Q3 2024 Western Digital Corp Earnings Call

Unknown Executive: Good afternoon, everyone, and thank you for standing by. Welcome to Western Digital's third quarter fiscal 2024 conference.

Good afternoon, everyone and thank you for standing by welcome to Western Digital's third quarter fiscal 2024 conference call.

Unknown Executive: Presently, all participants are in a listen-only mode. Later, we will conduct a question and answer session. At that time, if you would like to ask a question, you may press the star and one on your phone. As a reminder, this event is being recorded. Now, I will turn the call over to Mr. Peter Andrew, Vice President, Financial Planning and Analysis and Investor Relations.

Presently all participants are in a listen only mode.

Later, we will conduct a question and answer session.

At that time, if you'd like to ask a question you May press star and one on your phones.

As a reminder, this event is being recorded.

Now I will turn the call over to Mr. Peter Andrew Vice President financial planning and analysis and Investor Relations.

Peter Andrew: Thank you and good afternoon, everyone. Joining me today are David Goeckeler, Chief Executive Officer, and Wissam Jabre, Chief Financial Officer. Before we begin, let me remind everyone that today's discussion contains forward-looking statements based upon management's current assumptions and expectations, and as such, do include risks and uncertainties. These forward-looking statements include expectations for our product portfolio, our business plan and performance, the separation of our flash and HDD businesses, ongoing market trends, and our future financial results. We assume no obligation to update these statements.

Peter Andrew: You may begin.

Peter Andrew: Thank you and good afternoon, everyone. Joining me today are David <unk>, Chief Executive Officer, and we see them job right Chief Financial Officer before we begin let me remind everyone that today's discussion contains forward looking statements based upon management's current assumptions and expectations and as such does include.

Peter Andrew: Risks and uncertainties. These.

Peter Andrew: These forward looking statements include expectations for our product portfolio our.

Our business plan and performance the separation of our flash and HDD businesses.

Peter Andrew: Ongoing market trends and our future 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 from expectations.

Peter Andrew: 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 from expectations. 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'll now turn the call over to David.

We will also make references to non-GAAP financial measures today Rec.

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'll now turn the call over to David.

David Goeckeler: Thank you, Peter. Good afternoon, everyone, and thanks for joining the call to discuss our third quarter of fiscal year 2024 performance. Western Digital delivered excellent results in the quarter, with revenue of $3.5 billion, a non-GAAP gross margin of 29.3%, and non-GAAP earnings per share of $0.63, all of which exceeded expectations. Our strategy of developing a diversified portfolio of industry-leading products across a broad range of end markets, coupled with structural changes we have made to both of our businesses, is unlocking our true earnings potential and allowing us to continue improving through-cycle profitability and dampening business cycles.

David: Thank you Peter good afternoon, everyone and thanks for joining the call to discuss our third quarter of fiscal year 2020 for performance.

David: Western digital delivered excellent results in the quarter with revenue of $3 $5 billion non-GAAP gross margin of 29, 3%.

David: non-GAAP earnings per share of 63 cents, all of which exceeded expectations our.

David: Our strategy of developing a diversified portfolio of industry, leading products across a broad range of end markets coupled with the structural changes we've made to both of our businesses is unlocking our true earnings potential and allowing us to continue improving through cycle profitability and dampening business cycles.

David Goeckeler: This strategy enables us to generate higher earnings per share even in a constrained supply environment. In addition, our commitment to achieving operational efficiency and enhancing our agility has allowed us to run our flash and HDD businesses more efficiently and further drive innovation to take advantage of new opportunities. In particular, as the technology landscape continues to evolve, the demand for AI solutions is becoming increasingly apparent across our end markets.

David: This strategy enables us to generate higher earnings per share even in a constrained supply environment in.

David: In addition, our commitment to achieving operational efficiency and enhancing our agility has allowed us to run our flash and HDD businesses more efficiently and further drive innovation to take advantage of new opportunities.

David: In particular as the technology landscape scape continues to evolve the demand for AI solutions is becoming increasingly apparent across our end markets. The uptick in AI adoption is highlighting the incredible value of data and will drive increased storage demand across both HDD and flash.

David Goeckeler: The uptick in AI adoption is highlighting the incredible value of data and will drive increased storage demand across both HDD and Flash at the edge and in the core, providing greater long-term growth and margin expansion opportunities for Western Digital. We're in the early innings of unlocking the full potential of this company. And our team remains focused on improving the profitability of our business to drive long-term margin expansion and shareholder value as these new demand opportunities present themselves.

David: Cash at the edge and in the core providing greater long term growth and margin expansion opportunities for western digital we are in the early innings of unlocking the full potential of this company.

David: And our team remains focused on improving the profitability of our business to drive long term market margin expansion and shareholder value as these new demand opportunities present themselves.

David Goeckeler: Before I dive further into the demand environment, I want to briefly comment on the status of the separation of our flash and HDD businesses. I am proud of the team's ongoing efforts as we drive towards completion of the separation in the second half of the calendar year. We remain focused on achieving the separation as soon as possible and will continue to provide further updates on our progress as appropriate.

David: Before I dive further into the demand environment I want to briefly comment on the status of the separation of our flash and HDD businesses I am proud of the team's ongoing efforts as we drive towards completion of the separation in the second half of the calendar year.

David: We remain focused on achieving the separation as soon as possible and we will continue to provide further updates on our progress as appropriate.

David Goeckeler: Moving on to end-market commentary, I am pleased to report that during the quarter, revenue in all of our major end markets returned to year-over-year growth. In cloud, we experienced 29% growth in revenue from a year ago, highlighting the incredible success of our industry-leading HDD product line. In addition, we began to experience an increase in demand for our flash-based solutions, signaling a long-awaited recovery in this end market. In client, 20% revenue growth from a year ago was driven by increased bit demand for our flash-based solutions, coupled with an increase in ASPs.

David: Moving on to end market commentary I am pleased to report that during the quarter revenue in all of our major end markets returned to year over year growth in cloud, we experienced 29% growth in revenue from a year ago, highlighting the incredible success of our industry, leading HDD product line in.

David: In addition, we began to experience an increase in demand for our flash based solutions signaling a long awaited recovery in this end market.

David: And client, 20% revenue growth from a year ago was driven by increased demand for our flash based solutions, coupled with an increase in asps.

David Goeckeler: And consumers, we experienced 17% revenue growth from a year ago, highlighting the power of the Sandisk premium brand. Higher flash bid sales, combined with a better pricing environment, more than offset the continued decline in consumer HDD demand. I'll now turn to business updates, starting with Flats.

David: In consumer we experienced 17% revenue growth from a year ago, highlighting the power of the sand risk premium brand higher flash bit sales combined with a better pricing environment more than offset the continued decline in consumer HDD demand.

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

David Goeckeler: Our sequential revenue growth in the quarter reflects the continuing commitment to discipline capital spending in carefully optimizing bid shipments into our most profitable end markets to take advantage of the improved pricing environment. This approach, combined with the strength of our product portfolio, has enabled us to drive significantly higher profitability while strategically managing our inventory. On the technology front, we achieved a significant milestone by initiating mass production of our QLC-based client SSD, leveraging BIC 6 technology.

David: Our sequential revenue growth in the quarter reflects the continuing commitment to disciplined capital spending and carefully optimizing bit shipments into our most profitable end markets to take advantage of the improved pricing environment. This approach combined with the strength of our product portfolio has enabled us to drive significant.

David: Gently higher profitability, while strategically managing our inventory.

David: On the technology front, we achieved a significant milestone by initiating mass production of our <unk> based client SSD leveraging big six technology. This is yet another significant milestone demonstrating our continued commitment to innovation and market leadership.

David Goeckeler: This is yet another significant milestone demonstrating our continued commitment to innovation and market leadership. These advancements pave the way to spearhead the market's transition to QLC-based flash solutions in calendar year 2024. Additionally, our progress with Bix8 is on track.

David: These are these advancements paved the way to spearhead the markets transition to <unk> based flash solutions in calendar year 2024.

David: Additionally, our progress with <unk> eight is on track while this technologies is ready to be product ties as market conditions warrant our innovative offerings will remain at the forefront of the market further strengthening our competitive position and bolstering our growth prospects.

David Goeckeler: While this technology is ready to be productized as market conditions warrant, our innovative offerings will remain at the forefront of the market, further strengthening our competitive position and bolstering our growth prospects. As noted earlier, in the third quarter, we began to experience an increase in demand for enterprise SSD solutions. We are seeing demand returning for NVMe SSDs that we qualified before the downturn. We are also experiencing significant interest in providing these products in dramatically higher capacities for AI-related applications, which we expect to ship in the second half of the year.

David: As noted earlier in the third quarter, we began to experience an increase in demand for enterprise SSD SSD solutions, we are seeing demand returning for nvme Ssds that we qualified before the downturn. We are also experiencing significant interest in providing these products in dramatically higher.

David: Capacities for AI related applications, which we expect to ship in the second half of the year in.

David Goeckeler: In addition, we are also sampling our newest high-performance PCI Gen5 BIC6-based enterprise SSD. We are preparing for qualification at a hyperscaler, and the product is generating significant interest in the enterprise market. We expect to ramp in the second half of the calendar year.

David: In addition, we are also sampling our newest high performance Pcie Gen. Five <unk> six based enterprise SSD.

David: We are preparing for qualification at a hyper scalar and the product is generating significant interest in the enterprise market, we expect to ramp in the second half of the calendar year.

David Goeckeler: Turning to HTD, the sequential revenue increase was driven by improved near-line demand and higher pricing as we focused on optimizing profitability per exabyte sold. In particular, Nearline revenue reached a fixed quarter high, reflecting the successful strategy we put in place to bring the most innovative, high-capacity, and high-performance drives to market. We have the right products at the right cost structure, which is reflected in our financial performance. Our cloud customers continue to transition to SMR with our 26 terabyte and 28 terabyte ultra-SMR drives, quickly becoming a significant portion of our capacity enterprise exabyte shipment. SMR-based drives represented approximately 50% of near-line exabyte shipments in the quarter.

David: Turning to HDD. The sequential revenue increase was driven by improved near line demand and higher pricing as we focused on optimizing profitability per exabyte sold.

David: In particular near line revenue reached a fixed quarter high reflecting the successful strategy, we put in place to bring the most innovative high capacity and high performance drives to market. We have the right products at the right cost structure, which are reflected in our financial performance.

David: Our cloud customers continue to transition to <unk> with our 26 terabyte and 28 terabyte Ultra SMA dries quickly, becoming a significant portion of our capacity enterprise exabyte shipments.

David: <unk> based drives represented approximately 50% of near line exabyte shipments in the quarter.

David Goeckeler: Our portfolio strategy to commercialize EPMR, Opti-NAN, and Ultra-SMR technologies in advance of our transition to HAMR has proven to be the winning strategy and enables us to deliver to customers the industry's highest capacity and leading TCO drives, all of which can be produced at scale with controlled costs. We are confident that our product strategy, which combines ultra-SMR technology with upcoming advancements in near-line drives, is enabling Western Digital to deliver best-in-class gross margin in HDDs, all at a time when AI is emerging as another growth engine for the industry.

David: Our portfolio strategy to commercialize <unk>, <unk>, NAND and ultra <unk> technologies in advance of our transition to hammer has proven to be the winning strategy and enables us to deliver to customers the industry's highest capacity and leading TCR drives all of which can be produced at scale with control.

David: On costs, we are confident that our product strategy, which combines ultra <unk> technology with upcoming advancements in near line drives is enabling western digital to deliver best in class gross margin in hdds all at a time when AI is emerging as another growth engine for the industry.

David Goeckeler: As we move toward a new supply and demand environment characterized by higher demand, supply tightness, and product shortages, we are leveraging the proven technology we've already introduced to the market to meet the demands of our customers with the right portfolio at the right time, while also operating with a lean cost structure for continued profitability improvement in our HDD business. Although the actions we are taking have improved profitability, we remain focused on driving higher margins to appropriately value the incredible amount of innovation and TCO improvements we continue to deliver to our customers.

David: As we move toward a new supply and demand environment characterized by higher demand supply tightness and product shortages. We are leveraging our proven technology, we've already introduced to the market to meet the demands of our customers with the right portfolio at the right time.

David: While also operating with a lean cost structure for continued profitability improvement in our HDD business.

David: Although the actions, we're taking have improved profitability, we remain focused on driving higher margins to appropriately value. The incredible amount of innovation and <unk> improvements, we continued to deliver to our customers.

David Goeckeler: Before I turn it over to Wissam, I wanted to share some thoughts on our outlook. Within Flash, in addition to growth opportunities at the edge, which is Western Digital's strength, we are encouraged by the returning demand within the enterprise SSD market and expect growth throughout this calendar year. AI-related workloads are driving increasing demand for enterprise SSDs, and our portfolio is well-positioned to support those use cases.

David: Before I turn it over to Sam I wanted to share some perspectives on our outlook within Flash in addition to growth opportunities at the edge, which is western digital strength. We are encouraged by the returning demand within the enterprise SSD market and expect growth throughout this calendar year.

David: AI related workloads are driving increasing demand for enterprise Ssds and our portfolio is well positioned to support those use cases.

David Goeckeler: Looking ahead, we anticipate BIT shipments to remain flat into the fiscal fourth quarter and look to flash ASP increases to be the primary revenue growth driver, led by our focus on allocating BITs to the most high-value end markets amidst a tightening supply environment. While we're pleased to see pricing trends moving in a positive direction, it's crucial to acknowledge the importance of maintaining capital discipline and only reinvesting capital back into the business once profitability improves further and we see sustained demand.

David: Looking ahead, we anticipate bit shipments to remain flat into the fiscal fourth quarter and look to flash ASP increases to be the primary revenue growth driver led by our focus on allocating bits to the most high value end markets amidst a tightening supply environment, while we're pleased to see pricing trends moving in it.

David: Positive direction.

David: Crucial to acknowledge the importance of maintaining capital discipline and only reinvesting capital back into the business once profitability improves further and we see sustained demand overall, our continued focus on improving profitability through our innovation roadmap disciplined capital spending and.

David Goeckeler: Overall, our continued focus on improving profitability through our innovation roadmap, disciplined capital spending, and strategic pricing initiatives positions us well for continued success in calendar year 2024 and into 2025 by offering the most capital and cost-efficient bits in the industry. In HGD, the success of our portfolio of leading capacity enterprise products, combined with the restructuring efforts we've implemented in recent years, are yielding improved unit economics and greater visibility. As cloud demand is recovering, we anticipate continued growth driven by higher near-line demand and better pricing as we are now in a supply-constrained environment.

David: <unk> pricing initiatives position us well for continued success in calendar year 2024 and into 2025 by offering the most capital and cost efficient bits in the industry.

David: In HDD the success of our portfolio of leading capacity enterprise products combined with the restructuring efforts. We have implemented in recent years are yielding improved unit economics and greater visibility.

David: As cloud demand is recovering we anticipate continued growth driven by higher near line demand and better pricing as we are now in a supply constrained environment, we're optimistic about aligning the pricing of our products to better mirror. The innovation, we are integrating into them supporting long term margin expansion.

David Goeckeler: We're optimistic about aligning the pricing of our products to better mirror the innovation we are integrating into them, supporting long-term margin expansion in our HDD business. As we reap the rewards of the innovation and operational efficiencies that we've implemented, we will look for opportunities to reinvest in the business when the conditions are ripe for expansion. We will approach every capital allocation decision with a focus on discipline. Let me now turn the call over to Wissam, who will discuss our financial third quarter results.

David: Our HDD business.

David: As we reap the rewards of the innovation and operational efficiencies that we've implemented we will look for opportunities to reinvest in the business. When the conditions are ripe for expansion. We will approach every capital allocation decision with a focus on discipline let.

Speaker Change: Let me now turn the call over to we saw him who will discuss our financial third quarter results.

Wissam Jabre: Thank you, and good afternoon, everyone. Following David's comments, Western Digital returned to profitability and free cash flow generation and delivered great results in the quarter, which exceeded expectations. Total revenue for the quarter was $3.5 billion, up 14% sequentially and 23% year-over-year. Non-GAAP earnings per share was $0.63.

Weiss: Thank you and good afternoon, everyone.

Speaker Change: Following on David's comments, Western Digital's returned to profitability and free cash flow generation.

Weissman: And delivered great results in the quarter, which exceeded expectations.

Weissman: Total revenue for the quarter was $3 $5 billion up 14% sequentially and 23% year over year.

Speaker Change: non-GAAP earnings per share was 63 cents.

Wissam Jabre: Looking at end markets, cloud represented 45% of total revenue at $1.6 billion, up 45% sequentially, and 29% year over year. The growth was primarily attributed to higher near-line shipments and improved near-line per unit pricing, with flash revenue up both sequentially and year-over-year. Nearline bit shipments of 108 exabytes were up 60% sequentially.

Speaker Change: Looking at end markets cloud represented 45% of total revenue at $1 6 billion up 45% sequentially and 29% year over year.

Speaker Change: The growth was primarily attributed to higher near line shipments and improved near line per unit pricing with flash revenue up both sequentially and year over year.

Speaker Change: Near line bit shipments of 108 exit bites were up 60% sequentially.

Wissam Jabre: The client represented 34% of total revenue at $1.2 billion, up 5% sequentially and 20% year-over-year. During this quarter, the increase in flash ASP more than offset a decline in flash bit shipments, while HDD revenue decreased. Year over year, the increase was driven by growth in both flash and HDD ASPs and flash bit shipments. Consumer represented 21% of total revenue at $0.7 billion, down 13% sequentially, and up 17% year over year. sequentially, both Flash and HDD were down at approximately similar rates and in line with seasonality.

Speaker Change: Client represented 34% of total revenue at $1 $2 billion up 5% sequentially and 20% year over year.

Speaker Change: Sequentially the increase in flash S be more than offset a decline in flash bit shipments, while HDD revenue decreased.

Speaker Change: Year over year, the increase was driven by growth in both flash and HDD asp's and flash bit shipments.

Speaker Change: Consumer represented 21% of total revenue at 0.7 billion down, 13% sequentially and up 17% year over year.

Speaker Change: Sequentially, both flash and HDD were down at approximately similar rates and in line with seasonality.

Wissam Jabre: On a year-over-year basis, the increase was driven by growth in FlashBit shipments and ASB. Turning now to revenue by business segment for the fiscal third quarter, flash revenue was $1.7 billion, up 2% sequentially, as ASP increased 18% on both a blended and like-for-like basis. BIT shipments decreased 15% from last quarter as we proactively focused our flash BIT placement to maximize profitability.

Speaker Change: On a year over year basis, the increase was driven by growth in flash bit shipments and ASP.

Speaker Change: Turning now to revenue by business segment for the fiscal third quarter.

Speaker Change: Flash revenue was $1 7 billion.

Speaker Change: Up 2% sequentially as ASP increased 18% on both a blended and like for like basis.

Speaker Change: Bit shipments decreased 15% from last quarter, as we proactively focused our flash bit placement to maximize profitability.

Wissam Jabre: Flash revenue grew 30% from the fiscal third quarter of 2023 on higher bids and ASP. HCD revenue was $1.8 billion, up 28% from the last quarter, as Exabyte shipments increased 41%, and average price per unit increased 19% to $145. Compared to the fiscal third quarter of 2023, HDD revenue grew 17% while total exabyte shipments and average price per unit were up 25% and 33%, respectively. Moving to gross margin and expenses, please note my comments will be related to non-GAAP results unless stated otherwise.

Speaker Change: Flash revenue grew 30% from fiscal third quarter of 2023 on higher bids and ASB.

Speaker Change: HDD revenue was $1 8 billion up 28% from last quarter as exit abide shipments increased 41%.

Speaker Change: And the average price per unit increased 19% to $145.

Weiss: Compared to the fiscal third quarter of 2023, HDD revenue grew 17%.

Weiss: While total exabyte shipments and average price per unit were up 25% and 33% respectively.

Speaker Change: Moving to gross margin and expenses. Please note my comments would be related to non-GAAP results unless stated otherwise.

Wissam Jabre: Gross margin was 29.3%, well above the guidance range. Gross margin improved 13.8 percentage points sequentially and 18.7 percentage points year on year due to better pricing, our continued focus on cost reduction, and lower underutilization charges. Flash gross margin was higher than expected at 27.4%, up 19.5 percentage points sequentially, and 32.4 percentage points year-over-year. There were no underutilization charges in the quarter.

Speaker Change: Gross margin was 29, 3% well above the guidance range.

Speaker Change: Gross margin improved 13, eight percentage points sequentially.

Speaker Change: $18 seven percentage points year on year due to better pricing our continued focus on cost reduction.

Speaker Change: And lower Underutilization charges.

Speaker Change: Flash gross margin was higher than expected at 27, 4%.

Speaker Change: $19 five percentage points sequentially.

Speaker Change: 32 point.

Speaker Change: Four percentage points year over year.

Speaker Change: There were no underutilization charges in the quarter.

Wissam Jabre: HDD gross margin was 31.1%, up 6.3 percentage points sequentially and 6.8 percentage points year over year. This includes underutilization charges of $17 million, or a 1 percentage point headwind. HDD gross margin is within our long-term target range, including underutilization charges. This underscores the team's focus on cost reduction and profitability, as previously this level of gross margin was achieved with higher revenue. Operating expenses were $632 million for the quarter, up 13% sequentially and 5% year-over-year. The sequential increase was mainly driven by higher variable compensation associated with better-than-expected financial results.

Speaker Change: HDD gross margin was 31, 1%.

Speaker Change: Up six three percentage points sequentially and six eight percentage points year over year.

Weiss: This includes underutilization charges of $17 million or one percentage point headwind.

Weiss: HDD gross margin is within our long term target range, including Underutilization charges.

Weiss: This underscores the team's focus on cost reduction and profitability as previously this level of gross margin was achieved with higher revenue.

Weiss: Operating expenses were $632 million for the quarter up 13% sequentially and.

Weiss: And 5% year over year.

Weiss: The sequential increase was mainly driven by higher variable compensation associated with better than expected financial results.

Wissam Jabre: Operating income was $380 million, which included HED underutilization charges of $17 million. Tax expenses in the quarter were $51 million, reflecting the improved financial outlook for the fiscal year. Fiscal third-quarter earnings per share were 63 cents. Operating cash flow was $58 million, and free cash flow was $91 million. Cash capital expenditures, which include the purchase of property, plant, and equipment and activity related to flash joint ventures on the cash flow statement, represented a cash inflow of $33 million.

Weiss: Operating income was $380 million.

Weiss: Which included HED underutilization charges of $17 million.

Weiss: Tax expenses in the quarter was $51 million, reflecting the improved financial outlook for the fiscal year.

Weiss: Fiscal third quarter earnings per share was 63 cents.

Weiss: Operating cash flow was $58 million and free cash flow was $91 million.

Weiss: Cash capital expenditures, which include the purchase of property plant and equipment and activity related to flash joint ventures on the cash flow statement represented a cash inflow of $33 million.

Wissam Jabre: Third quarter inventory was flat from the prior quarter at $3.2 billion, with days of inventory increasing four days to 119 days. A Decline in HDD Inventory, Offset and an Increase in Flash Inventory Gross debt outstanding was $7.8 billion at the end of the fiscal third quarter. Cash and cash equivalents were $1.9 billion, and total liquidity was $4.1 billion, including revolver capacity of $2.2 billion.

Weiss: Third quarter inventory was flat from the prior quarter at $3 2 billion.

Weiss: With days of inventory, increasing four days to 119 days and.

Weiss: A decline in HDD inventory.

Weiss: Offset an increase in flash inventory.

Weiss: Gross debt outstanding was seven $8 billion at the end of the fiscal third quarter.

Weiss: Cash and cash equivalents were $1 $9 billion and total liquidity was $4 $1 billion, including revolver capacity of $2 2 billion.

Wissam Jabre: For the fiscal fourth quarter, our non-GAAP guidance is as follows. We expect revenue to be in the range of $3.6 to $3.8 billion and project sequential revenue growth in both HDD and flash. In HDD, we expect continued momentum with our industry-leading SMR product portfolio aimed at the cloud. In flash, we anticipate bits will be flat and ASPs up as we continue optimizing our bit placement to maximize profitability.

Weiss: For the fiscal fourth quarter, our non-GAAP guidance is as follows.

Weiss: We expect revenue to be in the range of three six to $3 $8 billion and project sequential revenue growth in both HDD and flash.

Weiss: In HDD, we expect.

Weiss: Continued momentum with our industry, leading <unk> product portfolio aimed at the cloud.

Weiss: In flash, we anticipate bits will be flat in asp's up as we continue optimizing our placement to maximize profitability.

Wissam Jabre: Gross margin is expected to be between 32 and 34 percent. We expect operating expenses to be between $670 and $690 million, with the increase mainly related to certain project-driven investments coupled with higher variable compensation as the financial outlook has continued to strengthen. Interest and other expenses are expected to be approximately $105 million. We expect income tax expense to be between $30 and $40 million for the fiscal fourth quarter and $130 to $140 million for fiscal year 2024 as the financial outlook improves.

Weiss: Gross margin is expected to be between 32 and 34%.

Weiss: We expect operating expenses to be between 670 and $690 million with the increase mainly related to certain project driven investments coupled with higher variable compensation as the financial outlook has continued to strengthen.

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

Weiss: We expect income tax expense to be between 30 and $40 million for the fiscal fourth quarter and.

Weiss: And $130 million to $140 million for fiscal year 2024, as the financial outlook improved.

Wissam Jabre: We expect earnings per share to be $1.05, plus or minus $0.15, based on approximately 342 million shares outstanding. The financial outlook has strengthened, and we will remain disciplined in executing the business, controlling our capital spending, and improving our profitability. I will now turn the call back over to David. Thanks, Wissam.

Weiss: We expect earnings per share to be $1 five.

Weiss: Plus or minus 15.

Weiss: Based on approximately 342 million shares outstanding.

Weiss: The financial outlook has strengthened and we will remain disciplined in executing the business controlling our capital spending and improving our profitability.

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

David Goeckeler: Thanks Wissam. Let me wrap up, and then we'll open up for questions.

David Goeckeler: Thanks, <unk>, let me wrap up and then we'll open up for questions.

David Goeckeler: I'm pleased with the team's performance in developing a diversified portfolio of industry-leading products across a broad range of end markets. As industry supply and demand dynamics continue to improve, we will remain disciplined around our capital spending and focused on driving innovation and efficiency across our business. Coupled with the structural changes we have made to our businesses, we are confident in our ability to drive greater through-cycle profitability and dampen business cycles. As we move forward, we remain uniquely positioned to capitalize on the promising growth prospects that lie ahead, solidifying our leadership position in the industry, particularly as AI continues to drive new storage solution opportunities and growth. Okay, Peter, let's start the Q&A.

David: Pleased with the team's performance and developing a diversified portfolio of industry, leading products across a broad range of end markets.

David: As industry supply and demand dynamics continue to improve we will remain disciplined around our capital spending and focused on driving innovation and efficiency across our business a.

David: Coupled with the structural changes we have made to our businesses. We are confident in our ability to drive greater through cycle profitability and dampen business cycles.

Weiss: As we move forward, we remain uniquely positioned to capitalize on the promising growth prospects that lie ahead solidifying our leadership position in the industry, particularly as AI continues to drive new storage solution opportunities and growth.

Speaker Change: Okay, Peter let's start the Q&A.

Unknown Executive: Ladies and gentlemen, at this time, we'll begin the question and answer session. If you would like to ask a question, please press star and then one on your phones. If you would like to withdraw your question, you may press star and two. One moment for the first question. Our first question today comes from CJ Muse from Cantor Fitzgerald. Please go ahead with your question.

Speaker Change: Ladies and gentlemen at this time, we will begin the question and answer session. If you would like to ask a question. Please press star and then one on your phones, if you'd like to withdraw. Your question you May Press Star two.

Speaker Change: One moment for the first question.

Weiss: Yes.

Speaker Change: Our first question today comes from C. J Muse from Cantor Fitzgerald. Please go ahead with your question yes.

Christopher James Muse: Yeah, good afternoon. Thank you for taking the time to answer the question. I guess the first question on the HCD side, the gross margins are spectacular, and if we take out the underutilization, you're north of 32%. So curious, from here, as you think about ongoing tightness, ongoing growth and demand led by the cloud, and, you know, a pricing strategy where I think, you know, you and your main competitor are being extraordinarily rational. How do you think the progression for that part of your business will look, you know, through the remainder of calendar 24 and into 25?

Speaker Change: Yeah. Good afternoon. Thank you for taking the question I guess first question on the HDD side gross margins were spectacular and if we take out the utilization you are north of 32%. So curious from here as you think about.

Speaker Change: Ongoing tightness ongoing growth in demand led by the cloud and our pricing strategy, where I think.

Speaker Change: Your main competitor are being extraordinarily rational how do you think the progression for that part of your business will look through the remainder of calendar 'twenty and into 'twenty five.

David Goeckeler: Hey, CJ, thanks for the question. Yeah, we're, you know, the HCD business. We're really happy with where the portfolio is at. I think that's where it starts bringing great products to market that deliver the highest capacity points and the best TCO for our customers. And when we're able to do that, we can share in more of that TCO advantage we're bringing to market. I think that's been the strategy for quite some time.

C. J.: Hey C. J. Thanks for the question, Yes, we are.

C. J.: The HDD business, we're really happy with where the portfolio is that I think that's where it starts bringing great products to market that deliver.

C. J.: The highest capacity points and the best <unk> for our customers and when we're able to do that.

C. J.: We can share in more than a <unk> advantage, we are bringing to market and I think that's been the strategy for quite some time, and we're really happy with where the where the portfolio is and it's really resonating with customers.

David Goeckeler: And we're really happy with where the portfolio is, and it's really responding with customers. The other side of that is making sure we really control the cost side of it. So we're really focused on making sure we bring a lowest cost product as well. And that leads to that leads to margin expansion.

C. J.: Inside of that is making sure we really control the cost side of it. So we're really focused on making sure we bring a lowest cost product as well.

C. J.: That leads to that leads to the margin expansion and then of course, we've got a returning demand environment as we get the cyclical recovery in HDD spending coming off the lows that we all really understand.

David Goeckeler: And then, of course, we've got a returning demand environment as we get the cyclical recovery and HDD spending coming off of the lows that we all really understand. But going forward, you know, we talked about a little bit in the prepared remarks, we expect to continue to bring great products to market, and we can expect to continue to drive TCO low and better TCO for our customers. And we're in an environment now where we have a supply-demand balance.

C. J.: Going forward, we talked about a little bit in the prepared remarks, we expect to continue to bring great products to market. We can we expect to continue to drive <unk> better Tcl for our customers.

C. J.: And we're in an environment now, where we have supply demand balance I mean, we the significant restructuring of our business.

David Goeckeler: I mean, we've, you know, significant restructured our business during the downturn. You know, we've taken capacity, we've set our capacity, what we think the market needs as we emerge into this demand environment. We do see better supply-demand alignment, we see tightness in the market, that's leading to what you would expect as customers giving us more visibility into what their ordering looks like going forward. So we're optimistic about being able to continue to drive profitability of this business higher.

C. J.: During the downturn.

C. J.: We've taken capacity, we've set our capacity what we think the market needs as we emerge into this demand environment.

C. J.: We do see better supply demand alignment, we see tightness in the market.

C. J.: That's leading to what you would expect as customers, giving us more visibility.

C. J.: Into what the what Theyre ordering looks like going forward. So we're optimistic about being able to continue to drive profitability of this business higher.

David Goeckeler: Very helpful. As a quick follow-up, on the NAND side, I think you guided the last kind of high team bit growth. And I'm just curious, is that still a number in play, or given your prioritization of the highest profitable areas of NAND, should we be thinking about a different number? And here, you know, not talking about production, but actual, you know, revenue.

Speaker Change: Very helpful. A quick follow up on the NAND side.

C. J.: I think you guided last kind of high teens growth and I'm just curious.

C. J.: Is that still a number of in play or given your prioritization of highest profitable areas of NAND should we be thinking about a different number in here.

C. J.: Talking about production, but actual revenue beds.

David Goeckeler: you mean for our for what time period? Just make sure I understand my apologies for calendar Oh, calendar 24 for. Look, we still see demand in the mid to, call it the mid to high teens for the market. We see supply, like about 8% of bits in production. So we still see an undersupplied market. For us, you know, we had bits down this quarter, we forecasted them down, low double digits, we were right about that, maybe a little bit more flat going into next quarter as we kind of optimize our supply throughout the year where we think we can get the best profitability.

Speaker Change: You mean for our for what time period, just to make sure I understand your question my apologies for calendar 'twenty four.

Speaker Change: Oh calendar 'twenty four for look we see.

Speaker Change: Yes, we still see demand in the mid <unk>.

Speaker Change: Call it the mid to high teens for the market, we see supply like about 8% bits in production. So we still see an under supplied market for US we had bits down this quarter, we forecast them down low double digits. We were right about that may be a little bit more flat going into next quarter as we kind of.

C. J.: Optimize our supply throughout the year, where we.

C. J.: The best best profitability.

Speaker Change: Thank you.

Joseph Lawrence Moore: Our next question comes from Joe Moore from Morgan Stanley. Please go ahead with your question.

Speaker Change: Thank you C J.

C. J.: Yes.

C. J.: Our next question comes from Joe Moore from Morgan Stanley. Please go ahead with your question.

Joseph Lawrence Moore: Great, thank you, and congratulations on the results. In terms of the outlook, looking for four points of gross margin improvement, it seems like the like for like pricing, certainly in NAND, is a lot better than that. HDD seems pretty good as well. What are the offsets so that you only would see sort of four points of gross margin expansion given the improvement that we're seeing in absolute pricing?

Joseph Lawrence Moore: Great. Thank you and congratulations on the results in terms of the outlook.

Joseph Lawrence Moore: Im looking for four points of gross margin improvement it seems like the like for like pricing certainly in NAND is it a lot better than that.

Joseph Lawrence Moore: HED seems pretty good as well.

Joseph Lawrence Moore: What are the offsets that you only would see sort of four points.

Joseph Lawrence Moore: Margin expansion given the improvement that we're seeing in absolute pricing.

Wissam Jabre: Hey Joe, thanks for the question. Look, our guide gives a balanced view of what we have in terms of information today and the outlook. Yeah, we see improvement in margins in both of the businesses. So on the flash side, we still anticipate improvement in pricing that would help the gross margin move a bit higher from here. And on the HDD side, as David mentioned, we continue to focus on obviously the great technology that we deliver but also the cost discipline and pricing of the product. So all of these are covered in our guide.

Joseph Lawrence Moore: Hey, Joe Thanks for the question.

Joseph Lawrence Moore: Look our guidance comprehends the balanced view of what we have in terms of information today.

Joseph Lawrence Moore: When the outlook.

Joseph Lawrence Moore: Yes, we see improvement in margins in both of the businesses. So on the flash side, we still anticipate improvement in pricing that will help gross margin.

Joseph Lawrence Moore: A bit higher from here and on the HDD side.

Joseph Lawrence Moore: As David mentioned, we continue to focus on the.

Joseph Lawrence Moore: Obviously, the great technology that we deliver but also the cost discipline and pricing of the product. So all of these are comprehended in our.

David Goeckeler: Great. And as a follow-up, you had sort of talked about these higher-density SSDs in the second half of the calendar year for AI purposes. Can you talk about, you know, what has to happen to sort of get those drives out? Like, do you need new capacity points that you don't currently serve? And then, can you talk generally, you know? It seems like AI is having some positive effects on both sides of your guy's business. Can you talk about that a little bit? Yeah, so

Joseph Lawrence Moore: The guide.

Joseph Lawrence Moore: Great.

Speaker Change: And as a follow up.

Joseph Lawrence Moore: You had sort of talked about these higher density ssds in the second half of the calendar year for AI purposes.

Joseph Lawrence Moore: Can you talk about what what has to happen to sort of.

Joseph Lawrence Moore: Get those drives out like is that you need new capacity points. Currently serve and then can you talk generally it seems like AI is having some positive effects on both sides of your guys business can you talk about that a little bit.

David Goeckeler: Yeah, so, you know, what I would say about the AI demand as it's coming into focus, I don't think it's so much in the results just yet, but we're seeing where it's going to impact both businesses. And clearly, you know, one of them you just outlined, which is that we're seeing enterprise SSD demand return. We saw Some, you know, we saw some increase in the last quarter. We expect some increase in this quarter, but really as we look to the second half. You know, we have customers coming to us wanting the kind of SSDs we built and qualified before the downturn. They just want them in, you know, much bigger capacity points, 30 and 60 terabyte capacity points.

Joseph Lawrence Moore: Yes, so what I would say about the AI demand is coming into focus so I don't think it's so much in the results just yet, but we're seeing where it's going to impact both businesses and clearly one of them you just outlined which is we're seeing enterprise SSD demand returned we saw.

Joseph Lawrence Moore: So we saw some increase in the last quarter, we expect some increase in this quarter, but really as we look to the second half.

Joseph Lawrence Moore: We have customers coming to us wanting the kind of ssds, we built in qualified before the downturn. They just want them in a much bigger capacity, 30% and 60 terabyte capacity point so.

David Goeckeler: So it's the same product, just taking it and increasing the capacity and going through a qualification process on that. So we're in that process with customers. We also introduced a new SSD that's more compute focused, which is a PCIe Gen 5 product based on BIC 6.

Joseph Lawrence Moore: It's the same product is taken out and increasing the capacity and going through a qualification on that so we're in that process with customers.

Joseph Lawrence Moore: We also introduced a new SSD, that's more compute focus which is pcie Gen five product based on <unk> six.

David Goeckeler: Very high performance that plays a little bit different role in the AI training stack. And, you know, we're getting very good feedback on that product. It's being qualified by our starting qualification. We've sampled

Joseph Lawrence Moore: Very high performance that plays a little bit different role in the AI training.

Joseph Lawrence Moore: Stack and we're getting very good feedback on that product its being qualified by starting qualification samples were kind of getting ready for qualification.

David Goeckeler: We're kind of getting ready for qualification of the hyperscaler, and we're seeing good demand in the enterprise market as well. So we feel like the portfolio is set up well as we go into the second half. And we're seeing, you know, a lot of demand show up for people that are building large amounts of infrastructure for model training.

Joseph Lawrence Moore: Hyper scaler and we're seeing good demand in the enterprise market as well. So we feel like the portfolio is set up well as we go into the second half and we're seeing now.

Joseph Lawrence Moore: A lot of demand show up.

Joseph Lawrence Moore: For people that are very building large.

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

Joseph Lawrence Moore: Large amount of infrastructure for four model training.

Speaker Change: Great. Thank you.

Speaker Change: Thanks, Joe.

Aaron Christopher Rakers: Yeah, thanks for taking the question. I've got two as well.

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

David Goeckeler: The first question, I just want to go back to kind of like the gross margin dynamic with regard to the hardware trade business. David, if you look back a couple years, you peaked at like 150, 155 exabytes of capacity ship. As we hear about the industry being constrained, where would you characterize your capacity footprint today? And is it fair to assume that you'd have to see gross margin at or even above the high end of the 31 to 34% target model that you've laid out to kind of come back in and add capacity?

Aaron Christopher Rakers: Yes, thanks for taking the question.

Aaron Christopher Rakers: I've got two as well.

Aaron Christopher Rakers: First question I, just want to go back to kind of the gross margin dynamics with regard to the visit.

Aaron Christopher Rakers: David If you look back a couple of years right you peak.

Aaron Christopher Rakers: Third 50, 155 exabyte capacity ship.

Aaron Christopher Rakers: As we hear about the industry being constrained.

Aaron Christopher Rakers: Where do you where would you characterize your capacity footprint today and is it fair to assume that you'd have to see gross margin at or even above the high end of the 31% to 34%.

Aaron Christopher Rakers: Target model that you've laid out to kind of come back in and add capacity.

David Goeckeler: Yeah, I mean, that's how we're thinking about it. I mean, this is an I've talked about this quite a bit.

Aaron Christopher Rakers: Yes, I mean, that's how we're thinking about it I mean, this is and I've talked about this quite a bit and this is an industry that I think has been oversupplied with this client to cloud transition that's been going on for 15 years.

David Goeckeler: And this is an industry that I think has been oversupplied with this client-to-cloud transition that's been going on for 15 years. I think the downturn was a time when we, you know, when we saw a significant change in demand, to say the least, that we just decided to remove capacity to get supply and demand better balanced. So, you know, as we're just emerging into that market, Aaron, I mean, I think as we start to see this market play out and its dynamics.

Aaron Christopher Rakers: I think the downturn was a time when we when we saw a significant change in demand to say the least.

Aaron Christopher Rakers: We just decided to remove capacity to get supply and demand better balanced so.

Aaron Christopher Rakers: As we were just emerging into that market Erin I mean, I think as we start to see this market play out and dynamics.

David Goeckeler: You know, get to the kind of business model and, you know, get more visibility into what the future is. We can, you know, have confidence in making investments if that's what we need to do to expand capacity. You know, I think as all of that comes into focus and it's starting to happen, we're starting to see that. We're getting more visibility. We're getting to participate more in the TCO advantages that we're bringing to the market.

Aaron Christopher Rakers: Get to the kind of business model and get more visibility into what the future is we have confidence in making investments if thats, what we need to do to expand capacity. I think is all of that comes into focus and it's starting to happen. We're starting to see that we're getting more visibility.

Aaron Christopher Rakers: We're getting to participate more in the <unk> advantages that we're bringing to the market.

David Goeckeler: We're seeing better dynamics, and as that continues and we get more confidence, we're not there yet, then we would think about how we bring more capacity into the market. But we're just at the, we're just at the, we're kind of getting to the starting line, I guess what I would say.

Aaron Christopher Rakers: We're seeing better dynamics and as that continues.

Aaron Christopher Rakers: And we get more confidence we're not there yet then we would think about how do we bring more capacity into the market, but we're just at the we're just we're kind of getting to the starting line is I guess, what I would say.

David Goeckeler: Yeah, that's helpful. And then, as a quick follow-up just on the enterprise SSE topic. I think prior to the downturn, you know, you had talked about I want to say it was two or three cloud OEMs that you had designed in with the NVMe drive. Can you just talk about the breadth of what you're expecting? As it just sounds like you're kind of getting back into the market optimizing this placement there. So how do we think about the breadth of the customer base in that enterprise SSE space? Yeah, you got it. I mean, it's the

Speaker Change: Yes, that's helpful and then as a quick follow up just on the enterprise SSD topic.

Speaker Change: I think prior to the downturn you had talked about I want to stay with fewer three cloud Oems that you had designed in with the Nvme drive can you just talk about the breadth of what Youre expecting.

Aaron Christopher Rakers: It just sounds like Youre kind of getting back into the market optimizing bit placement. There. So how do we think about the breadth of the customer base in that enterprise SSD space.

Aaron Christopher Rakers: Yes.

David Goeckeler: Yeah, I mean, when the market is coming back, we're seeing those customers now come back after a very long digestion period, and this is something we've been waiting for for quite some time. Every market, from consumer to PC to Nearline on the ATD side, has gone through this big digestion phase, and I think Enterprise SSD was the one we were waiting to see when we were going to come out of that.

Aaron Christopher Rakers: The what we're seeing now is when the market coming back we're seeing those customers now come back after a very long digestion period and this is something we've been we've been waiting for for quite some time like.

Aaron Christopher Rakers: Every market from consumer to PC.

Aaron Christopher Rakers: Near line on the HDD side has gone through this big digestion phase and I think enterprise SSD was the one we are waiting to see when when we're going to come out of that and that's what we're starting to see so we're seeing a couple of dynamics in that market we're seeing.

David Goeckeler: And that's what we're starting to see. So we're seeing a couple of dynamics in that market, those enterprise SSDs that we had qualified, the very same products now we're getting orders for as that digestion phase ends, and they start to ramp up ordering back. And then we're seeing the kind of AI impact on different capacity points, different uses for model training. We're starting to see that demand come in the market. So we're seeing both of those things happen. And we think the portfolio is well positioned for those markets. We expect that to play out through the rest of the year, and we're excited about it.

Aaron Christopher Rakers: Those.

Aaron Christopher Rakers: Enterprise Ssds that we had qualified the very same products now we're getting orders for as that digestion phase ends and.

Aaron Christopher Rakers: They get they start to ramp ordering back and then we're seeing.

Aaron Christopher Rakers: The kind of AI impact on different capacity points different.

Aaron Christopher Rakers: No use for four model training, we're starting to see that demand come into the market. So we're seeing both of those things happen. We think the portfolio is well positioned for those markets and we expect that to play out through the rest of the year.

Aaron Christopher Rakers: And we're excited about it.

Speaker Change: Thank you.

Wamsi Mohan: Our next question comes from Wamsi Mohan from Bank of America. Please go ahead with your question.

Aaron Christopher Rakers: Thanks.

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

David Goeckeler: Yes, thank you so much. On the HDD side, you had very outsized exabyte quarter-on-quarter growth in the quarter relative to your nearest competitor. How are you thinking about the continued trajectory here in terms of exabyte growth, perhaps both on a quarter-on-quarter basis but also maybe calendar 24 versus calendar 23?

Mohan: Yes. Thank you so much.

Mohan: On the HDD side, you had very outsized exabyte quarter on quarter growth in the quarter relative to your nearest competitor. How are you thinking about the continued trajectory here in terms of exabyte growth, perhaps both quarter on quarter basis, but also maybe calendar 'twenty four versus calendar 'twenty three.

David Goeckeler: Yeah, we're seeing, I mean, big picture, we're seeing a return in demand. Obviously, you know, I think it was the largest sequential exabyte growth we've seen in a very long time. I hesitate to say ever because this is about business has been around for a very long time.

Speaker Change: Yes, what we're seeing I mean big picture, we're seeing return on demand, obviously I think it was the.

Speaker Change: Largest sequential exabyte growth, we've seen in a very long time, I hesitate to say ever because this business has been around a very long time, but.

David Goeckeler: But to go back, you know, as far as we could look, it was the biggest sequential increase we had seen. And you know, it's, as I said earlier, that starts with having products that really resonate with our customers. We really believe very strongly in the technology roadmap we've built around EPMR and ultra SMR, and it's resonating very strongly with customers. Nearly 50% of exabytes shipped this quarter were SMR, and we're set up well for what we talked about last time, where we expect over half of our exabytes in FY25 to be SMR-based.

Speaker Change: To go back as far as we could look at was the biggest sequential increase we had seen in <unk>.

Speaker Change: As I said earlier that starts with having products that really resonate with our customers.

Speaker Change: We really believe very strongly in the technology roadmap, we've built around <unk> and ultra <unk> is resonating very strongly with customers.

Speaker Change: Nearly 50% of exabyte shipped.

Speaker Change: This quarter was <unk>.

Speaker Change: And we're set up well for what we talked about last time, where we expect over half of our exabyte in FY 'twenty five to be <unk> based so.

David Goeckeler: So, like we said coming into the fiscal year, that we expected sequential growth throughout the fiscal year. Last quarter, we extended that to the calendar year, and we still see that. So, we still see sequential exabyte growth going forward throughout this calendar year.

Speaker Change: Look we said.

Speaker Change: Coming into the fiscal year that we expected sequential growth throughout the fiscal year last quarter, we extended that to the calendar year and we still see that so.

Speaker Change: We still see sequential extra bank growth.

Speaker Change: Going forward throughout this calendar year.

Speaker Change: Okay. Thanks for that.

Wamsi Mohan: Okay, thanks for that. And as a follow-up: on the sort of, you know, reinvesting in the capacity side, right, on the HDD side, I think you said when conditions are ripe for reinvesting, and I know Aaron's question earlier, you commented on certain gross margin ranges, but this cycle, your gross margin is much higher at lower revenue levels than past cycles, so clearly it feels as though at least you have the capability to drive peak So why should 33 be, maybe, the level at which you reinvest? Why couldn't it be 34, 35 or higher than that? Well, we haven't tried that yet...

Speaker Change: Follow up.

Speaker Change: On on sort of.

Speaker Change: Investing on capacity side right on the HDD side I think you said when conditions are ripe for reinvesting in and I know Aaron's question earlier, you commented on Silicon gross margin ranges, but this.

Speaker Change: This cycle your gross margin is much higher.

Speaker Change: Lower revenue levels than past cycles, so clearly it feels as though at least the capability to drive peak margins much higher than your establish long term range. So why should why should 33 b, maybe the level at which you reinvest why wouldn't they be 34 to 35 or higher than that.

Speaker Change: Well, we havent.

David Goeckeler: Well, we haven't really set a bogeyman for that, right? We want to look at the overall market. And again, I understand this question everybody's looking for: when should we reinvest? But that's really not what we're even thinking about right now.

Speaker Change: We haven't really set a bogie for that right, where we want to look at the holistic marketing again.

Speaker Change: I understand this question everybody is looking for when we would reinvest but that's really not what we're even thinking about right now we're thinking about.

David Goeckeler: We're thinking about getting a market that's balanced on supply and demand, delivering great products to our customers that can meet the needs of the growth of the cloud. And I think that, to your point, I think the business is emerging. What we planned for and a lot of hard work that went in over the last couple of years, which is to come back in a much healthier position with the ability to drive greater profitability. So, we're just getting back to the bottom of the range that we set a couple of years ago.

Speaker Change: Getting a market thats balanced on supply and demand delivering great products to our customers that can meet the needs of the growth of the cloud.

Speaker Change: And I think that to your point I think the business is emerging.

Speaker Change: What we planned for and a lot of hard work that went in over the last couple of years, which is to come back in a much healthier position with the ability to drive greater profitability.

Speaker Change: So.

Speaker Change: We're just getting back to the bottom of the range that we set a couple of years ago.

David Goeckeler: It's not as if we're declaring victory in that at all, to your point. Like I said, I feel like we're just getting back to the starting line of where we need to drive the business, but we feel very good about being able to drive increased profitability in it. Look, it starts with delivering great products to your customers. We have to continue to bring better TCO, and I think we have got a tremendous architecture to do that while controlling our cost to build the product.

Speaker Change: It's not as if we're declaring victory in that at all to your point like I said I feel like we're just getting back to the starting line of where we need to drive the business too, but we feel very good about to be able to drive increased profitability and it look it starts with delivering great products to your customers like we have to continue to bring better Tcl.

Speaker Change: And I think we have got a tremendous architecture to do that while controlling our cost to build the product we have to work.

David Goeckeler: We have to work. Stay focused on both sides of this equation. We gotta have the lowest cost. And then the best TCO; that allows us to drive prices, which drives margin expansion. So we're working across that whole equation, and I think the strategy is working quite well, and that's why we saw, you know, when we saw demand return, we saw the margins pop up. But to your point, we believe we can, you know, we're just getting started on this. Our next question comes from Karl Ackerman from BNP Paribas. Yes, thank you.

Speaker Change: Stay focused on both sides of this equation, we got to have the lowest cost and then the best Tcl.

Speaker Change: That allows us to drive pricing, which drives margin expansion. So we're working across that whole equation and I think the strategy is working quite well and that's why we saw when we saw some we saw the demand return we saw the margins pop up but to your point, we believe we can.

Speaker Change: We're just getting started on this.

Speaker Change: Thank you so much.

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

Karl Ackerman: Okay. Thank you.

Karl Ackerman: I'm curious about your thoughts on the decision to

Karl Ackerman: I'm curious your thoughts on the decision to prioritize the transition to <unk> for the mobile market rather than ssds, because AI demand appears concentrated.

Karl Ackerman: Our next question comes from Karl Ackerman from BNP Paribas. Please go ahead with your question. Okay, thank you.

Karl Ackerman: In high capacity enterprise Ssds, and I guess as you address that question could you discuss your opportunity to provide Q I'll see enterprise SSD to address.

David Goeckeler: Yeah, thanks, Karl. So we haven't really said where Bix8 is going to go. That's in our future. That's one thing we feel really good about is the technology is there, and we'll, you know, we'll bring it to market when we see it's the right time to do that, when we get the right profitability, the right supply-demand characteristics to invest in productizing that node. The technology is in great shape, but we haven't really outlined exactly which products are going to go there first or second or third. So that's still in our future.

Karl Ackerman: These <unk> applications that appear to be.

Karl Ackerman: Reported 30% and 60 terabyte.

Karl Ackerman: Yeah.

Speaker Change: Units. Thank you.

Speaker Change: Thanks, Carl so we.

Karl Ackerman: We haven't really said, where <unk> is going to go that's in our future. That's one thing we feel really good about is the technology is there and we'll we'll bring it to market when we see it's the right time to do that when we got the right profitability the right supply demand.

Karl Ackerman: Characteristics to invest in prioritizing that node.

Karl Ackerman: The technology is in great shape, but we haven't really outlined exactly.

Karl Ackerman: Which products are going to go there first or second or third so that's still in our future.

David Goeckeler: As far as your point on QLC, you know, this is, you know, we're now starting the transition to Bix6. And so we talked about a couple, a number of products here that are Bix6-based, which, you know, first the client SSD. I know you didn't, you were talking about, I'll talk about enterprise SSD as well, but, you know, our client SSD has been extremely well received. The performance of it is outstanding. You know, we have our own internal control team.

Karl Ackerman: As far as your point on <unk>. Yes. This is we're now starting to transition to <unk> six and so we talked about a couple a number of products here.

Karl Ackerman: That are fixed six based which first the client SSD I know you didn't you were talking to you all talk about enterprise SSD as well, but.

Karl Ackerman: We.

Karl Ackerman: Our client SSD has been extremely well received the performance of it is outstanding we have our own internal controller team they've done an amazing job of building, a really really high performance <unk> client SSD.

David Goeckeler: They've done an amazing job of building a really, really high-performance QLC client SSD. We expect that to lead the market and lead that transition in that part of the market. And then we're bringing Bix6 into our enterprise SSDs as well, right? So that will be a lever we have to drive Bix6, which gives us more capacity and better performance. And so we feel good about that transition is now starting, and the products are starting to show up, and they're in customers' hands, and they've been very, very well received.

Karl Ackerman: We expect that to lead the market and lead that transition in that part of the market and then we're bringing <unk> into our enterprise ssds as well right. So that will be a lever we have to drive big six which gives us.

Karl Ackerman: More capacity better performance and so we feel good about that transition is now starting and the products are starting to show up.

Karl Ackerman: And they are in customers hands in there they've been very very well received.

Speaker Change: Thank you.

Speaker Change: Thanks Carl.

Amit Jawaharlaz Daryanani: Our next question comes from Amit Daryani from Evercore. Please go ahead with your question.

Speaker Change: Our next question comes from Amit <unk> from Evercore. Please go ahead with your question.

Amit Jawaharlaz Daryanani: Thanks a lot. Good afternoon.

Amit: Thanks, a lot good afternoon, two questions as well I guess I'll close on the HDD side I'm wondering do you think given some of the challenges on hammer qualifications at Seagate, having if you protect you saw a bigger uplift in market on the airline side and do you think the market shares are potentially sustain or does some of that kind of flow back.

David Goeckeler: I have two questions as well, I guess. First, on the HCD side, I'm wondering if given some of the challenges with Hammer qualifications that Seagate's having, if you potentially saw a bigger uplift in market on the near line side, and do you think that market share could potentially sustain or does some of that kind of flow back as those qualifications get done? So I'd love to understand if the share gains you think you're seeing are sustainable or not.

Amit: As those qualifications get done so love to understand that the share gains you think you are seeing are sustainable or not.

David Goeckeler: And on the flash side, I'd love to just maybe get your perspective. I know you folks are talking about bit growth being flat in June, but as some of these qualifications ramp up in the back half, how do you think about bit growth ramping up in the back half of this calendar year? Thank you.

Amit: And then on the Flash side would love to just maybe get your perspective on April so talking about bit growth being slot in June but as some of these qualification and ramp up in the back half how do you think about bit growth ramping up into the backend of this calendar year. Thank you.

Speaker Change: Yes, so on the first question.

David Goeckeler: Yeah, so on the first question, business with our customers is planned, you know, pretty far in advance. So there wouldn't be a situation where something would happen intra-quarter, and that would drive a big share shift.

Speaker Change: The business with our customers as planned.

Speaker Change: Far in advance so there wouldnt be a situation, where something would happen intra quarter and that would drive a big <unk>.

David Goeckeler: You know, the reality is, we've got great products, and they're very much responding to our customers, and we can deliver them at scale. And they have, you know, brought best in class TCO, and clearly, customers are adopting those, you know, best in class TCOs, at a significant rate. So is it sustainable? We continue to bring great products to market. That's what we plan to do. We're very confident in our roadmap for HDD, and we'll continue to bring the best TCO solutions to our customers. On bit growth, we do expect flat bit growth into calendar Q2, but we'll see a pickup in bit growth in the second half of the year.

Speaker Change: Share shift.

Speaker Change: The reality is is we've got great products, there very much resonating with our customers and we can deliver them at scale.

Speaker Change: And they have.

Speaker Change: Bringing best in class TCR, and clearly customers are adopting those.

Speaker Change: Yes.

Speaker Change: A significant rate so.

Speaker Change: Is it sustainable we continue to bring great products to market. That's what we plan to do we're very confident in our roadmap on HDD and we'll continue to bring the best <unk> solutions to our customers.

Speaker Change: On bit growth, we do expect flat bit growth into the.

Speaker Change: Calendar Q2, but we will see a pickup in bit growth in the second half of the year.

Harlan Sur: Our next question comes from Harlan Sur from J.P. Morgan. Please go ahead with your question.

Speaker Change: Got it thank you.

Speaker Change: Thank you.

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

Harlan Sur: Yeah, good afternoon. Nice job on the quarterly execution. Another question on Enterprise. Yes, thank you.

Harlan Sur: Yes, good afternoon, nice job on the quarterly execution.

Harlan Sur: Another question on enterprise, yes. Thank you. Another question on enterprise SSD. So you guys have been really smart.

David Goeckeler: Another question on Enterprise SSD. So you guys have been really smart about how you are allocating flash bits, right, with a strong focus on profitability. So as you reallocate more bits towards ESSD in the second half, is the profitability profile of the Enterprise SSD portfolio expected to be accretive to the overall flash business? And your share has peaked previously sort of in that sort of high single-digit percentage range in Enterprise. Just given a more competitive portfolio, like what type of share is the team targeting in the kind of mid to longer term?

David Goeckeler: And how you are allocating flash bits right with a strong focus on profitability. So as you reallocate more gets towards SSD in the second half is the profitability profile of enterprise SSD portfolio expected to be accretive to the overall flash business and the sheriff previously sort of in that.

Speaker Change: That sort of high single digit percentage range and the enterprise just given a more competitive portfolio like what type of share.

Speaker Change: The team targeting kind of mid to longer term.

David Goeckeler: Okay, thanks, Harlan. Your questions are very related. So, you know, we saw a pickup in enterprise SSD in the March quarter. It's still, quite honestly, it's still relatively small numbers, but it's growing quite well.

Speaker Change: Okay. Thanks, Ron I mean, your questions are very related so.

David Goeckeler: We saw a pickup in enterprise SSD.

Speaker Change: In the March quarter.

Speaker Change: It's still.

Speaker Change: Honestly, it's still relatively small numbers, but it's growing quite well so it's.

David Goeckeler: So, you know, we wouldn't have supplied those bits if it wasn't the right thing to do from a portfolio strategy point of view. We'll see when we get to the second half what pricing looks like, that versus other options we have, and then we'll decide how much supply we put into those products. And you're really getting into the core of our portfolio strategy, which is to have a lot of optionality. Have a lot of optionality across client SSD, across gaming, now across enterprise SSD, across consumer, obviously, which is a big business for us.

Ron: Wouldn't have we wouldn't have supplied those bits if it wasn't the right thing to do from a portfolio strategy point of view.

Ron: Okay.

Speaker Change: We will see when we get to the second half what pricing looks like that versus other options. We have and then we will decide how much we put how much supply we put into those products and you are really getting into the core of our ports portfolio strategy, which is to have a lot of optionality have a lot of optionality across.

Speaker Change: Client SSD across gaming.

Speaker Change: Now across enterprise SSD across mobile.

David Goeckeler: <unk>.

Speaker Change: Across consumer, obviously, which is a big business for US and then based on what we see.

David Goeckeler: And then, based on what we see going into the quarter and then, you know, very importantly, what happens during the quarter, how do we allocate our supply to get the best return? And, you know, clearly, we're in an environment right now where things got better throughout the quarter. So, you know, as we go through the quarter, we find more opportunities to mix and get more profitability. And that's what happened in the March quarter.

Speaker Change: Into the quarter and then very importantly, what happens during the quarter, how do we allocate our supply to get the best return and.

David Goeckeler: Clearly, we're in an environment right now where things got better throughout the quarter. So as we go through the quarter, we find more opportunity to mix and get more profitability and Thats what happened in the March quarter, and you saw the results of having that agility into the business. So.

David Goeckeler: And you saw the results of having that agility in the business. So I really don't want to call it a share of number or anything like that, because it tends to distort what we want to do is maximize profitability, not maximize share in any particular market; we want to maximize where we get the most return for our for our supply.

Speaker Change: Don't want to call share.

David Goeckeler: Of.

Speaker Change: Number or anything like that because it tends to distort.

David Goeckeler: What we want to do is maximize profitability not maximize share in any particular market, we want to maximize where we get the most return for our for our supply.

David Goeckeler: And then maybe a question on Bix8. I know you're not calling out any timing yet, but... You have had it sort of in pre-production for quite some time. How are the early yields on this technology? And, I guess more importantly, like, can the team still drive mid-teens?

Speaker Change: I appreciate that and then maybe a question on VX eight another.

Speaker Change: Calling out any timing yet but.

David Goeckeler: You have had to sort of pre production for quite some time. However, early yields on this technology and I guess more importantly, like Kansas team still drive mid teen.

Harlan Sur: The percentage analyzed type cost is down with the new bonded array technology.

David Goeckeler: Percentage annualized type cost down with the new bonded array technology.

David Goeckeler: Yeah, so what I'll say about yields is we're very confident in the technology. I mean, we feel very, very good about it. It's, you know, it's a major advancement in the architecture of NAND from an industry perspective to, you know, the CBA Architecture. The development has gone well. We feel very good about it. We can produce it when we need it. Again, this gets into a larger conversation about the dynamics of the market and when supply is needed. We're going to be very, very disciplined about going through any transition or putting any capex in the market until we see the profitability that we want to achieve. We feel very good about Bixate.

Speaker Change: Yes so.

Speaker Change: What I'll say about yields as we're very confident in the technology I mean, we feel very very good about it.

Speaker Change: It's a major advancement in the architecture of land from an industry perspective too.

Speaker Change: The <unk>.

Speaker Change: CBA architecture.

Speaker Change: It's the development has gone well.

Speaker Change: Very good about it we can product ties it when we need it again this gets into a larger conversation about the dynamics of the market and when is the supply needed and we're going to be very very disciplined about.

Speaker Change: Going through any transition or putting any capex or the market until we see the profitability that we want to get so.

Speaker Change: We feel very good about <unk> there was a second part of your question on the cost Downs cost Downs.

David Goeckeler: There was a second part to the question? On the cost downs. Oh, cost downs. Yeah, maybe I'll take that. Yeah, on the cost downs.

Speaker Change: Yes, maybe I'll take that Harman, yes on the cost downs, we're still anticipating the mid teens percentage year on year cost downs.

David Goeckeler: So there's no change there. Perfect.

Speaker Change: And so that's.

Speaker Change: There's no change there.

David Goeckeler: Perfect. Thank you.

Speaker Change: Perfect. Thank you.

Speaker Change: Thanks, Harlan thank you.

Carlos Colorado: Our next question comes from Carlos Colorado from UBS. Please go ahead with your question.

Speaker Change: Our next question comes from Carlos Colorado from UBS. Please go ahead with your question.

Carlos Colorado: Hi, Thanks for taking my question.

Carlos Colorado: Hi, thanks for taking my question. So I have the first one about Nearline.

Carlos Colorado: So I have the first one is about your line.

Carlos Colorado: You are growing outperforming your.

David Goeckeler: You are going outperforming your competition by a lot. So what are the underlying reasons in your opinion for this? And do we have to expect this to normalize over time, and do you think this can be sustained? And I have a follow-up. Thanks.

Carlos Colorado: Your competition by a lot so.

Carlos Colorado: What are the underlying reasons in European for these and do we have to expect this to normalize over time and do you think this can be sustained.

David Goeckeler: And I have a follow up thanks.

David Goeckeler: Yeah, the performance of the HD business is driven by the product, right? It's pretty straightforward. They're great products, you know, this architecture that we've built on EPMR, OptiNAN, Ultra SMR, customers are really committed to SMR. They deliver the best TCO in the market, and we can produce them at scale. And, you know, that's what leads to the performance.

Speaker Change: Yes.

David Goeckeler: The performance of the HD business is driven by the product.

Speaker Change: It's pretty straightforward products are they're great products. This architecture that we built on <unk> NAND Ultra <unk>.

Speaker Change: Customers are really committed to SMA are they deliver the best <unk> in the market, we can produce them at scale.

David Goeckeler: And.

Speaker Change: That's what leads to the performance.

Carlos Colorado: Okay, thanks. And the follow-up is, you mentioned that AI is driving a lot of SSD sales. You have a perfect vantage point to see if AI is driving applications that traditionally were HTTP. Is that now being transferred to SSD, some of those applications? Or is it the classic question on cannibalization from one to the other? Is AI changing that scenario? We do not see any...

Speaker Change: Okay, Thanks, and full lab piece.

Speaker Change: You mentioned that AIA, Australia SSD sales.

Speaker Change: A perfect vantage point too.

Speaker Change: To see if AI is driving applications that traditionally were HDD is that now being transferred to US is the sum of those applications or.

Speaker Change: The classic question on cannibalization from one to the other that you see.

Speaker Change: Are you changing that scenario.

David Goeckeler: We do not see any cannibalization. Clearly, HTD plays a big role in the AI storage life cycle as well and the whole ingest phase, because all of the big data lakes and all of the raw data sets, those are all going to be stored on HTD. It's just the economics of where you store that data and how you access that data. It's all that part of the AI pipeline, if you will, is going to be HTD.

Speaker Change: Okay.

Speaker Change: We do not see any cannibalization.

Speaker Change: Clearly HDD plays a big role in the AI storage lifecycle, as well and that will ingest phase because all of the big data lakes and all of the.

Speaker Change: Raw datasets those are all going to be stored on HDD. It's just the economics of where your store that data.

Speaker Change: And how do you access that data.

Speaker Change: All of that part of the AI pipeline. If you will is going to be HDD. Now you have all of these other new use cases around training and inference and those are all going to be.

David Goeckeler: Now, you have all of these other new use cases around training and inference, and those are all going to be SSDs. So, it's really about growth as opposed to substitution, and that's what's so exciting about this. Obviously, once you get the models trained, then the models are going to turn out more data, which is going to be stored on HTD. So, you've got this virtuous cycle going. So it's kind of literally a rising tide lifts all boats. It's not a substitution game.

Speaker Change: Ssds, so it's really about growth as opposed to substitution and that's what's so exciting about this and obviously once you get the models trained than the models are going to turn out more data, which is going to be stored on HDD. So you've got this virtuous cycle going.

Speaker Change: So.

Speaker Change: It's kind of literally.

Speaker Change: Rising tide lifts all boats, it's not a substitution game.

David Goeckeler: Clearly, there are a lot of new use cases being developed around AI, like the whole training infrastructures that are being built. That's what's driving these very high-capacity storage-based enterprise SSDs that we're seeing demand for. So, hopefully, that helps.

Speaker Change: Clearly there is a lot of new use cases being developed around AI.

David Goeckeler: Whole training infrastructures that are being built thats whats driving these very high capacity.

David Goeckeler: Storage based enterprise Ssds, there, where we're seeing demand for so hopefully that helps.

Krish Sankar: [inaudible] Krish Sankar from TD Cowley, please go ahead with your question.

Speaker Change: Our next Jamie.

Speaker Change: Yeah.

Krish Sankar: Okay.

Krish Sankar: TD Cowen. Please go ahead with your question.

Krish Sankar: Yeah, hi, thanks for taking my question. I have two of them.

Jamie: Yes, hi, Thanks for taking my question I have two of them first one on flash for Dave.

David Goeckeler: First one on Flash for Dave. You know, you spoke about the Big 6, hyperscaler qualifying it. My understanding was the Big 6 was kind of more like a sub-node, and Big 8 is going to be the bigger one. I'm just kind of curious, to get to your enterprise SSD market share target, do you really need Big 8 or can you achieve it with Big 6? And then I have a follow-up question.

TD Cowen: You spoke about the big six.

TD Cowen: Quantifying it.

David Goeckeler: My understanding was the big six.

David Goeckeler: Doug noted it is going to be the bigger one I'm just kind of curious to get to your enterprise SSD market share targets do you really need big eight or any achieve it with big six and then I had a follow up.

David Goeckeler: Oh, you're right, big sticks is, when we say stub node, it's... We're not going to take the whole portfolio to BIC 6, so we have a big portfolio and we're choosing which products to take to BIC 6, and clearly we're taking the products that require QLC and the kind of things you're talking about, so we feel good about our nodal plan and the FAB being able to supply what we need in these markets.

Speaker Change: No youre right fixed sticks is when we say stub noted.

Speaker Change: We're not going to take the whole portfolio to pick six so we have a big portfolio and we're choosing which products to take the big six and clearly we're taking the products that require that you will see in the kind of things youre talking about so we feel good about our nodal plan in the fab being able to supply what we need.

Krish Sankar: Got it, got it. And then, Dave, on the hard drive side, I think you've said in the past that you could get to 40 terabytes with EPMR technology. I'm just kind of curious, you know, with obviously a competitor like, you know, trying to ramp up Hammer, and it took them a while, like a few years, to even get the 3 terabytes per disk in R&D to fall. Can you give us an update on your Hammer roadmap or the status of your Hammer technology? I would think about 30, 40 terabytes plus.

Speaker Change: In these markets.

Krish Sankar: Got it got it and then Dave on the hard drive side I think you said in the past that you can get to 40 terabytes of the EPA wont technology.

Speaker Change: I'm just kind of curious.

Krish Sankar: Obviously your competitor.

Dave: Turning to ramp up on the.

Speaker Change: It took them a while ago a few years driven.

Speaker Change: The three terabytes.

Speaker Change: R&D to default.

Krish Sankar: Can you give us the update on your on the.

Speaker Change: Roadmap or the status of your <unk> technology I would think about.

Speaker Change: But he terabyte plus.

David Goeckeler: So, uh, we've been working on a hand...

Speaker Change: So we've been working on a hammer for quite some time, we understand hammer extremely well.

David Goeckeler: So we've been working on Hammer for quite some time, and we understand it extremely well. We understand all the issues with Hammer and what it takes to get it qualified. Clearly, we're doing that all behind the scenes because we have a product portfolio with the best TCO we can offer in the market today, and we can do that all the way up to 40 terabytes. And 40 terabytes is where the economics flip over, and you get the 4 terabytes per platter or 40 per unit, where essentially the capacity increase will cancel out the increase in cost you have to put in the unit to get the economics to work on margin, right?

David Goeckeler: We understand all the issues with hammer and what it takes to get it qualified.

Speaker Change: Clearly, we're doing that all behind the scenes because we have a product portfolio with the best <unk>. We can offer in the market today and we can do that all the way up to 40 terabytes and 40 terabytes is where.

Speaker Change: The economics flip over.

David Goeckeler: And you get the four terabytes per platter or <unk> 40 per unit.

David Goeckeler: We're essentially the capacity increase will cancel out the increase in costs you have to put it in the unit to get the economics to work on margin Alright, that's kind of a complicated a lot to say in one sentence.

David Goeckeler: That's kind of a complicated... A lot to say in one sentence, but, you know, we're... Our portfolio is very focused on the right product with the right cost at the right time. The right time for Hammer is at 40 terabytes, and we've got a lot of development going on that product. We have for a long time. We, quite frankly, don't need to do it in public because we have another portfolio that's selling extremely well, which we've talked about throughout this process, but we have a lot of confidence in our Hammer development, and quite frankly, our customers know exactly what we're doing and where we're at and what our plans are, and they're comfortable with that as well.

David Goeckeler: Yes.

Speaker Change: Our portfolio is very focused on the right product with the right cost at the right time.

Speaker Change: The right time for Hammer is at 40 terabytes and.

Speaker Change: We've got a lot of development going on that product, we have for a long time.

David Goeckeler: We quite frankly don't need to do it in public because we have another portfolio that is selling extremely well, which we've talked about throughout this process, but we have a lot of confidence in our hammer development and quite frankly, our customers know exactly what we're doing and where we're at and what our plans are in and they are comfortable with that as well.

Speaker Change: Thanks, Dave.

Tom O'malley: And our next question comes from Tom O'Malley from Barclays. Please go ahead with your question.

Speaker Change: And our next question comes from Todd Omalley from Barclays. Please go ahead with your question.

Tom O'malley: Hey guys, thanks for taking my question. I'm going to do one on the CFO side real quick on OPEX. So a big step up in the June quarter, and you're talking about some special projects. How should we think about that progressing? Is that investment going to stick around for the next couple of quarters? Or should that reset back to kind of the lower base you've been running at? You've just seen OPEX move from kind of the 550s to 680 over the past year, obviously, revenue increasing as well. But any color there on what that investment is for? And if you see a step down after that?

Todd Omalley: Hey, guys. Thanks for taking my question I'm going to do one on the CFO side real quick on the Opex. So a big step up in the June quarter, and Youre talking about some special projects. How should we think about that progressing is that investments that are going to stick around for the next couple of quarters or that should that reset back to kind of the lower base you've been running that you've just seen opex move from kind of the $5 50 to 600.

Speaker Change: Over the past year, obviously revenue, increasing as well, but any color there on what that investment is four and if you see a step down after that.

Wissam Jabre: Yes, sure, Tom. So let me first start by saying that the way we think of OPEX is that we don't see OPEX increasing faster than revenue. So we're still very focused on that cost discipline and OPEX discipline. When it comes to this quarter, we're expecting some increases. The increase is almost 50-50 driven by variable comp as the financial outlook has improved much faster than anticipated. So there's a bit of an increase there. But also, as you mentioned, there are some project-specific R&D investments that we also have a sort of direct correlation in line of sight to revenue.

Speaker Change: Yes, sure Tom So let me first start by saying that.

Wissam Jabre: The way, we think of Opex is we don't see opex, increasing faster than revenues. So we're still we're still very focused on cost discipline and opex discipline when it comes to.

David Goeckeler: This quarter and where it is.

Wissam Jabre: Expecting.

Wissam Jabre: Some increase the increases.

Wissam Jabre: Almost $50 50, driven by variable comp as the financial outlook has improved much faster than anticipated so theres a bit of increase there.

Wissam Jabre: But also as you mentioned there is some project specific R&D investments.

Speaker Change: That also that we have sort of.

David Goeckeler: In direct correlation and line of sight to revenue.

Wissam Jabre: I would say for the next couple of quarters, the range that we've guided for Q4 is a reasonable range. I know it's too early to talk about fiscal year 25, but for modeling purposes, we can use the same type of numbers for now.

Wissam Jabre: I would say for the next couple of quarters. The range that we've guided for Q4 is a reasonable range I know, it's too early to talk about.

Wissam Jabre: Fiscal year, 'twenty, five but for modeling purposes, we can use the same type of numbers for now.

Tom O'malley: Helpful. And if I look at your cost guidance for the year, coupled kind of with what you're looking at for June 24, you know, when I'm looking at gross margins, it seems like you need to have a pretty significant step up in HED gross margins. Are you planning for all of that underutilization to come out of the model in the June quarter? And if any remains, can you let us know how much you're expecting?

Wissam Jabre: Yes.

Speaker Change: Helpful and if I look at your cost guidance for the year, a couple of color with what Youre looking at for June of 'twenty four.

Tom O'malley: When I'm looking at gross margins. It seems like you need to have a pretty significant step up in HDD gross margins are you planning for all of that the underutilization to come out of the model in the June quarter.

Tom O'malley: Any remains can you let us know how much you are expecting.

Wissam Jabre: So...

Wissam Jabre: So, for this most recent, for Q3, we had a little bit, and we disclosed it, and we talked about it, but, as you can see, the numbers are becoming less and less significant. And so, for the June quarter, there's still a little bit, but it's not really very significant for us to talk about on this call.

Tom O'malley: So.

Wissam Jabre: For this most recent for Q3, we had a little bit and we disclosed that we talked about those but as you can see the numbers are becoming less and less significant then so for the June quarter, Theres still a little bit, but it's not really very significant for us to talk about.

Tom O'malley: Thanks, Tom. Our next question comes from Vijay Rakesh from Zuho. Please go ahead with your question. Yeah. Hi David and Wissam.

Wissam Jabre: On this call.

Speaker Change: Thank you.

Vijay Raghavan Rakesh: Thanks, Tom. Thanks next question comes.

Tom O'malley: Our next question comes from Vijay Rakesh from Mizuho. Please go ahead with your question.

Vijay Raghavan Rakesh: Yeah, Hi, David.

Vijay Raghavan Rakesh: Just a quick question on the Flash site, Dave. When you look at the profitability, as you mentioned, how does the big state compare to, you know, if you look at some of the competitive NAND out there, either in terms of die size or cost per gigabyte, you know, versus some of the peers? So that's a very complicated question. I mean, we can go into it in detail offline.

Vijay Raghavan Rakesh: Just a quick question on <unk>.

Vijay Raghavan Rakesh: The flash site.

Vijay Raghavan Rakesh: And you look at the.

Vijay Raghavan Rakesh: Profitability as you mentioned harvest the big state.

Vijay Raghavan Rakesh: Two if you look at southern <unk>.

Vijay Raghavan Rakesh: Men out there either in terms of die size of cost per gig.

Vijay Raghavan Rakesh: Yes.

Vijay Raghavan Rakesh: Some of the peers.

Vijay Raghavan Rakesh: So that's a very complicated question I mean, we can go into it in detail offline. We obviously do tons of work and I. Appreciate your question that it's a multifaceted issue. It's die size. Its memory hole density. It's all kinds of all kinds of very complicated thing goes into producing.

David Goeckeler: We obviously do tons of work, and I appreciate your question that it's a multifaceted issue. It's die size. It's memory hole density. It's all kinds of very complicated things that go into producing a NAND product. Look, we think that we think the product compares extremely favorably. We think it leads the market again for the last time. Looking back many years, we have been able to produce Bits at a third less capex than the industry average, and we expect Bixate to continue that leadership in the market.

David Goeckeler: Sure.

David Goeckeler: NAND product.

David Goeckeler: <unk>.

David Goeckeler: Look we think we think the product compares extremely favorable we think it leads the market.

David Goeckeler: Again for the last looking back many years, we have been able to produce.

David Goeckeler: Bits at a third less capex than the industry average and.

David Goeckeler: And we expect <unk> to continue that leadership in the market. So we feel very very good about the product about its performance again when you build this is like kind of one of the magic of wafer bonding you can build the Cmos separately from the NAND stack and then the Cmos is kind of pristine. So the interfaces are really really fast.

David Goeckeler: So we feel very, very good about the product, about its performance. Again, when you build it, this is like kind of one of the magic of wafer bonding. You can build the CMOS separately from the NAND stack, and then the CMOS is kind of pristine. So the interfaces are really, really fast. So there are lots of good things about that architecture that lead to a really, really market-leading product, and we feel good about it. And we've got that all ready to go when market conditions support that level of investment.

David Goeckeler: So theres lots of good things about that architecture that leads to a really really market, leading product and we feel good about it and we've got that all ready to go when the market.

David Goeckeler: When the market conditions will support that level of investment.

Mehdi Hosseini: Our next question comes from Mehdi Hosseini from CIG. Please go ahead with your question. ESF

Mehdi Hosseini: Our next question comes around maybe if any husseini from Sig. Please go ahead with your question.

Mehdi Hosseini: Yes, most of the good questions have been asked, but David, I just have a longer-term question and it will help many investors. Let's say prices were to go sideways in 2025 and you're just focusing on that 15% cost down and higher mix of higher value ESSD products. Can you help us understand how your flash margins would evolve from here? And I'm not trying to ask you for pricing, but I'm just wondering how we could gauge your execution first on the product mix and, B, on the cost down and how they both would manifest into higher margins.

Mehdi Hosseini: Yes, most of the good questions have been asked but David I just have a longer term question and I think it will help many investors.

Mehdi Hosseini: Let's say prices were to go sideways in 'twenty, five and you just focusing on that 15% cost down.

Mehdi Hosseini: And higher mix of higher value E SSD products.

Mehdi Hosseini: Can you help us understand how you are flash margins would evolve from here.

Mehdi Hosseini: I'm not trying to ask you for pricing, but I'm just wondering.

Mehdi Hosseini: We could gauge your execution first on the product mix and B on the cost down.

Mehdi Hosseini: They both would manifest into higher margins.

Wissam Jabre: Yeah, let me first start with, I'll take a stab at the answer, Mehdi. So look, our target model hasn't changed. We're still targeting through cycle for the flash business to be 35%, and gross margin to be between 35% and 37%. And so that means, obviously, as from where we are today, we still have some ways to go to get to that through cycle margin. And the way we achieve these gross margins is what we've been talking about on this call. We focus on the product portfolio, the bid placement, as well as on the cost side, which we still anticipate similar types of ranges in terms of cost downs.

Speaker Change: And then let me first start with <unk>.

Wissam Jabre: I'll take a stab at the answer so look our target model hasn't changed we're still targeting through cycle for the flash business to be 35% gross margin to be between 35% to 37% and so that means obviously as the from where we are today, we still have some ways to go to get to that through cycle.

Wissam Jabre: The margin and the way we we achieved these gross margins is what we've been talking about on this call. We focus on the product portfolio of the MIT placement as well as on the cost side.

Wissam Jabre: Which which we still anticipate the similar type of ranges in terms of cost downs.

Mehdi Hosseini: Okay, that's reasonable. Let me just move on to the second question.

Speaker Change: Okay. That's a reasonable let me just move on to the second question and this is something we always ask.

David Goeckeler: And this is something I always ask, focusing on HDDs. Is there any update on how you see exabyte shipment evolving over the next couple of years? Is the target now 25 to 30% or less or more? Oh, we're not

David Goeckeler: Focusing on HDD is there any update how you see exabyte shipment evolving over the next couple of years.

David Goeckeler: Is the target now, 25%, 30% or less or more.

David Goeckeler: We're not, you know, we're still in the 20 to 25 percent camp, maybe around 25 percent. That's, you know, we're clearly in a cyclical recovery here getting back to that kind of through-cycle number. I think that, you know, the kind of the question inside your question is, how much does AI add to that? And I think it's still a little early to tell.

David Goeckeler: We're still in the 20% to 25% camp, maybe around 25% that we're clearly in a cyclical recovery here.

David Goeckeler: Getting back to that kind of through cycle number.

David Goeckeler: I think the kind of the question inside your question is how much is AI add onto that and I think it's still a little early to tell we definitely see as I said <unk>.

David Goeckeler: We definitely see, as I talked about earlier, the value of data going up. Save, you know, you want to store more data to train more models; those models are going to turn out more data. So, we think that the bias is higher. I'm not in a position yet to call exactly how much it changes the slope of that line.

David Goeckeler: Talked about earlier.

David Goeckeler: We see the value of data going up.

David Goeckeler: Yes.

David Goeckeler: You want to store more data to train more models. Those models are going to turn out more data. So we think that the bias.

David Goeckeler: As higher I'm not in a position yet to call exactly how much it changes the slope of that line. So that's something we're going to stay very focused on.

David Goeckeler: So that's something we're going to stay very focused on as we go forward here over the next several quarters, and stay close to our customers as these models get deployed, and AI gets more broadly deployed and adopted, so that we can dial in what we expect that impact to be on HDD storage demand. But we feel good that we've got that secular tailwind for the business that will emerge. Our next question comes from Steven Fox from Fox Advisors. Please go ahead with your question. Hi, two quick ones for me. First of all, on the HTV side, your large competitors...

Steven Bryant Fox: As we go forward here over the next several quarters stay close to our customers as these models get deployed in AI gets more broadly deployed and adopted so that we can we can dial in what we expect that impact to be on an HDD storage demand, but we feel good that it's.

Steven Bryant Fox: And we've got that secular tailwind to the business.

Steven Bryant Fox: That will emerge.

David Goeckeler: Yes.

David Goeckeler: Our next question comes from Steven Fox from Fox Advisors. Please go ahead with your question.

Steven Bryant Fox: Hi, two quick ones from me first of all on the HDD side.

Steven Bryant Fox: Your large competitors talked about having to sort of support the supply chain going forward I was wondering how you look at that.

Steven Bryant Fox: Our next question comes from Steven Fox from Fox Advisors. Please go ahead with your question.

Steven Bryant Fox: Option or need to do that and then secondly.

Steven Bryant Fox: Since cash flows turned positive again I was wondering if you could sort of give us a little bit of help on how to think cash flow tracks, maybe versus net income or EBITDA over the next few quarters. Thanks.

Steven Bryant Fox: I'll just say something about the supply chain. Look, we've stayed very close to our suppliers throughout the entire downturn and will continue to stay very close to them as we plan the business going forward. So we think we always support our supply chain. Irving Tan, who leads operations, is based in Singapore. A lot of our suppliers are there, and he personally can stay very, very close to them. So we've been very close and have supported our supply chain throughout this entire downturn. And now that things are getting better, that's a good situation for all of us.

Steven Bryant Fox: I'll, just say something about supply chain liquid state, we've stayed very close to our suppliers throughout the entire downturn and stay very close to them as we're planning the business going forward. So we think we always support or our supply chain.

Steven Bryant Fox: Irving Tan who leads operations is based in Singapore, a lot of our suppliers are there and he personally can stay very very close to them. So we've stayed.

Steven Bryant Fox: We've been very close in and supported our supply chain throughout this entire downturn and now as things are getting better.

Steven Bryant Fox: That's a good situation for all of US you want to talk about the cash flow Yeah, Let me take that so on the on the cash flow.

David Goeckeler: Yeah, let me take that. So on cash flow, yeah, thanks. Obviously, we returned to positive free cash flow in Q3. And as revenue and the business continue to recover, you know, we're completely focused on profitability and cash flow generation. So we should expect that to improve from here.

David Goeckeler: Obviously, we returned to free cash flow positive in Q3 and as the.

David Goeckeler: Yeah.

David Goeckeler: Revenue in the business continues to recover.

David Goeckeler: We are completely focused on profitability.

David Goeckeler: And cash flow generation, so we should expect that to improve from here.

David Goeckeler: Okay.

Wissam Jabre: Our next question comes from Ananda Baruah from Loop Capital. Please go ahead with your question.

David Goeckeler: Our next question comes from Ananda Baruah from Loop capital. Please go ahead with your question.

Ananda Prosad Baruah: Yeah, thanks guys for taking the question. Yeah, just one for me.

Ananda Prosad Baruah: Yeah, Thanks, guys for taking the question.

Ananda Prosad Baruah: And just finally for me, David really I think piggybacking off the upper part of that question.

Ananda Prosad Baruah: David, really, I think I'm piggybacking off of part of Mehdi's question. So, just, it's a TAM question on both sides of the business, ACB and Flash. Is it really the spirit of it that you see some near-term demand from AI coming and... TBD on the impact to the TAM over time, and also TBD on impact to the normalized growth rate off of whatever the new TAM looks like? That's really the question, and TBD is a fine answer, but just wanted to make sure we get all of your current opinions there.

Ananda Prosad Baruah: So just Tam question.

Ananda Prosad Baruah: As of the business ACD in flash.

Ananda Prosad Baruah: Is really the spirit of it that you see some near term demand from from AI coming.

Ananda Prosad Baruah: Ed.

Ananda Prosad Baruah: TBD on the impact to the Tam over time and is also TBD.

Ananda Prosad Baruah: Pack to the normalized growth rate off of whatever the new Tam looks like that's really the question.

Ananda Prosad Baruah: The financing, but just wanted to make sure we get all of you all of you are correct.

David Goeckeler: I think that's a...

Ananda Prosad Baruah: Okay.

David Goeckeler: I think that's a fair way to say it. I think it's coming into focus as to where it's going to show up on both sides of the business. But it's, you know, we, to your point, we're not ready to call what it does to the TAM besides that we believe it's a tailwind for both TAMs. So Clearly, on the NAND business, you know, there are very specific use cases for model training that are coming up, you know, substantially.

David Goeckeler: I think Thats I think Thats, a fair way to say it I think it's coming into focus as to where it's going to show up.

David Goeckeler: On both sides of the business, but it's.

David Goeckeler: To your point.

David Goeckeler: Not ready to call what it does to the Tam. Besides we believe it's a tailwind to both Tam so.

David Goeckeler: Clearly on the on the on the NAND business.

David Goeckeler: Very specific use cases on model training that are coming up.

David Goeckeler: I mean, obviously, you're seeing that across the whole technology landscape. And, you know, maybe that's a little bit easier to see, you know, we're actually seeing demand for those kinds of products in the second half. And, you know, for HDDs, we see it as. All the data that's going to feed that process is going to sit on HDDs. And obviously, once those models get trained, they're going to turn out data that's, you know, 85% plus of that is going to be stored on HDD.

David Goeckeler: Substantially I mean, obviously youre seeing that across the whole technology landscape.

David Goeckeler: And maybe that's a little bit easier to see.

David Goeckeler: We're actually seeing demand for those kind of products in the second half.

David Goeckeler: And for HDD, we see it as the.

David Goeckeler: All the data that's going to feed that process is going to sit on hdds and obviously once those models get trained theyre going to turn out data that.

David Goeckeler: 85% plus of that is going to be stored on HDD. So we see a very very good setup, but we're staying close to our customers in these markets, it's still a little bit early to actually put a number on it.

David Goeckeler: So we see a very, very good setup. But we're staying close to our customers in these markets. It's still a little bit early to actually put a number on it to see what it does to the growth rate or the TAM size.

David Goeckeler: What it does to the growth rate or the Tam size.

Tristan Gerra: And our next question comes from Tristan Guerra from Barrett. Please go ahead with your question. Hi, good afternoon. A quick follow up on this, which is

Tristan Gerra: And our next question comes from interest in Gara from Baird. Please go ahead with your question.

Tristan Gerra: Hi, Good afternoon quick follow up on the switches.

Tristan Gerra: And our next question comes from Tristan Guerra from Barrett. Please go ahead with your question. Hi, good afternoon.

Tristan Gerra: How critical is it to have U S manufacturing.

Tristan Gerra: In relation to Eni.

Tristan Gerra: And how do you look at partnership with Hydro scanners as opposed to kind of a general purpose business.

David Goeckeler: You mean U.S. manufacturing of the NAND itself or the SSD, or which? Well, our NAND is manufactured in Japan.

David Goeckeler: Hum.

David Goeckeler: So we don't see that as a, you know, we, we feel really good about our manufacturing footprint, by the way. So the, you know, the JV, we haven't talked at all in this call about the JV, but that puts us in a great position from a scale perspective and gives us a, you know, it's the big underlying part of that low cost, lowest cost bids, low capital efficiency and great product roadmap, because we, All of that is done in tandem with Keoksha, and so we're able to invest as, you know, the largest supplier in the market, which is a great position to be in.

David Goeckeler: You mean U S manufacturing of the NAND itself for the SSD.

David Goeckeler: Well, our NAND is manufactured in Japan so.

David Goeckeler: We don't see that as a.

David Goeckeler: We feel really good about our manufacturing footprint by the way so.

David Goeckeler: The JV, we haven't talked at all on this call about the JV, but that puts us in a great position from a scale perspective and gives us.

David Goeckeler: The big underlying part of that low cost lowest cost beds, low capital efficiency and great product roadmap because we.

David Goeckeler: All of that is done in tandem with Chiacchia and so we're able to invest as the largest supplier in the market.

David Goeckeler: Which is a great position to be in but.

David Goeckeler: We haven't, you know, the way our footprint is set up from a manufacturing point of view, we haven't seen anything that, you know, impairs our ability to serve the entire market. And as far as partnership with hyperscalers is concerned, like, look, we stay very close to the hyperscalers. Obviously, they're big customers of ours, and we're big suppliers of theirs on both sides of the business. So, we're very, very close to them and staying close to what are the different use cases, how do they want the products built, you know, especially in the enterprise SSD market.

David Goeckeler: We haven't.

David Goeckeler: The way our the way our footprint to setup manufacturing point of view, we haven't seen anything that.

David Goeckeler: Impairs us ability to serve the entire market.

David Goeckeler: And as far as partnership with Hyperscale or cyclic we stay very close to the hyper scalar is obviously there are big big customers of ours, where big suppliers of theirs.

David Goeckeler: On both sides of the business. So we're very very close to them.

David Goeckeler: Staying close to what are different use cases, how do they how do they want the products build.

David Goeckeler: Especially in the enterprise SSD market every there's not just one enterprise SSD everybody uses slightly different interfaces and theres different ways. Their architecture. Their data centers are built so we stay close to them to make sure we build the right product for for what we are what the markets we want to serve.

David Goeckeler: There's not just one enterprise SSD. Everybody uses slightly different interfaces, and there are different ways their architecture, their data centers are built. So, we stay close to them to make sure we build the right product for the markets we want to see.

Unknown Executive: And at this time, we'll conclude today's question and answer session. I'd like to turn the floor back over to David for any closing remarks. All right.

Unknown Executive: And at this time, we'll conclude today's question and answer session I would like to turn the floor back over to David for any closing remarks.

David Goeckeler: All right, thanks everyone. We appreciate all of the questions, and we look forward to talking to everybody throughout the quarter. Thanks again.

David Goeckeler: Alright. Thanks, everyone. We appreciate all of the questions and we look forward to talking to everybody throughout the quarter. Thanks again.

Unknown Executive: This concludes today's conference call. We thank you for joining us. You may now disconnect your line.

Speaker Change: This concludes today's conference call. We thank you for joining you may now disconnect your lines.

Unknown Executive: [music].