Q4 2024 Western Digital Corp Earnings Call

July 31, 2024

Operator: Good afternoon, and thank you for standing by. Welcome to Western Digital's fourth quarter and fiscal 2024 conference call. Presently, all participants are in listen-only mode.

Speaker Change: Good afternoon and thank you for standing by. Welcome to Western Digital's fourth quarter and fiscal 2024 conference call.

Operator: Later, we will conduct a question and answer session. At that time, if you would like to ask a question, you may press star 1 on your phone. As a reminder, today's call is being recorded. I'd now like to turn the conference over to Mr. Peter Andrew, Vice President for Financial Planning and Analysis and Investor Relations. You may begin. Thank you, and good afternoon, everyone.

Speaker Change: Presently, all participants are in listen-only mode.

Speaker Change: Later, we will conduct a question and answer session.

Speaker Change: At that time, if you would like to ask a question, you may press star 1 on your phone.

Speaker Change: As a reminder, today's call is being recorded.

Speaker Change: I'd now like to turn the conference over to Mr. Peter Andrew, Vice President for Financial Planning and Analysis and Investor Relations. You may begin.

Peter Andrew: 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, does include risks and uncertainty. These forward-looking statements include expectations for our product portfolio, our business plans 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.

Speaker Change: Thank you and good afternoon everyone. Joining me today are David Goeckeler, Chief Executive Officer, and Wissam Jabre, Chief Financial Officer.

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 for introductory remarks. Thanks, Peter. Good afternoon, everyone.

Speaker Change: 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 risks and uncertainties.

Speaker Change: These forward-looking statements include expectations for our product portfolio, our business plans and performance, the separation of our flash and HDD businesses, ongoing market trends, and our future financial results.

Speaker Change: We assume no obligation to update these statements.

Speaker Change: 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.

Speaker Change: We will also make references to non-GAAP financial measures today. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the Investor Relations section of our website.

David Goeckeler: And thank you for joining the call to discuss our fourth quarter performance in fiscal year 2024. Western Digital delivered strong results with fiscal fourth quarter revenue of $3.8 billion, non-GAAP gross margin of 36.3%, and non-GAAP earnings per share of $1.44. For the fiscal year 2024, revenue totaled $13 billion.

Speaker Change: With that, I'll now turn the call over to David for introductory remarks.

David Goeckeler: Thanks, Peter. Good afternoon, everyone, and thank you for joining the call to discuss our fourth quarter in fiscal year 2024 performance.

David Goeckeler: Western Digital delivered strong results with fiscal fourth quarter revenue of $3.8 billion, non-GAAP gross margin of 36.3%, and non-GAAP earnings per share of $1.44.

David Goeckeler: For the fiscal year 2024, revenue total $13 billion.

David Goeckeler: We have maintained our strategic focus on aligning our portfolio of industry-leading products with growth opportunities across a broad range of end markets to mitigate volatility while structurally improving our through-cycle profitability for both flash and HDDs. Before we discuss our performance, I want to provide our views on where the storage market is heading and how we are well positioned to capitalize on these growth opportunities. Our diverse portfolio, coupled with the structural changes we've made to strengthen our operations, is enabling us to benefit from the broad recovery we are beginning to see across our end markets.

David Goeckeler: Before we discuss our performance, I want to provide our views on where the storage market is heading and how we are well positioned to capitalize on these growth opportunities.

David Goeckeler: Our diverse portfolio, coupled with the structural changes we've

David Goeckeler: have made to strengthen our operations is enabling us to benefit from the broad recovery we are beginning to see across our end markets.

David Goeckeler: In addition, the AI data cycle is increasing the need for storage and creating new demand drivers across both flash and HDD. These AI systems process and analyze existing data, generate new data, and require substantial storage for training, operating in a continuous cycle of increasing data consumption, processing, and generation.

David Goeckeler: In addition, the AI data cycle is increasing the need for storage and creating new demand drivers across both Flash and HDD.

David Goeckeler: These AI systems process and analyze existing data, generate new data, and require substantial storage for training, operating in a continuous cycle of increasing data consumption, processing, and generation.

David Goeckeler: As AI technologies advance, data storage systems must deliver the capacity and performance necessary to support the computational demands of large, sophisticated models while managing vast volumes of data. Given this landscape, we expect FLASH to benefit from both AI training and inference, while HDD is poised to benefit at both the input and output stages of these AI models. To address the growing performance, power, and capacity requirements, we have developed our flash and HDD product roadmaps to meet our end customer storage needs across the entire AI data cycle. We introduce the industry-leading, high-performance PCIe Gen 5 SSD to support AI training and inference.

David Goeckeler: Given this landscape, we expect Flash to benefit from both AI training and inference, while HDD is poised to benefit at both the input and output stages of these AI models.

David Goeckeler: To address the growing performance, power, and capacity requirements, we have developed our flash and HDD product roadmaps to meet our end customer storage needs across the entire AI data cycle.

David Goeckeler: We introduced the industry-leading, high-performance PCIe Gen 5 SSD to support AI training and inference, a high-capacity 64TB SSD for optimizing the build-out of rapid AI data lakes.

David Goeckeler: A high-capacity, 64-terabyte SSD for optimizing the build-out of rapid AI data lakes, and the world's highest capacity EPMR Ultra SMR 32 terabyte hard drive for cost-effective and deep content storage at scale. These new offerings demonstrate our continued commitment to innovation and market leadership. As we enter fiscal year 2025, we are well-positioned to capture the long-term growth opportunities in data storage and believe the AI data cycle will be a significant incremental growth driver for the storage industry.

David Goeckeler: and the world's highest capacity EPMR Ultra SMR 32 terabyte hard drive for cost-effective and deep content storage at scale.

David Goeckeler: These new offerings demonstrate our continued commitment to innovation and market leadership.

David Goeckeler: As we enter fiscal year 2025, we are well-positioned to capture the long-term growth opportunities in data storage.

David Goeckeler: and believe the AI data cycle will be a significant incremental growth driver for the storage industry.

David Goeckeler: Before I dive further into business updates, I want to update you on our separation plan. I am pleased with the progress our team has made as we continue to drive to complete the work required to separate the company at the end of the calendar year. As part of the ongoing preparation for the separation, we anticipate beginning to incur separation dis-synergy costs in the second half of the calendar year. Wissam will briefly discuss the anticipated impact of these costs.

Speaker Change: Before I dive further into business updates, I want to update you on our separation plans.

David Goeckeler: I am pleased with the progress our team has made as we continue to drive to completing the work required to separate the company at the end of the calendar year.

David Goeckeler: As part of the ongoing preparation for the separation, we anticipate beginning to incur separation dis-synergy costs in the second half of the calendar year. Wissam will briefly discuss the anticipated impact of these costs.

David Goeckeler: I'll now turn to business updates. Starting with Flash, growth in revenue was driven by the recovery in cloud and a shift of our client mix to gaming and mobile, partially offset by a decline in consumer. Our focus on driving higher through-cycle profitability is reflected in our results as we proactively mix bits across our end markets. Our innovative offerings remain at the forefront of the market, reinforcing our competitive position and bolstering our growth prospects.

Wissam Jabre: I'll now turn to business updates.

Wissam Jabre: Starting with Flash, the growth in revenue was driven by the recovery in cloud and a shift of our client mix to gaming and mobile, partially offset by a decline in consumer.

Wissam Jabre: Our focus on driving higher through cycle profitability is reflected in our results as we proactively mix bids across our end markets.

Wissam Jabre: Our innovative offerings remain at the forefront of the market, reinforcing our competitive position and bolstering our growth prospects. For example, our new QLC-based client SSDs, which grew 50% on a sequential exabyte basis,

David Goeckeler: For example, our new QLC-based client SSDs, which grew 50% on a sequential exabyte basis, offer significantly better performance than our previous generation TLC product. Combining this high-performance node with our in-house controller development enables us to provide a portfolio of client SSDs that deliver unmatched performance and value. We believe these products will lead the industry's transition to QLC Flash. During our New Era of NAN webinar last month, we introduced the world's highest capacity BIX-8 2TB QLC memory die, specifically designed to meet growing data center and AI storage needs.

Wissam Jabre: offer significantly better performance than our previous generation TLC products.

Wissam Jabre: Combining this high-performance node with our in-house controller development enable us to provide a portfolio of client SSDs that deliver unmatched performance and value. We believe these products will lead the industry's transition to QLC Flash.

Wissam Jabre: During our new era of NAN webinar last month, we introduced the world's highest capacity BIX-8 2TB QLC memory die.

David Goeckeler: Built on a chip bonded to array architecture, BICS 8 reinforces Western Digital and Keox's leadership in cost and capital efficiency, as well as superior I.O. performance, by integrating wafer bonding in advanced 3D manufacturing to establish a groundbreaking foundation for future scalability of 3D NAND.

Wissam Jabre: specifically designed to meet growing data center and AI storage needs.

Kioxia: Built on a chip bonded to array architecture, BICS VIII reinforces Western Digital and Keoxys' leadership in cost and capital efficiency.

Kioxia: as well as superior IO performance by integrating wafer bonding in advanced 3D manufacturing to establish a groundbreaking foundation for future scalability of 3D NAND.

David Goeckeler: In addition, our 64 terabyte Enterprise SSD is now being sampled with plans for volume shipment later this calendar year. Furthermore, our PCIe Gen 5 based Enterprise SSD delivers best-in-class read performance as well as power efficiency. We are seeing significant interest in this product, which is currently qualifying at a hyperscaler with ramp-up expected in the second half of this calendar year. We'll talk more about our flash roadmap at the upcoming Flash Memory Summit in early August. Turning to the Flash Outlook,

Kioxia: In addition, our 64 terabyte Enterprise SSD is now being sampled with plans for volume shipment later this calendar year.

Kioxia: Furthermore, our PCIe Gen 5 based Enterprise SSD delivers best-in-class read performance as well as power efficiency.

Kioxia: We are seeing significant interest in this product, which is currently qualifying at a hyperscale with ramp expected in the second half of this calendar year.

Kioxia: We'll talk more about our flash roadmap at the upcoming Flash Memory Summit in early August .

David Goeckeler: Throughout the fourth quarter, our product mix was dynamic as we proactively mixed bits between our end markets in response to the softness we are seeing in more transactional markets such as consumer and channel. Our success in identifying the most profitable approach to allocating bits is reflected in the growth of both our revenue and gross margin. As we look into the first quarter, in addition to the mix environment we saw in the fourth, for the full fiscal year 2025, we expect Enterprise SSDs to represent a double-digit percent share in our portfolio mix. The new era of NAND is driving a period of change. And we are going to remain disciplined in managing our capital spending. The layer-focused race is behind us.

Kioxia: Turning to the Flash Outlook.

Kioxia: Throughout the fourth quarter, our products mix was dynamic as we proactively mixed bits between our end markets in response to the softness we are seeing in more transactional markets such as consumer and channel.

Kioxia: Our success in identifying the most profitable approach to allocating bids is reflected in the growth of both our revenue and gross margin.

Kioxia: As we look into the first quarter, in addition to the mixed environment we saw in the fourth quarter, we expect the continued ramp of our new enterprise SSD offerings and seasonal strength in mobile to drive mid-to-high teams' bid growth on a sequential basis.

Kioxia: For the full fiscal year 2025, we expect Enterprise SSDs to represent a double-digit percent share in our portfolio mix.

Kioxia: The new era of NAND is driving a period of change.

Kioxia: And we are going to remain disciplined in managing our capital spending. The layers focus race is behind us. The emphasis is now shifting towards strategically timing the economic introduction of new, longer lasting nodes.

David Goeckeler: The emphasis is now shifting towards strategically timing the economic introduction of new, longer-lasting nodes. Innovation now means enhancing power efficiency, performance, and capacity within these nodes, while capital decisions increasingly prioritize opportunities for margin expansion and revenue growth. Turning to HTD, revenue growth was driven by strength in near-line demand and improved pricing. By leveraging our SMR leadership and lean cost structure, we have surpassed our target gross margin range, underscoring our ongoing commitment to improve future profitability.

Kioxia: Innovation now means enhancing power efficiency, performance, and capacity within these nodes, while capital decisions increasingly prioritize opportunities for margin expansion and revenue growth.

Speaker Change: Turning to HDD, revenue growth was driven by strength in near-line demand and improved pricing. By leveraging our SMR leadership and lean cost structure, we have surpassed our target gross margin range, underscoring our ongoing commitment to improve future profitability.

David Goeckeler: The HCD business has undergone a remarkable transformation in recent quarters, marked by strategic initiatives aimed at introducing the most innovative, high-capacity products to market. We have increased our profitability meaningfully by restructuring our manufacturing footprint and optimizing our cost structure to drive operational efficiency, all while qualifying and ramping our SMR technology. We continue to structurally change the way we are operating our HED business. With better visibility into future demand, operational excellence, and a commitment to sustaining a supply-demand balance, we are poised to continue our trajectory of bringing highly innovative products to market while increasing profitability into the future.

Speaker Change: The HTD business has undergone a remarkable transformation in recent quarters, marked by strategic initiatives aimed at introducing the most innovative, high-capacity products to market.

Speaker Change: We have increased our profitability meaningfully by restructuring our manufacturing footprint and optimizing our cost structure to drive operational efficiency, all while qualifying and ramping our SMR technology.

Speaker Change: We continue to structurally change the way we are operating our HED business.

Speaker Change: With better visibility into future demand, operational excellence, and a commitment to sustaining supply-demand balance, we are poised to continue our trajectory of bringing highly innovative products to market while increasing profitability into the future.

Speaker Change: On the technology front, we ship samples of our 32 terabyte Ultra SMR EPMR Near-Line Hard Drives to select customers.

Speaker Change: These drives feature advanced triple-stage actuators and Opti-NAND technology, which are designed for seamless qualification integration and deployment in hyperscale cloud and enterprise data centers while maintaining exceptional reliability.

Wissam Jabre: With this in mind, we are well positioned to deliver the industry's highest capacity hard drive and the best TCO. Turning to the HGD Outlook. As we look to the fiscal first quarter, we expect further growth driven by greater demand and more favorable pricing. Our cloud customers continue to transition to SMR, and we anticipate a third major cloud vendor to begin the ramp of adopting SMR in the fiscal first quarter. Our leading products and lean cost structure have supported ongoing profitability improvements in our HGE business.

Speaker Change: With this in mind, we are well positioned to deliver the industry's highest capacity hard drives and the best TCO.

Speaker Change: Turning to the HCD Outlook.

Speaker Change: As we look to the fiscal first quarter, we expect further growth driven by greater demand and more favorable pricing.

Speaker Change: Our cloud customers continue to transition to SMR, and we anticipate a third major cloud vendor to begin the ramp of adopting SMR in the fiscal first quarter.

Speaker Change: Our leading products and lean cost structure have supported ongoing profitability improvements in our HDE business. We remain focused on driving higher margins to reflect the significant innovation and TCO improvements we deliver to our customers.

Wissam Jabre: We remain focused on driving higher margins to reflect the significant innovation and TCO improvements we deliver to our customers. Our strategic approach to commercializing EPMR, Optinan, and UltraSMR technologies has proven to be a winning strategy, enabling us to surpass our gross margin target for HDDs in the midst of AI's emergence as another pivotal growth driver for the industry. Let me now turn the call over to Wissam, who will discuss our fiscal fourth quarter results. Thanks, David, and good afternoon, everyone.

Speaker Change: Our strategic approach to commercializing EPMR, OptiNAN, and Ultra SMR technologies has proven to be the winning strategy, enabling us to surpass our gross margin target for HDDs in the midst of AI's emergence.

Speaker Change: as another pivotal growth driver for the industry.

Speaker Change: Let me now turn the call over to Wissam, who will discuss our fiscal fourth quarter results.

Wissam Jabre: In the fiscal fourth quarter, Western Digital delivered great results with gross margin and earnings per share exceeding the high end of the guidance range. Total revenue for the quarter was $3.8 billion, up 9% sequentially and 41% year-over-year. Non-GAAP earnings per share was $1.44.

Wissam Jabre: Thanks, David, and good afternoon, everyone.

Wissam Jabre: In the fiscal fourth quarter, Western Digital delivered great results with gross margin and earnings per share exceeding the high end of the guidance range.

Wissam Jabre: Total revenue for the quarter was $3.8 billion, up 9% sequentially, and 41% year-over-year. non-GAAP earnings per share was $1.44.

Wissam Jabre: Looking at end markets, the cloud represented 50% of total revenue at $1.9 billion. The sequential growth of 21% is attributed to higher near-line shipments and pricing in HDD, coupled with increased bit shipments and pricing in Enterprise SSD. The 89% year-over-year increase was due to higher shipments and price per unit in near-line HDDs, along with Higher Enterprise SSD Bit Shipments. Nearline bit shipments were at a record level of 125 exabytes, up 16% from the previous quarter, and 113% compared to the fiscal fourth quarter of 2023. The client represented 32% of total revenue at $1.2 billion.

Wissam Jabre: Looking at end markets, the cloud represented 50% of total revenue at $1.9 billion.

Wissam Jabre: The sequential growth of 21% is attributed to higher near-line shipments and pricing in HDD, coupled with increased bid shipments and pricing in Enterprise SSD.

Wissam Jabre: The 89% year-over-year increase was due to higher shipments and price per unit in near-line HDDs.

Wissam Jabre: along with higher enterprise SSD bit shipments.

Wissam Jabre: Nearline bit shipments were at a record level of 125 exabytes.

Wissam Jabre: up 16% from the previous quarter and 113% compared to fiscal fourth quarter of 2023.

Wissam Jabre: Client represented 32% of total revenue at $1.2 billion.

Wissam Jabre: The sequential increase of 3% was due to the increase in flash ASPs, offsetting a decline in flash bit shipments, while HDD revenue decreased slightly. The 16% year-over-year growth was driven by higher flash ASPs. Consumer represented 18% of total revenue at $0.7 billion. Sequentially, the 7% decrease was due to lower flash and HDD bit shipments, partially offset by higher ASPs in both Flash and HDD.

Wissam Jabre: The sequential increase of 3% was due to the increase in flash ASPs, offsetting a decline in flash bit shipments, while HDD revenue decreased slightly.

Wissam Jabre: The 16% year-over-year growth was driven by higher flash ASPs.

Wissam Jabre: Consumer represented 18% of total revenue at $0.7 billion.

Wissam Jabre: Sequentially, the 7% decrease was due to lower flash and HDD bit shipments, partially offset by higher ASPs in both flash and HDD.

Wissam Jabre: The 5% year-over-year increase was driven by improved Flash ASPs and BitChip. For fiscal year 2024, revenue was $13 billion, up 6% from fiscal year 2023. Non-GAAP Gross Margin increased 7.1 percentage points to 22.8%, and Non-GAAP Operating Margin increased 8.7 percentage points to 3.9%. Non-GAAP loss per share was $0.20.

Wissam Jabre: The 5% year-over-year increase was driven by improved flash ASPs and bit shipments.

Wissam Jabre: For fiscal year 2024, revenue was $13 billion, up 6% from fiscal year 2023.

Wissam Jabre: non-GAAP Gross Margin increased 7.1 percentage points to 22.8%.

Wissam Jabre: and Nungap Operating Margin increased 8.7 percentage points to 3.9%.

Wissam Jabre: Looking at end markets for fiscal year 2024, cloud revenue increased 2% year-over-year due to higher demand for capacity enterprise HDDs and improved pricing. For the year, client and consumer revenue grew by 7% and 9%, respectively, due to higher flash bit shipment. Turning now to Revenue by Segment. In the fiscal fourth quarter, flash revenue was $1.8 billion, up 3% sequentially and 28% year-over-year compared to last year and last quarter. Flash ASPs were up 14% on a blended basis and 11% on a like-for-like basis. Bit shipments decreased 7% sequentially and 3% compared to last year as we proactively mixed flash bits to maximize profitability.

Wissam Jabre: non-GAAP loss per share was $0.20.

Wissam Jabre: Looking at end markets for fiscal year 2024, cloud revenue increased 2% year-over-year due to higher demand for capacity enterprise HDDs and improved pricing.

Wissam Jabre: For the year, client and consumer revenue grew by 7% and 9% respectively due to higher flash bid shipments.

Wissam Jabre: Turning now to Revenue by Segment.

Wissam Jabre: In the fiscal fourth quarter, flash revenue was $1.8 billion, up 3% sequentially, and 28% year over year.

Wissam Jabre: compared to last year, last quarter.

Wissam Jabre: Flash ASPs were up 14% on a blended basis and 11% on a like-for-like basis.

Wissam Jabre: Bit shipments decreased 7% sequentially and 3% compared to last year as we proactively mixed flash bits to maximize profitability.

Wissam Jabre: HDD revenue was $2 billion, up 14% from last quarter, as exabyte shipments increased 12%. And average price per unit increased 12% to $163 compared to the fiscal fourth quarter of 2023. HDD revenue grew 55%, while total exabyte shipments and average price per unit were up 72% and 64%, respectively. Moving to the rest of the income statement, please note my comments will be related to non-GAAP results unless stated otherwise. Our focus on improving through-cycle profitability in both Flash and HDD has shown great progress. In the fiscal fourth quarter, total gross margin reached 36.3%, well above the guidance range.

Wissam Jabre: HDD revenue was $2 billion, up 14% from last quarter as exabyte shipments increased 12% and average price per unit increased 12% to $163.

Wissam Jabre: Compared to the fiscal fourth quarter of 2023, HDD revenue grew 55% while total exabyte shipments and average price per unit were up 72% and 64% respectively.

Speaker Change: Moving to the rest of the income statement, please note my comments will be related to non-GAAP results unless stated otherwise.

Speaker Change: Our focus on improving through-cycle profitability in both Flash and HDD has shown great progress.

Speaker Change: In the fiscal fourth quarter, total gross margin reached 36.3%, well above the guidance range.

Wissam Jabre: Gross margin improved by 7 percentage points sequentially and 32.4 percentage points year-on-year due to better pricing and cost reduction as well as higher volume within Flash by proactively allocating bits between end markets and executing on our cost reduction initiatives. We have improved gross margin for four consecutive quarters. Flash gross margin was 36.5%, up 9.1 percentage points compared to last quarter, and 48.4 percentage points year over year.

Speaker Change: Gross margin improved by 7 percentage points sequentially and 32.4 percentage points year-on-year due to better pricing and cost reduction as well as higher volume.

Speaker Change: Within Flash, by proactively allocating bits between end markets,

Speaker Change: and executing on our cost reduction initiatives, we have improved gross margin for four consecutive quarters.

Speaker Change: Flash gross margin was 36.5%, up 9.1 percentage points compared to last quarter, and 48.4 percentage points year-over-year.

Wissam Jabre: In HTD, by offering a leading product portfolio and running efficient manufacturing operations focused on cost discipline, we continue to make progress in improving profitability. We delivered a gross margin of 36.1 percent, exceeding the long-term target range, up five percentage points sequentially and 15.4 percentage points compared to the fiscal fourth quarter of 2023. Operating expenses were $700 million for the quarter, above our guided range, primarily due to higher variable compensation associated with better than expected profitability. Operating income was $666 million. The tax expense was $17 million.

Speaker Change: In HDD, by offering a leading product portfolio and running efficient manufacturing operations focused on cost discipline, we continue to make progress in improving profitability.

Speaker Change: We delivered a gross margin of 36.1%, exceeding the long-term target range, up 5 percentage points sequentially, and 15.4 percentage points compared to fiscal fourth quarter of 2023.

Speaker Change: Operating expenses were $700 million for the quarter, above our guided range, primarily due to higher variable compensation associated with better-than-expected profitability.

Speaker Change: Operating income was $666 million.

Speaker Change: Tax expense was $17 million.

Speaker Change: Earnings per share was $1.44.

Wissam Jabre: Earnings per share was $1.44. Operating cash flow was $366 million, and free cash flow was $282 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 outflow of $84 million. For fiscal year 2024, cash capital expenditures will be $244 million, or 1.9% of revenue, excluding the proceeds from the sale-leaseback of our Milpitas facility. Year over year, this represents a 69% decline.

Speaker Change: Operating cash flow was $366 million and free cash flow was $282 million.

Speaker Change: 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 outflow of $84 million.

Speaker Change: For fiscal year 2024, cash capital expenditures were $244 million, or 1.9% of revenue, excluding the proceeds from the sale-leaseback of our Milpitas facility.

Speaker Change: Year over year, this represented a 69% decline.

Wissam Jabre: Fourth quarter inventory was up from the prior quarter at $3.3 billion, with days of inventory increasing from 119 days to 126 days. A decline in HDD inventory was more than offset by an increase in flash inventory. Gross debt outstanding was $7.5 billion at the end of the fiscal fourth quarter.

Speaker Change: Fourth quarter inventory was up from the prior quarter at $3.3 billion, with days of inventory increasing from 119 days to 126 days.

Speaker Change: A decline in HDD inventory was more than offset by an increase in flash inventory.

Speaker Change: Gross debt outstanding was $7.5 billion at the end of the fiscal fourth quarter.

Wissam Jabre: Cash and cash equivalents were $1.9 billion, and Total Liquidity was $4.1 billion, including undrawn revolver capacity of $2.2 billion. During the quarter, we paid down the remaining $300 million of the delayed drought term loan. I'll now turn to the fiscal first quarter non-GAAP guidance. We anticipate both flash and HDD revenue and gross margin to improve on a sequential basis as we continue to drive improvements in profitability across our businesses. We anticipate revenue to be in the range of $4 to $4.2 billion, and gross margin is expected to be between 37% and 39%. We expect operating expenses to increase slightly to a range of $695 to $715 million.

Speaker Change: Cash and cash equivalents were $1.9 billion.

Speaker Change: and total liquidity was $4.1 billion including undrawn revolver capacity of $2.2 billion.

Speaker Change: During the quarter, we paid down the remaining $300 million of the delay-draw term loan.

Speaker Change: I'll now turn to the fiscal first quarter non-GAAP guidance.

Speaker Change: We anticipate both flash and HDD revenue and gross margin to improve on a sequential basis as we continue to drive improvements in profitability across our businesses.

Speaker Change: We anticipate revenue to be in the range of $4 to $4.2 billion.

Speaker Change: Gross margin is expected to be between 37% and 39%.

Speaker Change: We expect operating expenses to increase slightly to a range of $695 to $715 million.

Wissam Jabre: A decrease in variable compensation will be offset by this synergy cost as we continue to make progress executing on the separation plan. Included in this range are dis-synergy costs of $15 to $25 million. We expect the synergy costs in the fiscal second quarter to be between $35 and $45 million. Interest and expenses are anticipated to be approximately $110 million. The tax rate is expected to be between 15% and 17%.

Speaker Change: A decrease in variable compensation will be offset by dis-synergy costs as we continue to make progress executing on the separation plans.

Speaker Change: Included in this range are dis-synergy costs of $15 to $25 million.

Speaker Change: We expect the synergy costs in the fiscal second quarter to be between $35 and $45 million.

Speaker Change: Interest and expenses are anticipated to be approximately $110 million.

Speaker Change: Tax rate is expected to be between 15% and 17%.

Wissam Jabre: We expect earnings per share of $1.55 to $1.85, based on approximately 360 million shares outstanding. As shown in our guidance, we remain committed to driving higher profitability while maintaining a focus on cost and capital discipline. I'll now turn the call back over to David. Thanks, Wissam. Today's results and guidance underscore Western Digital's strong execution with promising growth opportunities ahead. We delivered solid results as we doubled down on our strategic initiatives and product roadmap, capitalizing on robust growth prospects for both FLAS and HTD.

Speaker Change: We expect earnings per share of $1.55 to $1.85 based on approximately 360 million shares outstanding.

Speaker Change: As shown in our guidance, we remain committed to driving higher profitability while maintaining focus on cost and capital discipline.

David Goeckeler: I'll now turn the call back over to David. Thanks, Wissam. Today's results and guidance underscore Western Digital's strong execution with promising growth opportunities ahead.

Wissam Jabre: The emergence of the AI data cycle marks an incredibly exciting transformation in our industry, driving fundamental shifts across our end market. Looking ahead to fiscal year 25, we are well-positioned to leverage our leadership positions to spearhead innovative technologies and deliver unparalleled value for our customers. Peter, let's begin the Q&A.

David Goeckeler: We delivered solid results as we doubled down on our strategic initiatives and product road map, capitalizing on robust growth prospects for both FLAS and HDD.

Speaker Change: The emergence of the AI data cycle marks an incredibly exciting transformation in our industry, driving fundamental shifts across our end markets.

Speaker Change: Looking ahead to fiscal year 25, we are well positioned to leverage our leadership positions to spearhead innovative technologies and deliver unparalleled value for our customers.

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

Operator: Thank you. We will now begin the question and answer session. If you have a question, please press star then 1 on your phone. If you'd like to withdraw your question, please press star then 2.

Peter Andrew: Thank you. We will now begin the question and answer session.

Speaker Change: If you have a question, please press star then 1 on your phone.

Operator: We do ask that you limit yourself to one question, and today's first question comes from C.J. Muse with Cancer Fitzgerald.

Speaker Change: If you'd like to withdraw your question, please press star then two. We do ask that you limit yourself to one question.

Speaker Change: And today's first question comes from CJ Muse with Cancer Fitzgerald. Please go ahead.

Christopher James Muse: Please go ahead. Good afternoon. Thank you for taking the question. I guess I would like to focus my question around HDD gross margins. Truly impressive uplift in the actual results.

Christopher James Muse: Good afternoon. Thank you for taking the question. I guess we'd like to focus my question around HDB gross margins.

Christopher James Muse: I was hoping you could speak to your contracted supply today, your pricing visibility into the second half of the calendar year and whether that extends into calendar 25.

David Goeckeler: I was hoping you could speak to your contracted supply today, your pricing visibility into the second half of the calendar year and whether that extends into calendar 25. And as part of that, how we should think about the progression of HDD gross margins as we go into September, December, and beyond. Thank you.

Speaker Change: As part of that, how we should think about the progression of HDD gross margins as we go into September , December , and beyond. Thank you. Yeah, sure. Thanks, CJ.

David Goeckeler: Thanks, CJ. So yeah, we're very happy with where the HDD business is at. We've, you know, spent a long time focused on getting our manufacturing footprint in the right spot and a lot of cost optimization there now that the volume ramps back. It puts us in a strong position, plus the products, right? The continued strong adoption of Ultra SMR, those drives are great for us. They're great for our customers.

Speaker Change: So yeah, we were very happy with where the HDD business is at. We spent a long time focused on getting our manufacturing footprint in the right spot and a lot of cost optimization there now that the volume ramps back.

Speaker Change: It puts us in a strong position, plus the products, right? The continued strong adoption of Ultra SMR, those drives are great for us, they're great for our customers, they're leading capacity points.

David Goeckeler: They're leading capacity points. So when you put it all together, we were able to, you know, deliver past our, uh... gross margin target in that business uh... some of the people the historians around here tell me it's like the best gross margin ever and uh... the good news as you said is uh... we're with going higher so uh... you know we got good supply-demand balance that's giving us good visibility throughout the rest of the calendar year we're pretty much know where every drive is going to go uh... at this point uh... we made uh... i think a really significant transition this past quarter in that we moved up uh... our request to our customers to give us, Visibility 52 weeks ahead, so a 52-week lead time on HDDs. Now, the reason that's so important is the cycle time to build an HDD is about 50 weeks.

Speaker Change: So, when you put it all together, we were able to, you know, deliver past our...

Speaker Change: A gross margin target in that business, some of the people, the historians around here tell me it's like the best gross margin ever.

Speaker Change: And the good news, as you said, is it's going higher. So, you know, we've got good supply-demand balance. That's giving us good visibility throughout the rest of the calendar year. You know, we pretty much know where every drive is going to go at this point.

Speaker Change: We made, I think, a really significant transition this past quarter in that we moved up our request to our customers to give us...

Speaker Change: Visibility 52 weeks ahead so a 52 week lead time on HDDs. Now the reason that's so important is the cycle time on an 8 to build an HDD is about 50 weeks.

David Goeckeler: So we've been working very hard to drive the technology, drive our manufacturing, but also change the business practices of this business to give us the visibility that allows us to really align our investment with our customer demand. Our customers have responded well to that request, and we now have visibility for the entire fiscal year from a number of our biggest customers. Others are still, we're still working through it with them, but... You know, to wrap it all up, we're very happy with where the margins are.

Speaker Change: So, we've been working very hard to drive the technology, drive our manufacturing, but also change the business practices of this business to give us the visibility that allows us to really align our investment with our customer demand.

Speaker Change: Our customers have responded well to that request and we now have visibility for the entire fiscal year from a number of our biggest customers. Others are still, we're still working through it with them.

David Goeckeler: We continue to see margins going higher in this business as we continue to innovate. You know, if we continue to innovate and deliver better TCO to our customers, we're going to continue to drive margins higher, and we've got a very robust roadmap to do that. And we're now getting the visibility in place in the business practices to make sure we can keep the supply and demand balance going, you know, far into the future. So, hopefully that addresses your question. Thanks so much.

Speaker Change: To wrap it all up, we're very happy with where the margins are. We continue to see margins going higher in this business as we continue to innovate. If we continue to innovate, deliver better TCO to our customers, we're going to continue to drive growth.

Speaker Change: Margins Higher, and we've got a very robust roadmap to do that. And we're now getting the visibility in place to, in the business practices, to make sure we can keep supply and demand balance going, you know, far into the future. So, hopefully that addresses your question.

Operator: Sure. Thank you. And our next question today comes from Joe Moore at Morgan Stanley. Please go ahead. Great, thank you. I wanted to ask about NAN.

Speaker Change: Thanks so much.

Speaker Change: Sure.

Speaker Change: Thank you. And our next question today comes from Joe Moore at Morgan Stanley .

Joseph Lawrence Moore: You know, you have weaker volumes at a good price, and we're seeing that everywhere. & Co. Ltd. What do you think will happen over the back half of the year with supply and demand for? As you know, Joe, it's a very dynamic market. So we're still seeing, you know, in the negotiated markets, we're still seeing good pricing increases, especially for enterprise SSD. And that's something we're very excited about. We saw really good sequential growth in enterprise SSD, and we're expecting very good sequential growth in the next quarter.

Joseph Lawrence Moore: Great, thank you. I wanted to ask about NAND.

Speaker Change: And this kind of, you know, you have weaker volume.

Joseph Lawrence Moore: Q2, but good pricing. And we're seeing that everywhere, that the volumes are sort of disappointing, but the pricing has still been good. And usually, you sort of think about needing good demand for pricing to go up. So can you talk about that dynamic? And you know, what what do you think happens over the back half of the year with supply and demand, Fernand?

Fernand: You know, as you know, Joe, it's a very dynamic market, so we're still seeing, you know, in the negotiated markets, we're still seeing good pricing increases, especially enterprise SSD, and that's something we're very excited about. You know, we see, we saw really good sequential growth in enterprise SSD, and we're expecting

Joseph Lawrence Moore: Some of the more transactional markets where you have more players involved, and frankly, some players that don't produce their own raw NAND, pricing is a little more dynamic, and demand, in general, from consumers is a little bit, a little bit weak.

Fernand: Very good sequential growth in the next quarter.

Fernand: Some of the more transactional markets where you have more players involved, and frankly some players that don't produce their own raw NAND, pricing is a little more dynamic and demand in general in consumer is a little bit weak.

David Goeckeler: So in those markets, we see a little more demand headwind, you know, a little more, not quite as aggressive a pricing move. But in the negotiated markets, we still see good pricing. And then you put mix all on top of that to come up with a quarterly number where you have, you know, quite a bit of variability.

Fernand: So in those markets, we, you know, we see a little more demand headwind, you know, a little more, not quite as aggressive of pricing moves.

Fernand: But in the negotiated markets, we still see good pricing, and then you put mix all on top of that to come up with a quarter by quarter number where you got, you know, quite a bit of...

David Goeckeler: But as we go through the back half of the year, you know, we continue to see strong demand for enterprise SSDs; we see the PC market really kind of having maybe a little bit of an inventory rebalancing going on in the next quarter, but we see that improving as we go throughout the year. I think that's a normal process given a couple of really strong quarters here in the first part of the recovery of NAN pricing. So, you know, we still see demand outstripping supply through the second half of the year and, quite frankly, our modeling shows throughout next calendar year as well. Very helpful. Thank you. Thanks, Joe.

Fernand: Variability. But as we go through the back half of the year,

Fernand: You know, we continue to see strong demand in enterprise SSD.

Fernand: We see the PC market really kind of maybe a little bit of an inventory rebalancing here going on in the next quarter, but we see that improving as we go throughout the year. I think that's a normal process given a couple of really strong quarters here in the first part of the recovery of NAN pricing.

Fernand: So, you know, we still see...

Fernand: Demand outstripping supply through the second half of the year and quite frankly our modeling shows throughout next calendar year as well.

Operator: Thank you. And our next question today comes from Tim Arcuri with UBS. Please go ahead. Hey, good afternoon. This is Grant Joslin on behalf of Tim Arcuri.

Fernand: Very helpful. Thank you. Thanks, Joe.

Speaker Change: Thank you. And our next question today comes from Tim Arcuri with UBS. Please go ahead.

Unknown Executive: I was hoping you could talk a little bit about how you view the balance sheet and how you want to prioritize the free cash flow generated between now and the separation, and any updated thoughts on the appropriate leverage for each of the two. Yeah, sure. As I noted in the prepared remarks, in Q4, we paid down the remaining $300 million of the delayed drop term loan.

Grant Josphinon: Hey, good afternoon. This is Grant Joslin on for Tim Arcuri. I was hoping you could talk a little bit about how you view the balance sheet and how you want to prioritize the free cash flow generated between now and the separation and any updated thoughts on the appropriate leverage for each of the two segments. Thanks.

Speaker Change: Yeah, sure. As I noted in the prepared remarks, in Q4, we paid down the remaining $300 million of the delayed drop term loan. And so as we generate cash, our focus is to continue to strengthen the balance sheet.

Wissam Jabre: And so, as we generate cash, our focus is to continue to strengthen the balance sheet. With respect to the second part of the question related to the capital structure, Obviously, we're making good progress as we prepare for the separation. As we get closer to the time of the separation, we'll be hosting capital market days or investor days to discuss that in more detail. But, you know, as we've always said, our aim is to create two world-class companies that are competitive in their own spaces, and so their cap structures would reflect the profile of profitability, cash generation, and market dynamics as well. Thank you. And our next question today comes from Aaron Rakers with Wells Fargo. Please go ahead.

Speaker Change: With respect to the second part of the question related to...

Speaker Change: Capital Structure. The Capital Structure. Obviously, we're making good progress as we prepare for the separation. We will be, as we get closer to the time of the separation, we'll be hosting capital market days or investor days to discuss that in more detail.

Speaker Change: But, you know, as we've always said, our aim is to create two world-class companies that are competitive in their own spaces and so their cap structures would be reflecting the profile from profitability, cash generation, and market dynamics as well.

Speaker Change: Thanks so much.

Speaker Change: Thank you. And our next question today comes from Aaron Rakers with Wells Fargo.

Operator: Yeah, thanks for taking the question. One clarification I just want to throw out there is, is the dissynergy cost all in operating expenses? Or is there anything in COGS?

Aaron Christopher Rakers: Yeah, thanks for taking a question. One clarification I just want to throw out there is, is the dis-energy cost all in operating expenses, or is there anything in COGS? And then from a question perspective, you know, when I look at the man business, and I think you guys talked about in the prepared remarks of growing kind of mid to high teens,

Speaker Change: sequentially on a capacity shift basis this next quarter.

Speaker Change: I guess where my math leaves me is to think that your, you know, underlying assumption would be maybe more of a flattish, you know, ASP trend.

Aaron Christopher Rakers: And then, from a question perspective, you know, when I look at the NAN business, and I think you guys talked about in the prepared remarks of growing kind of mid to high teens, sequentially on a capacity shift basis this next quarter, I guess where my math leaves me is to think that your, you know, underlying assumption would be maybe more of a flattish, you know, ASP trend. In the In the September quarter, I guess my question is, is that kind of how you're thinking about that? And if so, why would we think that pricing would be flattish?

Speaker Change: in the in the September quarter. I guess my question is, is that kind of how you're thinking about that? And if so, why would we think that pricing would be flattish? Is there a mixed dynamic, something that we should consider in that? Thank you.

David Goeckeler: Is there a mixed dynamic, something that we should consider in that? Thank you. I'll take the second part of the question because I don't remember the first part now.

Wissam Jabre: Let me take the first part related to the dis-energy costs. The question was whether they were all operating expenses or if there was anything in COGS. So, Aaron, the numbers that I quoted, the $15 million to $25 million, are all in operating expenses. There will be some de-energy costs in the COGS, but they're really not material, and so that's why we didn't call them out, and they're also reflected in our guidance for Q1.

Speaker Change: I'll take the second part of the question because I don't remember the first part now. Let me take the first part related to the dis-energy costs. The question was whether they were all in operating expenses or there's anything in COGS.

Speaker Change: So Aaron, the numbers that I quoted the 15 to 25 million dollars are all in operating expenses. There will be some dis-energy costs in the cogs but they're really not material and so that's why I wouldn't call them out.

David Goeckeler: Yeah, and Aaron, on NAN pricing, I think you kind of answered your question as you went through there. Just to confirm it, there's a huge mixed dynamic. So, you know, we've got, like everybody else, we're seeing some weakness in the consumer. And so that's, you know, consumer is a third of our flash portfolio. So that's a big business, and that has very, you know, We've always talked about higher than average through cycle margins. So that's that's a bit of a headwind.

Speaker Change: and they're reflected also in our guidance for Q1.

Speaker Change: Yeah, and Aaron, on the NAN pricing, I think you kind of answered your question as you went through there. Just to confirm it, there is a huge mixed dynamic, so...

Speaker Change: You know, we've got, you know, like everybody else, we're seeing some weakness in the consumer.

Speaker Change: And so that's, you know, Consumer is a third of our Flash portfolio, so that's a big business and that has very, you know,

Speaker Change: We've always talked about higher than average through cycle margins, so that's that's a bit of a headwind, and then it's a seasonally strong quarter for mobile, so that's, there's a big mixed dynamic there as well, so that, but you're thinking about it the right way.

David Goeckeler: And then it's a seasonally strong quarter for mobile, so there's a big mixed dynamic there as well. But you're thinking about it the right way.

Operator: Thank you. Thank you. And our next question today comes from Karl Ackerman with BNP Paribas. Please go ahead.

Speaker Change: Thank you.

Speaker Change: Thank you. And our next question today comes from Karl Ackerman with BNP Paribas. Please go ahead.

Karl Ackerman: Thank you. One clarification question and one question, if I may. For my clarification question, is the PCIe Gen 5 Enterprise SSD at a hyperscaler separate, or in addition to your sampling of 64 terabyte SSDs in the second half of this calendar year? I guess as you address that question, could you speak to the breadth of customer design winds you have on enterprise SSDs, which are indicative of your growing share of ESSD relative to your overall portfolio? Yeah, they're two separate products targeted at different parts of the AI data cycle.

Karl Ackerman: Okay, thank you.

Karl Ackerman: One clarification question and a question if I may.

Karl Ackerman: For my clarification question, is the PCIe Gen 5 Enterprise SSD at a hyperscaler separate or in addition to your sampling of 64 terabyte SSDs in the second half of this calendar year?

Speaker Change: I guess as you address that question, could you speak to the breadth of customer design wins you have on enterprise SSDs, which are indicative of your growing share of the SSD relative to your overall portfolio mix?

David Goeckeler: So the compute product that you mentioned, what we call a compute product because it's designed to feed data into GPUs and keep the pipeline full. So very high-performance, very high-performance NAND, that product is a qualification and a hyperscaler. And we're getting a lot of interest in that product across the AI ecosystem from anybody that's building an AI training infrastructure because we believe that product has the best read performance and really good power efficiency.

Speaker Change: Yeah, they're two separate products targeted to different parts of the AI data cycle. So the compute product that you mentioned, what we call a compute product because it's designed to feed data into GPUs and keep the pipeline full. So

Speaker Change: You know, very high performance, very high performance NAND, that product is a qualification and a hyperscaler and we're getting a lot of interest in that product across the AI ecosystem of anybody that's building an AI training infrastructure.

David Goeckeler: And that's what everybody's looking for in that market. The 64 terabyte drive is a separate product that's targeted at building these high-performance data lakes for AI training. And, you know, we're looking at that across the kind of same set of customers. Anybody that's building an AI training infrastructure is looking for those kinds of products.

Speaker Change: We believe that product is the best read performance and really good power efficiency and that's what everybody's looking for in that market.

Speaker Change: is a separate product that's targeted at building these high-performance data lakes for AI training.

Speaker Change: And, you know, we're looking at that across the same set of customers. Anybody that's building an AI training infrastructure is looking for those kind of products. And that's in addition to the products we had qualified, Enterprise SSD, we had qualified it.

Operator: And that's in addition to the products we had qualified, Enterprise SSD. We had qualified it for, you know, two or three of the hyperscalers before the downturn. And those products are picking back up now as well. So we have a much, you know; we were happy with the portfolio, and now we keep adding to it. And those products are really well targeted to where the demand is for Enterprise SSD, which is a lot of pull on people building AI training infrastructure. Thank you. I'll get back in.

Speaker Change: You know, two or three of the hyperscalers before the downturn, and those products are picking back up now as well. So, we have a much, you know, we were, we were...

Speaker Change: Happy with the portfolio and now we keep adding to it and those products are really well targeted to where the demand is in Enterprise SSD, which is a lot of pull on people building AI training infrastructure.

Operator: Thanks, Karl. Thank you. And our next question today comes from Krish Sankar with TD Cowen. Please go ahead. Hey guys, this is Eddie on behalf of Chris.

Speaker Change: Thank you, I'll get back in queue.

Karl Ackerman: Thanks Karl.

Karl Ackerman: Thank you. And our next question today comes from Krish Sankar with TD Cowen. Please go ahead.

Eddie: Two-part question, if I may. On NeonLine HEDs. Congratulations on the great progress there. This is the second quarter of above 50% market share for you guys versus historically your share being in the low 40s. I wonder if this has anything to do with your main peer transitioning from PMR to Hammer, or do you think this is more tied to specific customer exposure? and also, I wonder if you think you'd have that capacity within fiscal 25 given that your activated shipments are at an all-time high. Thank you.

Karl Ackerman: Hey guys, this is Eddie for Krish.

Eddie: Two-part question, if I may. On the online HEDs, congrats on great progress there.

Eddie: This is the second quarter of above 50% market share for you guys versus historically your share being in the low 40s. I wonder if you think this has anything to do with your main peer transitioning from PMR to Hammer or do you think this is more tied to specific customer exposure?

Eddie: And also, I wonder if you think you'd have that capacity within Fiscal 2025, given that your activity shipments are at an all-time high. Thank you.

David Goeckeler: You know, we know we think that the share in our products is because of their great products, right? We're delivering the highest TCO products. We've had this roadmap for a long time. You know, none of our customers are surprised by our roadmap.

Speaker Change: You know, we know we we think that the the share in our products is because of their great products, right? We're delivering the highest TCO products. We've had this roadmap for a long time.

David Goeckeler: They know about our roadmap, quite frankly, years in advance, and we work with them very closely. So, you know, we believe we're providing the highest capacity. Well, we are providing the highest capacity drives at scale. You know, they're easily qualified.

Speaker Change: You know, none of our customers are surprised by our roadmap. They know about our roadmap, quite frankly, years in advance, and we work with them very closely.

Speaker Change: We believe we're providing the highest capacity, well we are providing the highest capacity drives at scale.

David Goeckeler: The architecture is well known to our customers, and they deliver absolutely the best TCO. And if you're building, you know, if you're building a data center architecture at the scale our customers do, TCO is incredibly important. And now we've delivered a 32-terabyte drive. First time anybody's crossed the 30 terabyte at scale, that sampling, really great TCO.

Speaker Change: You know, they're easily qualified, the architecture is well known to our customers.

Speaker Change: and they deliver absolutely the best TCO. And if you're building a data center architecture at the scale our customers do, TCO is incredibly important. And now we've delivered a 32 terabyte drive.

Speaker Change: First time anybody's crossed the 30 terabyte at scale, that's sampling, really great TCO.

David Goeckeler: And then on the ultra SMR side of it, these drives can deliver 20% more capacity with ultra SMR versus a typical SMR drive, which is 10% more capacity. That's great for our customers. They get more capacity per unit. It's great for us because we get 20% more capacity or the incremental 10% without adding any cogs to the system. So that's margin accretive. That's very nice.

Speaker Change: And then the Ultra SMR side of it, these drives can deliver 20% more capacity with Ultra SMR versus a typical SMR drive, which is 10% more capacity.

Speaker Change: That's great for our customers. They get more capacity per unit.

Speaker Change: It's great for us because we get 20% more capacity or the incremental 10% without adding any cogs to the system, so that's margin accretive. That's very nice and we're seeing now the third hyperscaler starting to adopt.

David Goeckeler: And we're seeing now the third hyperscaler start to adopt our Ultra SMR technology in the second half of the year. So we just feel really good about where the portfolio is. We think, you know, this portfolio has been in development for decades to get to this point. These were decisions that were made a long time ago, given the lead times in this business.

Speaker Change: Our Ultra SMR technology starting in the second half of the year. So we just feel really good where the portfolio is. We think, you know, this portfolio has been in development for decades to get to this point. These were decisions that were made a long time ago, given the lead times in this business. And so we believe we're

David Goeckeler: And so we believe we're, you know, customers are just responding to great products. And the TCO increases in the supply-demand balance allow us to also work on the pricing side of it as well. So, as far as capacity is concerned, look, I mentioned it earlier. We got to this 52-week lead time, and that was really important because now we're starting to get forecasts from our customers a year out. It gives us the ability to plan for capacity.

Speaker Change: You know, customers are just responding to great products. And the TCO increases in the supply-demand balance allow us to also work on the pricing side of it as well.

Speaker Change: So, as far as capacity, look, I mentioned it earlier, we got to this 52-week lead time that was really important because now we're starting to get forecasts from our customers a year out.

David Goeckeler: So, as those forecasts come in and we roll them up, and we work with our customers and we look at what that picture looks like, then we'll be in a position to address this issue of whether we add capacity. We're not gonna add capacity for a two-quarter increase in volume.

Speaker Change: It gives us the ability to plan for capacity.

Speaker Change: So, as we get, as those forecasts come in and we roll them up and we work with our customers and we look at that, what that picture looks like.

Speaker Change: Then we'll be in a position to address this issue of do we add capacity? But we don't want we're not going to add capacity for a two-quarter increase in in volume We think we think this is much more sustained than that

David Goeckeler: We think this is much more sustained than that. As I talked about, AI is gonna be a big driver. The AI data cycle will be a big driver for HGDs as well. Thus, we see sustained demand into the future. But we want to see the commitments from our customers and them to give us that visibility, and we now have that in place. And as we get the whole market, all of our customers looking at that over the next quarter or so, we'll have a better, I think a better way to answer that question of whether we plan to add capacity.

Speaker Change: As I talked about, AI is going to be a big driver. The AI data cycle will be a big driver for HTDs as well. We see sustained demand into the future, but we want to see the commitments from our customers and them to give us that visibility, and we now have that in place, and as we get

Speaker Change: As we, you know, we get the whole market, all of our customers looking at that over the next quarter or so, we'll have a better, I think, a better way to answer that question of...

David Goeckeler: But for right now, we're happy with where our capacity is and what we're able to ship. And, you know, mix keeps going up, and we're able to ship more exabytes per quarter based on mix. Thanks a lot, Dave. That's helpful.

Speaker Change: Do we plan to add capacity? But for right now, we're happy with where our capacity is and what we're able to ship and, you know, mix keeps going up and we're able to ship more exabytes per quarter based on mix.

Operator: Sure thing. Thank you. And our next question today comes from Amit Daryanani with Evercore. Please go ahead, on the HDD side, or, you know, at the back of this year and potentially into 2025. Yeah, I think the whole key to that question is to continue to innovate. It's just as simple as that.

Speaker Change: Thanks a lot Dave, that's helpful. Sure thing.

Speaker Change: Thank you. And our next question today comes from Amit Daryanani with Evercore. Please go ahead.

Speaker Change: Yeap!

Amit Jawaharlaz Daryanani: Thanks a lot for taking my question. Maybe just focusing on the HDD side again, I think the fear everyone's going to have is, are you sitting at close to peak performance at this point, both from how much exabytes you're shipping versus the last peak, which I think you're within 10 exabytes of that, and where the gross margins are. So maybe if you just focus on gross margins, can you talk about what is the right way to think about HDD gross margins, assuming exabytes keep growing, and your conviction that pricing can remain

Speaker Change: Favorable on the HD side or, you know, through the back of this year and potentially into 2025.

Amit Jawaharlaz Daryanani: If we continue to innovate and build a better product and deliver a better TCO to our customers, we're able to continue to, you know, participate in the value of that R&D that we're spending. We just announced a new drive that's 32 terabytes, which is 13% more capacity than the next biggest drive on the market, which is our 28 terabyte drive. So as long as we continue to do that, we go to our customers, and they get a better value proposition, and we're able to, you know, participate in that.

Speaker Change: Yeah, I think the whole key to that question is to continue to innovate. It's just as simple as that. If we continue to innovate and build a better product and deliver a better TCO to our customers, we're able to continue to, you know, participate in the value of that R&D that we're spending.

Speaker Change: We just announced a new drive that's 32 terabytes, which is 13% more capacity than the next biggest drive on the market, which is our 28 terabyte drive. So as long as we continue to do that, we go to our customers and they get a better value proposition and we're able to participate in that.

Amit Jawaharlaz Daryanani: And, you know, as long as we continue to drive the roadmap forward, and I have a tremendous amount of conviction that that's the case, and we're going to do that, we will continue to drive margins higher in this business. I guess, David, I can just have you clarify this.

Speaker Change: As long as we continue to drive the roadmap forward, and I have a tremendous amount of conviction that that's the case, we're going to do that, we will continue to drive margins higher in this business.

David Goeckeler: Is the performance on the HTV side more a reflection of your peer has not had Hammer come out yet, and once that comes out, perhaps market share and gross margin will normalize? I guess the feel would be, is this all durable or does it go away from a marginal perspective once Seagate has Hammer involved in production with a high, No, as I said, I don't think it has to do with continuing to deliver greater TCO, you know, the underlying technology that you're delivering on the product, I don't think matters that much, right?

David Goeckeler: David, if I could just have you clarify this. Is the performance on the HTV side more a reflection of...

David Goeckeler: Your peer has not had Hammer come out yet, and once it comes out...

David Goeckeler: Perhaps market share and gross margins normalize, I guess. The few would be, is this all durable or does it go away from a marginal perspective once Seagate has Hammer involved in production with the hyperscalers?

David Goeckeler: It's like customers want more density in the same slot, and we're able to deliver that. We have a roadmap to deliver that other people in the industry have a roadmap to deliver that. And we're going to continue to drive TCO down, we get better visibility into ordering. You know, I've talked a lot about how I think hard drives have been an industry that's been persistently oversupplied given the client to cloud transition. We're past all of that now.

Speaker Change: No, like I said, I don't think it has to do with continuing to deliver greater TCO. The underlying technology that you're delivering on the product, I don't think matters that much, right? It's like, customers want more density.

Speaker Change: in the same slot and we're able to deliver that. We have a roadmap to deliver that. Other people in the industry have a roadmap to deliver that and we're gonna continue to drive TCO down.

David Goeckeler: And I think we're seeing what the dynamics of the industry are like when we get the supply and demand balance right, when we get our manufacturing footprint the way we want it, we deliver world-class leading products that provide enormous amounts of value to our customers, and that drives margin hire because it's a great value proposition for our customers. It's a good deal for them. It's a good deal for us, and I think it is incredibly durable.

David Goeckeler: We get better visibility into ordering, you know, I've talked a lot about, I think, hard drives have been an industry that's been persistently oversupplied given the client-to-cloud transition. We're past all of that now.

David Goeckeler: And I think we're seeing what the dynamics of the industry are like when we get the supply-demand balance right, we get our manufacturing footprint the way we want it, we deliver world-class leading products that provide enormous amounts of value to our customers.

David Goeckeler: And that drives margin hire because it's a great value proposition for our customers. It's a good deal for them. It's a good deal for us. And I think that is incredibly durable.

Operator: Thank you very much. Sure thing. Thank you. And our next question comes from Vijay Rakesh with Mizzouvo. Please go ahead. I guess this one, I mean, obviously, very solid execution.

Speaker Change: Thank you very much. Sure thing.

Speaker Change: Thank you. And our next question comes from Vijay Rakesh with Mizzouvo. Please go ahead.

Vijay Raghavan Rakesh: The growth margin was, I think, the highest in five years. But as you look at the roadmap forward, can you set a level where you think hard disk drive and NAND margins could get to? Because I think in the past, you know, obviously, NAND margins have gone gone to like 45, 50%. I think we'll see hard disk drive margins at 38%, 39%. Could you help us check how to walk on the margin of going out?

Speaker Change: Thank you.

Vijay Raghavan Rakesh: I think we see hard disk drive margins at 38%, 39%, but could you help us check how to walk to the margin of going out?

David Goeckeler: Yeah, I think in NAND, look, so next quarter, margins in both businesses are going up, which is what we want. And I think as long as we continue in the NAND business, we have to continue to innovate and bring great products to market. And I think our portfolio is as strong as it's ever been. You know, we've always been strong for a long time, and consumers, I mean, that's been a stalwart of the business for a very, very long time.

Speaker Change: Yeah, I think in the NAN, look, so next quarter, margins in both businesses are going up, which is what we want. And I think as long as we continue, in the NAN business, you know, we, again, we have to continue to innovate and bring great products to market. And I think our portfolio is as strong as it's ever been.

Speaker Change: We've always, we've been strong for a long time and consumer, I mean that's been a stalwart of the business for a very, very long time.

David Goeckeler: We have a very strong client portfolio, we have a very strong gaming portfolio, we've always been good at mobile, and now we have enterprise SSD where we're building out the portfolio right at the time when the AI data cycle is really driving a significant amount of demand. So I think... From a technology perspective and where the portfolio is positioned, we're in very, very good shape. At that point, we look at the long-term supply-demand balance of the business. We all know it's a cyclical business. You have to add capex in very large increments to bring on capacity. Nodal transitions give you more capacity.

Speaker Change: We have a very strong client portfolio.

Speaker Change: We have a very strong gaming portfolio. We've always been good in mobile. And now we have enterprise SSD, where we're building out the portfolio right at the time where the AI data cycle is really driving a significant amount of demand. So I think...

Speaker Change: From a technology perspective and where the portfolio is positioned, we're in very, very good shape.

Speaker Change: You know, at that point, we look at long-term supply-demand balance of the business. We all know it's a cyclical business. You have to add capex in very large increments to bring on capacity. Nodal transitions give you more capacity.

David Goeckeler: We talked about this in our new era of NAND. I think this idea that the layer race and let's just put bigger and bigger nodes on the market and count on elasticity to soak up all the bits is in the past, and the era of NAND is in the past, and the era of NAND in the future will be more strategic introduction of new nodes that add capacity, and more innovation within the node on performance, power, and capacity.

Speaker Change: We talked about this in our new era of NAND, I think this idea that the layer race and let's just put bigger and bigger nodes on the market and count on elasticity to soak up all the bits.

Speaker Change: Like, I think that era of NAND is in the past, and the era of NAND in the future is more strategic introduction of new nodes.

David Goeckeler: And so, you know, that, I think, is something that says that, you know, the way we're going to manage our business is different than it has been in the past. And then we look at just the overall supply-demand balance, and there's been, you know, not a lot of CapEx spending in NAN coming out of the downturn.

David Goeckeler: And so we see a good supply-demand balance, so we expect to see continued positive momentum in the portfolio. On HDD, this is a business that, like I said in the prepared remarks, I think it's gone through a remarkable transformation over the last year, really. We're starting to see the results of this transformation that's been going on, quite frankly, for a long time.

David Goeckeler: One is about getting through this client-to-cloud transition. Industry has been in that position for 15 years, probably, so we're kind of through that now.

David Goeckeler: Client is just a much, much smaller percent of the portfolio. Even if you look back to the past peak of our business, client was a much bigger percent just, you know, three, four, five years ago than it is today. So it's a cloud business now. We continue to deliver really strong TCO gains with our technology roadmap, and I think that the business has a long road ahead of it of continuing to be able to drive better TCO for our customers.

Speaker Change: Client was a much bigger percent just, you know, three, four or five years ago than it is today.

Speaker Change: So, it's a cloud business now. We continue to deliver really strong TCO gains with our technology roadmap, and I think that the business has a long roadmap on continuing to be able to drive better TCO for our customers.

David Goeckeler: And then on the demand side, you've got, again, AI now, the AI data cycle where HGD is going to be a big part of that. On the input side, all of this data is stored on HGDs, and on the output side, people produce a lot more content to be stored on HGDs. So we see a good demand environment and good business practices of getting the right visibility into how we should add capacity so we don't end up in an oversupplied market.

Speaker Change: And then on the demand side, you've got, again, you've got AI now, the AI data cycle, where HGD is going to be a big part of that on the input side, all of this data is stored on HGDs, and on the output side, people producing a lot more content to be stored on HGDs. So we see a good demand environment.

David Goeckeler: So I think the HCD business is structurally changed. I see the margins going higher and higher in a structural way that will be maintained at a higher point. It's not a value proposition question. The value is really there.

Speaker Change: Market. So I think the HCD business is structurally changed.

Speaker Change: I see the margins going higher and going higher in a structural way that will be maintained at a higher point. It's not a value proposition question. The value is really there.

Operator: And like I said, we continue to drive TCO lower, and we're going to continue to drive margins higher. Thank you. And our next question today comes from Wamsi Mohan with Bank of America. Please go ahead. Yes, thank you so much.

Speaker Change: Thank you. And our next question today comes from Wamsi Mohan with Bank of America. Please go ahead.

Wamsi Mohan: I was wondering maybe you could square your comments a little bit on... Proactively Mixing Bits Across End Markets in a Quarter Where... Decline below what you originally expected, but at the same time, you also had inventory built in the quarter. And, as a clarification from a prior question... help us think through in the September quarter what is a like for like. 3 3 3, Okay, so first of all, the mix. I think the first one was the mix question.

Wamsi Mohan: Yes, thank you so much.

Wamsi Mohan: I was wondering maybe you could square your comments a little bit on...

Speaker Change: And as a clarification from a prior question, could you just help us think through in the September quarter, what is a like-for-like ASB trajectory for NAND as well? Thank you so much.

Speaker Change: Okay, so first of all, the mix, I think the first one was the mix question.

Operator: So, it was a question in the quarter. Yeah, in the fourth quarter, it's how do we proactively, how do we proactively mix the... that's to generate better profitability when bits were declining.

Speaker Change: So, was the question in the quarter? Yeah, in the fourth quarter is how do we proactively, how we proactively mix the bits to generate better profitability. Oh, when bits were declining. Okay, so

David Goeckeler: Okay, so, Yeah, I mean, look, I mean, I guess in the big picture, we're always just looking at every market that we're in and what demand is on a week over week basis and what our customers are telling us, and we're trying to put the bits where we're going to get the highest return. We saw some headwinds in consumer, so we mixed in the other parts of the client business.

Speaker Change: Yeah, I mean, look, I mean, I guess at a big picture, we're always just looking at every market that we're in and what demand is on a week over week basis and what our customers are telling us and we're trying to put the bits to where we're going to get.

Speaker Change: where we're going to get the highest return. We saw some headwinds in consumer.

David Goeckeler: And we also saw really good growth in enterprise SSD. I think we saw 60% sequential growth in enterprise SSD. So that provided a floor on kind of how we think about the mix side of it, uh... in the second part of the question and the so on the maybe on the comments on the inventory bill inventory uh... wamsi it's not unusual for exiting the june quarter for us to have inventory bills as we get prepared for the second half that tends to be uh... uh... more consumer oriented and uh... sort of there's more shipments that typically take place and so we're comfortable with that like for like yeah so on the on the like for like for uh... for the september quarter uh... we're expecting uh... the ASPs in Nant to be uh... uh... slightly up and the uh... sort of uh... low single digit percentage range, Thanks Wamsi. Thank you. Thank you. And our next question today comes from Toshiya Hari with Golden Sacks. Please go ahead.

Speaker Change: So we mixed in the other parts in the client business, and we also saw really good growth in enterprise SSD. I think we saw 60% sequential growth in enterprise SSD, so that provided a floor on kind of how we think about the mix side of it.

Speaker Change: And the second part of the question? Yeah, so maybe on the comments on the inventory bill, Wamsi, it's not unusual for exiting the June quarter for us to have inventory bills as we...

Wamsi Mohan: Get prepared for the second half that tends to be more consumer-oriented and sort of there's more shipments that typically take place

Wamsi Mohan: and so we're comfortable with that.

Speaker Change: Yeah, so on the like-for-like for the September quarter, we're expecting the ASPs in NAND to be slightly up in the sort of low single-digit percentage range.

Speaker Change: Okay, okay. Thank you so much.

Speaker Change: Thanks Wamsi. Thank you. Thank you. And our next question today comes from Toshiya Hari with Golden Sacks. Please go ahead.

Toshiya Hari: Hi, thank you so much for taking the question. On the clarification, the synergies, Wissam, the $35 to $45 million you guided to for the December quarter, is it fair to assume that's kind of a steady state for the combined business going forward post-separation, or do those costs go away, or do those costs potentially go up beyond separation? That's my clarification question.

Toshiya Hari: Hi, thank you so much for taking the question. I had one quick clarification and one question. On the clarification, the dis-synergies we saw in the $35 to $45 million you guided to for

Toshiya Hari: The December quarter, is it fair to assume that's kind of a steady state for the combined business going forward post-separation, or do those costs go away, or do those costs potentially go up?

Wissam Jabre: And then my question for Dave on the NAN side, are your FABs fully loaded at this point? I know at the trough of the cycle, you cut pretty significantly along with your peers, but where are utilization rates today, and what should we think about fiscal 25 CapEx? Thank you. Yeah, let me, thanks, Toshiya, let me take the first part of the question.

Dave: Beyond Separation, that's my clarification question. And then my question for Dave on the NAN side, are your FABs fully loaded at this point? I know at the trough of the cycle you had cut pretty significantly along with your peers, but where are utilization rates today and how should we think about fiscal 25 CapEx?

David Goeckeler: So with respect to the synergies costs that I discussed for the December quarter, the range, and you noted $35 to $45 million, this is, it's fair to assume that this is where steady state will be until the separation, and then going forward. And then on NAND, yeah, the FABs are, we're running at full utilization. We don't have underutilization costs on NAND at this point.

Speaker Change: Thank you.

Dave: Yeah, let me, thanks Toshiya, let me take the first part of the question. So with respect to the...

Speaker Change: The synergies costs that I discussed for the December quarter, they range in, you know, the $35 to $45 million.

Speaker Change: It's fair to assume that this is where steady state will be until the separation.

Speaker Change: and then going forward.

Speaker Change: And then on the NAND, yeah, the fabs are, we're running at full utilization, we don't have underutilization costs on NAND at this point.

Wissam Jabre: And then the third part of the question... On the CapEx. CapEx, FY25. Yeah, so on the CapEx side, look, what I think we'll share is where we see CapEx in this current quarter. And from a cash CapEx perspective, for this quarter, I expect it to be more or less in line with the fiscal fourth quarter, which was around 2% of revenue. And our thoughts on CapEx with respect to basically future investments haven't changed. We'd like to continue to focus on the profitability of the business. And at this point in time, that's really our main focus. Thank you. Thank you. Thanks, Toshiya.

Speaker Change: And then the third part of the question on the CapEx.

Speaker Change: FY25 CapEx

Speaker Change: Yeah, so on the CapEx side, look, what I think we'll share is where we see CapEx is in this current quarter.

Speaker Change: And from a cash CapEx perspective, for this quarter, I expect it to be more or less in line with the fiscal fourth quarter.

Speaker Change: which was around 2% of revenue.

Speaker Change: and our thoughts on CapEx with respect to basically future investments haven't changed. We'd like to continue to focus on the profitability of the business and at this point in time that's really our main focus.

Operator: Thank you. And our next question comes from Steven Fox at Fox Research. Please go ahead.

Speaker Change: Thank you.

Toshiya Hari: Thank you. Thanks, Toshiya.

Speaker Change: Thank you. And our next question comes from Steven Fox at Fox Research. Please go ahead.

Steven Bryant Fox: Hi, good afternoon. I was just wondering how, you know, given experience in prior cycles on the HDD side, and you mentioned the 52-week lead times. How do you sort of protect yourself against customers being overzealous with orders that then may be disappointing you down the road?

Steven Bryant Fox: Hi, good afternoon. I was just wondering how, you know, given

Steven Bryant Fox: Experience in prior cycles on the HDD side, and you mentioned the 52-week lead times. How do you sort of protect yourself against customers being overzealous with orders, and then maybe disappointing you down the road? What are you doing to make sure customers live up to their promises? Thanks.

David Goeckeler: What are you doing to make sure customers live up to their promise? I mean, look, these are very big relationships with very big customers, so we're very close to them on a day-to-day basis. So, you know, that's clearly something we look for. But I think there's a lot of relationship value here as well.

Speaker Change: I mean, look, these are very big relationships with very big customers, so we're very close to them on a day-to-day basis. So, you know, that's clearly something we look for, but I think there's a lot of relationship value here as well.

David Goeckeler: Yeah, we'll be on the lookout for that. But, you know, we expect our customers to be fairly rational about this whole process. I mean, look, we're in an area of HGD where almost everybody that we talk to would like to have more HGDs right now.

Speaker Change: We'll be on the lookout for that, but we expect our customers to be fairly rational about this whole process.

Speaker Change: We're in an area of HGD where almost everybody that we talk to would like to have more HGDs right now. So I think everybody is understanding that giving us more visibility will allow us to set our...

David Goeckeler: So I think everybody understands that giving us more visibility will allow us to set our manufacturing infrastructure in a way where we can satisfy the market without ending up in the situation we are in, in the down cycle where we were, you know, having to really, really cut costs and, quite frankly, move a lot of people off the payroll, which is an unpleasant exercise. So we'll stay very close to our customers, and we also have a lot of information on ordering patterns and all that kind of stuff, so we'll keep an eye out for that. Sure thing.

Speaker Change: Manufacturing Infrastructure in a way where we can satisfy the market without ending up in the situation we are in in the down cycle where we were you know having to really really

Speaker Change: cut costs and, quite frankly, move a lot of people off the payroll, which is an unpleasant exercise. So we'll stay very close to our customers. And, you know, we also have a lot of information on kind of ordering patterns and all that kind of stuff. So we'll keep an eye out for that.

Operator: Thanks, Steven. Thank you. And as a reminder, ladies and gentlemen, if you'd like to ask a question, please press star then 1. Our next question today comes from Asiya Merchant with Citigroup. Please go ahead.

Speaker Change: Okay, thank you. Sure thing, thanks, Steven.

Speaker Change: Thank you. And as a reminder, ladies and gentlemen, if you'd like to ask a question, please press star then 1.

Speaker Change: Our next question today comes from Asia Merchant with Citigroup. Please go ahead.

Asiya Merchant: Great, thank you for taking my question. If I may, just a little bit about the industry structure that has changed and maybe how it reflects in your cost declines across both your flash and HGE business, how we should think about that going forward, given that you see a favorable pricing environment and if you can balance that with maybe improved cost declines for both NAND and HGE.

Asia Merchant: Great, thank you for taking my question.

Asia Merchant: If I may, if you can talk a little bit about the industry structure that has changed and maybe how it reflects in your cost declines across both your flash and HDB business, how we should think about that going forward, given that you see a favorable pricing environment.

Asia Merchant: and if you can balance that with maybe improved cost declines for those names and HGE. Thank you.

Asiya Merchant: Thank you. Yeah, so on the HTD side, there's been a couple things that have been contributing to, you know, better margins getting here. One is that we reset the manufacturing base, and we've been coming off a very low number. So as we produce more, and we get to full utilization, we get better costs per unit out of that. So that's been a good tailwind.

Speaker Change: Yeah so on the HTD side there's been a couple things that are have been contributing to

Speaker Change: You know, better margins, getting here. One is...

Speaker Change: Just, you know, we reset the manufacturing base and we've been coming off a very low number. So as we produce more and we get to full utilization, we get better cost per unit out of that. So that's been a good tailwind, but we're...

David Goeckeler: But we're, as I talked about, we're at the point where we know where all the drives over the next couple of quarters are going. And then the other part of it is, as you said, technology-driven cost improvements, continuing to innovate, deliver better TCO, and better cost dynamics. And we continue to drive down the cost per terabyte on the HCD business. You know, it's going down like, you know, high single digits a year or something like that. On NAND, of course, we continue to drive cost downs in the 15% range for this year. We're still happy with that number.

Speaker Change: You know, as I talked about, we're at the point where we know where all the drives over the next couple quarters are going.

Speaker Change: And then the other part of it is, as you said, technology-driven cost improvements, continuing to innovate, deliver better TCO, better...

Speaker Change: Cost Dynamics, and we continue to drive down the cost per terabyte on the HCD business.

Asia Merchant: You know, it's going down like, you know, high single digits a year or something like that. On NAND, of course, we continue to drive cost downs.

Asia Merchant: in the 15% range.

David Goeckeler: So, you know, that's a big part of the storage industry is continuing to drive the cost down through technological innovation. And, you know, we feel very good about where we are with the R&D teams we have that can continue to do that. Thank you.

Asia Merchant: for this year, we're still good with that number. So that's a big part of the storage industry is continue to drive the cost down through technology innovation. And we feel very good about where we are and the R&D teams we have that can continue to do that.

Operator: This concludes our question and answer session. I'd like to turn the conference back over to David Goeckeler for closing remarks. All right.

Speaker Change: Thank you.

Speaker Change: This concludes our question and answer session. I'd like to turn the conference back over to David Goeckeler for closing remarks.

David Goeckeler: Thanks, everyone. We appreciate your time today. We look forward to talking to everybody throughout the quarter. We're very happy with where the business is and where we're driving. We think the portfolio is in great shape and things are going in the right direction. We look forward to talking to you about it more as we move throughout the quarter. Thank you, sir.

David Goeckeler: All right, thanks everyone. Appreciate your time today. We look forward to talking to everybody throughout the quarter. We're very happy with where the business is and where we're driving. We think the portfolio is in great shape and things are going the right direction. We look forward to talking to you about it more as we move throughout the quarter. Thanks for your time today.

Operator: This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful evening.

Speaker Change: Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful evening.

Operator: For more information, visit mooji.org. Music Music Music Good afternoon, and thank you for standing by. Welcome to Western Digital's fourth quarter and fiscal 2024 conference call. Presently, all participants are in listen-only mode.

Speaker Change: Good Afternoon.

Speaker Change: And thank you for standing by.

Speaker Change: Welcome to Western Digital's fourth quarter and fiscal 2024 conference call.

Speaker Change: Presently, all participants are in listen-only mode.

Speaker Change: Later, we will conduct a question and answer session.

Speaker Change: At that time, if you would like to ask a question, you may press star 1 on your phone.

Peter Andrew: Later, we will conduct a question and answer session. At that time, if you would like to ask a question, you may press star 1 on your phone. As a reminder, today's call is being recorded. I'd now like to turn the conference over to Mr. Peter Andrew, Vice President of Financial Planning and Analysis and Investor Relations. You may begin. Thank you, and good afternoon, everyone.

Speaker Change: As a reminder, today's call is being recorded.

Speaker Change: I'd now like to turn the conference over to Mr. Peter Andrew, Vice President for Financial Planning and Analysis and Investor Relations. You may begin.

David Goeckeler: 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, does include risks and uncertainties. These forward-looking statements include expectations for our product portfolio, our business plans 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.

Speaker Change: Thank you and good afternoon everyone. Joining me today are David Goeckeler, Chief Executive Officer, and Wissam Jabre, Chief Financial Officer.

David Goeckeler: 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 for introductory remarks. Thanks, Peter. Good afternoon, everyone.

Speaker Change: We assume no obligation to update these statements.

Speaker Change: With that, I'll now turn the call over to David for introductory remarks.

David Goeckeler: Thanks, Peter. Good afternoon, everyone. And thank you for joining the call to discuss our fourth quarter in fiscal year 2024 performance.

David Goeckeler: Western Digital delivered strong results with fiscal fourth quarter revenue of $3.8 billion, non-GAAP gross margin of 36.3%, and non-GAAP earnings per share of $1.44.

Speaker Change: For the fiscal year 2024, revenue totaled $13 billion.

David Goeckeler: We have maintained our strategic focus on aligning our portfolio of industry-leading products with growth opportunities across a broad range of end markets to mitigate volatility while structurally improving our through cycle profitability for both flash and HDD. Before we discuss our performance, I want to provide our views on where the storage market is heading and how we are well positioned to capitalize on these growth opportunities. Our diverse portfolio, coupled with the structural changes we've made to strengthen our operations, is enabling us to benefit from the broad recovery we are beginning to see across our end markets.

Speaker Change: We have maintained our strategic focus on aligning our portfolio of industry-leading products with growth opportunities across a broad range of end markets to mitigate volatility while structurally improving our through-cycle profitability for both flash and HDD.

Speaker Change: Before we discuss our performance, I want to provide our views on where the storage market is heading and how we are well positioned to capitalize on these growth opportunities.

Speaker Change: Our diverse portfolio, coupled with the structural changes we've

Speaker Change: have made to strengthen our operations is enabling us to benefit from the broad recovery we are beginning to see across our end markets.

David Goeckeler: In addition, the AI data cycle is increasing the need for storage and creating new demand drivers across both Flash and HDD. These AI systems process and analyze existing data, generate new data, and require substantial storage for training, operating in a continuous cycle of increasing data consumption, processing, and generation.

Speaker Change: In addition, the AI data cycle is increasing the need for storage and creating new demand drivers across both Flash and HDD.

Speaker Change: These AI systems process and analyze existing data, generate new data, and require substantial storage for training, operating in a continuous cycle of increasing data consumption, processing, and generation.

David Goeckeler: As AI technologies advance, data storage systems must deliver the capacity and performance necessary to support the computational demands of large, sophisticated models while managing vast volumes of data. Given this landscape, we expect Flash to benefit from both AI training and inference, while HDD is poised to benefit at both the input and output stages of these AI models. To address the growing performance, power, and capacity requirements, we have developed our flash and HDD product roadmaps to meet our end customer storage needs across the entire AI data cycle. We introduce the industry-leading high-performance PCIe Gen 5 SSD to support AI training and inference.

Speaker Change: As AI technologies advance, data storage systems must deliver the capacity and performance necessary to support the computational demands of large, sophisticated models while managing vast volumes of data.

Speaker Change: Given this landscape, we expect Flash to benefit from both AI training and inference, while HDD is poised to benefit at both the input and output stages of these AI models.

Speaker Change: To address the growing performance, power, and capacity requirements, we have developed our flash and HDD product roadmaps to meet our end customer storage needs across the entire AI data cycle.

Speaker Change: We introduced the industry-leading, high-performance PCIe Gen 5 SSD to support AI training and inference, a high-capacity 64TB SSD for optimizing the build-out of rapid AI data lakes.

David Goeckeler: A high-capacity, 64-terabyte SSD for optimizing the build-out of rapid AI data lakes, and the world's highest capacity EPMR Ultra SMR 32 terabyte hard drive for cost-effective and deep content storage at scale. These new offerings demonstrate our continued commitment to innovation and market leadership. As we enter fiscal year 2025, we are well positioned to capture the long-term growth opportunities in data storage and believe the AI data cycle will be a significant incremental growth driver for the storage industry.

Speaker Change: and the world's highest capacity EPMR Ultra SMR 32 terabyte hard drive for cost-effective and deep content storage at scale.

Speaker Change: These new offerings demonstrate our continued commitment to innovation and market leadership.

Speaker Change: As we enter fiscal year 2025, we are well-positioned to capture the long-term growth opportunities in data storage.

Speaker Change: and believe the AI data cycle will be a significant incremental growth driver for the storage industry.

Speaker Change: Before I dive further into business updates, I want to update you on our separation plans.

Speaker Change: I am pleased with the progress our team has made as we continue to drive to completing the work required to separate the company at the end of the calendar year.

Speaker Change: As part of the ongoing preparation for the separation, we anticipate beginning to incur separation dis-synergy costs in the second half of the calendar year. Wissam will briefly discuss the anticipated impact of these costs.

David Goeckeler: I'll now turn to business updates. Starting with Flash, growth in revenue was driven by the recovery in cloud and a shift of our client mix to gaming and mobile, partially offset by a decline in consumer. Our focus on driving hire through cycle profitability is reflected in our results as we proactively mix bits across our end markets. Our innovative offerings remain at the forefront of the market, reinforcing our competitive position and bolstering our growth prospects.

Wissam Jabre: I'll now turn to business updates.

Wissam Jabre: Starting with Flash, the growth in revenue was driven by the recovery in cloud and a shift of our client mix to gaming and mobile, partially offset by a decline in consumer.

Wissam Jabre: Our focus on driving higher through cycle profitability is reflected in our results as we proactively mix bits across our end markets.

David Goeckeler: For example, our new QLC-based client SSDs, which grew 50% on a sequential exabyte basis, offer significantly better performance than our previous generation TLC product. Combining this high performance node with our in-house controller development enables us to provide a portfolio of client SSDs that deliver unmatched performance and value. We believe these products will lead the industry's transition to QLC Flash. During our New Era of NAN webinar last month, we introduced the world's highest capacity BIX-8 2TB QLC memory die, specifically designed to meet growing data center and AI storage needs.

Wissam Jabre: offers significantly better performance than our previous generation TLC products.

Wissam Jabre: During our New Era of NAN webinar last month, we introduced the world's highest capacity BIX-8 2TB QLC memory die.

David Goeckeler: Built on a chip bonded to array architecture, BICS-8 reinforces Western Digital and Keoxys' leadership in cost and capital efficiency, as well as superior I.O. performance, by integrating wafer bonding in advanced 3D manufacturing to establish a groundbreaking foundation for future scalability of 3D NAND.

Wissam Jabre: specifically designed to meet growing data center and AI storage needs.

Wissam Jabre: Built on a chip bonded to array architecture, BICS VIII reinforces Western Digital and Keoxys' leadership in cost and capital efficiency.

Wissam Jabre: as well as superior IO performance by integrating wafer bonding in advanced 3D manufacturing to establish a groundbreaking foundation for future scalability of 3D NAND.

David Goeckeler: In addition, our 64 terabyte Enterprise SSD is now being sampled with plans for volume shipment later this calendar year. Furthermore, our PCIe Gen 5 based Enterprise SSD delivers best-in-class read performance as well as power efficiency. We are seeing significant interest in this product, which is currently qualifying at hyperscale, with ramp-up expected in the second half of this calendar year. We'll talk more about our flash roadmap at the upcoming Flash Memory Summit in early August. Turning to the Flash Outlook,

Wissam Jabre: In addition, our 64 terabyte Enterprise SSD is now being sampled with plans for volume shipment later this calendar year.

Wissam Jabre: Furthermore, our PCIe Gen 5 based Enterprise SSD delivers best-in-class read performance as well as power efficiency.

Wissam Jabre: We are seeing significant interest in this product, which is currently qualifying at a hyperscale with ramp expected in the second half of this calendar year.

Wissam Jabre: We'll talk more about our flash roadmap at the upcoming Flash Memory Summit in early August .

David Goeckeler: Throughout the fourth quarter, our product mix was dynamic as we proactively mixed bits between our end markets in response to the softness we are seeing in more transactional markets such as consumer and channel. Our success in identifying the most profitable approach to allocating bits is reflected in the growth of both our revenue and gross margin. As we look into the first quarter, in addition to the mix environment we saw in the fourth quarter, we expect the continued ramp of our new enterprise SSD offerings and seasonal strength in mobile to drive mid to high team bit growth on a sequential basis.

Wissam Jabre: Turning to the Flash Outlook.

Wissam Jabre: Throughout the fourth quarter, our products mix was dynamic as we proactively mixed bits between our end markets in response to the softness we are seeing in more transactional markets such as consumer and channel.

Speaker Change: Our success in identifying the most profitable approach to allocating bits is reflected in the growth of both our revenue and gross margin.

Speaker Change: As we look into the first quarter, in addition to the mixed environment we saw in the fourth quarter, we expect the continued ramp of our new enterprise SSD offerings and seasonal strength in mobile to drive mid- to high-teens bid growth on a sequential basis.

David Goeckeler: For the full fiscal year 2025, we expect Enterprise SSDs to represent a double-digit percent share in our portfolio mix. The new era of NAND is driving a period of change, and we are going to remain disciplined in managing our capital spending. The layer-focused race is behind us.

Speaker Change: For the full fiscal year 2025, we expect Enterprise SSDs to represent a double-digit percent share in our portfolio mix.

Speaker Change: The new era of NAND is driving a period of change.

Speaker Change: And we are going to remain disciplined in managing our capital spending. The layers focus race is behind us. The emphasis is now shifting towards strategically timing the economic introduction of new, longer lasting nodes.

David Goeckeler: The emphasis is now shifting towards strategically timing the economic introduction of new, longer-lasting nodes. Innovation now means enhancing power efficiency, performance, and capacity within these nodes, while capital decisions increasingly prioritize opportunities for margin expansion and revenue growth. Turning to HDD, revenue growth was driven by strength in near-line demand and improved pricing. By leveraging our SMR leadership in a lean cost structure, we have surpassed our target gross margin range, underscoring our ongoing commitment to improve future profitability.

Speaker Change: Innovation now means enhancing power efficiency, performance, and capacity within these nodes, while capital decisions increasingly prioritize opportunities for margin expansion and revenue growth.

Speaker Change: Turning to HTD, revenue growth was driven by strength in near-line demand and improved pricing.

Speaker Change: By leveraging our SMR leadership and lean cost structure, we have surpassed our target gross margin range, underscoring our ongoing commitment to improve future profitability.

David Goeckeler: The HTD business has undergone a remarkable transformation in recent quarters, marked by strategic initiatives aimed at introducing the most innovative, high-capacity products to market. We have increased our profitability meaningfully by restructuring our manufacturing footprint and optimizing our cost structure to drive operational efficiency, all while qualifying and ramping our SMR technology. We continue to structurally change the way we are operating our HED business. With better visibility into future demand, operational excellence, and a commitment to sustaining a supply-demand balance, we are poised to continue our trajectory of bringing highly innovative products to market while increasing profitability into the future.

Speaker Change: We continue to structurally change the way we are operating our HED business.

David Goeckeler: On the technology front, we are shipping samples of our 32 terabyte Ultra SMR EPMR Nearline hard drives to select customers. These drives feature advanced triple-stage actuators and Opti-NAND technology, which are designed for seamless qualification integration and deployment in hyperscale cloud and enterprise data centers while maintaining exceptional reliability. With this in mind, we are well positioned to deliver the industry's highest capacity hard drive and the best TCO. Turning to the HGD Outlook. As we look to the fiscal first quarter, we expect further growth driven by greater demand and more favorable pricing.

Speaker Change: On the technology front, we ship samples of our 32TB Ultra SMR EPMR Near-Line Hard Drives to select customers.

Speaker Change: These drives feature advanced triple-stage actuators and OptiNAND technology, which are designed for seamless qualification integration and deployment in hyperscale cloud and enterprise data centers, while maintaining exceptional reliability.

Speaker Change: With this in mind, we are well positioned to deliver the industry's highest capacity hard drives and the best TCO.

Speaker Change: Turning to the HCD Outlook.

Speaker Change: As we look to the fiscal first quarter, we expect further growth driven by greater demand and more favorable pricing.

David Goeckeler: Our cloud customers continue to transition to SMR, and we anticipate a third major cloud vendor to begin the ramp to adopt SMR in the fiscal first quarter. Our leading products and lean cost structure have supported ongoing profitability improvements in our HDD business. We remain focused on driving higher margins to reflect the significant innovation and TCO improvements we deliver to our customers.

Speaker Change: Our cloud customers continue to transition to SMR, and we anticipate a third major cloud vendor to begin the ramp adopting SMR in the fiscal first quarter.

Speaker Change: Our leading products and lean cost structure have supported ongoing profitability improvements in our HDD business. We remain focused on driving higher margins to reflect the significant innovation and TCO improvements we deliver to our customers.

Q4 2024 Western Digital Corp Earnings Call

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