Q1 2025 Western Digital Corp Earnings Call
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Speaker Change: Good afternoon and thank you for standing by. Welcome to Western Digital's fiscal first quarter when he's 25 conference call.
Speaker Change: Presently all participants are in Wissam and We Mode. Later we will conduct a question and answer session. At that time, if you would like to ask a question, you may press star one on your phone.
Speaker Change: As a reminder, this call is being recorded.
Speaker Change: Now I will turn it full over to Mr. Peter Andrew.
Speaker Change: Vice President Financial Planning and Analysis and Investigation.
Peter Andrew: You may begin. Thank you, and good afternoon, everyone. Joining me today are David Keckler, Chief Executive Officer, and we Sam Jabre, Chief Financial Officer. Before we begin, let me remind everyone that today's discussion contains forward-looking statements.
Peter Andrew: Hased on management's current assumptions and expectations, and as such, does include risks and uncertainties.
Peter Andrew: These forward-looking statements include expectations for our product portfolio, our business plants and performance, the separation of our flash and HDD businesses, ongoing market trends, and our future financial results.
Peter Andrew: Wissam No obligation to update these statements. Please refer to our most recent financial report on Form 10K and our other filings with the SEC from more information on the risk and uncertainties that could cause actual results to differ materially from expectations.
Peter Andrew: We will also make references to non-gap financial measures today. Reconciliation between the non-gap and comparable gap financial measures are included in the press release and other materials that are being posted in the investor relations section of our website.
Speaker Change: with that I will now turn the call over to David for introductory remarks.
David Keckler: Thanks Peter, good afternoon everyone and thank you for joining the call to discuss our first quarter fiscal year 2025 performance.
David Keckler: Wester and Digital delivered revenue of 4.1 billion non-gap gross margin of 38.5% and non-gap earnings per share of $1.78.
David Keckler: Our dedication to lasting quality and reliability through our industry-leading innovation and diversified portfolio have allowed us to proactively mix bits into the most profitable and markets.
David Keckler: Resulting in sequential revenue growth and margin improvement across both flash and HDD.
David Keckler: These growth opportunities are bolstered by the AI data cycle, substantially increasing the long-term need for storage across both our flash and HDD markets.
David Keckler: In Flash, the proactive measures we took during the downturn, along with our discipline, capital investment strategy, have significantly enhanced Western digital business agility and structural margin potential.
David Keckler: Combined with our flexibility and bit allocation and continued progress in bringing highly compelling enterprise SSDs to market. We mitigated headwinds in certain core end markets.
David Keckler: Achieving Sequential and Year Over Year revenue growth and improving Flash Gross margin beyond our through cycle target.
David Keckler: In HDD, the strength of our portfolio lies in our ultra-SMR technology, which empowers us to deliver the industry's highest capacity hard drives while ensuring unmatched reliability and performance.
David Keckler: Westrend Digital has achieved record HDD gross margin in the highest revenue levels in 11 quarters, driven by the growing adoption of our ultra-SMR drives to meet the demand for scalable and cost-effective storage solutions.
David Keckler: This technology is a key driver of our continued gross margin improvement with wide adoption at two cloud customers and a third expected to ramp shortly.
David Keckler: We anticipate ultra SMR will continue to grow across the US and beyond, solidifying our leadership in the market over time.
Speaker Change: Now I would like to provide an update on our business separation plans.
Speaker Change: We are on track with the separation of our flash and HDD businesses. At the start of the fiscal second quarter, we completed our soft spin phase.
Speaker Change: Through meticulous planning and project management, this massive initiative has been executed exceptionally well in the businesses have hit the ground running thanks to the dedicated efforts of numerous teams over the past year.
Speaker Change: In the fiscal second quarter, we continue to execute our soft spin stage and are working diligently on the critical work streams needed as we make significant progress on the regulatory filings required in connection with the spin.
Speaker Change: Finance and Activities are anticipated to start soon, which will set the stage for us to execute this separation, which we expect will occur once we close the second quarter.
Speaker Change: Al-Mal turned the business updates.
Speaker Change: Starting with flash.
Speaker Change: Revenue reached at highest level in 9 quarters.
Speaker Change: Sequentially revenue growth was driven by continued recovery and data center fueled by strong demand for our enterprise SSD applications, which grew 76% sequentially, reaching the highest revenue level since fiscal 4th quarter of 2022.
Speaker Change: The Cloud Tail went in the quarter was offset by ongoing weakness in consumer and incline with PCOEM's working-down inventory and pushing out the refresh purchase cycle.
Speaker Change: On the technology front, we made significant progress with several hyper-scaler and storage OEM qualifications, including developments with PCI Gen 5 data center enterprise SSD, and our 30 and 60 terabyte high capacity offerings.
Speaker Change: In addition, we continue to enhance our premium sandus brand by delivering on our leadership blueprint and core devices roadmap. Expanding our platform capabilities with product partnerships, developing robusts.
Speaker Change: I'll now turn to our flash outlook.
Speaker Change: As we look ahead to the fiscal second quarter, we expect to continue ramp of our new Enterprise SSD offerings to supplement seasonal strength in our consumer and market.
Speaker Change: With Incline, we expect PCOM demand to stabilize while gaming declines as we have successfully met the demand for the holiday season. We anticipate a recovery in our consumer and client end markets as we move through calendar year 2025.
Speaker Change: Furthermore, we are seeing high demand for enterprise SSD product offering and anticipated to serve as the primary driver for revenue growth for the full fiscal year. With qualifications doubling since the start of the fiscal fourth quarter 2024.
Speaker Change: We now expect our enterprise SSD mix to comprise over 15% of our overall portfolio bit shipments in fiscal year 2025, growing at a pace significantly faster than previously anticipated.
Speaker Change: Our overall view of the flash market remains positive as we maintain supply and demand balance.
Speaker Change: by remaining committed to discipline capital spending and improving profitability through proactive bit allocation across our most high value and markets, increasing our exposure to enterprise SSDs.
Speaker Change: Learning to HDD, in the fiscal first quarter we achieved record revenue and data center, reflecting the strength of our near-line portfolio and are ongoing efforts to capitalize on market tailwinds.
Speaker Change: We are operating in an environment where demand for our products exceeds supply.
Speaker Change: To address this, we're working with our customers to improve our visibility into their future needs.
Speaker Change: with our largest customers on a 2-6-quarter agreement cycle, aligning seamlessly with our proactive supply management strategy that supports predictable business operations and sustainable, profitable growth.
Speaker Change: This long-term visibility allows us to not only better serve our customers, but also mitigate volatility while structurally improving our through cycle profitability.
Speaker Change: On the technology front, we see increasing adoption of our ultra-SMR technology, showcasing strong confidence in our products capabilities and benefits.
Speaker Change: In the fiscal second quarter, we launched our 32-terabyte Ultra SMR and 26-terabyte CMR drives.
Speaker Change: Marking the world's first commercially available hard drives with 11 disks.
Speaker Change: Developed with our time tested and reliable EPMR and Ultra-SMR technologies.
Speaker Change: We expect these products to complete customer qualifications and ramp in the coming quarters, delivering a compelling TCO to our customers and improving portfolio profitability.
Speaker Change: Turning to the HDD Outlook.
Speaker Change: As we head into the fiscal second quarter, we anticipate continued momentum in data centered drive growth across our Neoline portfolio. Adoption of our ultra-SMR product line is expanding, particularly among cloud customers.
Speaker Change: The HD Business continues to undergo a positive structural transformation.
Speaker Change: Our thoughtful approach to commercializing our product line, especially our ultra-SMR technologies, has enabled us to drive record revenue in the midst of AI's emergence as another pivotal growth driver for the industry.
Speaker Change: and with improved visibility into future demand, focus on operational excellence.
Speaker Change: Official Cost structure and a strong commitment to maintaining a balanced supply demand dynamic. We are well positioned to continue delivering the most profitable and innovative product portfolio while establishing long-term industry leadership through our earnings potential.
Speaker Change: Let me now turn the call over to Wissam who will discuss our fiscal first quarter results. Thank you David and good afternoon everyone.
Wissam: and the fiscal first quarter, Western Digital delivered great results with gross margin and earnings per share above the midpoint of the guidance range.
Wissam: Total revenue for the quarter was $4.1 billion, up 9% sequentially and 49% year over year. Non-gap earnings per share was $1.78.
Wissam: Looking at end markets, Cloud represented 54% of total revenue at 2.2 billion dollars, up 17% sequentially and more than doubling year over year.
Wissam: On its sequential and year-over-year basis, the increases were driven by higher-nearline shipments in HDD and enterprises SD, bit shipments to data-centered customers.
Wissam: Client represents the 29% of total revenue at $1.2 billion, flat sequentially and up 5% year over year.
Wissam: Compared to last quarter, Flash Bitshipment Growth in Gaming & Mobile was offset by the
Wissam: Here over year, an increase in flash revenue was primarily due to higher ASP's as bitch-hip-mins declined, and was partially offset by lower HDD revenue.
Wissam: Consumer represented 17% of revenue at 0.7 billion dollars, flat sequentially and down 7% year over year.
Wissam: Sequentially, a slight growth in HDD offset the declining flash driven by software consumer demand.
Wissam: Here over here, the decrease was due to lower flash and HDD bit shipments partially offset by improved pricing in both flash and HDD.
Wissam: Turning you now to revenue by segment.
Wissam: In the fiscal first quarter, Flash revenue was $1.9 billion, up 7% from last quarter and 21% year over year.
Wissam: Continued recovery in data center drove strong demand for in-prizes SD products.
Speaker Change: 2.2% of the Likes for Likes and Decrease 6% on a blended basis.
Speaker Change: Bit shipments were up 14% from the previous quarter and down 12% compared to last year.
Speaker Change: HDD revenue was $2.2 billion, up 10% sequentially and 85% year over year. Sequentially, strong performance in the New Year line portfolio led to a 14% increase in HDD Exovide Shipments.
Speaker Change: On a year over year basis, total HDD-examaged shipments increased 107% and average price per unit increased 46% to 164 dollars.
Speaker Change: New Line Bitshipments were at record level of 141 exabytes, up 12% from the previous quarter, and 157% compared to the fiscal 1st quarter of 2024.
Speaker Change: Moving to the rest of the income statement, please note my comments will be related to non-gab results, unless stated otherwise.
Speaker Change: Gross margin for the fiscal first quarter was 38.5% which was at the higher end of the guidance range.
Speaker Change: Gross margin increased 220 basis points sequentially due to improved mix, better pricing and continued focus on cost reduction.
Speaker Change: Flash Gross Margin was 38.9% up 240 basis points sequentially driven by a higher mix of enterprises as the evits improvement in like for like pricing and continued cost reduction.
Speaker Change: In HDD, strong demand for nylon drives, as well as efficient manufacturing operations and cost structure, have driven continued margin expansion, resulting in gross margin of 38.1% up 200 basis points sequentially.
Speaker Change: We have structurally changed the way we operate our businesses.
Speaker Change: Combined with our strong product portfolio, this has enabled us to generate gross margins above our long term target ranges in both flash and HDD.
Speaker Change: Operating expenses were down sequentially to $691 million, including the synergies of $8 million.
Speaker Change: This results demonstrate continued focus on cost discipline while making progress on the execution of the business separation plans.
Speaker Change: Operating income was $884 million, up 33% sequentially driven by very gross margins and disciplined spending.
Speaker Change: Operating margin was 21.6% up 390 basis points sequentially, which is the highest in five years and was previously achieved at the higher revenue level.
Speaker Change: Income Tax Expense was $124 million and effective tax rate was 16.1%.
Speaker Change: Learning's Pershare was $1.78.
Speaker Change: Operating cash flow for the fiscal first quarter was 34 million dollars and free cash flow was an outflow of 14 million dollars.
Speaker Change: Operating and free cash flows included payments of $418 million for the company's repatriation tax installment along with IRS settlement payments.
Speaker Change: Cash Capital Expenditures, which includes the purchase of property, plant and equipment and activity related to flash drone ventures on the cash flow statement, represented a cash outflow of 48 million dollars.
Speaker Change: The school first quarter inventory increased sequentially to $3.4 billion.
Speaker Change: With days of inventory declining by 5 days to 121 days.
Speaker Change: A decrease 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 first quarter.
Speaker Change: Cash and Cash equivalents were $1.7 billion and total liquidity was $3.9 billion, including underemly revolver capacity of $2.2 billion.
Speaker Change: After the close of fiscal 1st quarter, we completed the previously announced sale of 80% of equity interest in sand discs and a conductor Shanghai to Jaysep. thereby forming a joint venture between Sandisk China and Jaysep.
Speaker Change: Proceeds from the sale will be reflected in the fiscal second quarter's cash flow.
Speaker Change: I'll now turn to the fiscal second quarter non-gap guidance.
Speaker Change: We anticipate both Flash and HDD revenue to grow on a sequential basis.
Speaker Change: In Flash, we expect the ramp of enterprise SSD products and seasonality of consumer demand to drive bitchipment increases in the mid-single digit percentage points.
Speaker Change: and HDD will expect continued growth momentum in the Nearline product portfolio.
Speaker Change: We anticipate revenue to be in the range of 4.2 to 4.4 billion dollars.
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 million to $715 million, including the synergy costs of $25 million to $35 million.
Speaker Change: As we continue to make progress executing on the business separation plans.
Speaker Change: Interest and other expenses are anticipated to be approximately $110 million.
Speaker Change: Tax Rate is expected to be between 15% and 17%.
Speaker Change: We expect EPS of $1.75 to $2.5.
Speaker Change: Based on approximately 357 million shares outstanding.
Speaker Change: As shown in our guidance, we remain committed to executing our business, driving higher profitability and cost discipline while making great progress towards the completion of our business separation plans.
Speaker Change: I'll turn the call back over today.
Speaker Change: Thanks for some. Let me wrap up and then we'll open up for questions.
Speaker Change: A results this quarter are testament to our efforts to optimize our business for the long-term and execute on our strategic initiatives.
Speaker Change: We are confident in our product roadmap across both our Flash and HDD businesses, and are excited by the significant opportunities ahead that each present, especially with the continued proliferation of the AI data cycle.
Speaker Change: As we continue to work towards the completion of our business separation plans, we are confident in our ability to derive long-term sureholder value and deliver the most compelling and innovative products to our customers.
Speaker Change: Let's begin the Q&A.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer portion of today's call.
Speaker Change: If you have a question, first star want on your phone. If you would like to withdraw your question, please press star then too.
Speaker Change: One moment please for the first question.
Speaker Change: and our first question today comes from CJ Muses with Canford to Cheryl. Please go ahead.
Speaker Change: The End of the World
Speaker Change: Good afternoon, thank you for taking the question.
CJ Muses: I guess first question, you raised your enterprise SSC as part of the next to 15%, which I think is a pretty important inflection. So, I was hoping you could speak to the qualifications that you've seen. In particular, would love to hear more around the recently announced qualification within VIDE as GB200 and BL72 RAC system. If there's any way to kind of quantify how to think about the ramp and magnitude of incremental dollar your business would be great.
Speaker Change: Hey, CJ, thanks for the question.
Speaker Change: We feel really good about where the portfolio is. We've talked, I think, for a quarter or so now about this, our compute focus, PCIe Gen5.
Speaker Change: Product, that's what was qualified by Nvidia in their reference architecture that allows us to go to all the folks that are building those products for customers and be in a good position to have those conversations as we drive that product more broadly in the market.
Speaker Change: We also have a very deep engagement with one couple of large hyperscalers on that product as well.
Speaker Change: To your point, we've got more confidence in the growth of the portfolio. It's a very good demand environment. I don't think that's new news for enterprise assisties.
Speaker Change: and it's nice to have the portfolio where we can play into that. As you said, we expect...
Speaker Change: We expect our mix of bits when we added all up in the fiscal year last quarter when we were...
Speaker Change: Having this conversation we thought it would be around 10% and now we're more in the 15-20% range. So demand keeps going up. The number of qualifications we've doubled in the last quarter.
Speaker Change: So the traction with the portfolio is good. It all aligns well with the AI data cycle we put out there both for the compute focus that's the steas and then the high capacity.
Speaker Change: DataLague focused SSDs 30 and 60 terabytes. And again, the...
Speaker Change: Traditional products that we were selling to the hyperscalers are also...
Speaker Change: Doing well.
Speaker Change: Also, I think that portfolio was something we've been working on for quite some time. As you know, we got qualified before the downturn, we came out of it with a better portfolio. I think we really did a good job, teams did a great job.
Speaker Change: throughout the downturn of staying focused on building those products and building a stronger portfolio and now we're seeing the results of that.
Speaker Change: The End.
Speaker Change: Thank you. And I guess it's a quick follow-up. You talked around.
Speaker Change: The ongoing transformation of the HDD industry and now two to six quarters of customer visibility would love to hear kind of how perhaps pricing negotiation is evolving and within that construct you have visibility today for pricing beyond one quarter in the drive business. Thank you.
Speaker Change: Sure, I think as you said, we've gotten to the point where I think we have a better supply to ban balance in this industry for the first time. Well, let's just talk about our business and our business for.
Speaker Change: A very, very long time based on the actions we took coming out of the...
Speaker Change: Down Turn. Matched against a fantastic portfolio that continues to get traction. We talked a lot about it in the script. The Ultra SMR technology is...
Speaker Change: Really getting very good traction with a customer's that adopted it, adopted it quite a bit of scale. I mean, once you go through the work to implement that technology, you get that additional 10% capacity on every drive you.
Speaker Change: and the team to play those drives.
Speaker Change: Hyperscaler, get the official qualification very recently and we expect them to ramp pretty quickly now over the next several quarters.
Speaker Change: So, both of those things allow us to get more visibility into the business, more visibility, more predictability is always great on a business where you know you're vertically integrated.
Speaker Change: and it does give us, also, I've said it for many years now, pricing is all about TCO. It's about delivering a better product. We deliver a better product.
Speaker Change: That drives the TCO down for our customers. We get to participate in that equation and monetize that R&D that we develop. Then we just launched the 26th.
Speaker Change: Terabyte CMR 32, Terabyte Ultra SMR Drive. So we expect that to ramp as we go through 25 and as we do that, that'll bring better pricing and margin dynamics to the business.
Speaker Change: Thanks for watching.
CJ Muses: Thanks CJ
Speaker Change: Thank you, and our next question today comes from Joe Moore at Morgan Stanley. Please go ahead.
Joe Moore: Great, thank you. I don't know if you understand the steps towards separating the companies. You talked about having prepared the soft spin, so you're going to report, you'll have two separate.
Joe Moore: Sets of Numbers for the December quarter and assuming that that goes well, you'll be able to file the form 10 at some point during the March quarter. Is that the plan and kind of, what are the, you know, anything that could cause that to come later?
Speaker Change: Let me walk through that joke, it's a little different than you described. We're in the Sausage, which means we're still running the company as Western Digital. There's one company, but behind the scenes we've separated all the systems into two, basically two stacks of systems.
Speaker Change: Customers want to send this orders now. They have to send us two different orders for...
Speaker Change: ACDs and Flash because they go into two different sets of systems. They have a different vendor ID for those. All of those kinds of issues are on teams.
Speaker Change: and they go through the process to build those products, ship those products.
Speaker Change: are logging into different systems to manage the flow of that business through the enterprise.
Speaker Change: Now, and so what we're doing is we're running Westerdigital, we're doing this behind the scenes that's called the soft spin, we're actually essentially doing both. And what we'll do is we will execute in this mode for a full quarter because we want to go through a full quarter.
Speaker Change: of all the financial things we do on a monthly and quarterly basis.
Speaker Change: to give ourselves confidence that both of those systems work great.
Speaker Change: and then we'll go do the spin. So what we expect to do now is we will execute the business in this form for the full second quarter. We will close the December quarter as Western Digital. We will only issue one set of numbers for Western Digital. We only did one guide for Western Digital this time.
Speaker Change: But behind the scenes we're doing all that work, the build confidence we could do it as two separate companies.
Speaker Change: sometime in the next.
Speaker Change: I would say a couple of months we'll flip the form 10 to public. We're going through the final phases of that with appropriate authorities.
Speaker Change: Once we get that done, we'll make it public so we can start financing activities for both businesses to basically get all the financing in place so that we, once we close the books and we get confidence in that then we could then move on with the actual distribution. So that's the way it'll work. So, yeah, it's cut through all that.
Speaker Change: We got a lot of work to do, it's on track, you should think about this happening around the time we would do in earnings call for the December quarter.
Speaker Change: Great, thank you so much for that. And I guess I get a lot of questions from more event-driven types of investors about the resolve to do this in the wake of things that are happening with your JV partner, things like that, just so just, you know, maybe...
Speaker Change: You could just kind of stay, you know, how focused you're on getting this done, any impediments, any chance that this doesn't happen from out of your discretion.
Speaker Change: We're very focused on getting this done Joe. As you know, we went through a thorough strategic review.
Speaker Change: That we announced the outcome of October 30th of last year and we started down this path. We knew it was a big, big thing to do. We're not the result of this strategic review. This is the right.
Speaker Change: Ancer for our shareholders. We're not trying to time the cycle or anything else. So we plan to move forward with this when we're ready. And it's all about building confidence and the ability to execute.
Speaker Change: to independent companies and that's what we're driving to. I can't predict anything that will happen in the future, but from our perspective we're driving to get this done as expeditiously as we can.
Speaker Change: Great, thank you, Raj. Thanks, Drew.
Speaker Change: Thank you, and our questions from Carl Archerman with B&P Playbar. Please go ahead.
Carl Archerman: Yes, thank you. I'm two, if I may. First off.
Carl Archerman: How much room do you have in your existing facilities to expand capacity of heads and media for hard discharge?
Speaker Change: I asked him if he just reported record X by Exibites and Hard Drive, so it was about 180.
Speaker Change: and as you address that question you spoke of a third hypersphere that is qualified FMR. David, you will ramp in the coming quarters. Is that 4-year 32 TB offering or is that just a broad statement? Thank you.
Speaker Change: You know, I think as a general without getting in the specifics on any particular customer, I think in general most customers want to go with the most dense drive they can once they start deploying.
Speaker Change: So, you know, we expect that customers will move to the 32-terabyte drive pretty quickly. Again, I think this is...
Speaker Change: The product strategy I think is really playing out well here. These drives can be qualified very quickly. Customers understand the technology. It's been in their environment for quite some time. So I'm talking about the base EPMR technology and the base architecture we have in these drives. And now we can...
Speaker Change: Move Capacity up quickly. So in general, customers want to deploy the densest drive possible. So we expect the 32's, as they once they get through qualifications, we'll start being deployed, let's say, as we move through 25.
Speaker Change: You're first question on capacity for heads and media. I mean, we don't really talk about what our capacity is. We've sized our infrastructure for a number of units.
Speaker Change: That we think is going to satisfy the market and then we're going to increase exabytes by continuing to drive innovation and more density per unit. You see that happening real time as we just launched a new drive.
Speaker Change: And we've got capacity all the way through heads in media and test capacity and assembly to support that level of capacity.
Speaker Change: and that was really a big move in the downturn to get that right and so that we can, you know, we can get our, make sure we keep our costs under control.
Speaker Change: and then, you know, Carl, the real focus is to get more visibility from our customers and what their plans are and planning so that we can make sure we've got that capacity aligned with what demand is and, you know, try and dampen some of the volatility of the...
Speaker Change: The typical, you know, we typically talk, maybe not anymore. Hopefully not anymore. Talk about big, you know, ingestion cycles, then big, de-gestions cycles, you know, we want a more predictable business than that. So we want to, you know, that the key to that is visibility into customer demand.
Speaker Change: Tech.
Peter Andrew: Thanks Carl
Speaker Change: Hello, I'm Aron Rakers with Wells Fargo. Please go ahead.
Aron Rakers: Thanks for taking the questions. I'll stick to you as well. I guess the first question is...
Aron Rakers: You know, going back to kind of operating the two entities separately now starting in this October of period.
Aron Rakers: Can you just remind us again how we should think about this energy? What may be scattered into your...
Aron Rakers: December quarter guide, you know, as clearly you're carrying, you know, two company cost structures.
Speaker Change: And then as kind of a follow up the Carl's question, you know, you are shipping near-line capacity, you know, 25% above your prior peak levels. If my math is close to being right.
Speaker Change: How quickly can you bring on new capacity and is there any way to frame like I can appreciate technology and aerial density expansions that he driver.
Speaker Change: Do you see a situation where you will be constrained over the foreseeable next couple quarters? Or I'd love to dig a little deeper in the car off the question there.
Speaker Change: Let me start with the first part of the question Aaron, I think your question was on Disenergies. So in the first quarter that we announced we had approximately $8 million of disenergies in the operating expenses.
Speaker Change: In the guide there is 25% roughly. Sorry, I take that back. There is 25-35 million dollars, not percent.
Speaker Change: of Opax assumed in the Opax in the current guide. In other words, the 705 midpoint of Opax includes approximately 30 million dollars.
Speaker Change: Basically, as we said last time, the synergies are assumed to be roughly split 50, between the two operating businesses.
Speaker Change: and so this is what's in the guide. In terms of where we would be at the steady state, I would say, at this point, it hasn't changed from what we discussed.
Speaker Change: Last Quarter.
Speaker Change: and the status date and dissipate to be roughly in the, let's say, 40 million dollar range.
Speaker Change: Defided Equally by each of the businesses. That's how we should think of it beyond this quarter. But for this quarter, they're around 30 million, plus or minus 5 million dollars.
Speaker Change: Maybe for the second part of your question, I don't know David, maybe I'll start making some comments and last David 2.
Speaker Change: I do chime in.
Speaker Change: with respect to the manufacturing capacity. Our focus in the hard drive business, as we said all along, is really on.
Speaker Change: Driving profitability and maintaining that supply demand.
Speaker Change: and Balance for our business.
Speaker Change: and so from where we stand now we think we have the good visibility that we're getting from our customers.
Speaker Change: and the implementation of the belt order. We think we are in a good place from a capacity or for a manufacturing capacity perspective. And we don't see the need for us to expand our manufacturing capacity footprint.
Speaker Change: I don't know David, if you had a chance to eat that. I think that's right Aaron, I mean look at me in the way we at least where I think about this, you know capacity.
David Keckler: If you look at the units we've shipped in the last two or three quarters, it's all converged pretty closely so there's not a lot of variability in that number. It goes up, up and down, some, like, less than a million units, but for an industry that shipped hundreds and hundreds of millions of units, not that long ago.
David Keckler: That's a pretty tight window. I think the way we're thinking about this is what's the man going to be a year from now? It takes a year to build a hard drive once we start away for no matter what our wafer capacity is for heads.
David Keckler: Once we start away for it's going to be a year before that shows up in a hard drive. So what we really are working to understand is what demand is going to be a year from now and how our customers are thinking about that and that's something new for them, right and we're working through that process with them and it's
David Keckler: Everything's going in the right direction. We talked about, we have, you know, between two and six quarters of visibility.
David Keckler: We'll think about capacity at that point. But there's still more work to do to understand what capacity is going to look like in that kind of time frame before we start adding that cost back into the system. I talked about in the script, better through cycle dynamics.
David Keckler: We don't want underutilization charges. We want more predictable flow of business and our supply chain wants that too. So that's just a little bit on how I'm thinking about it.
Speaker Change: Very helpful. Thank you guys. Thank you.
Speaker Change: Thank you. And ladies and gentlemen, we do ask that you please limit yourself to one question at a time in the queue. Our next question today comes from Timothy Archery with UBS. Please go ahead.
Timothy Archery: Thanks a lot. Can you just talk about bookings on the HDD side? I mean, they see pricing going higher. They see you and Seagate talking about not adding.
Timothy Archery: capacity.
Timothy Archery: Why would they not just place shadow orders to make sure they get what they need a year from now? I mean, that's often how it works in memory. I certainly understand that the cycle times here are much, much longer.
Timothy Archery: Can you talk about that and sort of what does this two to six quarter agreement cycle mean? Are these take or pay so that they can't just place shadow orders, that they'd be on the hook to take the stuff when you build it? Can you talk about all that? Thanks.
Speaker Change: Yeah, Tim, I would say, you know, the industry is evolving, right? This is something new. I mean, this is an industry that wasn't that long ago while the business transacted every quarter.
Speaker Change: So, we're, you know, asking customers for more visibility, understanding what their demand is. They haven't particularly thought about this franchise that way and getting that much visibility into it.
Speaker Change: basically build capacity that we don't have visibility into how it's going to be used.
Speaker Change: At this point, it's not take or pay, it's just about getting visibility into kind of how they're thinking about their infrastructure and what their demand is going to be.
Speaker Change: and I would say we're working through that process right now and I mean clearly the more visibility people, our customers and partners can give us, then we can, you know, allocate that future supply to them.
Speaker Change: We're kind of walking into this and changing the industry, we think, in a very positive way for everybody involved.
Speaker Change: Goeckeler, Wissam Jabre
Speaker Change: Thank you. And our next question today comes from Wamsi Mohan with Bank of America. Please go ahead.
Wamsi Mohan: Thank you.
Wamsi Mohan: driven by some cost. The costs in the next quarter are a little bit up from what they usually would be, probably what you guys model on a 15% down year over year. We're going to get a quarter where we have a little cost increase.
Wamsi Mohan: just given the way the...
Speaker Change: Thank you. And our next question today comes from Harlan Sir with J.P. Morgan. Please go ahead.
Speaker Change: Hey, good afternoon. Thanks for taking my question. So on enterprise, this is the, you know, it's taking a while, but now there's clarity on the really strong tie-in right to these.
Speaker Change: In the September quarter, it stepped up to about 12.
Speaker Change: 13% of your flash revenues. Is that about right? And then, on some of the recent specs on your high-capacity...
Speaker Change: 64 terabyte 128 terabyte platforms targeted for AI
Speaker Change: Thank you.
Speaker Change: Let me start with the first part of the question, Harlan, with respect to where we are from an enterprise SSD as a mix.
Speaker Change: where basically we've in the Q1 we've exceeded a little bit the 15% of that mix and as David mentioned in his
Speaker Change: in his comments a bit earlier that we would expect for the year the mix of enterprise SSD as a percent of total for the flash business to be between 15 and 20 percent.
Speaker Change: So, Harlan, on the competitive part, I mean, you kind of, you got it, right? I mean, it's about getting the controller technology right, and we, you know, we, as I said, during the downturn, we stayed very focused on that, got the right controllers built. We've always had great underlying NAND technology. The VIX roadmap is something we've talked about a lot.
Speaker Change: And, you know, we feel good about that now and going forward. We've still got all of Bix-8 in front of us, and that 2 terabit die, that helps build higher density enterprise SSDs as well, because the, you know, lower number of die to get the density. We're not quite there yet, but we have that in our future. So.
Speaker Change: It's about getting it all of it aligned and we stayed very focused over the last
Speaker Change: two, three years since I got here, this was a big focus of
Speaker Change: Again, going back to how we structure the company into kind of a business unit model, bringing in a general manager that can stay very focused on what should be built.
Speaker Change: Stay on top of all the programs and make sure we deliver the right products that drive the, you know, make the highest ROI investments and then make sure those products, those projects deliver the right products to market. And I think we're...
Speaker Change: We feel good about where we're at. We're hitting this AI data cycle with the right, it's the right time for the portfolio to emerge. We still got some more work to do, but we feel good about where we're at and the trajectory.
Speaker Change: Thank you. And our next question today comes from Chris Sankar with TD College. Please go ahead.
Chris Sankar: Hi, thanks for taking my question. And Dave, thanks for the call. When I look at December quarter, you said flash revenue should grow while bid shipments should be up mid-single digits.
Chris Sankar: So what does this mean for ASPs?
Chris Sankar: The reason I'm asking is that while ESSD is strong, you keep hearing the non-ESSD data points are not good. So that's what I'm wondering how to think about ASP. And if I may extrapolate, how to think about March quarter for both flash and hard drives given there is some seasonality aspect for both those segments in March. Thank you.
Speaker Change: Yeah, Chris, so you got, I mean, again, I think you've got it in the way you framed your question. You know, the flash market is a big market. There's a lot of sub-markets inside of it.
Speaker Change: The PC market is, you know, some inventory there and, you know, those customers restocked and have not replenished inventory. They're just building to demand at this point.
Speaker Change: Same with smartphone, the consumer business.
Speaker Change: It's just been a little bit soft.
Speaker Change: So you've got kind of that dynamic, and on the other side of it, you've got very, very strong enterprise SSD.
Speaker Change: As we go through 2025, we expect those smartphone and PC markets to recover as we go throughout the year and be stronger. We can talk about that in more detail, but I think that's well understood.
Speaker Change: It's a little early to talk about the March quarter, but again, you know, you got it right on seasonality there. There might be some seasonality headwinds. I would expect some seasonality headwinds going into the March quarter, but we'll have more to say about that as we move through the quarter and especially get to this time next quarter.
Speaker Change: Thank you.
Speaker Change: Thank you. And our next question today comes from Amit Daryanani with Evercore. Please go ahead.
Amit Daryanani: David, if I just go back to this 100, you know, the exabyte shipments of 163 on the HPD side, how do you get confidence that this is not sitting in the inventory versus actually getting deployed by customers? Is there any metrics that you see internally that gives you confidence at?
Amit Daryanani: this is actually getting used up and not piling up as inventory potentially. Anything on that front would be really helpful to understand. And Wissam, can you just touch on your CAPEX expectations for HDD and the flash business for the rest of the year? That would be helpful. Thank you.
Speaker Change: Yeah, we don't, we don't see a lot of inventory at the big players, right, we're coming off of, we're still like in a cyclical recovery from the very deep, deep downturn we're coming out of.
Speaker Change: We're very, very close to these customers, given the size of the relationship.
Speaker Change: Double ordering or any of that happening. We think, you know, everybody's just trying to figure out what their future demand is so we can make sure we do the best we can to meet it. And they give us the best, the highest integrity signal possible on on what that demand is.
Speaker Change: Thank you. And our next question today comes from Thomas O'Malley with Barclays. Please go ahead.
Thomas O'malley: Hey Dave, Wissam, thanks for taking the question. I just...
Thomas O'malley: I just wanted to ask for you to help quantify the benefit on the ESSD side versus the traditional NAND portfolio. Obviously, you're saying that that grows from 15% today to 15% to 20%, so a nice tailwind throughout the year. But just on a like-for-like basis, could you just try to help describe what that tailwind means? Obviously, you're not going to give the exact pricing away, but just give us a flavor for how beneficial that is for the business. Thank you.
Speaker Change: Yeah, it's...
Speaker Change: It's accretive to the portfolio. Let's put it that way. That's a good starting point. You probably knew that. It tends to be one of the better, if not the best, price markets in the flash business. So it provides a nice tailwind to the portfolio.
Speaker Change: Thank you. And our next question today comes from Shuni Pajuri with Raymond James. Please go ahead.
Speaker Change: on a blended basis, but on a like-for-like basis, it's only down 4%. So it seems somewhat counterintuitive because your ESSD mix is growing.
Speaker Change: But, you know, the blended ASP is actually worse than like-for-like. So just trying to understand, you know, those dynamics as to why.
Speaker Change: That's the case, and as ESSD grows, how should we think about the blended ASP going forward? Thank you.
Speaker Change: Yeah, so I think, you know, it's even a little different than what you said. I think you said down four on Like4Like. Like4Like was up four, Blended was down six. So it's all mix related. I think we said going into this quarter we were mixing more into mobile.
Speaker Change: Now, clearly, as we mix in more enterprise SSD, that helps, but that's an emerging story and an ascendant story for us, and so that's why you see that dynamic there.
Speaker Change: Goeckeler, Wissam Jabre
Speaker Change: Thank you. And our next question today comes from Asia Merchant with Loop Capital. Oh, I apologize. Our next question comes from Ananda Barua with Loop Capital. Sorry about that. Please go ahead.
Speaker Change: I appreciate it. Thanks for taking the time.
Ananda Barua: Hey Dave. Um, yeah, I was just, uh, you know, could you refresh, actually what I wanted to ask you is, can you refresh our memory on, um, on what your conventional technology aerial density roadmap looks like?
Ananda Barua: Well, it's...
Speaker Change: It's always an evolving story.
Speaker Change: and that's where we expect Hammer to be introduced to carry the portfolio from there.
Speaker Change: Yeah.
Speaker Change: to continue to drive growth in the business and to continue to drive increased profitability.
Speaker Change: Thank you. And our next question today comes from Asia Merchant with Citigroup. Please go ahead.
Speaker Change: Great, thank you for taking the call, taking the question. So just in terms of you know HTDs, I understand that
Speaker Change: This trend here, continued trend here in the December quarter. We typically see some seasonality on the flash side in the March quarter. Just given the strength you're seeing on the HDD side, should we expect some seasonality here in the March quarter on the HDD side as well? Both in terms of bridge shipments and then also on the ASB side. Thank you.
Speaker Change: Srinivas Pajjuri, Ananda Baruah,
Speaker Change: Thank you. And our next question today comes from Stephen Fox of Fox Advisors. Please go ahead.
Stephen FOX: I would imagine there's de-bottlenecking still going on, and also, as mix changes, it helps your utilization on the heads and platters, so I don't know if there's any rule of thumb we can think about, or just maybe a little bit more color on that would be helpful. Thank you.
Speaker Change: process. The typical, I mean, I don't know if there's a typical, but the way to think of it is we would still be getting in the cost improvements and the probably mid to high single digit percentage on an annual basis.
Speaker Change: That would be probably a fair assumption, but of course it varies. It varies, of course, with respect to how we move from one capacity point to another as well. So it's not like a linear, a linear thing.
Speaker Change: Thank you. And our next question today comes from Vijay Rakesh with Mizzou Hill. Please go ahead.
Vijay Rakesh: Just a quick question on the Ultra Astro Master 32TB, with the 11 disks are we able to still make it?
Vijay Rakesh: Goeckeler.com
Speaker Change: Yeah, I mean the 32 terabyte Ultra SMR drive is a perfect example of us delivering a drive to our customers that drives our TCO down.
Speaker Change: Yeah, and with respect to the flash capex, you know as I mentioned earlier We're not providing a sort of a long-term longer-term view in terms of quantitatively, but what I would say is
Speaker Change: Thank you. And our final question today comes from Matt Bryson with Wedbush. Please go ahead.
Matt Bryson: Thanks for taking my question. What I was wondering is your hard drive pricing was relatively stable quarter over quarter. I would have thought with the greater shipments into the cloud as well as
Matt Bryson: The mix-up towards high-capacity drives, you would have seen a little bit of a benefit there. And then just one more...
Matt Bryson: point. I know you talked about there being production constraints. One of the things that I've heard is being constraining factors test.
Matt Bryson: telling us that they're not seeing any test orders. Should we take that as a sign that the hard drive industry is acting in a more rational fashion than in the past? Thank you.
Speaker Change: We're good with where we're at, and again, if we get strong enough signals from our customers...
Speaker Change: that four to six quarter time frame, then we can start talking about what that means for our production capacity. But we got a ways to go before we get something like that. On pricing.
Speaker Change: I think we've added over 15 points of margin in the last four quarters, so it's been a good run.
Speaker Change: a great spot. And, you know, quite frankly, that's because our technology is in a great spot. And it's really being really being adopted strongly by our customers. They're very much voting with their dollars behind the architecture that we're driving.
Speaker Change: and then during the downturn, the teams just did an awesome job of really getting our costs in the right spot to support this business and get supply demand balance. So, we feel good about the business and we look forward to driving it forward over the next several years.
Speaker Change: Thank you, that concludes the question and answer session. I'd like to turn the conference back over to the management team for any final remarks.
Speaker Change: Alright everyone, thanks for joining today. I really appreciate the interest in the business and all the great questions and we look forward to talking to you throughout the quarter. Take care.
Speaker Change: Thank you. This concludes today's conference call. We thank you all for joining. You may now disconnect your lines and have a wonderful day.