Q2 2024 Western Digital Corp Earnings Call
Good afternoon, and thank you for standing by welcome to Western Digital's second quarter fiscal 'twenty 'twenty four analyst call presently all participants are in listen only mode. We will open the lines up for questions. Shortly.
You would like to ask a question you May Press Star then one on your Touchtone phone now I will turn the call over to Mr. Peter Andrew V. P of F. P. N E and I are you may begin.
Peter Andrew: Well, thank you and good afternoon, everyone. Joining me today are David <unk>, Chief Executive Officer, and we see them job Ray Chief Financial Officer before we begin let me remind everyone that today's discussion contains forward looking statements based on management's current assumptions and expectations.
Peter Andrew: And as such does include risks and uncertainties. These forward looking statements include expectations for our product portfolio.
David <unk>: Business plans and performance market trends and dynamics and financial results, we assume no obligation to update. These statements. Please refer to our most recent financial report on Form 10-K, and our other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially.
David <unk>: From expectations.
David <unk>: 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.
David <unk>: With that I will now turn the call over to David for introductory remarks. Thank you Peter Good afternoon, everyone and thanks for joining the call to discuss our second quarter of fiscal year 'twenty 'twenty four results.
Western Digital's second quarter results demonstrate that the structural changes we have put in place over the last few years and the strategy, we have been executing our producing significant outperformance across our flash and HDD businesses.
David <unk>: I am confident that building leading products across a broad range of end markets closely controlling our product cost through focused R&D and manufacturing and.
David <unk>: And bolstering the agility of our business will allow us to improve through cycle profitability and dampen business cycles.
David <unk>: As a result, we reported revenue of $3 billion non-GAAP gross margin of 15, 5% and a non-GAAP loss per share of <unk> 69 cents, all of which met or exceeded the non-GAAP guidance ranges we provided in October.
Peter Andrew: Before discussing the business details I want to provide some comments on the emerging trends, we are seeing and how the changes we have made position, our flash and HDD businesses to benefit.
Peter Andrew: In flash, we have been able to navigate business cycles by managing inventory proactively offering a broad range of products.
Peter Andrew: And optimizing capital efficiency through our joint venture partnership with Coke show.
Peter Andrew: These successful efforts are reflected in our best in class gross margin throughout the cycle.
Peter Andrew: During the quarter, our portfolio strategy to dynamically allocate bit shipments drove upside in asps and gross margin.
Peter Andrew: Looking ahead, we will continue to take a disciplined approach to our supply and capital investments. Consequently, we continue to proactively manage our bit shipments to structurally align our supply and inventory with customer demand and improve through cycle profitability.
Into the future.
Peter Andrew: In addition to the recovery in both flash and HDD markets. We believe storage is entering a multi year growth period.
Peter Andrew: Generative AI has quickly emerged as yet another growth driver and transformative technology that is reshaping all industries all companies in our daily lives.
Peter Andrew: Importantly industry analysts estimate that the edge now represents approximately 80% of total NAND bit shipments an increase from approximately 75% in calendar year 2022, which is another indication that cloud demand was significantly pulled in during the pandemic in.
Peter Andrew: Addition, we believe the second wave of generative AI, driven storage deployments will spark a client and consumer device refresh cycle and reaccelerate content growth in PC smartphone gaming and consumer in the coming years.
Peter Andrew: Our flash portfolio is extremely well positioned to benefit from this emerging secular tailwind.
Peter Andrew: In HDD, Western Digital's, leading <unk> platform and enhanced ultra <unk> technology allow us to provide the highest capacity drives for mass market deployment.
Peter Andrew: We believe this innovative technology and portfolio strategy enable us to offer the best <unk> to our cloud customers and outperform our peers throughout the cycle.
Peter Andrew: We are confident that the multi quarter near line demand headwinds have subsided as our major cloud customers have re engaged with us.
Peter Andrew: We anticipate our financial outperformance, resulting from profitable share gains to become more evident as near line demand accelerates into the second half of fiscal <unk> fiscal year 2024 and beyond.
Peter Andrew: Moving on to end market commentary.
Peter Andrew: During the quarter revenue in the cloud and market returned to sequential growth for the first time in six quarters. The sequential revenue growth was led by an increase in near line shipments in.
Peter Andrew: In client sequentially revenue declined slightly as the increase in flash Asps was offset by a decline in bit shipments as we proactively optimized product mix.
Peter Andrew: In consumer the sequential revenue growth was led by seasonal strength in flash bit shipments into retail and an increase in flash asps.
Peter Andrew: I'll now turn to business updates starting with flash.
Peter Andrew: During the quarter the sequential revenue revenue increase was due to stronger execution and driving price inflection by optimizing bits shipment across our broad go to market channels into the consumer and client end markets, resulting in stronger than planned ASP increase.
Peter Andrew: In particular, our WD Black gaming SSD product, which offers high reliability best in class performance expansive storage capabilities in a hyper realistic gaming experience.
Peter Andrew: <unk>, a new record revenue with bit shipment growth of over 50% year over year.
Peter Andrew: On the technology front, we remain on track to ramp an array of <unk> based client ssds utilizing <unk> technology.
Peter Andrew: Our ability to combine this new high performance node with our in House controller development allows us to offer a portfolio of client ssds with unmatched performance and value.
Peter Andrew: We expect these products to lead the transition to <unk> flash in calendar year 2024. Additionally.
Peter Andrew: Additionally, fixate yield is progressing well and we remain on track to product ties this technology.
Peter Andrew: Turning to HDD, the sequential revenue increase was driven by improving near line demand and pricing.
Peter Andrew: Moreover, we are encouraged by demand in China with revenue doubling on a sequential and year over year basis, both of which were ahead of our expectations, we anticipate year over year growth in HDD throughout this calendar year.
Peter Andrew: In both the first and second quarters, we shipped approximately $1 million ultra FMR drives per quarter.
Peter Andrew: We forecast Altra SMS hard drive shipments to increase significantly in the fiscal third quarter.
Peter Andrew: <unk> drive shipments to continue to outgrow that a CMO drives going forward.
Peter Andrew: Importantly, the adoption of ultra SMA is broadening to our major customers worldwide, including a third cloud Titans in the U S. This year as well as Hyperscale and smart video customers in China.
Peter Andrew: We expect to complete the qualifications of our 26 terabyte and 28 terabyte Ultra SLR drives at these customers this quarter and throughout the calendar year and forecast SMS to comprise the majority of near line demand by calendar year 2025.
Peter Andrew: We have strong conviction that our portfolio strategy of first commercializing western digital's industry, leading ultra <unk> technology.
Peter Andrew: Which will be followed by our transition from <unk> to hammer.
Peter Andrew: Offers the best <unk> to our customers in both the near and long term, while delivering leading portfolio profitability in the industry.
Peter Andrew: Over the next several years, we will be introducing a number of exciting products, including multiple generations of near line drives combining <unk> <unk> NAND and ultra <unk> technologies in the 30% to upper 30, terabyte capacity range, all of which will be ready for high volume production to support the <unk>.
Peter Andrew: Explosion of AI training data and content.
Peter Andrew: Before I turn it over to we sum I wanted to share some perspectives on our outlook.
Peter Andrew: And flash starting with demand in calendar year, 2024, we estimate industry bit growth to be around the mid teens percentage similar to the growth rate in calendar year 2023.
Peter Andrew: On the supply side, we estimate that fab out bit production growth to remain in the mid single digit percentage range.
Peter Andrew: We believe our business agility, and our highly capital efficient and low cost picks architecture have enabled us to align supply with demand via nodal transition much more quickly than our peers.
Peter Andrew: We will continue our disciplined approach to dynamically managing our inventory capacities and capital expenditures to keep our supply aligned with end customer demand.
Peter Andrew: Although flash pricing has started to increase our profitability and cash generation continued to be well below the level that would justify an increase in capital investments.
Peter Andrew: We anticipate wafer equipment spending will remain at historic lows in the near term and flash to be under supplied for an extended period of time.
Peter Andrew: Overall, we will continue to focus on allocating our beds to the most attractive end markets and anticipate flash asps increases to be the primary revenue growth driver throughout this calendar year.
Peter Andrew: In HDD, our competitive portfolio strategy has enabled us to consistently achieve profitable share gain in the last two calendar years. We are confident that this trend will continue as near line demand continues to improve and we continue to ramp our ultra SNR ultra <unk> enabled products.
Peter Andrew: Let me now turn the call over to <unk>, who will discuss our financial second quarter results.
Peter Andrew: And good afternoon, everyone.
Peter Andrew: Following on David's comments the success of this strategy, we have been executing as reflected in our financial performance.
Peter Andrew: non-GAAP results in the fiscal second quarter exceeded or were at the high end of the guidance ranges we provided in October.
Peter Andrew: Total revenue for the quarter was 3 billion up 10% sequentially and down 2% year over year.
non-GAAP loss per share was 69.
Peter Andrew: Strong execution without broad go to market channels benefited flash asps and gross margin.
Looking at end markets cloud represented 35% of total revenue at $1 1 billion up 23% sequentially and down 13% year over year.
Peter Andrew: Sequentially. The growth is attributed to higher near line shipments to data center customers and better near line pricing.
Peter Andrew: Near line bit shipments were 67 extra bytes up 23%.
Peter Andrew: Year over year decrease was due to lower E SSD bit shipments.
On a year over year basis.
Peter Andrew: Cloud revenue increased for the first time in six quarters.
Peter Andrew: Client represented 37% of total revenue at $1 1 billion down, 2% sequentially and up 3% year over year.
Peter Andrew: Sequentially, an increase in flash asps was more than offset by a decline in flash bit shipments.
Peter Andrew: The year over year increase was due to higher flash shipments.
Peter Andrew: <unk> really driven by client SSD shipments into PC applications.
More than offsetting a decline in ASP.
Peter Andrew: Consumer represented 28% of total revenue.
Peter Andrew: 0.8 billion.
Peter Andrew: 15% sequentially and 6% year over year.
Peter Andrew: Sequentially the growth was primarily due to seasonal strength in flash bit shipments.
Peter Andrew: On a year over year basis, the increase in flash bit shipments was partially offset by a decline in flash ASB as well as lower HDD shipments.
Peter Andrew: Turning now to revenue by business segment.
Peter Andrew: In the fiscal second quarter Flash revenue was $1 7 billion growing 7% sequentially as flash Asps increased 10% on a blended basis and 7% on a like for like basis stronger than anticipated entering the quarter.
Peter Andrew: Bit shipments decreased 2% after record shipments in the prior quarter.
Peter Andrew: On a year over year basis Flash revenue grew slightly with a 21% increase in bit shipments offsetting lower prices.
Peter Andrew: HDD revenue was $1 4 billion, increasing 14% sequentially as total exabyte shipments increased 14% and average price per unit increased 9% to $122.
Peter Andrew: On a year over year basis.
Peter Andrew: <unk> revenue declined 6%, while total exited by shipments increased 2% and average price per unit increased 23%.
Peter Andrew: Moving to gross margin and expenses. Please note my comments will be related to non-GAAP results unless stated otherwise.
Peter Andrew: Gross margin was 15, 5% above the guidance range provided in October.
Peter Andrew: And improving 11, four percentage points sequentially, while declining one nine percentage points year over year.
Peter Andrew: The sequential increase was primarily driven by higher flash asps.
Peter Andrew: As we proactively optimized product mix, which more than offset higher than anticipated underutilization charges of $156 million or five one percentage points headwind.
Peter Andrew: Yeah.
Peter Andrew: Flash gross margin was higher than expected at seven 9%.
Up 18, two percentage points sequentially and down six six percentage points year over year.
This includes underutilization charges of $107 million.
Peter Andrew: Or a six four percentage points headwind to gross margin.
Peter Andrew: HDD gross margin was 24, 8% up one nine percentage points sequentially and four one percentage points year over year.
Peter Andrew: This includes underutilization charges of $49 million or a three six percentage point headwind.
Peter Andrew: We continue to tightly manage operating expenses.
Peter Andrew: Which were $561 million for the quarter down 15% year over year.
Peter Andrew: The lower end of the guidance range.
Peter Andrew: Operating loss in the quarter was $91 million.
Peter Andrew: Which included Underutilization charges of $156 million.
Peter Andrew: Fiscal second quarter loss per share was <unk> 69.
Peter Andrew: Inclusive of the $14 million dividend.
Peter Andrew: Associated with the convertible preferred shares.
Peter Andrew: Operating cash flow for the second quarter was an outflow of $92 million and free cash flow was an outflow of $176 million.
Peter Andrew: Cash capital expenditures, which includes the purchase of property plant and equipment.
Peter Andrew: And activity related to our flash joint ventures on the cash flow statement represented a cash outflow of $84 million.
Peter Andrew: The quarter, ending inventory was $3 2 billion declining $281 million from the prior quarter.
Peter Andrew: Days of inventory decreased five days to 115 days.
Peter Andrew: The majority of the decline wasn't flash, where flash days of inventory remained at a four year low.
Peter Andrew: During the quarter, we issued $1 6 billion in convertible notes.
Peter Andrew: We purchased $508 million of the outstanding 2024 convertible notes and paid down $300 million of the delayed draw term loan.
Peter Andrew: Gross debt outstanding was $8 5 billion at the end of the fiscal second quarter.
Peter Andrew: We expect to retire the remaining balance of approximately $600 million of the 2024 convertible notes at maturity in February 2024.
Peter Andrew: At the end of the fiscal second quarter cash and cash equivalents were $2 5 billion and total liquidity was $4 7 billion.
Peter Andrew: Including the Undrawn revolver capacity of $2 25 billion.
Peter Andrew: For the fiscal third quarter, our non-GAAP guidance is as follows.
Peter Andrew: We expect revenue to be in the range of $3 two to $3 4 billion.
Peter Andrew: We expect sequential revenue growth to be mainly driven by an increase in HDD.
Peter Andrew: We anticipate flash revenue to be up slightly as we remain focused on optimizing bit shipments and ASP.
Peter Andrew: We expect gross margin to be between 22% and 24%.
Peter Andrew: Which includes HDD underutilization charges of $30 million to $40 million.
Peter Andrew: We expect operating expenses to be between 600 $620 million.
Peter Andrew: With the increase driven by the reinstatement of certain incentive compensation programs as the financial outlook has strengthened.
Peter Andrew: Interest and other expenses are expected to be approximately $95 million.
Peter Andrew: We continue to expect income tax expenses to be between 20 and $30 million for fiscal third quarter, and 80 to 120 million for fiscal year 2024.
Peter Andrew: We expect preferred dividends of $15 million.
Peter Andrew: Expect earnings per share to be <unk>.
Peter Andrew: Plus or minus 15.
Peter Andrew: Based on approximately 330 million shares outstanding.
Peter Andrew: As the financial outlook has improved we would remain disciplined and executing the business proactively managing our supply and inventory to meet customer demand and controlling capital spending all with the goal of improving profitability.
Speaker Change: I'll now turn the call back over to David Thanks, Chris.
David: Let me wrap up and then we'll open up for questions.
David: I want to emphasize that the steps the western digital team has taken to instill and deploy an industry leading product portfolio. While also moving quickly to adapt to both volatile market dynamics and anticipate future trends have enabled us to capitalize on the upswing we see ahead.
David: Through our product leadership and ability to dampen business cycles and improved through through cycle profitability. I am confident we are well positioned to execute on our current strategy, which will reaffirm our strength over the long term.
David: Let's now begin the Q&A.
David: Ladies and gentlemen, as a reminder, if you have a question. Please press star on your phone.
David: If you would like to withdraw your question. Please press Star then two.
David: One moment please for.
David: The first question.
David: Our first question comes from Joe Moore with Morgan Stanley. Your line is now open.
David: Great. Thank you.
Joe Moore: I Wonder if you could talk about the gross margin improvement in Q1.
Joe Moore: Yes, hi.
How do you apportion that between.
Joe Moore: <unk> business in the NAND business and I guess I'm.
Joe Moore: I would think with being judicious on volume you get some pretty good NAND pricing I guess I might have expected a little bit more gross margin improvement. So just curious what I'm missing there. Thanks.
Yes, Joe so.
Joe Moore: We've been it's good to see the pricing inflect.
Joe Moore: If you look at the Q1, and we were happy with the gross margin we delivered in the flash business in the December quarter at seven nine.
Joe Moore: I think we were able to capture the turn in the market well.
Joe Moore: So it gives us a little higher base going into the March quarter.
Joe Moore: But if you look at the bulk businesses you see flash will be down on bits and up on price. So we see we still see.
Strong price increases quarter to quarter, but were down on volume.
Peter Andrew: Let's call it low double digits and then in the HDD business, we see increase in volume and increase in price.
Peter Andrew: Thank you.
Peter Andrew: Thanks.
Peter Andrew: Our next question comes from Aaron Rakers with Wells Fargo. Your line is now open.
Peter Andrew: Yes. Thanks for taking the question just kind of building off that last question I know you talked about hard disk drive underutilization.
Peter Andrew: Expectation in this current quarter kind of embedded in that 22% to 24% guide, what's the Underutilization assumption youre, making on the flash business and just in general.
Aaron Rakers: How do you think about the trajectory of flash gross margin, let's say in theory, if pricing and your implementation of price increases continues.
Aaron Rakers: How do we think about the return to kind of a 30% plus gross margin and flash. So just trying to think about the puts and takes into guidance and then the longer term kind of you back to what you characterize as normalized gross margin.
Hey: Hey, Thanks, So for flash in our guide we don't have the under utilization.
Hey: For Q3 in fact, we executed ahead of schedule.
Hey: And reached our targeted supply and inventory goes faster than one than what we anticipated.
Hey: So as you know, we continue to dynamically manage supply and <unk>.
Hey: Inventory to meet our end demand and so the fab utilization reflects that.
Hey: If you recall.
Hey: Our results in Q1 flashing inventory was down almost 400 million last quarter, we saw another over $200 million decline in inventory.
Hey: We exited the quarter at levels, we haven't seen in a few years.
Hey: So having said that obviously, we will continue to be disciplined in how we manage our supply and inventory to meet them.
Hey: End customer demand on flash and also of course control an hour.
Hey: Capital spend.
Hey: With respect to your question the 30%.
Let me clarify was your question of 30% on the flash on the HDD side.
Hey: Well, I guess I'm going to I'm going to say both.
Hey: Yes.
Hey: I opened the door wide open.
Hey: Yes.
Hey: Yeah, I thought I heard you say flash I was going to start talking about well, let me start talking about.
Hey: HDD look at ACD, we're pretty much there.
Hey: Close to that level.
Hey: You look at what we delivered in the second quarter and.
Hey: When you also look at the guide and does reflect.
Hey: Margin improvement on the HDD side, and so I also anticipate that there should be continuous improvement as the recovery continues in that business. So 30% is very much within reach.
Hey: And we should be able to achieve.
Hey: Pretty soon.
Hey: And on the flash side.
Hey: The a lot a lot has to do with <unk>.
Hey: Continuing to.
Hey: Optimize the product mix to drive that ASP up.
Hey: And also of course, continuing to deliver on our cost reduction.
Hey: And so on the cost reduction.
Hey: We've done well so far we've been in the mid teens.
This to also hit that mid teens percentage.
Hey: Cost reduction for this fiscal year, so as and as the pricing continues to improve I would anticipate that we would be.
Hey: It would also be there.
Hey: There.
Yeah.
Hey: And let's say in the next few quarters.
Hey: Thank you.
Hey: Our next question comes from C. J Muse with Cantor Fitzgerald. Your line is now opened yes. Good afternoon guys. Thanks for taking the question I guess was hoping to you guys.
Hey: Focus on the mid bid side of the house.
Hey: Talking about optimizing product mix.
Hey: But here, we are a bit down in December it looks like they're down implied down again in the March quarter. So can you speak to I guess your plans there when do you think that that will open up.
Hey: Can you be a little more specific in terms of which end markets you're focused on and how we should think about.
Hey: When they come to market and the timing and implications to pricing.
Aaron Rakers: Yeah, So I'll start and we saw him can add some too. So yeah, we had bits down we had a record quarter.
Aaron Rakers: Last two quarters ago, and then we were down a little bit this past quarter than it will be down more I mean, it's just a reflection of the flow through the underutilization that we were doing to kind of keep supply and demand matched we've talked about this a lot and not let our inventory get out of control I think.
Aaron Rakers: <unk> been very good about keeping our inventory.
Speaker Change: We're at a four year low on inventory so on the NAND side. So let's see J, we're just going to keep very focused on what demand is.
Speaker Change: Where we're at in inventory and AR.
Just the utilization of the fab to make sure those stay aligned as we go forward. So I think as we said in the script.
Speaker Change: Assume that.
Speaker Change: Throughout this calendar year, you're going to see most of the growth in flash be from pricing.
Speaker Change: But as far as quick.
Speaker Change: Go ahead.
Speaker Change: No I was going to I was going to move onto the second part of your question.
Speaker Change: Please go ahead.
Speaker Change: So mix is like.
Speaker Change: It makes it just a very dynamic.
Process like literally day by day week by week in the business. We are a big consumer franchise, we sell all over the world with hundreds of thousands of points of presence in E tail platforms.
Speaker Change: We have a big channel business, where pricing can get adjusted weekly.
Speaker Change: And then all the way up to obviously the.
Speaker Change: Quarterly negotiated market so.
Speaker Change: We're just always dynamically understanding where pricing is going to be and then again in each of those segments. We have different products we have.
Speaker Change: Client Ssds that are WD black all the way down to WD green so in different segments of the market all with different price points, all with different margins all with different demand profiles.
Speaker Change: And it's a constant process of just making sure we put the supply where we're going to get the best return.
Speaker Change: This last quarter, we talked about we mixed a little bit out of clients. It into consumer as you would expect in a strong consumer quarter.
And we will continue to we'll continue to do that the place where we are we're still waiting for it to come back as enterprise SSD.
Speaker Change: That's still been pretty pretty depressed and as that market starts to come back we expect to mix into that as well.
Speaker Change: Very helpful. If I could ask just a quick follow up with some can you shed.
Speaker Change: Some light on how to think about opex into June quarter and beyond thank you.
Speaker Change: Yes.
Speaker Change: Of course C. J, so on the Opex side.
C. J: For the June quarter, I expect us to be more or less in line beyond that.
C. J: The business profitability continues to improve I expect a gradual increase.
C. J: We're laser focused on profitability and so I don't anticipate to increase our opex.
C. J: Faster than revenue growth of course, and when you are.
C. J: Look at that.
C. J: Look at where we've come from and where we are today, we're still we're still.
C. J: Or maybe more than 20% lower than where we were at the beginning of the cyclical downturn.
C. J: Thank you.
C J: Thanks C J.
C J: Our next question comes from Karl Ackerman with BNP Paribas. Please go ahead.
Karl Ackerman: Yes. Thank you gentlemen, I have two if I may.
Karl Ackerman: The first why do you think there was a doubling of China demand for applications this quarter and how sustainable do you think that is.
I ask because the Chinese economy Hasnt been robust for some time, so any thoughts on that would be helpful.
Karl Ackerman: Yes, I wouldn't attribute it to the.
Karl Ackerman: The smart video market, it's more of the China Hyperscale is.
Karl Ackerman: Coming back and better demand there.
Karl Ackerman: Got it okay. Thank you for that.
Karl Ackerman: I guess.
Karl Ackerman: Okay.
Karl Ackerman: Mathematically if I may.
Karl Ackerman: It's nice to see an improving outlook for March certainly one quarter ahead of many of our expectations. However, they surprised to see your NAND ASP trajectory in December.
C. J: Below that of peers. So is there any reason why your NAND prices are Isps, perhaps would fall behind peers from here and or maybe there would be a catch up opportunity as well. Thank you.
C. J: Yes price your price Delta is obviously, you havent big dependent.
C. J: Dependency on your starting point and we were starting from a better gross margin position than anybody else in the industry by quite a bit so and then on top of that you have mix based on what's happening in the quarter and kind of.
Where the where the products going I think if you look at profitability of the franchise, it's still it's still leading the.
C. J: The industry.
C. J: Thank you thank.
Carl: Thank you Carl.
Carl: Our next question comes from Tim O'malley with Barclays. Your line is now opened.
Carl: Hey, guys. Thanks for taking my question, it's Tom O'malley here at Barclays.
Katy Huberty: Thanks, I wanted to ask.
Katy Huberty: Yeah.
Katy Huberty: Otherwise, you're evil twin or something.
Katy Huberty: Got it.
Katy Huberty: I wanted to ask on the competitive environment.
Katy Huberty: Your competitor, obviously you talked about.
Katy Huberty: 1 million units shipments of hammer in the first half of the calendar year here I just wanted to get your comment on are you seeing any change in your interactions with your customers are they pointing to hammer is a solution that theyre going to move to earlier in the year can you just talk to just the broader ecosystem.
Katy Huberty: And if youre seeing a transition there or.
Katy Huberty: Other side really clearly youre seeing some.
Katy Huberty: Some better trends with your ultra <unk> drives just any color on that transition with with your customers would be helpful.
Katy Huberty: And I think customers just wanted to understand everybody's roadmap pride and Theyre not looking for a particular solution. I mean for example, we've been shipping <unk> drives for years versus PMI drives and nobody really asks us for EPA microdrive. So they just want the capacity point at <unk>.
Katy Huberty: At a reliability level and be able to satisfy their demand.
Katy Huberty: And I think that's the way we've optimized our portfolio, we've commercialized <unk>, we're very happy with the technology.
C J: We have ultra <unk> on top of that that allows us to deliver both the highest capacity points in the industry. The best Tcl position at very very large scale and we can produce millions of millions of those drives per quarter.
C J: So thats what customers are looking for and they're looking to understand on your roadmap that you can continue to drive that Tcl equation forward. Because there are obviously bedding extremely large data centers on our ability to do that and our customers I can tell you our customers have an enormous amount of confidence in our roadmap and our current products and youre seeing that in the performance of the <unk>.
C J: You are seeing accelerating growth youre seeing better profitability, you're seeing share gains.
C J: A clear indication that customers are very happy with our products now.
C J: Now in particular on the transition of <unk> to Hammer and I know this has gotten a lot of attention.
C J: For our portfolio given our ultra <unk> technology, it's been adopted by the market.
Hammer does not make sense until you get to four terabytes per platter.
C J: And because hammer adds a lot of cost to the product. So it adds a lot of cost to your bill of material. So we can deliver we see the next couple of generations or couple of years of ability to deliver a very strong <unk> proposition.
C J: At scale on the <unk> plus ultra SME platform that customers have clearly adopted we see it as the majority of our demand in calendar year 'twenty five.
C J: That we will transition to hammer when we get to that four terabytes per platter thats. The economic crossover right that we're looking for from a portfolio management point of view. So that gives you a little more color on how we're thinking about the technology and the transition and how customers are thinking about it I think.
C J: It's very clear our customers are are very happy with our roadmap and they understand in great detail, where we're going.
C J: Perfect and then just one quick one on HDD gross margins I think.
C J: When you look at the Underutilization charges that are still present, you can look at it just taking that out and what that means for the gross margins over the next couple of quarters, but is there any way to frame like a revenue level that gets you back to that 30% gross margin target for the HDD business.
Or is it kind of just a wait and see when utilization picks back up and it will get there eventually I mean, just way to frame that from a modeling perspective as to when that could get back to your range. Thank you.
C J: So Tom if you look at our numbers.
C J: No.
And you adjust for the under utilization.
C J: Charges were almost there so.
C J: What I would say instead of giving a number or.
Katy Huberty: <unk>, let's say in quantifying it what I would say is I expect us to be in the 30% level.
Katy Huberty: A lower level than our normal run rate that we've had in any.
Through cycle periods.
C J: We've taken quite a bit of cost out of our cost structure as you very well know and so that will help us get there at a faster pace.
With respect to Underutilization.
C J: I do anticipate to probably have a bit more.
C J: Another quarter of under utilization beyond this one and then we'll see where we are in.
C J: The June quarter, and we can talk about it then.
C J: Thank you very much thanks.
C J: Youre welcome.
The next question comes from Krish Shankar with TD Cowen Your line is now open.
C J: Two of them to the first one on <unk>.
C J: Dave all with them.
Dave: What do you think of the sustainability of NAND pricing into the back half given that those of you that close to half the pricing could be up and casualty events calendar hooked up we have over 50%. How do you think about the sustainability and what could be the trigger point for you to start adding capacity in that and then just as a follow up on the hard drive side.
Krish Shankar: Mentioned hammer at cost, which kind of makes a lot of sense given the neighborhood of ft.
Curious.
Krish Shankar: Whenever you start doing it would be due to tenders.
Krish Shankar: And if the market wants a handler solution from WD.
Krish Shankar: How soon can you get it.
Krish Shankar: Okay, well, there's a lot in there so on unmanned.
Krish Shankar: Look what we we obviously look at a lot of things and then there is a lot of stuff that goes into supply of NAND from.
Krish Shankar: Utilization rates to nodal transitions to Capex investment in it.
Krish Shankar: A complicated equation, but.
Krish Shankar: Our current view is we see NAND under supplied for quite some time in the market and thats appropriate given where we are.
Krish Shankar: In the profitability of the business as I said in the prepared remarks, it's Nick.
Krish Shankar: We're happy to see the inflection in pricing in the performance of the business and it's ahead of where we thought it was going to be but we've got a long way to go before we're going to get to the profitability levels, where we're going to.
Krish Shankar: Where investment is going to come back in.
Nick Smith: Yes, I think the answer to your question, we need very clear visibility into through cycle profitability numbers that match our model.
Nick Smith: We're coming out of a deep hole and that would imply that you need to pay above your through cycle level for a while too.
Nick Smith: Can't get to that level over time, so that's what we're looking at and we expect pricing to pricing is notoriously difficult to two.
Nick Smith: To predict and we're very careful that we don't forecast it but.
C J: Clearly, we're predicting good pricing increases into the next quarter.
C J: And we will stay very disciplined of managing supply and demand in our business, we talked about that bits are down sequentially.
C J: On H D D. I'm, sorry could you just repeat thet question again, so that I make sure I got it.
C J: Yeah sure I was just trying to figure out on the HDD side, a number one handle.
C J: Would you be doing it with tenders.
C J: Second one is if the market wants.
C J: Our solution to invest in Houston.
C J: Any solution how soon can you get it out.
C J: Yes, So let me, we'll defer the details of product launch on hammer on how many desk, it's going to have until we get closer to that process. I mean, it's a project that we're.
C J: We're happy with where the progress of it is given what I said earlier, we've got it we've built a technology roadmap that allows us to get to 40 terabytes on very well proven cost controlled high high manufacturing ability technology, and we're looking forward to delivering that to the market over the next.
C J: A couple of years.
C J: The reality is there is no customer like demands a particular technology the customer once a capacity point at a certainty.
Karl Ackerman: At a certain level of reliability and a certain level of performance in our technology roadmap is built to deliver that what's inside the box is is less important.
Krish Shankar: The real thing is you have to deliver all of those that we just said and you have to be able to manufacture it at a level of millions and millions of units.
Krish Shankar: Per quarter or two.
Krish Shankar: To satisfy the market and that's what our customers are looking for our <unk> and ultra <unk> technology Thats exactly what it delivers the ability to deliver increasing tcl.
Krish Shankar: If we can deliver increasing TCR, we can continue to drive pricing higher.
Krish Shankar: We can produce it at very high scale.
Krish Shankar: We qualify it very very quickly and it's very highly reliable and high quality product and our customers are increasingly adopt.
Krish Shankar: Adopting that technology as you see.
Krish Shankar: From our forecast.
Krish Shankar: Thanks, David very helpful. Thanks.
Krish Shankar: Thanks.
Speaker Change: The next question comes from <unk> Mohan with Bank of America. Please go ahead.
Krish Shankar: Thank you so much.
Krish Shankar: I appreciate the answer you just gave around around pricing, but if I could ask this a slightly different way.
Katy Huberty: How would you think about pricing the runway that you have in flash relative to past cycles, I mean, given that your commentary on how you manage your inventory given your comments on expectation do we under supply for a long time.
Katy Huberty: Would you venture to say that the pricing runway that you have should be longer than what you had in past cycles.
Katy Huberty: On NAND.
Katy Huberty: Alright.
Katy Huberty: Yes.
Katy Huberty: Look I mean, I think it's the cycle we just.
Katy Huberty: We're not out of it we're coming out of it like I said like we are just taking the first steps out of <unk>.
Krish Shankar: Cycle, we haven't seen before I think in the <unk> era. So.
Sure.
Krish Shankar: What we're doing once he is just making sure we get our supply and demand matched and make sure we keep our inventory control and deliver the best profitability given the portfolio, we have and continue to optimize the portfolio that we can have the best mix and therefore, the best profitability, it's very difficult to predict future pricing.
Krish Shankar: But our general point is that although things are going in the right direction. We're not we're not close to a point, where the capex investment is going to come back and I think that's the real number on.
Krish Shankar: What future supply is going to be I mean, clearly theres. Some utilization that is going to come back, but it's going to be needed quite frankly and.
Krish Shankar: We're going to wait to see on as I said through cycle profitability, where we have visibility to that too.
Krish Shankar: We invest more in this business.
Krish Shankar: Okay. Thanks, if I could you mentioned about entering a multi year ago period with we'd get rid of AI.
And especially at the edge.
And for NAND, but when do you think that the industry will start to see the demand for NAND.
Krish Shankar: Edge start to hire.
Krish Shankar: Yes.
Krish Shankar: I think we're going to see it as we start to go into PC refresh cycles admittedly, we still we're still very early in this right getting the cloud.
Krish Shankar: The big part right now is getting the cloud capable of delivering gen III to all of us.
Krish Shankar: And then drive that architecture down to the edge I think we're starting to see.
Krish Shankar: And some of the market some of the future specs of products, where they are increasing the amount of NAND. So we're optimistic about that.
Krish Shankar: As we go through the next couple of years and this architecture gets deployed and adopted so I can't put it down to a particular quarter for you but.
Krish Shankar: <unk> is new technology.
Krish Shankar: Launches or new technology adoption is moving at a faster pace than than any technology I've seen in a very long time.
Krish Shankar: Okay.
Bob: Thanks, Bob.
Bob: The next question comes from maybe <unk> with <unk>. Your line is now opened.
Great. Thanks for taking my question just wanted to get clarification, David did Ya.
NAND bit demand is tracking to mid <unk>.
Bob: The Companys two big supply growth of 5%.
David: Yes, we see demand around mid teens.
David: Thats fair about what we see as kind of fab production of mid single digits and obviously there is inventory between those.
David: Okay.
David: What got me confused as you also said your NAND inventory is a multiyear low.
David: I understand you.
David: Misunderstanding.
David: Okay. So.
David: If your inventories at multiyear low and demand exceeding.
David: Exceeding supply so you're basically.
David: Now going to shift to supply when youre not going to ship to demand throughout the year.
David: And then the price increase.
David: We're going to we'll shift to our share demand throughout the year.
David: Okay.
David: Would that impact your market share.
David: Focusing on more profitable market.
David: No, we don't anticipate that to impact our market share.
David: Many of these.
The stats that you mentioned on the.
David: Supply and production.
David: Where for our estimates and what we see from <unk>.
David: Third party estimates on the overall the overall market.
David: Okay.
David: And that would reflect that.
Okay.
David: Right.
David: Go ahead, Matt Im sorry.
David: Please go ahead.
David: Yes.
David: No.
David: Market rent so specific to western digital and then if I can.
David: And they just have a quick follow up in terms of the.
David: <unk> cost.
Assume that long term trend of down 10%.
David: Thank you.
David: CAGR.
Cost per well.
David: We're comfortable with the 15% cost downs, we believe that if you.
David: We're ahead of that right now in FY 'twenty for quite frankly, but it will come back and I think when you look at the full year, you can still model, 15% for the for the fiscal year.
David: Okay alright, thank you.
David: You.
David: Our next question comes from Steven Fox with Fox Advisors. Please go ahead hi.
David: Good afternoon.
Steven Fox: I was just wondering on enterprise Ssds, you mentioned that there is still.
Steven Fox: Pressed and youll mix into it but.
Given the supply situation that you just talked about and where we are in the cycle like what is your how do you envision coming back in that market and like can you just remind us what a normal mix of enterprise Ssds looks like in your in your flash business. Thanks.
Steven Fox: Well I mean for us it was <unk>.
Steven Fox: Emerging.
Steven Fox: It's an emerging part of the portfolio I think rate going right into the downturn. We got qualified at numerous are a number of.
Steven Fox: Tightens in our Nvme based enterprise SSD, and then we kind of went into a market where.
Steven Fox: Quite frankly enterprise SSD has been the most depressed part of the NAND market in the downturn and we haven't seen that come back yet so.
Steven Fox: As that starts to come back out of digestion.
Steven Fox: It'll just be another opportunity for us to mix into that how much we mix into it will be depending on what the prices on that in that segment.
Steven Fox: There's other options we have for those those bids.
Steven Fox: So we don't necessarily.
Don't necessarily have a fixed percentage, we're going for it's just we have the product is qualified as demand comes back we will consider that demand in part of the whole portfolio of calculus.
Steven Fox: With the big picture would be that it trails, the enterprise hdds by a certain amount of time in general like do you have.
<unk> for Gist.
Steven Fox: As enterprise spending recovers where that product cycle would be.
Steven Fox: Well certainly it is trailing enterprise.
Steven Fox: I mean enterprise I don't know if I could make a generalization about that because it's just one cycle here, but clearly there was more inventory digestion in the hyperscale market on enterprise SSD than there was in capacity enterprise HDD says as we talked about.
Steven Fox: We see continued growth in capacity enterprise Hdds, we started out this fiscal year.
Steven Fox: <unk> <unk>.
Steven Fox: Sequential growth throughout the fiscal year and now we're talking about sequential growth throughout the calendar year. So we see good demand trends coming back on capacity enterprise HDD, which again is a good sign for enterprise Ssds will come back its just theres, a little more inventory digestion to get through.
Steven Fox: Got it very helpful. Thank you.
Steven Fox: Thank you.
Steven Fox: Our next question comes from Mark Miller with the Benchmark Company. Your line is now live.
Steven Fox: Your cash flow significantly improved during the quarter, but still there was an outflow when do you expect to be positive from a free cash flow perspective.
Mark Miller: Yes, Mark so.
Mark Miller: Turning.
Mark Miller: Free cash flow positive top priority for us we're very much focused on it and we have line of sight to achieving it we expect to achieve free cash flow positive in the second half of the fiscal 'twenty for either this quarter on the next.
As you know, we typically don't guide for cash flow.
Mark: Do you expect to what you have to draw on your revolver.
Mark: We're expecting that we won't have to draw on it.
Mark: I don't I don't see that.
Mark: At this point.
Mark: Thank you.
Mark: Thanks, Mark Thank you.
Mark: The last question comes from Ananda Baruah with loop capital. Please go ahead.
Ananda Baruah: Hey, Yeah. Thanks, guys. Good afternoon, thanks for taking the question.
David: Alright, David Thanks, a lot.
Ananda Baruah: Just wondering if you guys have been early opinion on.
Ananda Baruah: Yes, if NAND bit rate increases.
Get AI sort of intact.
Ananda Baruah: Not just add cycle, but sort.
Ananda Baruah: Sort of.
Ananda Baruah: Corporate cycles Fortune 1000 Hyperscale.
Storage as well and all of the other end.
Ananda Baruah: Do you have any opinion on yes.
Ananda Baruah: There is that sort of increased demand and supply.
Ananda Baruah: And if you did do you think the increase can be.
Ananda Baruah: Material and that was it.
Ananda Baruah: Thanks.
Ananda Baruah: Yes.
Ananda Baruah: That's a good point here, which is like Mike.
Ananda Baruah: Comments earlier were about the cycle and what we see in NAND and invest again, and we're big believers in the NAND market and theres going to be a lot of bit growth in the future and also.
Ananda Baruah: The great thing about the NAND market as you still have the ability to produce new nodes and more efficient and as far as how much capital you need to put in to get that growth. So.
Ananda Baruah: The overall thesis on NAND continuing to grow.
Ananda Baruah: We have a long technology roadmap, where we can continue to deliver cost downs, that's still a great story and we expect to your point, we expect generative AI to be additive to that.
Ananda Baruah: <unk>.
Ananda Baruah: Especially on the edge.
Ananda Baruah: NAND market is really rotate.
C J: Through this downturn really rotated to an edge edge.
C J: Centric market, which again our portfolio is very very well positioned for with our consumer business with our client SSD business with our gaming business with our position in it with PC Oems.
C J: We're very well positioned there.
C J: And yes, as as we see that demand come back and it resets the economics of the industry.
C J: We have the ability to satisfy that demand and so I think.
C J: Very bullish about that.
C J: Got that thanks a lot.
C J: Thank you.
C J: Alright, thanks, everyone I appreciate your time today, we will see you throughout the quarter take care.
C J: This concludes our conference. Thank you for attending today's presentation you may now disconnect.
C J: [music].
C J: [music].
Speaker Change: Good afternoon, and thank you for standing by welcome to Western Digital's second quarter fiscal 2024 analyst call. Presently all participants are in listen only mode. We will open the lines up for questions. Shortly if you would like to ask a question you May Press Star then one on your touch.
Speaker Change: Town soon now I will turn the call over to Mr. Peter Andrew V. P of F. P. N E and I are you may begin.
Peter Andrew: Well, thank you and good afternoon, everyone. Joining me today are David <unk>, Chief Executive Officer, and we see them job Ray Chief Financial Officer before we begin let me remind everyone that today's discussion contains forward looking statements based on management's current assumptions and expectations.
Peter Andrew: And as such does include risks and uncertainties.
Peter Andrew: These forward looking statements include expectations for our product portfolio.
Peter Andrew: Business plans and performance market trends and dynamics and financial results, we assume no obligation to update. These statements. Please refer to our most recent financial report on Form 10-K, and our other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially.
Peter Andrew: From expectations.
Peter Andrew: 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.
Peter Andrew: With that I will now turn the call over to David for introductory remarks. Thank you Peter Good afternoon, everyone and thanks for joining the call to discuss our second quarter of fiscal year 2024 results.
David: Western Digital's second quarter results demonstrate that the structural changes we have put in place over the last few years and the strategy, we have been executing our producing significant outperformance across our flash and HDD businesses.
David: I am confident that building leading products across a broad range of end markets closely controlling our product cost through focused R&D and manufacturing.
David: And bolstering the agility of our business will allow us to improve through cycle profitability and dampen business cycles.
David: As a result, we reported revenue of $3 billion non-GAAP gross margin of 15, 5% and a non-GAAP loss per share of <unk> 69 cents, all of which met or exceeded the non-GAAP guidance ranges we provided in October.
David: Before discussing the business details I want to provide some comments on the emerging trends, we are seeing and how the changes we have made position, our flash and HDD businesses to benefit.
David: And flash, we've been able to navigate business cycles by managing inventory proactively offering a broad range of products.
David: And optimizing capital efficiency through our joint venture partnership with Coke show.
David: These successful efforts are reflected in our best in class gross margin throughout the cycle.
David: During the quarter, our portfolio strategy to dynamically allocate bit shipments drove upside in asps and gross margin.
David: Looking ahead, we will continue to take a disciplined approach to our supply and capital investments. Consequently, we continue to proactively manage our bit shipments to structurally align our supply and inventory with customer demand and improve through cycle profitability.
Into the future.
David: In addition to the recovery in both flash and HDD markets. We believe storage is entering a multi year growth period.
David: Generative AI has quickly emerged as yet another growth driver and transformative technology that is reshaping all industries, all companies and our daily lives.
David: Importantly industry analysts estimate that the edge now represents approximately 80% of total NAND bit shipments an increase from approximately 75% in calendar year 2022, which is another indication that cloud demand was significantly pulled in during the pandemic in <unk>.
David: Addition, we believe the second wave of generative AI, driven storage deployments will spark a client and consumer device refresh cycle and reaccelerate content growth in PC smartphone gaming and consumer in the coming years.
David: Our flash portfolio is extremely well positioned to benefit from this emerging secular tailwind.
C. J: In HDD, Western Digital's, leading <unk> platform and enhanced ultra SMIC technology allow us to provide the highest capacity drives for mass market deployment.
C. J: We believe this innovative technology and portfolio strategy enable us to offer the best <unk> to our cloud customers and outperform our peers throughout the cycle.
C. J: We are confident that the multi quarter near line demand headwinds have subsided as our major cloud customers have re engaged with us.
C. J: We anticipate our financial outperformance, resulting from profitable share gains to become more evident as near line demand accelerates into the second half of fiscal year 2024 and beyond.
C. J: Moving on to end market commentary.
C. J: During the quarter revenue in the cloud and market returned to sequential growth for the first time in six quarters. The sequential revenue growth was led by an increase in near line shipments in.
C. J: And client sequentially revenue declined slightly as the increase in flash Asps was offset by a decline in bit shipments as we proactively optimized product mix.
C. J: In consumer the sequential revenue growth was led by seasonal strength in flash bit shipments into retail and an increase in flash asps.
C. J: I'll now turn to business updates starting with flash.
C. J: During the quarter the sequential revenue revenue increase was due to stronger execution and driving price inflection by optimizing bits shipment across our broad go to market channels into the consumer and client end markets, resulting in stronger than planned ASP increase.
C. J: In particular, our WD Black gaming SSD product, which offers high reliability best in class performance expansive storage capabilities in a hyper realistic gaming experience achieved a new record revenue with bit shipment growth of over 50% year over year.
C. J: On the technology front, we remain on track to ramp an array of <unk> based client ssds utilizing <unk> technology.
C. J: Our ability to combine this new high performance node with our in House controller development allows us to offer a portfolio of client ssds with unmatched performance and value.
C. J: We expect these products to lead the transition to <unk> flash in calendar year 2024. Additionally.
C. J: Additionally, fixate yield is progressing well and we remain on track to product ties this technology.
C. J: Turning to HDD.
C. J: Sequential revenue increase was driven by improving near line demand and pricing.
Krish Shankar: Moreover, we are encouraged by demand in China with revenue doubling on a sequential and year over year basis, both of which were ahead of our expectations, we anticipate year over year growth in HDD throughout this calendar year.
Krish Shankar: In both the first and second quarters, we shipped approximately $1 million ultra SLR drives per quarter.
Krish Shankar: We forecast Altra SMA are hard drive shipments to increase significantly in the fiscal third quarter.
C. J: <unk> drive shipments to continue to outgrow that of CMI drives going for forward.
C. J: Importantly, the adoption of ultra SMA is broadening to our major customers worldwide, including a third cloud Titans in the U S. This year as well as Hyperscale and smart video customers in China we.
C. J: We expect to complete the qualifications of our 26 terabyte and 28 terabyte Ultra SME drives at these customers this quarter and throughout the calendar year and forecast SMS to comprise the majority of near line demand by calendar year 2025.
C. J: We have strong conviction that our portfolio strategy of first commercializing western digital's industry, leading ultra <unk> technology.
Katy Huberty: Which will be followed by our transition from <unk> to hammer.
Katy Huberty: Offers the best <unk> to our customers in both the near and long term, while delivering leading portfolio profitability in the industry.
Katy Huberty: Over the next several years, we will be introducing a number of exciting products, including multiple generations of near line drives combining <unk> <unk> NAND and ultra SMS technologies in the $30 to upper 30 terabyte capacity range.
Nick Smith: All of which will be ready for high volume production to support the explosion of AI training data and content.
C. J: Before I turn it over to we sum I wanted to share some perspectives on our outlook.
C. J: Flash starting with demand in calendar year, 2024, we estimate industry bit growth to be around the mid teens percentage similar to the growth rate in calendar year 2023.
Krish Shankar: On the supply side, we estimate that fab out bit production growth to remain in the mid single digit percentage range.
Krish Shankar: We believe our business agility, and our highly capital efficient and low cost picks architecture have enabled us to align supply with demand via a nodal transition much more quickly than our peers.
Krish Shankar: We will continue our disciplined approach to dynamically managing our inventory capacities and capital expenditures to keep our supply aligned with end customer demand.
Krish Shankar: Although flash pricing has started to increase our profitability and cash generation continued to be well below the level that would justify an increase in capital investments.
Krish Shankar: We anticipate wafer equipment spending will remain at historic lows in the near term and flash to be under supplied for an extended period of time.
Krish Shankar: Overall, we will continue to focus on allocating our bids to the most attractive end markets and anticipate flash asps increases to be the primary revenue growth driver throughout this calendar year.
Krish Shankar: In HDD, our competitive portfolio strategy has enabled us to consistently achieve profitable share gain in the last two calendar years. We are confident that this trend will continue as near line demand continues to improve and we continue to ramp our ultra <unk> ultra <unk> enabled products.
Krish Shankar: Let me now turn the call over to Lisa who will discuss our financial second quarter results.
Krish Shankar: Thank you and good afternoon, everyone.
Following on David's comments the success of this strategy, we have been executing as reflected in our financial performance.
Krish Shankar: non-GAAP results in the fiscal second quarter exceeded or were at the high end of the guidance ranges we provided in October.
Katy Huberty: Total revenue for the quarter was 3 billion up 10% sequentially and down 2% year over year.
Katy Huberty: non-GAAP loss per share was 69.
C J: Our strong execution without broad go to market channels benefited flash asps and gross margin.
C J: Looking at end markets cloud represented 35% of total revenue at $1 1 billion up 23% sequentially and down 13% year over year.
C J: Sequentially the growth is attributed to higher near line shipments to data center customers.
C J: And better near line pricing.
C J: Near line bit shipments were 67 exited bytes up 23%.
C J: The year over year decrease was due to lower SSD bit shipments.
C J: On a year over year basis.
C J: Cloud revenue increased for the first time in six quarters.
C J: Client represented 37% of total revenue at $1 1 billion down, 2% sequentially and up 3% year over year.
C J: Sequentially, an increase in flash asps was more than offset by a decline in flash bit shipments.
C J: The year over year increase was due to higher flash shipments, primarily driven by client SSD shipments into PC applications more than offsetting a decline in ASP.
C J: Consumer represented 28% of total revenue.
C J: 0.8 billion.
C J: Up 15% sequel.