.

Free cash flow before the transactions close and does that limit the amount of Capex you can spend in the meantime, and also a follow up.

Hey, good morning, Sidney Thanks for the question.

The current announcement does not effect.

The amended.

<unk> agreements and so from a free cash flow from a covenant perspective.

Chris Shankar: And it'll be the next leg of growth into the future. Thanks, David.

Comfortable that we can.

Operate effectively we have ample liquidity.

Unknown Executive: Thank you, Chris.

Do have ample opt.

Wamsi Mohan: Our next question comes from Womsey Mohan from Bank of America. Please go ahead with your question. Hi, yeah. Thank you so much. Good morning. Back to the transaction, I guess.

The operational flexibility to operate so I don't see the content announcement is impacting us.

Anyway.

Okay.

Wamsi Mohan: Can you maybe talk a little bit about all the actions that you've taken that might be preventing some of the disenergies that typically occur in terms of stranded costs when when there was separation of the business? Can you maybe address that and be on your comments on on the roadmap? I'll address MR, EPMR, you have a lot of options. You've noted scaling up to 40 TV. Can you just talk about what the cost of that, how that would compare to, you know, your own future hammer road map and give us some sense of how cost competitive you think these products?

Follow up is if you look at the Cisco second quarter guidance. If you can walk us through your assumptions that drive seven points of increase in gross margin that will be great. It looks like underutilization charges coming down are they benefit from sales of previously written down inventory.

What are you expecting in terms of price increases in both flash and hard disk drive on a like for like basis. Thank you.

Okay, maybe I'll start a little bit on the cost side and then.

Good day.

David.

Yeah.

Chime in on the top line side.

Look the win win.

The one of the bigger obviously levers is the under utilization than we did in Q1 in 225 million in total we had.

Wamsi Mohan: Thank you. Okay, so on the first one, yeah, I mean, Wamsi, I think you've kind of laid it out there. We've been going through a whole series of actions that have set us up for this, this announcement, you know, it was really about execute the business better and give ourselves as much strategic optionality as possible. So, as I talked about in the prepared remarks, we've, you know, we we separated ourselves into business units on the product side that allows us to really get get very focused on the portfolio and all the optics we spend on building our products, make sure it's we get the best return for it.

$2 $34 million to $35 million.

Wamsi Mohan: I think that's worked out well. We then did the same thing in operations. We've now divided those organizations around HED and Flash. So we've and then we've optimized taken out cost everywhere we can so that we can operate them independently and also have just the most efficient business. As I said, we've we've we've focused on our balance sheet. So I think we put ourselves in a very good position where we can go through this separation and the organization is as prepared as we possibly can before it.

And then our guide has and under utilization.

It's a much lower level and so that's one element.

In addition, obviously we continue to focus on cost reduction we.

We do have.

Still we're still.

We exclude the Underutilization aspect, we're still taking cost out of the.

Out of the system on both the flash side and the HDD side.

And so that's that's a key.

Lever to improve the gross margin.

And then.

If I take it back up to the top line, we see obviously.

Proven and the.

On the revenue side and the improvement is coming from both sides of the house on both businesses. So that also.

Contributes quite <unk>.

With respect to.

The <unk>.

Gross margin.

And within that revenue also we do have a bit of mix.

Wamsi Mohan: We've also, as I said earlier, we've taken a lot of op-ex out of the business. So we've driven the op-ex down to a very efficient number. So we believe we can we can go through there, we can go through the separation and end up with two very well structured companies that can execute very well and they come out of the gate with market leading portfolios on each side and into into a recovering market.

Helping us as well.

Yes, Sidney I guess, what I would add is.

If you look at the HDD business were ramping new products Alright to 28 2060, <unk> drive is ramping.

Happily.

And we also have an improving price environment pricing environment and drives which is a nice tailwind.

And then in flash, we have an improving pricing environment as well as we said a better mix.

Wamsi Mohan: So we feel good about that cost of the portfolio. Look, I mean, as you continue, we feel the road map we have in place, you know, we can produce ultra SMR, EPMR, Optiman and drives, very high scale, very quickly, very high yields on all the products. So we think the cost position is very advantageous. You see that in our results. You know, so you know, when hammer comes, we'll fold that in and you know, we want to get to the point where we have the same level of yields, we have same same level of confidence as we do, something like a 2016 drive that we just launched and now it's the nearly half of our exabytes, a quarter or two in.

And we expect that business to inflect to positive gross margin next quarter, which is a great milestone for us as we continue the recovery of the business.

Thank you.

Our next question comes from Tom O'malley from Barclays. Please go ahead with your question.

Good morning, and thanks for taking my question I just wanted to ask on your expectations for both market demand on the NAND exabyte side for fiscal year 'twenty four as well as your view of supply.

During the year.

Almost 50% year over year, obviously off a very low base and sequentially up mid twenties. Some of your peers have talked about really strong demand here to begin the fiscal year to begin the recovery in those for those other guys, but kind of some slowing.

Wamsi Mohan: And that's how we think about launching new products. So, you know, when we get there, I think that we'll have that same kind of cost structure on hammer and we have a great, very, very strong position to drive, very efficient, very high scale, very quickly new drives for many generations on the technology that we put in place over the last three or four years. Thanks. Thank you.

You guys saw the bottom ordered a bunch and I have kind of slowed down can you just give me your comments on if youre seeing any of that and then your expectations for the export shipments for you for the fiscal year.

Yes so.

We did we have seen an acceleration here at the end of 'twenty three we have raised our demand number quite a bit into the mid.

Cindy Ho: Our next question comes from Cindy Ho from Deutsche Bank. Please go ahead with your question. Thank you.

Mid teens for 'twenty, three we will get to 'twenty four.

Some of that.

Wissam Jabre: Congrats on the announcement today. Understanding you have amended that their covenants back in June given the announced transaction, how you think about the covenants over the next few quarters, specifically where to recap free cash flow before the transaction is closed. And that's that limit the amount of capital you could spend in the meantime and I'll follow. Hi, good morning, Sydney. Thanks for the question. The current announcement does not affect the amended credit agreements, and so from a free cash flow, from a covenants perspective, we're comfortable that we can operate effectively. We have ample liquidity. We do have ample operational flexibility to operate. So I don't see the current announcement as impacting us in any way.

There has been some strategic buys as part of that I know thats been a big discussion in the industry, but we also just see the market's returning to normal inventory levels. So for us that's been more of what what's been happening and a good mix across the businesses for 24, we see high teens kind.

Kind of demand and we continue to see we continue to see production significantly below that.

Helpful and then on the other side of the business.

<unk> talked about the kind of varied inventory positions you have flash going down <unk> actually going up a bit and if you compare your results with seagate or at least for the last couple of quarters results have been relatively similar could you just talk about when we should start to see that divergence just given the fact that youre addressing.

Our higher capacity points in the market today and theoretically you should you should see some outsized benefit when do you think youll start to see that divergence in the market. Thank you.

Wissam Jabre: Okay, my follow-up is, if you look at the Cisco second quarter guidance, if you can walk us through your assumptions that drive seven points of increase in boost margin, that will be great. It looks like you underutilization charts are coming down. Are there benefits from sales of previously earned down inventory, and what are you expecting in terms of price increases in both flash and hard to strike on a light for like basis?

Divergence in what what aspect Tom in terms of in terms of revenue difference.

So we're managing the business for profitability on HDD I mean, I think it's.

We and I think we are driving a more profitable business.

So.

Wissam Jabre: Thank you. Okay, maybe I'll start a little bit on the cost side, and then David could chime in on the top line side. Look, the one of the bigger obviously levers is the underutilization. We did in Q1, around 25 million, in total we had around 234 to 35 million of other charges. And our guide has a hundred utilization at much lower level, and so that's one element. In addition obviously we continue to focus on cost reduction.

That's the way, we think about the business and driving back to our our model, which we expect to get back to you here over the next several quarters.

Jamie.

Our next question comes from Serena Gerry from Raymond James. Please go ahead with your question.

Yes. Thank you good morning, guys, David on the HDD comments that you see growth throughout the fiscal year.

Just looking for some additional color just kind of listening to your some of your customers and the big hyper Scaler I think the Capex comments had been fairly mixed and I'm just curious as to how broad based this recovery that you're seeing is it primarily driven by <unk>.

Wissam Jabre: We do have still, if you exclude the underutilization aspect, we're still taking cost out of the system on both the flash side and the HDD. And so that's a key level to improve the gross margin. And then if I take it back up to the top line, we see obviously improvement on the revenue side and the improvement is coming from both sides of the house and on both businesses. So that also contributes quite well with respect to the gross margin, and within that revenue also we do have a bit of a mix that's helping us as well.

Inventory work downs or anything else, that's driving it and also if you can comment on by Geo geography, I think as you said China was weak in the quarter. If you could talk talk about.

What's your expectation for China business going forward.

Yes, I think you got it there in your question and I think you have more broad based.

Participation in the market by the big Hyperscale or as they get to the end of their inventory corrections. So that's been part of it remember we're coming off a very very very low numbers.

So we expect it.

Improvement throughout the year by more people participating in the market and more consistent participation by the ones that have been in it on a quarter over quarter basis.

China has been.

It's been better but not it hasnt recovered as fast as we expected. So it is still a little bit lumpy and weaker than we would like so the smart video market has been.

Wissam Jabre: Yes, Sydney, I guess what I would add is, it could be look at the HDD business for ramping new products, right, the 20, the 2060 drive is ramping rapidly. And we also have an improving price environment pricing environment in drives, which is a nice tailwind. And then in flash, we have an improving pricing environment as well as we saw instead of better mix. And we expect that business to inflect the positive gross margin next quarter, which is, you know, a great milestone for us is we continue the recovery of the business.

<unk> been pretty consistent and we've seen some some good results there, but in the cloud space. It's.

Tom O'malley: Thank you.

It's still still has a little ways to go.

Thank you and then the cash flow question for wisdom.

I guess I'm just curious you know you had an IRS payment due during the quarter did you make that payment I see like a $300 million and.

Impact from the tax and then if you could walk us through.

Some of the puts and takes in terms of free cash flow for next quarter I think that would be helpful. Thank you.

Yes, sure so on the tax payment in Q1, we made a $523 million.

David Goeckeler: Our next question comes from Tom O'Malley from Barkley, please go ahead with your question. Good morning, and thanks for taking my question. I just wanted to ask on your expectations for both market demand on the man exabytes side for fiscal year 24 as well as your view of supply. I mean, you're, you're starting the year. Up almost 50% year of year, obviously off a very low base and sequentially up, you know, mid 20s.

Payment with respect to the IRS settlement discovers the years 2008 to 2012 and so this is why you see when you look at our free cash flow that we reported for fiscal Q1 to negative $5 44, and that we had that to 523 million payment.

On the.

David Goeckeler: Some of your peers have talked about really strong demand here to begin the fiscal year or to begin the recovery and in those for those other guys, but kind of some slowing as guys saw the bottom ordered a bunch and have kind of slowed down. You just give me your comments on if you're seeing any of that and then your expectations for the exploit shipments for you for this, fiscal year. Yeah, so, you know, we did, we have seen an acceleration here at the end of 23.

It was partially offset by the sale and leaseback of the Milpitas facility is $191 million. So all in all the ore and it was a negative $200 million for the quarter and as we look forward obviously the key the key.

Is the continuous improvement of the profitability and.

The business working capital management, you've seen our.

David Goeckeler: We've raised our demand number quite a bit into the low mid teens for for 23. We'll get to 24. You know, some of that, you know, there has been some strategic biases part of that. I know that's been a big discussion in the industry, but we've also just see the markets returning to normal inventory levels. So for us, that's been more of what's been happening in a good mix across the businesses.

<unk> on the inventory side for instance.

Q1, we continued to manage inventory very very closely on both flash and HDD. So I expect that inventory to continue to decline.

The decline gradually.

And this coming quarter.

And the next.

And then the continued focus on Capex for the fiscal year, we did say that for fiscal 'twenty four we.

David Goeckeler: For 24, we see high teens kind of demand, and we continue to see, we continue to see production significantly below that helpful. And then on the other side of the business, you talked about the kind of, you know, varied inventory positions. You have flash going down HD, actually going up a bit. If you compare your results with C gate, at least for last couple of quarters results have been relatively similar. Could you just talk about when we should start to see that divergence just given the fact that you're addressing, you know, a higher capacity point in the market today. And theoretically, you should, you should see some outsides benefit. When do you think you'll start to see that divergence in the market?

Expect our cash capex to be significantly lower than fiscal 2023. So.

Free cash flow is cash flow.

Very important to us big focus and we will continue to focus on it.

And as we as we look into the second half of fiscal 'twenty four.

We're projecting to be cash flow positive on a quarterly basis in the second half of this fiscal year.

Thank you.

Okay.

Our next question comes from Karl Ackerman from BNP Paribas. Please go ahead with your question.

David Goeckeler: Thank you. Do origins in what aspect come in terms of in terms of revenue difference? So we're managing the business for profitability on HDD. I mean, I think it's, you know, we and I think we are driving a more profitable business. So that that's the way we think about the business and driving back to our model, which we expect to get back to here over the next several quarters.

Yes. Thank you good morning.

Carl.

Hey, good morning.

When do you anticipate NAND underutilization charges to abate.

And then second you indicated that NAND and HDD bit shipments will recover in December.

I guess for NAND will that'd be primarily tied to consumer applications or do you expect enterprise to be the larger driver over the next couple of quarters. Thank you.

Yes, I'll take the second part of that.

With some can comment on the Underutilization charges look we expect <unk> to be up slightly in the December quarter, It's a strong consumer quarter.

Unknown Executive: Jamie.

Serena Pajuri: Our next question comes from Serena Pajuri from Raymond James. Please go with your question. Yeah, thank you. Good morning, guys. David on the HDD comments that, you know, you see growth throughout the fiscal year. Just looking for some additional color, you know, just kind of listening to some of your customers and the big hyper scalers. I think the CapEx comments have been fairly mixed and I'm just curious as to how broad-based this recovery that you're seeing is primarily driven by, you know, the inventory work downs or anything else that's driving it.

For us, although we don't really break out by by mix, but.

I mean, I think that that's one way to think about it we expect an improving price environment and bits to be to be slightly up.

Yes, and with respect to Underutilization, Karl we do manage our supply very dynamically and so we guided this quarter based on what we see today, we do it we do expect Underutilization to continue in the third fiscal quarter.

Serena Pajuri: And also, if you can comment on, you know, by geography, I think you said China was weak in the quarter. If you could talk about, you know, how what your expectation for China business is going forward. Yeah, I think you got it there in your question. I think you have more broad-based participation in the market by the big hyper scalers as they get to the end of their inventory corrections. So that's been part of it.

Maybe a little bit lower than here, but it's a bit too early to to cover.

The quarters beyond the next one.

Thank you.

Second.

Our next question comes from Vijay Rakesh from Mizuho. Please go ahead with your question.

Serena Pajuri: Remember, we're coming off a very, very, very low numbers. So, you know, we expect improvement throughout the year by more people participating in the market and more consistent participation by the ones that have been in it on a quarter or a quarter basis. China has been, you know, it's been better but not as it hasn't recovered as fast as we expected so it's still a little bit lumpy and weaker than we would like. So the smart video market has been pretty consistent and we've seen some good results there. But in the cloud space, it still has a little ways to go.

Actually the next question comes from Timothy <unk> from UBS. Please go ahead with your question.

Thanks, a lot.

David at the bottom of slide four you did say that the board remains open to considering other alternatives should they become available. So since you put that in the presentation can you talk about what other options could be available is this a reference to the collapse of the JV that high.

<unk> commented about our was asked about on its call is this in reference to an outright sale of the NAND business can you just talk about that a little more.

So it's not in reference to any particular thing. It just says that we think this is the best next step for the business to unlock value we think that.

Wissam Jabre: Thank you, and then a cash flow question for Wissam. I guess I'm just curious, you had an IRS payment due during the quarter. Did you make that payment? I see like a $300 million impact from the tax and then if you could walk us through some of the puts and takes in terms of free cash flow for the next quarter, I think that will be helpful. Thank you. Yes, sure. So on the tax payment in Q1, we made a $523 million payment with respect to the IRS settlement that discovers the years 2008-2012.

We've put the business in a position to go through this right now so all the reasons, we talked about from the portfolio to where we are on efficiency point of view to where we are on the work we've done to retire debt.

Sure.

And also going into an improving market.

But I think any company is always open to other strategic options should they become available and we will consider them at that time, although I do want to be very clear that the strategic review is completed and any conversations that were going on as a part of that have ended.

Wissam Jabre: And so this is why you see when you look at our free cash flow that were reported for fiscal Q1 at the negative $544 in that we had that $523 million payment on the, it was partially offset by the sale and lease back of the military facilities of around $191 million. So all in all, we were around the negative $200 million for the quarter. As we look forward, obviously the key is the continuous improvement of the profitability and of the business, working capital management.

And we're very excited about this step forward, we think it's the best next step for the business.

But I think in any business, you're always going to be open if there's other strategic options that become available we will thoroughly consider those at the time.

Got it and then with some for you so.

The underutilization charges of $120 million at the midpoint, how do they split.

Sure.

December I would think that more of it is now in the HDD business, but how does that how does that split.

Yes.

Split of the Underutilization is.

Two thirds of flash and one third HDD.

Wissam Jabre: You've seen our transition on the inventory side, for instance, in Q1. We continue to manage inventory very, very closely on both Flash and HDD. So I expect that inventory to continue to decline gradually in this coming quarter and the next. And then the continued focus on CAPEX for the fiscal year will it say that for fiscal 24, we expect our cash CAPEX to be significantly lower than fiscal 2023. So free cash flow and cash flow is very important to us, big focus and we will continue to focus on it. And as we look into the second half of fiscal 24, we're projecting to be a cash flow positive on a quarterly basis in the second half of this fiscal year. Thank you.

Great. Thank you with that.

Sure.

And our next question does come from Vijay Rakesh from Mizuho. Please go ahead with your question.

Yeah, Hi, just a quick question. If you went through it already when you look at the hard disk side wondering if you had.

What the exabyte growth was for the last two.

<unk> and what Youre seeing as you look forward with this seems like a little bit of a bonds coming through what do you expect for fiscal 2000 for fiscal 'twenty five.

Okay under 24, let's say, yes.

So, yes, we I mean coming off such a high on 'twenty two 'twenty three it will be down, but then we expect to get back to we expect a consistent exabyte growth in this business in the mid to high 20 range on <unk>.

Ongoing basis.

Got it and then the same on the manned side.

Bid spinoff do you see any change in their technology Road map, how do you see there 218, the next generation coming and if you can also give us your expectation on that.

Karl Akerman: Our next question comes from Karl Akerman from BNP Parabaugh. Please go ahead with your question. Yes, thank you. Good morning. Hey, good morning.

And bit growth.

<unk> 23 and 24.

Okay. Yeah, no. We don't expect any change in the in the technology roadmap that the JV is very strong very solid very productive teams work together on a day by day basis, we've talked a lot about that.

Karl Akerman: When do you anticipate NAND or utilization charges to a bait? And then second, you know, you indicated that NAND and HDD bit shipments were recovered in December. I guess for NAND, you know, will that be primarily tied to consumer applications or do you expect enterprise to be the larger driver of the next couple quarters? Thank you.

We're very happy with where it's at to the relationship is very strong the technology roadmap, we think because we talked about last time with fixate and wafer bonding we've made a huge step forward there.

We've always been able to produce NAND at a better capital intense.

Wissam Jabre: Yeah, I'll take the second part of that and what some can comment on the under utilization charges. Look, we expect bits to be up slightly in the December quarter. It's a strong consumer quarter for us. Although we don't really break out by mix, but I mean, I think that's one way to think about it. We expect an improving price environment and bits to be slightly up. Yeah, and with respect to under utilization, Karl, we do manage our supply very dynamically.

Intensity than the rest of the industry are measures over the last several years or up to a third less capital intensity for the business. So.

The JV has been strong for 'twenty, three plus years, and we expect it to be strong for very very far into the future. So we feel very good about that.

Got it and any thoughts around the bit growth against what penny for Penny.

Wissam Jabre: And so we guided this quarter based on what we see today. We do expect under utilization to continue in the third fiscal quarter, maybe a little bit lower than here. But it's a bit too early to cover quarters beyond the next one.

That is the next innovation is the next big state starts to ramp I guess, yes.

Unknown Executive: I guess second.

Yes.

We expect demand in 24 in the NAND business to be high teens.

If it gets really strong maybe it will creep over the <unk> and the low twenty's, but.

We're thinking about those high high teens numbers and like I said production will be significantly below that.

Alright, thank you.

Vijay Rakesh: Our next question comes from Vijay Rakesh from Mezuho, please go ahead with your question.

Our next question comes from Harlan sur from Jpmorgan. Please go ahead with your question.

Timothy Aturi: Actually, the next question comes from Timothy Aturi from UDS, please go with your question. Thanks a lot. David, at the bottom of the slide four, you did say that the board remains open to considering other alternatives should they become available. So, since you put that in the presentation, can you talk about what other options could be available? Is this a reference to the collapse of the JV that, you know, Heinrich's commented about or was asked about on its call?

Hi, good morning, Congratulations learning Heartland strategic.

Congratulations on the strategic actions announced today.

On the flash technology side.

The JV brings strong synergies in class manufacturing development and manufacturing scale, excluding the unknown unknown.

Utilization charges, you guys had been driving.

Down the underlying cost per bit at around the mid teens type CAGR and in line with your prior targets and Thats, even with the rising capital intensity right. As you look ahead, the fixed transition move to bonded architecture Vicks <unk>.

Timothy Aturi: Is this in reference to an outright sale of an end business? Can you just talk about that a little more? Oh, it's not in reference to any particular thing. It just says that we think this is the best next step for the business to unlock value. We think that, you know, we put the business in a position to go through this right now. All the reasons we talked about from the portfolio, to where we are on efficiency point of view, to where we are on the work we've done to retire debt, and also going into an improving market.

Does the team believes that can sustain its mid teens cost profile.

Yes, we do we feel very good about that.

I've spoken about this.

In the past, it's it's an explicit goal of the technology team to continue to drive those cost downs and we feel good about our ability to do that it's been one of the strengths of the JV.

And the JV technology team for a very long time.

Timothy Aturi: But, you know, I think any company is always open to other strategic options. Should they become available and will consider them at that time, although I do want to be very clear that the strategic review is completed in any conversations that we're going on as a part of that have ended. And we're very excited about this step forward. We think it's the best next step for the business. But, you know, I think in any business, you're always going to be open if there's other strategic options that become available. Well, we will thoroughly consider those at the time. Got it.

Well. Thank you for that and then on the flash portfolio side within SSD, particularly.

The team has been in a very very strong number two market share position in client SSD very strong portfolio.

Enterprise and cloud however.

You've been consistently in the sort of number five numbers global market share position. So as we think about spinning out the flash business what is it going to improve its competitiveness in enterprise and cloud SSD portfolio.

Wissam Jabre: And then what's on for you? So the under utilization charges of 120 million at the midpoint, how do they split for December? I would think that more of it's now in the HDD business, but how does that split? Yeah, the split of the under utilization is two thirds a flash and one third HDD. Great.

Well, we like the portfolio, we have we qualified.

Nvme based enterprise SSD at multiple cloud providers and unfortunately, we qualified right into <unk>.

Significant downturn in cloud consumption of enterprise SSD. So.

As that starts to come back over the next several quarters and as we go through <unk>.

<unk> 24, we expect our position to two to improve as we as those vendors start consuming again.

Wissam Jabre: Thank you, was on.

Vijay Rakesh: Yeah, our next question does come from BJ Rakesh from the ZOOHO. Could you go ahead with your question? Yeah, I just a quick question. If you went to it already, when you look at the hard disk site, wondering if you had what the exabyte growth was for the last two years. And what you're seeing as you look forward with this seems like a little bit of a bounce coming to what do you expect for fiscal 24, fiscal 25 or 24? Let's say.

Is is there's just not a lot of buying in that market going on right now.

Perfect. Thank you.

Thank you.

Our next question comes from.

<unk> <unk> from <unk>. Please go ahead with your question.

Thank you David I, just want to go back to you.

Let me just make a rig.

David Goeckeler: So yeah, we, I mean, coming off such a high on 22, 23 will be down, but then we expect to get back to, you know, we expect a consistent exabyte growth in this business in the mid to high 20 range on a, on a ongoing basis. Got it. And the same on the man side, with the spin off, do you see any change in the technology roadmap? How do you see the 218 there, the big next nation, big coming?

Voting.

Enterprises is when I look at this.

From.

The results of our strategic review you're highlighting.

The strength in client SSD and also retail, but I don't see any mention of enterprise SSD.

How should how should I reconcile.

The comment you just made.

Well I mean, it's because those are two very very strong strengths of the portfolio I think they're very unique.

David Goeckeler: And if you can also give us your expectation on the on Nanbit growth for 23 and 24. Yeah, no, we don't expect any change in the, in the technology roadmap that, you know, the JV is very strong, very solid, very productive teams work together on a day by day basis. We've talked a lot about that. We're very, very happy with where it's at. The relationship is very strong. The technology roadmap, we think, as we talked about last time with fix eight and way for bonding.

Look at our retail franchise is a real gem I mean, it's it's.

A big part of the portfolio it provides better through cycle.

Profitability.

We've done a lot of work on building brands over the last several years and we've already had very very strong brands and Sandisk I mean, I think everybody knows sandisk is a premier brand in the industry. We've built the black brand around gaming now Thats a significant part of the portfolio I think we're the preferred preferred provider in gaming.

David Goeckeler: We've made a huge step forward there. You know, we've always been able to produce Nan at a better capital intensity than the rest of the industry, our measures over the last several years are up to a third less capital intensity for the business. So the JV has been strong for 23 plus years and we expect it to be strong for very, very far into the future. So we feel very good about that.

We talked about it for this quarter were 50% year over year content increases in devices and doubling the number of bits.

In that so it's been it's a very very key part of the portfolio. We look forward to highlighting more the client portfolio has always been a strength of the business is something that's been built over the last several years, we've driven several innovations in that like the DRAM less client SSD.

David Goeckeler: And in any part around the big growth I guess, what pretty poor, I'm pretty, as that, as a, as a, as a next, as a next, you know, big faith starts with Amperius. Yeah, we, we expect demand in 24 in the nan business to be high teens, you know, and if it gets really strong, maybe I'll creep over the 20s in the low 20s, but, you know, we're thinking about those high, high teens numbers. And like I said, production will be significantly below that. All right, thank you.

That's always been a very strong part of the portfolio I guess.

Mehdi, we could've put a whole bunch of stuff on the slide that we're proud of in the portfolio, but we pick the strongest ones, but we're very bullish on the enterprise SSD market. It's just a market that's depressed right now.

We talked a lot about that last year we.

<unk> had qualifications at multiple hyperscale or <unk>.

Those products are still active.

We're migrating them forward to future nodes, and we expect those to ramp as as that market recovers.

Harlan Sur: Our next question comes from Harlan Sur from JP Morgan, so you go ahead with your question. Hi, good morning, congratulations. Good morning, Harlan, strategic, yeah, congratulations on the strategic options, well, today, on the, on the flash technology side, you know, the JV bringing strong synergies and flash manufacturing development and manufacturing scale, excluding the, you know, you underutilization charges, you guys have been driving down the underlying cost for a bit at around a mid teens pipe caterer and in line with your prior targets, and that's even with the rising capital intensity right as you look ahead, big six transition, move the bond that architecture on big eight does the team believe it can sustain its mid teens cost on profile.

Okay, Great and just a question a follow up question from to some and I'm not asking you for.

Harlan Sur: Yes, we do, we feel very good about that. I mean, I've spoken about this in the past. It's an explicit goal of the technology team to continue to drive those cost downs and we feel good about our ability to do that. It's been one of the strengths of the JV and the JV technology team for a very long time. Well, thank you for that. And then on the flash portfolio side within SSD, particularly, the team has been in a very, very strong number two market share position in client SSD, very strong portfolio in enterprise and cloud, however, you've been consistently in the sort of number five numbers, the global market share position.

Guide on 2024, but if I just look at your.

Cost decline.

Assume that 10% cost decline and assume that current AOSP trend.

Sure.

A flash business should become profitable maybe by mid year or sooner than later.

Trajectory is very supportive of reaching.

Reaching profitability in the next couple of quarters is that a fair assumption.

Well look what.

And the current guide for this quarter.

It does imply that.

And then should be gross margin positive.

In terms of.

The outer.

Quarters assume it's too early for us to comment on that.

Okay. Thank you.

And our final question.

Comes from Toshi Hari from Goldman Sachs. Please go ahead with your question.

Hi, good morning, and congrats on the announcement.

For sure.

Yes.

So on the NAND side I think based on our response to a prior question it looks like you're assuming underutilization charges declined by about <unk> <unk>.

Harlan Sur: So as you think about spinning out the flash business, what is the team doing to improve its competitiveness in enterprise and cloud SSD portfolio? Well, we like to portfolio. We have, you know, we, we qualified our NVME based enterprise SSD at multiple cloud providers. And unfortunately, we qualified right into a significant downturn in cloud consumption of enterprise SSD. So as that starts to come back over the next several quarters and as we go through 24, we expect our position to, to, to improve as we, as those vendors start consuming again. I mean, the reality is, it's just not not a lot of buying in that market going on right now. Perfect. Thank you.

60 million from September to December.

Are you guys, taking up wafer starts or what's driving the sequential decline in charges in NAND.

Yes, I guess with that I will comment a little bit as well, but I guess, what I would say.

She is where we're not putting a <unk>.

Rod statement out there about that what we're doing is just being very dynamic with how we manage wafer starts so that we can keep supply and demand matched as best we can without letting inventory.

Get up too high so as you saw I mean, our NAND inventory is at the best level since I've been here in the company I mean with some team has done a great and the operations team just done an unbelievable job of managing that so we'll we'll stay very close to where our markets are and how we're seeing demand and then we will adjust.

Wafer starts appropriately.

Srinivas Pajjuri: Our next question comes from me. Sony from SIG. Please go ahead with your question. Yes, thank you. David, I just want to go back to your comment just made regarding enterprise SSD. When I look at this slide from the results of a strategic review. You are highlighting the strength in client SSD and also retail, but I don't see any mention of enterprise SSD. How should, how should I reconcile that with the comment just?

Thanks, Dave the only thing I would add is that when you think of funding utilization just I know there was an earlier question on this.

Yes, we do expect under utilization further in the second half of the.

Fiscal year, the way to think of it as well.

We're expecting underutilization to be slightly lower from these levels in the third fiscal quarter.

As David said this is very dynamic we continue to manage the business on a day to day week to week basis, and so obviously.

Depending on business conditions.

Srinivas Pajjuri: Party. Well, I mean, that's because those are two very, very strong strengths of the portfolio. I think they're very unique. Look, our retail franchise is a real gem. I mean, it's, it's a big part of the portfolio. It provides better through cycle profitability. You know, we've done a lot of work on building brands over the last several years. And we've already had very, very strong brands and sandisk. I mean, I think everybody knows sandisk is a premier brand in the industry.

Still changing.

That's very helpful. Thank you and then as a quick follow up David you talked about value based pricing on the hard disk drive side and how that's driving better gross margins into the December quarter can you speak to any kind of specific end markets, where you're seeing traction is it mostly.

Client and consumer are you able to push through some price increases in the cloud segment as well. Thank you.

I think it's.

So first of all on the channel we're seeing good response to value based pricing and then as we bring out new products as I said.

Srinivas Pajjuri: We built the, the black brand around gaming now. That's a significant part of the portfolio. I think we're the preferred preferred provider in gaming. You know, we talked about it this quarter where, you know, 50% year over your content increases and devices and doubling the number of bits in that. So it's been, you know, it's a very, very key part of the portfolio. We look forward to highlighting it more. The client portfolio has always been a strength of the business is something's been built over the last several years.

<unk> said in the past I think innovation is was the first part of value based pricing is bringing a better value proposition to our customers and as we continue to bring out unique products 26, terabyte ultra <unk> ramped very fast nearly half of our near line extra bytes. This quarter and we're we're now bringing out 28 and I think.

As we continue to do that we will have the opportunity to.

You'll have a better conversation with our customers because we're bringing more value to them. So so I would say it's.

Srinivas Pajjuri: We've driven several innovations in that, like the D Ramless client SSD. That's always been a very strong part of the portfolio. I guess, you know, Betty, we could have put a whole bunch of stuff on slide that we're proud of in the portfolio. But we picked the strongest ones, but we're very bullish on the enterprise SSD market. It's just a market that's depressed right now. You know, we talked a lot about that last year.

We're looking at it across across all of our markets.

Got it thank you.

Alright, Thank you tissue I appreciate that everybody. We appreciate the time today. Thanks for thanks for the discussion and we look forward to talking to you.

As we progressed throughout the quarter.

And ladies and gentlemen, with that we'll conclude today's conference call. We thank you for joining you may now disconnect your lines.

Srinivas Pajjuri: We, we had qualifications at multiple hyper scalers. Those products are still active. You know, we're migrating them forward to future nodes and we expect those to ramp as as that market recovers. Okay, great. And just a question, a follow-up question for the sum. And I'm not asking you for a guy on 2024. But if I just look at your cost decline, if I just assume 10% the cost decline and assume the current speed trend, you're a man of flash business should become profitable, maybe by mid year or sooner than later.

Srinivas Pajjuri: But the trajectory is very supportive of reaching profitability in the next couple of quarters. Is that a fair assumption? Well, look, what in the current guide for this quarter, it does imply that NAN should be gross margin positive. And in terms of the outer quarters is a little bit too early for us to comment on them. Okay, thank you.

Toshiya Hari: Thanks for your question today comes from Toshiyahari from Goldman Sachs. Please go ahead with your question.

David Goeckeler: Hi, good morning and congrats on the announcement. Thanks, Toshiyah. Yeah, Dave. So on the NAN side, I think based on a response to a prior question, it looks like you're assuming underutilization charges declined by about 60 million from September to December. Are you guys taking up wait for starts or what what's driving the sequential decline in charges in NAN? Yeah, I guess what I was I will comment a little bit as well, but I guess what I would say Toshiyahs were, you know, we're not putting a broad statement out there about that what we're doing is just being very dynamic with how we manage wafer start so that we can keep supply and demand matched as best we can without letting inventory get up too high.

David Goeckeler: So as you saw, I mean, our NAN inventory is at the best level since I've been here in the company. I mean, we found teams done a great and the operations team just an unbelievable job of managing that. So we'll stay very close to where our markets are and how we're seeing demand and then we'll adjust wafer starts appropriately. Yeah, thanks Dave. The only thing I would add Toshiyah is that when you think of underutilization, just I know there was an earlier question on this.

David Goeckeler: Yeah, we do expect underutilization further in the second half of the fiscal year, the way to think of it as we were expecting under utilization to be slightly lower from these levels in the third fiscal quarter. And as David said, this is very dynamic. We continue to manage the business on a day-to-day week-to-week basis and so obviously depending on business conditions, this could still change. Yeah, that's very helpful. Thank you.

Unknown Executive: And then as a quick follow-up, David, you talked about value-based pricing on the hard disk drive side and how that's driving better gross margins into the December quarter. Can you speak to any kind of specific end markets where you're seeing traction? Is it mostly, you know, client and consumer? Are you able to push through some price increases in the cloud segment as well? Thank you. I think it's, you know, so first of all, on the channel, we're seeing good response to the value-based pricing.

Unknown Executive: And then as we bring out new products, you know, as I said, said in the past, I think innovation is what the first part of value-based pricing is bringing a better value proposition to our customers. And as we continue to bring out unique products, 26 terabyte ultra-SMR ramped very fast. You don't nearly half of our, our near-line exabytes this quarter and we're, we're now bringing out 28. And I think as we continue to do that, we'll have the opportunity to, you know, have a better conversation with our customers because we're bringing more value to them.

Unknown Executive: So, so I would say it's, you know, we're looking at it across, across all of our markets. Got it. Thank you. All right. Thank you to you. Appreciate that. Everybody, we appreciate the time today. Thanks for, thanks for the discussion and we look forward to talking to you as we progress throughout the quarter.

Unknown Executive: And ladies and gentlemen, with that, we'll conclude today's conference call. We thank you for joining. You may now disconnect your lines.