Q3 2025 Western Digital Corp Earnings Call

[music].

Good afternoon, and thank you for standing by.

Welcome to Western Digital's third quarter fiscal 2025 conference call.

Presently all participants are in listen only mode.

Later, we will conduct a question and answer session.

At that time, if you would like to ask a question you May press star one on your phone.

As a reminder, this call is been recorded.

Speaker Change: Now I will turn the call over to Michele I'm breaches, you must have a vice president and Investor Relations you may begin.

Speaker Change: Thank you and good morning, everyone. Joining me today are urban Chan Chief Executive Officer, and Don Bennett.

Don Bennett: <unk> Chief Financial Officer before we begin please note that today's discussion will contain forward looking statements.

Don Bennett: Based on management's current assumptions and expectations, which are subject to various risks and uncertainties. These forward looking statements include expectations for our product portfolio, our business plans and performance ongoing market trends and our future financial results.

Don Bennett: Assume no obligations to update these statements.

Don Bennett: Please refer to our most recent financial report on Form 10-K, and other filings with the S. E C 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 measure.

Don Bennett: Today, she conciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted.

Don Bennett: The Investor Relations section of our website at Investor Dot W. D C dot com with that I will now turn the call over to Irving for introductory remarks, thanks, a breach.

Irving: Good morning, everyone and thank you for joining us today.

Speaker Change: I'm honored to be speaking with you for the first time as the CEO of Western digital.

Speaker Change: It's a privilege to lead this exceptional organization.

Speaker Change: And I want to start by recognizing the outstanding work of our employees across the company.

Speaker Change: Who manage the complex separation process over the last several months while.

Speaker Change: While also continuing to drive the strong performance we are reporting today.

Speaker Change: Sure that time did you mean DB connect it to our customers.

Speaker Change: Continued pushing the boundaries of leading edge innovation and sustained a strong focus on operational excellence.

Speaker Change: This combination of customer focus innovation and execution.

Speaker Change: <unk> us well for the opportunities ahead.

In the past month, we've also welcome our new Chief product Officer aka bench you hop.

Speaker Change: Having held leadership positions at two large hyperscale is augment is a seasoned expert in cloud storage needs and requirements.

Speaker Change: Making him the right person to lead our product strategy and engineering teams as we continue to drive innovation and deliver solutions that meet the evolving demands of all data driven world.

Speaker Change: We are excited to have alkermes joined Western digital is just customer centric perspective, and deep industry knowledge, particularly with data centers will be invaluable to us going forward.

Speaker Change: Let me now provide you with a few updates on our business.

Speaker Change: Since stepping into this role I've been spending a great deal of time with our customers employees.

Speaker Change: And the investment community.

Speaker Change: What is clear to me is that western digital is an incredibly strong foundation.

Speaker Change: Resilient business model.

Speaker Change: An incredible potential to benefit from the demand and the age of AI.

Speaker Change: Even in the world by geopolitical uncertainty and shifting trade dynamics, one thing remains constant.

Speaker Change: The exponential growth of data.

Speaker Change: From enterprise woken launched to the explosion of AI generated content.

Speaker Change: Such as the millions of images and viral videos generated chewy I.

Speaker Change: Theater generation is accelerating at an unprecedented pace.

Speaker Change: When it comes to storing data at scale.

Speaker Change: <unk> technology rivals the cost efficiency and the reliability of his duties.

Speaker Change: We continue to serve as the backbone of the Wolf data infrastructure to.

Speaker Change: Delivering unmatched value for mass storage needs.

Speaker Change: As we deliver on critical issue D technology to our customers. We are focused on continued innovation to provide the highest capacity drives.

Speaker Change: Improved performance energy efficiency and lowest total cost of ownership.

Speaker Change: Our industry, leading 11 disk drives with capacities up to 26, terabyte, CMI and 32 terabyte Ultra Soma.

Speaker Change: I would now ramping rapidly.

Speaker Change: With over 800000 units shipped in the March quarter.

Speaker Change: We're also on track to ship well over a million units in the June quarter.

Speaker Change: The Swift qualification and adoption cycle.

Speaker Change: Is a hallmark of our technology roadmap.

Speaker Change: Demonstrating reliability ease of implementation and scalability with fastest time to value for our customers.

Speaker Change: On hammer.

Speaker Change: We remain on track with respect to our milestones and road map that we communicated at our Investor day in February.

Speaker Change: We are working closely on hammer with two hyperscale customers and continue to receive encouraging ongoing feedback on all drugs.

Speaker Change: Let me now turn to our quarterly results.

Speaker Change: For the third fiscal quarter within digital delivered revenue of $2 $3 billion.

Speaker Change: non-GAAP gross margin of 41%.

Speaker Change: And non-GAAP earnings per share of $1.36.

Speaker Change: Free cash flow for the quarter was $436 million.

Speaker Change: At our Investor day, we outlined a tripling of our shareholder friendly capital allocation approach.

Speaker Change: Yeah to reinvest in the business reduce debt.

Speaker Change: And return cash to our shareholders.

Speaker Change: On April 14th we redeemed $1 $8 billion of R 2026 senior notes.

Speaker Change: Thus further strengthening our balance sheet.

Speaker Change: I'm also pleased to announce that we are initiating a quarterly dividend of <unk> 10 cents per share.

Speaker Change: Fiscal Q4.

Speaker Change: These actions are underpinned by our strong belief in the strength and durability of our business.

Speaker Change: Don will cover this in greater detail in his remarks.

Speaker Change: Now turning to our outlook.

Speaker Change: First I want to acknowledge the current environment, which remains highly uncertain and volatile.

Speaker Change: Even in large part by tariffs and global trade tensions.

Speaker Change: At Western digital we are addressing these challenges on two funds.

Speaker Change: In the near term.

Speaker Change: We've established cross functional teams to minimize disruption and mitigate the impact of tariffs on our customers and operations.

Speaker Change: At the same time.

Speaker Change: <unk>, a strategic view evaluating the longer term implications of supply chain shifts to ensure we stay agile and resilient and are well positioned for the future.

Speaker Change: Daughter broader environment has some uncertainty demand from hyperscale customers remains robust.

Speaker Change: Tight supply environment.

Speaker Change: We're thankful to our customers, who increasingly recognized the complexity of the HDD supply chain and are partnering with us to provide visibility into their future needs.

Speaker Change: This collaboration enables us to plan more effectively.

Speaker Change: And we now have long term agreements to extend through the first half of calendar year 2026, with two of our largest customers.

Speaker Change: However, there are few areas such as in the enterprise and in southern parts of our distribution and retail business.

Speaker Change: Where it could be more uncertainty with respect to demand.

Speaker Change: Given largely by the current tariff environment.

Speaker Change: Taking these factors into account.

Speaker Change: And looking ahead into the fiscal fourth quarter.

Speaker Change: We expect sequential revenue growth driven by sustained strength in data center demand.

Speaker Change: We continue to work closely with our customers to align with their long term requirements, while delivering the best possible total cost of ownership.

Speaker Change: Let me now turn the call over to Don who will discuss our fiscal third quarter results and fiscal fourth quarter guidance in more detail.

Irving: Irving and good morning, everyone.

Irving: In the fiscal third quarter Western digital delivered strong financial results and successfully completed the planned separation of the company's flash business on February 21.

Irving: As such the historical results for the Flash business segment are reported as discontinued operations and excluded from these results.

Irving: Unless otherwise noted in my comments.

Irving: Total revenue for the quarter was $2 3 billion down.

Irving: Down, 5% sequentially and up 31% year over year.

Irving: non-GAAP earnings per share was $1 36.

Irving: Driven by gross margin of 41%.

Irving: Disciplined cost management and tax benefits.

Irving: Total exabyte shipments were down 6% sequentially.

Irving: Driven by lower near line shipments.

Irving: Related to deployment plans of our customers.

Irving: Average price per unit increased 4% sequentially to $179.

Irving: Looking at end markets.

Irving: Cloud represented 87% of total revenue at 2.0 billion.

Irving: Down, 4% sequentially and up 38% year over year.

Irving: On a sequential basis.

Irving: Decline was due to a 6% reduction in near line bit shipments to 145 exabyte.

Irving: While pricing per unit in cloud was up 5%.

Irving: On a year over year basis.

Irving: Both revenue and bit shipments grew at 38% and 32% respectively.

Irving: Driven by the strength of our product portfolio.

Irving: Client represented 6% of total revenue at $137 million.

Irving: Down 2% on both a sequential and year over year basis.

Irving: Compared to last quarter and last year revenue was down due to lower unit shipments.

Irving: Consumer represented 7% of revenue at $150 million down.

Irving: Down 13% sequentially.

Irving: And 4% year over year.

Irving: The sequential decline in consumer was primarily driven due to lower unit shipments.

Irving: Year over year, the decrease was largely due to pricing.

Irving: Moving to the rest of the income statement. Please note my comments will be related to non-GAAP results on a continuing operations basis.

Irving: Unless stated otherwise.

Irving: Gross margin for the fiscal third quarter was 41%.

Irving: Sequentially gross margin improved one seven percentage points.

Irving: Head of our guidance of 50 basis points improvement.

Irving: Operating expenses were down sequentially.

Irving: $324 million.

Irving: Our results demonstrate continued focus on cost discipline.

Irving: As we concluded our business separation process.

Irving: Operating income was $596 million.

Irving: Up 85 basis points sequentially.

Irving: Driven by higher gross margin and lower operating expenses, partially offset by lower revenue.

Irving: Operating margin was 26.0% up one five and 1.5 percentage points sequentially.

Irving: And up 17.3 percentage points on a year over year basis.

Irving: Income tax expense was $12 million and the effective tax rate for the fiscal third quarter was 2%.

Irving: The decline in the company's effective tax rate from guidance as a result of the recognition of one time deferred tax benefits in conjunction with the separation of the flash business.

Irving: Turning to the balance sheet.

Irving: At the end of our fiscal third quarter cash and cash equivalents were $3 5 billion.

And total liquidity was $4 7 billion, including Undrawn revolver capacity.

Irving: Gross debt outstanding was $7 4 billion at the end of the fiscal third quarter.

Irving: Inventory was $1 3 billion.

Irving: Adding 86 days of inventory.

Irving: Up $63 million sequentially and down $174 million on a year over year basis.

Irving: Our net leverage ratio at the end of the fiscal third quarter was $1 seven X.

Irving: Please note after the close of the March quarter, we successfully redeemed $1 8 billion of.

Irving: Of our 2026 senior notes using cash on hand.

Irving: The redemption reflects our commitment to strengthening the balance sheet and achieving our target net leverage ratio of 1.0 to 1.5 acts as outlined at our Investor day.

Irving: Operating cash flow for the fiscal third quarter was $508 million in cash capital expenditures rapid represented a cash outflow of $72 million, resulting in free cash flow generation of $436 million for the quarter.

Irving: Please note that this is on a consolidated basis for the quarter.

Irving: Thank you Irving highlighted in his opening remarks, we are pleased to announce that we're initiating a quarterly dividend of <unk> 10 per share.

Irving: Reflecting the strength of our balance sheet and confidence in the long term cash generating ability of our business.

Irving: This decision underscores our commitment to delivering value to our shareholders.

Irving: I'll now turn to the fiscal fourth quarter non-GAAP guidance.

Irving: This guidance includes our current estimate of all anticipated or known tariff related impacts on our business in this period.

Irving: We anticipate revenue to be $2 $4 $5 billion plus.

Irving: Plus or minus $150 million.

Irving: Gross margin is expected to be between 40% and 41%.

Irving: We expect operating expenses to increase slightly on a sequential basis to a range of $330 million to $340 million.

Irving: The increase is due to variable compensation, reflecting improvement in the underlying business.

Irving: Hiring to fill critical open positions, resulting from the business separation and increased investments in research and development.

Interest and other expenses are anticipated to be approximately $70 million.

Irving: The decrease on a subsequent basis reflects our lower debt levels. Following the notes redemption previously discussed.

Irving: The tax rate is expected to be between eight and 10%.

Irving: We expect EPS to be $1, 45, plus or minus 20.

Irving: Based on approximately 360 million shares outstanding.

Irving: Additionally for modeling purposes, we would like to highlight that fiscal year 2026 will be a 53 week year for us.

Irving: As a result, our first fiscal quarter in FY 'twenty six will have 14 weeks.

Irving: In addition, we expect the tax rate for FY 'twenty six to be between 16 and 18%.

Irving: In closing Western digital is well positioned to navigate the current dynamic environment.

Speaker Change: We remain focused on creating value for our stakeholders and investing in our future to capture the significant growth in data ahead, while maintaining a healthy supply and demand environment with that I'll now turn the call back to Irving.

Irving: Thanks, Tom.

Irving: Western Digital's results this quarter and guidance.

Irving: The ongoing structural transformation of our business.

Irving: Continued progress towards a business that delivers sustained profitability.

Irving: We continue to maintain strong conviction in the business and are confident that we will weather this uncertainty and come out even stronger.

Irving: What's that.

Speaker Change: That's not begin the Q&A.

Speaker Change: Irving Operator, you can now open the line to questions. Please to ensure that we hear from as many analysts as possible. Please ask one question at a time. After we respond we will give you an opportunity to ask one follow up question operator.

Speaker Change: Thank you.

Speaker Change: Ladies and gentlemen, there will now begin the question and answer session.

Speaker Change: If you have a question. Please press star one on your phone if you would like to withdraw your question. Please press the pound key.

Speaker Change: One moment please for the first question.

Speaker Change: Our first question comes from Erik Woodring with Morgan Stanley. Please go ahead.

Erik Woodring: Hey, good morning, guys. Thanks for.

Speaker Change: For taking my questions and congrats on the nice quarter at the gate.

Speaker Change: Instead of asking a demand question I wanted to actually ask about capital allocation.

Speaker Change: So you have a dividend yield of about 1% soon to be lower than that given how your stock is trading and the pre market. That's about 100 million of annual cash outflow can you maybe just help us understand how we should be thinking about both dividend growth going forward given it seems like you have some capacity there.

Speaker Change: But then also maybe how youre thinking about potential share buybacks and I know your intent is to delever with the sandisk stake, but just help us understand on the cash return side to equity holders, how we could be thinking about the cadence of both dividend growth and buybacks. Thanks. So much.

Yes, thanks for the question and I appreciate it.

Speaker Change: It was we laid out at our Investor day, our goal is to get our net leverage down to the $1 1.5 X range and once we have that we intend to return 100% of excess cash.

Speaker Change: To our shareholders and that will be in the form of <unk>.

Speaker Change: <unk> potentially both dividend and share buybacks as we also indicated at Investor day, which we are honored and committed to today.

Speaker Change: Starting off of a relatively small.

Speaker Change: Dividend to begin with and then as we progress we'll look to increase that and complement that with buybacks as well so stay tuned for that.

Speaker Change: Okay.

Speaker Change: Hello.

Speaker Change: Yes, just a quick follow up was you know.

What I hear from you is kind of more visibility because of some of these LTA and I'm just I'm curious.

Speaker Change: <unk> customers now, giving you some indications into the first half of calendar 'twenty six does that mean, you have enough visibility to expect.

Speaker Change: Revenue margins and EPS sequential growth through calendar 'twenty five or is it too early to make that call. Thanks. So much guys. Good luck.

Speaker Change: Yeah, Thanks, a lot.

Speaker Change: I think the shift to LTE has given us greater visibility and as I highlighted in my opening comments. We now have two hyperscale customers that have given us <unk> up to the first half of calendar 'twenty.

Speaker Change: 2006, and Thats really helped us plan, our supply chain appropriately along with the Capex investments.

Speaker Change: That we need to make and gives us a lot more confidence.

Speaker Change: In the business and so as I've highlighted in the past I think especially when it comes to the Hyperscale business, we see demand continuing to be strong and robust throughout the calendar year 'twenty five and knowledge.

Speaker Change: <unk> into the middle of calendar year 2016 as well.

Speaker Change: Thank you. The next question comes from Aaron Rakers with Wells Fargo. Please go ahead.

Aaron Rakers: Yes. Thanks for taking my question also congrats on the first quarter out of the gate.

Aaron Rakers: In the comments around the guidance you guys alluded to into the fiscal fourth quarter, you did point out that it reflected all known or anticipated tariff impact I'm curious if you could unpack that a little bit I believe the majority if not all of your manufacturing footprint in Thailand. So.

Aaron Rakers: Just curious of how you're thinking about how your best assessment.

Aaron Rakers: What these tariff impacts might be or any indications that you're seeing with customers at this point.

Aaron Rakers: Yeah.

Aaron Rakers: Hey, Erin Thanks for the question and good to hear from you again.

Speaker Change: In Q4, we don't anticipate any direct tariff impacts in relation to.

Speaker Change: It's translation into pricing or cost to customers.

Speaker Change: Well as we've highlighted in our prepared statements that we do see some potential demand uncertainty.

Speaker Change: Enterprise distribution and retail.

Speaker Change: The minutes of the business just due to the unpredictability and volatility volatility and you would've heard a lot of comments in the marketplace around enterprises and consumers sort of pausing.

Speaker Change: Pausing or holding back on making purchases as well so factoring all that in that's the guide that we gave but they're getting the growth that we've guided to is really driven primarily.

Speaker Change: By the strength, we continue to see in the data center and specifically in our Hyperscale business.

Speaker Change: And Erinn I'll just add that.

Speaker Change: Irving's prepared remarks, we talked about establishing cross functional teams to minimize disruption and mitigation.

Speaker Change: To both our customers as well as our internal operations.

Speaker Change: Additionally, we're taking a strategic view on looking at multiple our alternatives depending on what the tariff situation looks like tomorrow or in mid may or June whatever the next.

Speaker Change: The next round of tariff tariff tariff guidance comes out on our products as you know we're part of the semiconductor group. We currently have zero percent tariff on our products.

Speaker Change: And then did you have a follow up.

Speaker Change: Yes, I do think.

Speaker Change: So when I think about the gross margin rate 41%.

Speaker Change: At the Analyst day, you talked about 38% plus kind of be in the longer term model.

Speaker Change: When I look at the guidance into this next quarter. If my math is right it looks like the incremental margin at <unk>.

Speaker Change: We're alluding to is like north of 45%. So I guess my question is is there anything structurally in the business or kind of the path forward that keeps us from thinking that gross margin could could trend into that mid 40, if not higher range over time.

Aaron Rakers: Yes, I think Aaron on an at Investor Day, We provided a guide a model on gross margin there was a flaw, 38% and that's over a five year peak.

Speaker Change: And as you know the market.

Speaker Change: <unk> and ups and downs, along the way so 38% was the floor.

Speaker Change: We obviously were able to deliver very strong gross margins. This quarter, we crossed a 40% threshold and thats really driven by the value to customers see in the technology that we're providing them as well as very strong operational discipline and also pricing discipline that we've experienced we didn't.

Speaker Change: The market so we.

Speaker Change: As we continue to deliver total cost of ownership value to our customers innovation.

Speaker Change: <unk> capability, whilst maintaining the operational discipline.

Speaker Change: Within the customers within our operations sorry, we see gross margins continuing to remain strong.

Ed: Thank you Ed.

Ed: Thank you. The next question comes from Karl Ackerman with BNP Paribas. Please go ahead.

Karl Ackerman: Yes, Thank you gentlemen.

Karl Ackerman: So my first question I know you have focused on technology transitions to drive extra by demand from here. However, what are the hurdles for you to add manufacturing capacity is it driven by certain visibility you have on L. T A's or other things we should consider thank you.

Carl: Yes, thanks for the question Carl.

Karl Ackerman: All of our exabyte growth has really been driven by aerial density improvement and technology improvement as.

Karl Ackerman: As we've highlighted our ultra small technology, which is unique to us gives us a 20% capacity uplift over the standard recording.

Speaker Change: Yes, I'll ability to deliver incremental extra bytes without having to.

Karl Ackerman: So putting capex in in terms of.

Speaker Change: Production units.

Speaker Change: One of the big Differentiators that we've been able to create and so that's an area that we continue to invest in.

Speaker Change: And in R&D R&D function to continue to drive greater urban density performance. We've recently, just launched <unk> 26, and 32 terabytes industry leading.

Speaker Change: Platforms, and we will bring out in the next few months.

Speaker Change: And 36 terabyte platforms as well so those increases to erode entity will continue to enable us to deliver extra by growth without having to invest in capex for additional unit growth.

Speaker Change: Do you have a follow up call.

Speaker Change: I do and bridge please.

Speaker Change: Thanks for that.

Speaker Change: I wanted to follow up on the comments you made with regard to the L. T A's.

Speaker Change: It sounds like demand for Hyperscale as well.

Speaker Change: Quite good and has a strong visibility into the first half of 2006.

Speaker Change: However, I was hoping you could provide a bit more color on the growth curve of private cloud and SMB customers.

Speaker Change: I'm curious whether you have seen perhaps any pull forward and counter Q2 ahead of tariffs and secondarily, how you think about the demand dynamic for those customers in the second half. Thank you.

Speaker Change: Yes. Thank you.

Speaker Change: We definitely do see opportunities, especially in sovereign clouds private clouds going forward.

Speaker Change: Even in the age of the pardon me beneficiaries have been the large hyperscale is we also see growth.

Speaker Change: Sort of it happening.

Speaker Change: So thats an opportunity that we look to pursue going forward.

Speaker Change: That's a growth driver we haven't seen any.

Speaker Change: Pull forwards the linearity that we saw within Q3 was very consistent with the linearity that we've seen.

Speaker Change: In the past and then also as we look at the sequential quarter on quarter growth very consistent with what we've seen in the past so.

Speaker Change: No real change in terms of pull ins, both last quarter and what we see happening this quarter as well.

Speaker Change: Thank you Kurt.

Kurt: Thank you.

Speaker Change: The next question comes from C J Muse.

Speaker Change: Cantor Fitzgerald. Please go ahead.

Speaker Change: Yes. Good morning. Thank you for taking the question I guess to follow up on the prior question was hoping you could speak a bit Oh.

Speaker Change: Boat supply and what kind of exabyte growth you can get just from delivering higher capacity drives and I guess, what is the timeframe, where you would potentially consider adding adding more capacity.

Speaker Change: Thanks for the question C. J, we feel confident right now with the forecast that we have an outlook that we see in terms of exabyte growth.

Speaker Change: We are able to deliver that to again to technology and innovation and we're delivering that provides us the capacity uplift without putting in any capacity. If there was any need to put in any capacity would probably be more on the hidden media side.

Speaker Change: Off the house, but we don't anticipate any capacity investments in those areas for the near term.

Speaker Change: And C. J I'll just add that in this uncertain environment, we are very tightly managing our capital expenditures and where we continue to manage the business to the low end of our guidance range of 4% to 6%.

Speaker Change: You have a follow up C J.

Speaker Change: Thank you.

Speaker Change: Could you speak to gross margins.

Speaker Change: Great.

Speaker Change: <unk> and guide.

Speaker Change: <unk> in terms of the drivers from here is there still kind of a fixed cost benefit.

Speaker Change: Would arise or is it really all about higher capacity drives delivering higher asps is actually the main driver or are there other factors that we should consider thanks so much.

Speaker Change: Yes C. J you hit it right, it's really about the product technology that we're delivering to our customers. We continue to add tcl benefit to them and we're participating in that value that we're bringing to the customers.

Speaker Change: We're tightly matching supply and demand so we're not going to see great great impact from.

Speaker Change: Increased.

Speaker Change: Production over time, because we're we're very tight in our supply allocation. So it's really about delivering value to our customers through technology and continuing to drive leading edge products at scale.

Speaker Change: Thank you C J.

Speaker Change: Thank you. The next question comes from <unk> Mohan with.

Speaker Change: Bank of America. Please go ahead.

Speaker Change: Yeah. Thank you so much nice results here.

Speaker Change: Irving our if I heard right you noted the potential for some enterprise slowdown.

Speaker Change: Then by tariffs I was curious have you seen anything in your order patterns to suggest that or is this sort of.

Speaker Change: More.

Speaker Change: Anticipatory in terms of.

Speaker Change: What could happen if if a tariff regime became became more onerous.

Speaker Change: Yes. Thanks for the question was is more of a latter right. We haven't seen any slowdown just yet, but obviously there is a demand uncertainty.

Speaker Change: Cost of the tariffs and obviously.

Speaker Change: We put a lot of news coming out of <unk>.

Speaker Change: Enterprises, and earning something over the last few days around customers being a bit more cautious in terms of spending and capital investments as well so given that we've just factored that into the guide.

Speaker Change: But nothing untoward, it's for the time being that's all we've just tried to widen the range in terms of our guide for Q4.

Speaker Change: A follow up onesie.

Speaker Change: Thanks, everybody.

Speaker Change: As you look into the September quarter, where you're calling out the 14 weeks any any parameters you can help us think through in terms of.

Speaker Change: Revenue on Opex into last quarter. Please thank you.

Speaker Change: Yes, So we guide one quarter at a time, but the reason I mentioned, a 14 week is because obviously, we will have 14 weeks of expenses typically are our customer order on a quarterly basis. So the revenue will be.

Speaker Change: It'll follow typical seasonal patterns, but at this point, we're not guiding revenue for that quarter.

Speaker Change: Thank you Lindsey.

Speaker Change: Thank you. The next question comes from RCM margin with Citigroup. Please go ahead.

Speaker Change: Great. Thank you for the question.

Speaker Change: A great quarter by the way.

Speaker Change: There seems to be.

Speaker Change: Darren just around hyper scaler I know your competitor talked about demand being very strong there as well and good visibility just anything on why you don't think this could be double ordering anything as it relates to the Asian pricing negotiations that way.

Speaker Change: Lynette or limit the impact if indeed, there was any double ordering thank you yes.

Speaker Change: Thanks for the question I'm sure, we definitely don't see any.

Speaker Change: Ordering at this time is I think one of the key things is we are in a very tight supply.

Speaker Change: The demand environment, so even if do a double orders.

Speaker Change: And we would be challenged to fulfill them.

Speaker Change: Right now and I think more importantly, the demand profile that we're seeing given the LTA visibility that we have all the way to middle of 2026.

Speaker Change: As we're seeing order patterns are very much follow the LTE 80 months, so theres nothing really abnormal.

Speaker Change: As Don mentioned it follows very much both seasonality.

Speaker Change: Quarter to quarter and linearity within a quarter.

Speaker Change: As well so we don't don't see any double ordering.

Speaker Change: Anything on pricing, obviously, as we transition to new platforms that always gives us an ability to deliver better TCE or value to our customers and an opportunity for us to deliver greater pricing upside as well.

Speaker Change: Did you have a follow up.

Speaker Change: Yeah sure. Thank you very much.

Speaker Change: On gross margins.

It was better than expected in the current quarter that you reported.

Speaker Change: Gross margins do you.

Speaker Change: Similar incremental step up your what you are seeing better revenues in the June quarter, and then as you think about.

Speaker Change: The remainder of the calendar or fiscal 'twenty six should we continue to expect margin expansion from these levels. Thank you.

Speaker Change: Yes, thanks for the question.

Speaker Change: The strong gross margins that we have to deliver it and also guided to it's a reflection of the value that we bring to our customers, particularly true to technology enhancements that really gives them.

Speaker Change: Better TCU, but also very fast time to value.

Speaker Change: And that's what we continue to focus on them.

Speaker Change: We're able to continue to deliver that innovation continues to deliver at a total cost of ownership benefit and giving them fast time to value.

Speaker Change: We don't see any reason why gross margins not expand going forward as well. So that's our focus we don't worry too much about the gross margin will continue to focus on delivering value to our customers.

Speaker Change: I think the gross margin will flow from that thank you.

Amit: The next question comes from Amit <unk> with Evercore. Please go ahead.

Speaker Change: Okay.

Speaker Change: Thanks, a lot I guess, maybe just to stop it on the tariff dynamic yeah. I realize you don't have much for impact from tariff right now, but as you're signing these LTA is in 2026 can you talk about if you sort of have tariff escalators embedded in them to ensure you can pass through the cost of these to your customers or would that would be a different set of discussions have you had once you know what the tariff scenario.

Speaker Change: It looks like.

Speaker Change: Yeah. Thanks for the question, we're obviously working very closely with our customers.

Speaker Change: We all know I think the situation is evolving on a daily basis and extremely fluid. So it's hard for us to really speculate what the outcome would be right now.

Speaker Change: As I mentioned in my prepared remarks, and Don emphasize as well we have teams that are.

Speaker Change: Looking across the company closely from customers really understand how we can.

Speaker Change: Mitigate.

Speaker Change: The impacts of tariffs and also any supply disruptions in.

Speaker Change: In the near term and then in the long term, we're also evaluating with them what their supply chain shifts maybe so that we can also aligned to that so we're also prepared.

Speaker Change: Both of them agility with resiliency.

Speaker Change: Long term.

Speaker Change: <unk> perspective.

Speaker Change: To be able to walk from customers as they shift of supply chain to be able to best support them as well.

Speaker Change: I mean did you have a follow up.

Speaker Change: I do think some reach out and then maybe just on the Hammer side I know you folks mentioned youre working with two cloud customers at this point on Hammer just any sense on when you expect these qualifications to happen and as you work towards them should we think of some sort of upside bias your R&D, our opex investments through that process. Thank you.

Speaker Change: Yeah. Thanks for the question I think we laid it out very clearly at Investor day, we are looking to.

Speaker Change: Stop qualification in the second half of calendar 'twenty, six and then ramping up production at scale in the first half of calendar 'twenty seven.

Speaker Change: <unk> engineering samples with two large hyperscale is already today, we are in close contact with them on the performance of those drives were getting regular feedback.

Speaker Change: From them I would say so far the performance has been meeting the milestones that we have both.

Speaker Change: Played out and on a quarterly basis based on the feedback that.

Speaker Change: That we see from them we are delivering.

The next generation of enhancements on those dry so I will say, we are comfortable with where we are on track with a roadmap that we laid out at.

Speaker Change: At the same time, we are also preparing to introduce our new 28 terabyte into the six terabyte <unk> platforms.

Speaker Change: As well so our whole focus is on ensuring that we really derisk transitions.

Speaker Change: Our customers continued to deliver very scalable predictable reliable capacity points that gets them to the fastest time to value.

Amit: Thank you Amit.

Speaker Change: The next question comes from Tom O'malley with Barclays. Please go ahead.

Tom O'malley: Hey, guys. Thanks for taking my questions I, just wanted to focus in a little bit on the on the LTA. So we had this period in in memory on the NAND and DRAM side through the pandemic. We're in the and <unk> were pretty much torn up and were largely hyperscale or has advantage over suppliers. So like could you talk about like what benefit you get from there.

Tom O'malley: LTA is like is this take or pay agreements are these in writing where you get some sort of compensation. If your customers aren't going to take these or is this just like a framework that you have with your customers that says we will supply. This much over this period of time could you just maybe dive into those a little bit because historically, they really havent been much.

Tom O'malley: Yes. Thanks for the question, Tom well first of all we don't disclose the terms of the commercial contracts that we have but I think it's important to note.

Tom O'malley: That's.

Tom O'malley: Some quite significant structural changes.

Tom O'malley: To have happen within our business I would say across the entire hard drive industry over the last year, where a lot of the excess capacity.

Tom O'malley: And <unk>.

Tom O'malley: Existing inventory within the supply chain has been removed.

Tom O'malley: From the system to really reset the entire supply base to where we think the right demand profile is going forward.

Tom O'malley: The Lta's play a very critical role to ensure that we have the right supply demand balance and given the criticality that how drives plays to the business of our Hyperscale customers I think as I've mentioned in my opening comments as well.

Tom O'malley: <unk> been working very closely with us to ensure that.

Tom O'malley: That's sort of a supply demand imbalance that we saw during COVID-19 and full period post COVID-19 as well.

Tom O'malley: We occur and I think we're in a good place where the LTE is really give us good visibility we're seeing.

Tom O'malley: Pretty much demand stick to those LTA is that we've outlined.

Tom O'malley: And with them.

Tom O'malley: The Otas have moved from pretty much treated six months another nine to 12 months as well so that's giving us a lot more visibility to plan our supply chain very closely from our customers.

Tom O'malley: Well you have a follow up Tom.

Tom O'malley: Yes, I just wanted to dive into the differences between the unit and pricing in the guide. So like you had a pretty consistent track over the last couple of years of increased pricing is there any different type of dynamic. We should think about I know you guys don't guide by more than one quarter out, but looking into the June quarter.

Tom O'malley: Units versus pricing any commentary you have that get you to that guide.

Tom O'malley: Sure Tom Yeah, we've had it as Irving mention a structural change in our business. So the majority of our business today is in data centers or at the edge and so.

Tom O'malley: We've seen this continued progression of Asps currently we announced we're at a $179, which is up 23% year over year on an aggregate weighted average basis. So as as that mix continues to move to the cloud we should see sustained increases in Asps, obviously don't move.

Tom O'malley: Around quarter to quarter, depending on what our client and consumer mixes because that typically is a lower capacity drive overall, but okay. So it's so it's impacted by segment mix customer mix as well as we continue to drive <unk> value to our customers. So we see price per unit.

Tom O'malley: Stable or up in most cases as we deliver.

Tom O'malley: Further technology into those accounts.

Tom O'malley: Thank you Tom.

Steven Fox: The next question comes from Steven Fox with Fox Advisors. Please go ahead.

Steven Fox: Hi, Good morning, Thanks for taking my question I guess first one I just was curious if you could sort of give yourself a grade on the free cash flow for the quarter seemed pretty good to me at 78% of net income and how we can think about sort of what you're measuring yourselves against in future quarters for free cash flow and then I have a follow up thanks.

Steven Fox: Yeah. Thanks for the question so free cash flow, we don't guide cash flow on a quarterly basis, because theres a lot of moving parts in cash flow.

Steven Fox: As you mentioned, we did have very strong both operating and free cash flow. We are measured we are driving the business to operating profit and to free cash flow generation. So that we can execute on our capital allocation priorities.

Speaker Change: And Irving laid those out in the script, but I'll just repeat them one is to reinvest in the business so to deliver leading edge technology at scale to our customers. The second second thing is to Delever, our balance sheet and you've seen us do that with taking out $1 $8 billion of our 2026 notes. So we're now down below.

Speaker Change: $4 billion of net debt on the balance sheet and lastly is returning capital to our shareholders. We started that with the initiation of the dividend and there'll be more to come on that in the future.

Speaker Change: I'll follow up Steve Yes, I was just curious when do we think about non enterprise and cloud markets, how you're managing those against all of the demand Youre seeing do you feel like Youre deemphasizing knows or figuring out a way to.

Speaker Change: Maybe more efficiently managing them I'm, just curious what what we think about those markets over the next year.

Speaker Change: I would definitely not deemphasizing them, there's still a material part of our business the supply chain for cloud and non cloud business are really quite discrete and.

Speaker Change: And separate and we sort of manage them independently if anything we are looking at opportunities to see whenever we can.

Speaker Change: Drive incremental growth in those areas.

Speaker Change: Thank you Steve.

Speaker Change: Thank you.

Speaker Change: Your next question comes from Mark Miller.

Speaker Change: Benchmark company. Please go ahead.

Mark Miller: Congratulations on your first report after the spin out.

Speaker Change: Just curious can you tell us how many shares you currently hold with Sandisk and have your plans changed because of the.

Speaker Change: Relatively low price of sandisk about what you're going to do with the shares.

Speaker Change: Yes, we own 19, 9% authentic the retained stake.

Speaker Change: We have and as we've communicated in Investor day, we will look to disposition those shares.

Speaker Change: Ideally over a 12 month period starting in February.

Speaker Change: As part of our deleveraging strategy going forward.

Speaker Change: Thank you.

Speaker Change: Thank you. The next question comes from Harlan sur with Jpmorgan. Please go ahead.

Harlan Sur: Good morning, Thanks for taking my question and great job on the quarterly execution back in February the team outlined the three year near line Exabyte growth CAGR.

Speaker Change: <unk> 20, 25%.

Speaker Change: Some of the third party research firms are forecasting for this calendar year, which is also consistent.

Speaker Change: No.

Speaker Change: With the strong cloud data center Capex spending trends that you talked about this year.

Speaker Change: Given you are.

Speaker Change: Fairly good visibility does Europe caused the non profile also suggest a low 20% extra Blake growth profile in this calendar year or better.

Speaker Change: I think you are in the ballpark.

Speaker Change: And Heartland has embraced remember we had given a three to five year forecast.

Speaker Change: Did you have a follow up Harlan.

Harlan Sur: Yes, I know I know.

Speaker Change: Everything has given a three to five year forecast, but that that sort of 2018% kind of aligns with some of the what.

Speaker Change: Third Party research guys are kind of forecasting for this calendar year, but I. Appreciate the answer there also back in February when you did articulate about a 40% mix of near line capacity was ultra as some of you.

Speaker Change: As you look at your order book and shipment plans, what do you expect that mix to be either second half of this year or exiting this calendar year on year, dragging obviously strong tcl benefits are driving strong pricing power, but on a like for like.

Speaker Change: Basis capacity wise whats.

Speaker Change: The higher gross margin profile is at the CMO.

Speaker Change: Some are based drives.

Speaker Change: Well I think we look to deliver value across the portfolio. So I think we see pricing leverage across both our CMO.

Speaker Change: And ultra some AR platforms, obviously are ultra ultra small platforms give us better.

Speaker Change: ASP per drive because of the additional capacity would deliver from it.

Speaker Change: It also helps us with Capex as I've highlighted earlier because of the technology benefit we have without having to put capex in.

Speaker Change: Into it in terms of mix in any given quarter, it's probably around the 40% to 45% ratio. So it depends on because these are large hyper scanners and they have different deployment timeframes.

Speaker Change: If in Hyperscale as use different technologies, so we can fluctuate from quarter to quarter, but somewhere between 40% to 45% in any given quarter is what we see.

Harlan Sur: Thank you Harlan.

Speaker Change: Thank you. The next question comes from Ananda Baruah with loop capital. Please go ahead.

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

Speaker Change: Congrats on getting out the gate here.

Speaker Change: <unk> Nikko.

Speaker Change: I guess, yes, steel's I could I guess the first one is really in architectural question.

Speaker Change: So as Nick assuming CJ continues to progress with hammer.

Speaker Change: You guys continued to progress over the next call. It 24 months with your legacy Tech kind of three getting to hammer volume just as for the analyst day is that create new architect any new architectural realities inside the data center with with what can the mix and match or households to begin thinking about.

Speaker Change: <unk>.

Speaker Change: Yes storage system stacks.

Speaker Change: Would love any context, there if theres anything and I have a quick follow up thanks sandwich.

Speaker Change: Yeah look I think there will be some architectural adjustments accordingly, obviously at the highest level.

Speaker Change: The interplay between what's in flash was on hard drives and Watson Teva will continue to be there. So we've highlighted at Investor day, and hard drives again will be the predominant storage media with over 80% of bits start on hard drives we don't anticipate that changing whether that's.

Speaker Change: <unk> our hammer.

Speaker Change: Going forward there are some rack level changes that will be required.

Speaker Change: For the deployment of how much so you're not going to be able to mix and match.

Speaker Change: The drives that easily similar to all trust them out in some whole site software changes.

Speaker Change: I'll be quiet.

Speaker Change: But these are very sophisticated customers their data center I'm very familiar with what's needed to be done and again the success that we've had and the continued growth that we see.

In our <unk> portfolio is a great example of people really embracing the technology and really making and investing in the architectural changes.

Speaker Change: We didnt balked at data center environment, and their software stack to be able to take advantage of that benefit and we see that going forward.

Speaker Change: And a follow up on that.

Speaker Change: Yeah, Thanks, Nathan for Don I guess.

Speaker Change: March quarter gross margin.

Speaker Change: Am I correct, Andrew recalling that March quarter gross margin was actually originally anticipated.

Speaker Change: <unk> impacted by product transition yield dynamics normal stuff.

Speaker Change: And yes that did in fact occur does that actually mean that the normal the structural margin is actually set up higher than what you guys reported.

Speaker Change: Well I think we guided at 50 basis point improvement, we actually saw better yields and utilization and the ramp up of our new product technology was faster than expected as we announced in our in our press release. So we shipped over 800000 units of our new 11 this platform.

And that's being produced at very high.

Speaker Change: Quality reliability.

Speaker Change: And yields and our factory today, so that that was one of the one of the things that improved gross margin above guidance.

Ananda Baruah: Thank you Anand.

Ananda Baruah: The next question comes from heavy Hussaini with <unk>. Please go ahead.

Heavy Hussaini: Yes, thanks for taking my question.

Speaker Change: We recently announced the intention to acquire.

Speaker Change: <unk> and I wanted to learn more how you're thinking about procuring the key components for and particularly.

Speaker Change: Particularly as you, especially as you engage with two Hyperscale is that you highlighted in the prepared remarks.

Speaker Change: It's funny.

Speaker Change: Yeah.

Speaker Change: First and foremost I think the indirect acquisition by.

Speaker Change: Sure.

Speaker Change: <unk> doesn't have any impact on us because we have obviously two sputtering systems that we use so we have resiliency.

Speaker Change: So technology supply chains.

Speaker Change: As well we're all.

Speaker Change: Obviously looking out for opportunities in which we can continue to.

Speaker Change: Okay.

Speaker Change: Capture even more value and create even more value to our <unk>.

Speaker Change: Products through potential acquisitions and vertical integration. So we continue to keep a look out for.

Speaker Change: For them in many cases and in terms of tool providers, we actually do feel and our philosophy is that they actually benefit from actually servicing multiple customers because thats, how they can innovate.

Speaker Change: Better as well, but that's generally our rule of thumb, but.

Speaker Change: To be constantly looking at opportunities to see how we can.

Speaker Change: Continue to vertically integrate and capture more value within our portfolio.

Speaker Change: Follow up maybe.

Speaker Change: Yes, Sir and follow up has to do with the CFO search, especially students you're executing.

Speaker Change: Well.

Speaker Change: But at the gate and committing to dividend cash dividend.

Speaker Change: To what extent, what's the update on the CFO search.

Speaker Change: Should we think about.

Speaker Change: The execution.

Speaker Change: And search for the CFO.

Speaker Change: Yeah. Thanks for the question first and foremost I believe Mustang dawn for agreeing and stepping into the interim CFO CFO role he's done a great job as you can hear from the results.

Speaker Change: As well the search is progressing very well and we will communicate in due course once we have a.

Speaker Change: CFO identified.

Speaker Change: Thank you Mehdi.

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

Tim Arcuri: Thanks, a lot drive units were down from $13 5 million down to like $12. One in March. So is $13 5 million of that kind of like should we think about that is the high watermark for the number of drives you can produce in a quarter.

Tim Arcuri: I wouldn't use that as a watermark I think it really depends on mix.

Tim Arcuri: It depends on the various capacities that we are delivering.

Speaker Change: As Don mentioned the teams continue to do a great job on really pushing the boundaries of yield and output.

Tim Arcuri: We can within the <unk>.

Speaker Change: The supply environment.

Speaker Change: That we have so again it fluctuates really based on yield.

Speaker Change: The mix of products that we have and I'll just add there is.

Speaker Change: <unk> mix client and consumer was down for the quarter as we ramp in the seasonal periods with.

Speaker Change: Prime day and back to school and Christmas, We May see some some of that volume come back in the client consumer space as well and we have capacity there to expand.

Speaker Change: I have a follow up Tim.

Tim Arcuri: I do yes, just back on this question about these otas I mean, these same large customers have similar deals for memory.

Tim Arcuri: <unk> routinely overstate, what they what they what they need.

Tim Arcuri: So why why would they not be doing that with you as well so I mean.

Tim Arcuri: I certainly understand that demand is good but but.

For this stuff that is looking out to next year why would they not if they need to drive why would that that would tell you that they need three and if they didn't take the driver you're going to enforce the cancellation policy on that thanks.

Tim Arcuri: Yes.

Tim Arcuri: I think we've got a good healthy relationship with our customers they have.

Tim Arcuri: Understood that in order for the.

Tim Arcuri: The hard drive industry to be healthy for us to continue to.

Tim Arcuri: To be able to be profitable and invest in innovation that they benefit from from a <unk>.

Advantage is in both our best interests to provide as best as possible the demand outlook given the long lead times, especially when it comes to near line drives.

Tim Arcuri: So that's something we've clearly got into visibility and in fact for the two entities that we have into the first half of calendar 'twenty six.

Tim Arcuri: Actually I'm from Peel was associated with them.

Tim Arcuri: Well I guess the question is do we do we put in a clause around take or pay.

Tim Arcuri: To be Frank I'm, not we're not a fan of that because all you're doing is creating.

Tim Arcuri: Problems down the road and so we'd rather work with our customers to smooth out demand and make sure. We continue to what would happen to have the right and appropriate supply demand balance to sustain our profitable business that we can continue to invest in innovation for them going forward. Thank you Tim.

Tim Arcuri: Yes.

Tim Arcuri: The next question comes from Vijay Rakesh from Mizuho. Please go ahead.

Tim Arcuri: Yes.

Speaker Change: Just a quick question on the Hammer site.

Tim Arcuri: I didn't look at.

Speaker Change: Two hyperscale customers you mentioned is that you're still looking at ramping does.

Tim Arcuri: Mike.

Tim Arcuri: <unk> 2006.

Tim Arcuri: You mentioned about the.

Tim Arcuri: Analysts survey.

Tim Arcuri: Yes.

Tim Arcuri: The roadmap, we've communicated which has been shared with our customers for quite a while at analyst day was when we made it more public to the general population, but that roadmap, but its been.

Tim Arcuri: Done in partnership from customers for quite a while.

Tim Arcuri: Just to reiterate what we shared we're looking to start qualifications in the second half of calendar 'twenty six.

Tim Arcuri: With high volume.

Tim Arcuri: Production ramp in the first half calendar 2007.

Tim Arcuri: Got it and then on the <unk> just a quick clarification.

Tim Arcuri: When you look at.

Tim Arcuri: Shipping into China is that going from.

Tim Arcuri: Malaysia for Casey's leadership.

Tim Arcuri: Addressing wechat and likewise in the U S.

Tim Arcuri: How much of that is.

Tim Arcuri: You have production you have versus coming into Malaysia et cetera.

Tim Arcuri: Yes.

Tim Arcuri: All of them.

Tim Arcuri: Yes, we are.

Tim Arcuri: Production facilities throughout Asia, So none of our products that we ship into the U S is coming from China.

Tim Arcuri: Most of it is coming in from.

Tim Arcuri: Southeast Asia products going into China, not subject to any tariffs.

Tim Arcuri: As of April 11 products that we ship into the U S are also not subject to.

Tim Arcuri: Any targets, obviously that situation is evolving and fluid so we stay very.

Vijay Rakesh: Close to it thank you Vijay.

Tim Arcuri: Thanks.

Thank you. The last question comes from Krish Shankar from TD Cowen. Please go ahead.

Speaker Change: Hey, guys. This is Eddie for Chris how should the investors think about the impact from rare Earth export control from China. I think historically, you guys were able to recycle some of the base metals, but.

Speaker Change: At some point.

Speaker Change: Impact your margins I, just wonder if down the road that is an area investors should be thinking about.

Speaker Change: Yes, thanks for the question and it's a good one.

Speaker Change: We over the last few years have really been on any supply chain resiliency program, where we have been able to develop alternate sources of supply for both ratliff and precious minerals.

Speaker Change: As well also.

Speaker Change: We don't anticipate there being any material impact.

Speaker Change: Some of those controls.

Speaker Change: I'll follow up.

Speaker Change: Sure. Thanks, everyone and as you guys ramp 11, a desk platform.

Speaker Change: How should we think about the margin impact because my understanding is as you add desks.

Speaker Change: <unk> reduced gross margin equation or do you think it's at a point, where it's mature enough where margins would be on.

Speaker Change: Effected by that time, thank you.

Speaker Change: Yes. So the margin accretion is included in our guidance. So we factor the ramp of the new technology into guidance.

Speaker Change: Yes, maybe just to add onto Dan's comment.

Speaker Change: We're already ahead of our Ram plans in Q3 as I mentioned in my prepared remarks, we shipped over 800000 units.

Speaker Change: New 11 this platform.

Speaker Change: We will be shipping well over a million units in Q4.

Speaker Change: We are seeing very high yields and productivity coming out of those platforms. So.

Speaker Change: I guess to your question.

Speaker Change: Yes.

Speaker Change: They actually margin accretive as opposed to being diluted.

Speaker Change: Thank you.

Speaker Change: Thank you Brandon.

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Mr. Irving.

Mr. Irving: Chief Executive officer for any closing remarks.

Mr. Irving: Well first thank you all very much for joining us today, and it's very exciting to have on first quarter out as a stand alone <unk>.

Speaker Change: Judy company.

Speaker Change: As you can see from the results and the guide we're executing well on our strategy that we've laid out.

Speaker Change: At Investor Day, really being focused on our customers driving leading edge innovation being extremely disciplined operational excellence.

Speaker Change: And having a rigorous financial discipline and a very capital friendly return.

Speaker Change: Policy.

Speaker Change: This quarter and the guide that we've.

Speaker Change: Sure I think truly reflects that and so we ask that we thank you for your ongoing interest in W. D C and I look forward to catching up with all of you in due course.

Speaker Change: This concludes today's conference call. Thank you for joining US you may now disconnect.

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Okay.

Speaker Change: Good afternoon, and thank you for standing by welcome to Western Digital's third quarter fiscal 2025 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 one on your phone.

Speaker Change: As a reminder, this call is being recorded.

rich <unk>: Now I will turn the call over to Mr. Rich <unk>, Vice President and Investor Relations you may begin.

Speaker Change: Thank you and good morning, everyone. Joining me today are urban Chan Chief Executive Officer, and Don Bennett.

Speaker Change: Chief Financial Officer before we begin please note that today's discussion will contain forward looking statements.

Speaker Change: Based on management's current assumptions and expectations, which are subject to various risks and uncertainties. These forward looking statements include expectations for our product portfolio, our business plans and performance ongoing market trends and our future financial results.

Speaker Change: Assume no obligations to update these statements.

Speaker Change: Please refer to our most recent financial report on Form 10-K.

Speaker Change: 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 to conciliations between the non-GAAP and comparable GAAP.

Speaker Change: Financial measures are included in the press release and other materials that are being posted.

Speaker Change: The Investor Relations section of our website at Investor Dot W. DC Dot com with that I will now turn the call over to Irving for introductory remarks, thanks, a breach.

Speaker Change: Everyone and thank you for joining us today.

Speaker Change: Im honored to be speaking with you for the first time as the CEO of Western digital.

Speaker Change: It is a privilege to lead this exceptional organization.

Speaker Change: And I wanted to start by recognizing the outstanding work of our employees across the company.

Speaker Change: Who manage the complex separation process over the last several months.

Speaker Change: While also continuing to drive the strong performance we are reporting today.

Speaker Change: Sure that time, they remain deeply connected to our customers.

Speaker Change: Continued pushing the boundaries of leading edge innovation and sustained a strong focus on operational excellence.

Speaker Change: This combination of customer focus innovation and execution.

Speaker Change: <unk> us well for the opportunities ahead.

Speaker Change: In the past month, we've also welcome our new Chief product Officer <unk> <unk>.

Speaker Change: Having held leadership positions at two large hyperscale is augment is a seasoned expert in cloud storage needs and requirements.

Speaker Change: Making him the right person to lead our product strategy and engineering teams as we continue to drive innovation and deliver solutions that meet the evolving demands of our data driven world.

Speaker Change: We are excited to have a comment joined western digital as its customer centric perspective, and deep industry knowledge, particularly with data centers will be invaluable to us going forward.

Speaker Change: Let me now provide you with a few updates on our business.

Speaker Change: Since stepping into this role I've been spending a great deal of time with our customers employees.

Speaker Change: And the investment community.

Speaker Change: What's clear to me is that Western digital is an incredibly strong foundation.

Speaker Change: Our resilient business model and incredible.

Speaker Change: The potential to benefit from the demand and the age of AI.

Speaker Change: Even in the world by geopolitical uncertainty and shifting trade dynamics.

Speaker Change: One thing remains constant.

Speaker Change: The exponential growth of data.

Speaker Change: From enterprise workloads to the explosion of AI generated content.

Speaker Change: Such as the millions of images and viral videos generate a true AI.

Speaker Change: Data generation is accelerating at an unprecedented pace.

Speaker Change: When it comes to storing data at scale.

Speaker Change: Neurotechnology rivals the cost efficiency and the reliability of his duties.

Speaker Change: We continue to serve as the backbone of the Wolf data infrastructure build.

Speaker Change: Delivering unmatched value for mass storage needs.

Speaker Change: As we deliver on critical <unk> technology to our customers. We are focused on continued innovation to provide the highest capacity drives.

Speaker Change: Improved performance energy efficiency and lowest total cost of ownership.

Speaker Change: Our industry, leading 11 disk drives with capacities of up to 26, terabyte, CMI and 32 terabyte Ultra Soma.

Speaker Change: I will now ramping rapidly.

Speaker Change: With over 800000 units shipped in the March quarter.

Speaker Change: We're also on track to ship well over a million units in the June quarter.

Speaker Change: The Swift qualification and adoption cycle.

Speaker Change: Is a hallmark of our technology roadmap.

Speaker Change: Demonstrating reliability ease of implementation and scalability with fastest time to value for our customers.

Speaker Change: On hammer.

Speaker Change: We remain on track with respect to our milestones and roadmap that we communicated at our Investor day in February.

Speaker Change: We are working closely on hammer with two hyperscale customers and continue to receive encouraging ongoing feedback on all drives.

Speaker Change: Let me now turn to our quarterly results.

Speaker Change: For the third fiscal quarter within digital delivered revenue of $2 $3 billion.

Speaker Change: non-GAAP gross margin of 41%.

Speaker Change: And non-GAAP earnings per share of $1 36.

Speaker Change: Free cash flow for the quarter was $436 million.

Speaker Change: At our Investor day, we outlined the three pillars of our shareholder friendly capital allocation approach.

Speaker Change: Year to reinvest in the business reduce debt and return cash to our shareholders.

Speaker Change: On April 14th we redeemed $1 $8 billion of our 2026 senior notes.

Speaker Change: Thus further strengthening our balance sheet.

Speaker Change: I'm also pleased to announce that we are initiating a quarterly dividend of <unk> 10 per share.

Speaker Change: Fiscal Q4.

Speaker Change: These actions are underpinned by our strong belief in the strength and durability of our business.

Don Bennett: Don will cover this in greater detail in his remarks.

Speaker Change: Now turning to our outlook.

Don Bennett: First I want to acknowledge the current environment, which remains highly uncertain and volatile.

Don Bennett: Even in a large vitaros and global trade tensions.

Don Bennett: At Western digital we are addressing these challenges on two fronts.

Don Bennett: In the near term.

Don Bennett: We've established cross functional teams to minimize disruption and mitigate the impact of tariffs on our customers and operations.

Don Bennett: At the same time.

Don Bennett: A strategic view evaluating the longer term implications of supply chain shifts to ensure we stay agile resilient and well positioned for the future.

Don Bennett: The broader environment has some uncertainty demand from hyperscale customers remains robust.

Don Bennett: Supply environment.

Don Bennett: We're thankful to our customers, who increasingly recognize the complexity of the HDD supply chain and are partnering with us to provide visibility into their future needs.

Don Bennett: This collaboration enables us to plan more effectively.

Don Bennett: You may now have long term agreements to extend through the first half of calendar year 2026, with two of our largest customers.

Don Bennett: However, there are few areas such as in the enterprise and in certain parts of our distribution and retail business.

Don Bennett: Where there could be more uncertainty with respect to demand <unk>.

Don Bennett: Driven largely by the current tariff environment.

Don Bennett: Taking these factors into account.

Don Bennett: And looking ahead into the fiscal fourth quarter.

Don Bennett: We expect sequential revenue growth driven by sustained strength in data center demand.

Don Bennett: We continue to work closely with customers to align with their long term requirements, while delivering the best possible total cost of ownership.

Don Bennett: Let me now turn the call over to Don who will discuss our fiscal third quarter results and fiscal fourth quarter guidance in more detail.

Don Bennett: Irving and good morning, everyone.

Don Bennett: In the fiscal third quarter Western digital delivered strong financial results and successfully completed the planned separation of the Companys Flash business on February 21.

Don Bennett: As such the historical results for the Flash business segment are reported as discontinued operations and excluded from these results.

Don Bennett: Unless otherwise noted in my comments.

Don Bennett: Total revenue for the quarter was $2 3 billion down.

Don Bennett: Down, 5% sequentially and up 31% year over year.

Don Bennett: non-GAAP earnings per share was $1 36.

Don Bennett: Driven by gross margin of 41%.

Don Bennett: Disciplined cost management and tax benefits.

Don Bennett: Total exabyte shipments were down 6% sequentially drew.

Don Bennett: Driven by lower near line shipments relate.

Don Bennett: Related to deployment plans of our customers.

Don Bennett: Average price per unit increased 4% sequentially to $179.

Don Bennett: Looking at end markets.

Don Bennett: Cloud represented 87% of total revenue at 2.0 billion.

Don Bennett: Down, 4% sequentially and up 38% year over year.

Don Bennett: On a sequential basis.

Don Bennett: Decline was due to a 6% reduction in near line bit shipments to 145 exabyte.

Don Bennett: While pricing per unit in cloud was up 5%.

Don Bennett: On a year over year basis.

Don Bennett: Both revenue and bit shipments grew at 38% and 32% respectively.

Don Bennett: Driven by the strength of our product portfolio.

Don Bennett: Client represented 6% of total revenue at $137 million.

Don Bennett: Down 2% on both a sequential and year over year basis.

Don Bennett: Compared to last quarter and last year revenue was down due to lower unit shipments.

Don Bennett: Consumer represented 7% of revenue at $150 million down.

Don Bennett: Down 13% sequentially.

Don Bennett: And 4% year over year.

Don Bennett: <unk> decline in consumer was primarily driven due to lower unit shipments while year over year. The decrease was largely due to pricing.

Don Bennett: Moving to the rest of the income statement.

Don Bennett: Please note my comments will be related to non-GAAP results on a continuing operations basis.

Don Bennett: Unless stated otherwise.

Don Bennett: Gross margin for the fiscal third quarter was 41%.

Don Bennett: Sequentially gross margin improved one seven percentage points.

Don Bennett: Head of our guidance of 50 basis points improvement.

Don Bennett: Operating expenses were down sequentially.

Don Bennett: $324 million.

Don Bennett: Our results demonstrate continued focus on cost discipline.

Don Bennett: As we concluded our business separation process.

Don Bennett: Operating income was $596 million.

Don Bennett: Up 85 basis points sequentially.

Don Bennett: Driven by higher gross margin and lower operating expenses, partially offset by lower revenue.

Don Bennett: Operating margin was 26.0% up 1515 percentage points sequentially.

Don Bennett: And up 17, three percentage points on a year over year basis.

Don Bennett: Income tax expense was $12 million and the effective tax rate for the fiscal third quarter was 2%.

Don Bennett: The decline in the company's effective tax rate from guidance as a result of the recognition of one time deferred tax benefits in conjunction with the separation of the flash business.

Don Bennett: Turning to the balance sheet.

Don Bennett: At the end of our fiscal third quarter cash and cash equivalents were $3 5 billion.

Don Bennett: And total liquidity was $4 7 billion, including Undrawn revolver capacity.

Don Bennett: Gross debt outstanding was seven 4 billion.

Don Bennett: At the end of the fiscal third quarter.

Don Bennett: Inventory was $1 3 billion.

Don Bennett: Representing 86 days of inventory.

Don Bennett: Up $63 million sequentially and down $174 million on a year over year basis.

Don Bennett: Our net leverage ratio at the end of the fiscal third quarter was $1 seven X.

Don Bennett: Please note after the close of the March quarter, we successfully redeemed $1 8 billion.

Don Bennett: Of our 2026 senior notes using cash on hand.

Don Bennett: The redemption reflects our commitment to strengthening the balance sheet and achieving our target net leverage ratio of 1.0 to 1.5 acts as outlined at our Investor day.

Don Bennett: Operating cash flow for the fiscal third quarter was $508 million and cash capital expenditures rapid represented a cash outflow of $72 million.

Don Bennett: Resulting in free cash flow generation of $436 million for the quarter.

Don Bennett: Please note that this is on a consolidated basis for the quarter.

Mr. Irving: Irving highlighted in his opening remarks, we are pleased to announce that we're initiating a quarterly dividend of <unk> 10 per share.

Mr. Irving: Reflecting the strength of our balance sheet and confidence in the long term cash generating ability of our business.

Mr. Irving: This decision underscores our commitment to delivering value to our shareholders.

Mr. Irving: I'll now turn to the fiscal fourth quarter non-GAAP guidance.

Mr. Irving: This guidance includes our current estimate of all anticipated or known tariff related impacts on our business in this period.

Mr. Irving: We anticipate revenue to be $2 45 billion.

Mr. Irving: Plus or minus $150 million.

Mr. Irving: Gross margin is expected to be between 40% and 41%.

Mr. Irving: We expect operating expenses to increase slightly on a sequential basis to a range of $330 million to $340 million.

Mr. Irving: The increase is due to variable compensation, reflecting improvement in the underlying business.

Mr. Irving: Hiring to fill critical open positions, resulting from the business separation and increased investments in research and development.

Mr. Irving: Interest and other expenses are anticipated to be approximately $70 million.

Mr. Irving: The decrease on a subsequent basis reflects our lower debt levels.

Mr. Irving: Following the notes redemption previously discussed.

Mr. Irving: The tax rate is expected to be between eight and 10%.

Mr. Irving: We expect EPS to be $1, 45, plus or minus 20.

Mr. Irving: Based on approximately 360 million shares outstanding.

Mr. Irving: Additionally for modeling purposes, we would like to highlight that fiscal year 2026 will be a 53 week year for us.

Mr. Irving: As a result, our first fiscal quarter in FY 'twenty six will have 14 weeks.

Mr. Irving: In addition, we expect the tax rate for FY 'twenty six to be between 16 and 18%.

Mr. Irving: In closing Western digital is well positioned to navigate the current dynamic environment.

Irving: We remain focused on creating value for our stakeholders and investing in our future to capture the significant growth in data ahead, while maintaining a healthy supply and demand environment with that I'll now turn the call back to Irving.

Irving: Thanks, Don.

Irving: <unk> Digital's results this quarter and guidance reflect the ongoing structural transformation of our business with continued progress towards a business that delivers sustained profitability.

Irving: We continue to maintain strong conviction in the business and are confident that we will weather this uncertainty and come out even stronger.

Irving: That does.

Irving: Let's now begin the Q&A.

Mr. Irving: Irving Operator, you can now open the line to questions. Please.

Mr. Irving: To ensure that we hear from as many analysts as possible. Please ask one question at a time. After we respond we will give you an opportunity to ask one follow up question operator.

Mr. Irving: Thank you.

Speaker Change: Ladies and gentlemen, there are now begin the question and answer session.

Speaker Change: If you have a question. Please press star one on your phone if you would like to withdraw your question. Please press the pound key.

Speaker Change: One moment please for the first question.

Speaker Change: Our first question comes from Erik Woodring with Morgan Stanley. Please go ahead.

Speaker Change: Hey, good morning, guys. Thanks for it.

Speaker Change: For taking my questions and congrats on the nice quarter out the gate.

Speaker Change: Instead of asking a demand question I wanted to actually ask about capital allocation.

Speaker Change: So you have a dividend yield of about 1% soon to be lower than that given how your stock is trading and the pre market. That's about 100 million of annual cash outflow can you maybe just help us understand how we should be thinking about both dividend growth going forward given it seems like you have some capacity there.

Speaker Change: But then also maybe how youre thinking about potential share buybacks and I know your intent is to delever with the sandisk stake, but just help us understand on the cash return side to equity holders, how we could be thinking about the cadence of about dividend growth and buybacks. Thanks. So much.

Speaker Change: Thanks for the question and I appreciate it.

Speaker Change: It was we laid out at our Investor day, our goal is to get our net leverage down to the $1 1.5 X range and once we are there.

Speaker Change: We intend to return 100% of our excess cash.

Speaker Change: To our shareholders and that will be in the form of both potentially both dividend and share buybacks. As we also indicated at Investor day, which we are on it and committed to today.

Speaker Change: We're starting off of a relatively small.

Speaker Change: Dividend to begin with and in this as we progress we will look to increase that and complement that with buybacks as well so stay tuned for that.

Speaker Change: Okay. Thank you Jeff.

Yes, just a quick follow up please.

Speaker Change: What I hear from you is kind of more visibility because of some of these LTA you said I'm just I'm curious.

Speaker Change: With customers now, giving you some indications into the first half of calendar 'twenty six does that mean, you have enough visibility to expect.

Speaker Change: Revenue margins and EPS sequential growth through calendar 'twenty five or is it too early to make that call. Thanks. So much guys. Good luck.

Speaker Change: Yes. Thanks.

Speaker Change: I think the shift to LTE has given us greater visibility and as I highlighted in my opening.

Speaker Change: Comments, we now have two hyperscale customers that have given us LTA is up to the first half of calendar year 2006, and Thats really helped US plan, our supply chain appropriately along with the Capex investments.

Speaker Change: We need to me and gives us a lot more confidence.

Speaker Change: In the business and so as I've highlighted in the past I think especially when it comes to the Hyperscale business, we see demand continuing to be strong and robust throughout the calendar year 'twenty five and now as I've mentioned into the middle of calendar year 'twenty six as well.

Aaron Rakers: Thank you. The next question comes from Aaron Rakers with Wells Fargo. Please go ahead.

Aaron Rakers: Yes. Thanks for taking my question also congrats on the first quarter out of the gate.

Aaron Rakers: In the comments around the guidance you guys alluded to into the fiscal fourth quarter, you did point out that it reflected all known or anticipated tariff impact I'm curious if you could unpack that a little bit I believe the majority if not all of your manufacturing footprint in Thailand. So.

Aaron Rakers: Just curious how youre thinking about how your best assessment.

Aaron Rakers: What these tariff impacts might be or any indications that you're seeing with customers at this point.

Speaker Change: Hey, Erin Thanks for the question and good to hear from you again.

Speaker Change: Well in Q4, we don't anticipate any direct tariff impacts in relation to.

Speaker Change: It's translation into pricing or cost to customers.

Speaker Change: But we're as we've highlighted in our prepared statements, we do see some potential demand uncertainty.

Speaker Change: The enterprise distribution and retail.

Speaker Change: <unk> of the business just due to the unpredictability and volatility volatility and you would've heard a lot of comments in the marketplace around enterprises and consumers sort of pausing.

Speaker Change: Pausing are holding back on making purchases as well so factoring all that in that's the guide that we gave but they're getting the growth that we've guided to is really driven primarily.

By the strength, we continue to see in the data center and specifically in our Hyperscale business.

Speaker Change: And Erinn I'll just add that.

Irving: Irving's prepared remarks, we talked about establishing cross functional teams to minimize disruption and mitigation.

Speaker Change: To both our customers as well as our internal operations.

Speaker Change: Additionally, we're taking a strategic view on looking at multiple our alternatives depending on what the tariff situation looks like tomorrow or in mid may or June whatever the next.

Speaker Change: The next round of tariff tariff tariff guidance comes out on our products as you know we're part of the semiconductor group. We currently have zero percent tariff on our products.

Speaker Change: And then did you have a follow up.

Speaker Change: Yes, I do think.

Speaker Change: So when I think about the gross margin rate 41%.

Speaker Change: At the Analyst day, you talked about 38% plus it kind of be in the longer term model.

Speaker Change: When I look at the guidance into this next quarter. If my math is right it looks like the incremental margin at your.

Speaker Change: Alluding to it's like North of 45%. So I guess my question is is there anything structurally in the business or kind of the path forward that that keeps us from thinking that gross margin could could trend into that mid 40, if not higher range over time.

Speaker Change: Yes, I think erinn on an at Investor Day, we provided a guide or a model on gross margin there was a flaw, 38% and that's over a five year peak.

Speaker Change: And as you know the market.

Speaker Change: <unk> and ups and downs, along the way so 38% was the floor.

We obviously were able to deliver very strong gross margins. This quarter, we crossed the 40% threshold and thats really driven by the value to customers see in the technology that we are providing them as well as very strong operational discipline and also pricing discipline that we've experienced we didn't.

Speaker Change: The market. So we as we continue to deliver total cost of ownership value to our customers.

Speaker Change: Innovation capability, whilst maintaining the operational discipline.

Speaker Change: Within the customers within our operations sorry, we see gross margins continuing to remain strong.

Speaker Change: Thank you Aaron.

Speaker Change: Yes.

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

Speaker Change: Yes, Thank you gentlemen.

Speaker Change: So my first question I know you have focused on technology transitions to drive exabyte demand from here. However, what are the hurdles for you to add manufacturing capacity is it driven by certain visibility you have on LTE as or other things we should consider.

Speaker Change: Yes, thanks for the question Carl.

Speaker Change: All of our exabyte growth has really been driven by aerial density improvement and technology improvement as.

Speaker Change: As we've highlighted our ultra small technology, which is unique to us gives us a 20% capacity uplift over the standard recording.

Speaker Change: Our ability to deliver incremental extra bytes without having to.

Speaker Change: So putting capex.

Speaker Change: In terms of.

Speaker Change: More production units.

Speaker Change: That's been one of the big Differentiators that we've been able to create and so that's an area that we continue to invest in.

Speaker Change: R&D R&D function to continue to drive great Areal density performance. We've recently, just launched <unk> 26, and 32 terabytes industry leading.

Speaker Change: Platforms, and we will bring out in the next few months are 28, and 36 terabyte platforms as well so those increases to erode entity will continue to enable us to deliver extra by growth without having to invest in capex for additional unit growth.

Speaker Change: You have a follow up call.

Speaker Change: I do and bridge please.

Speaker Change: For that urban.

Speaker Change #100: I wanted to follow up on the comments you made with regard to the L. T A's.

Speaker Change #101: Sounds like demand for Hyperscale as well.

Speaker Change #101: Quite good and has a strong visibility into the first half of 2006 <unk>.

Speaker Change #101: However, I was hoping you could provide a bit more color on the growth curve of private cloud and SMB customers.

Speaker Change #101: I'm curious whether you have seen perhaps any pull forward in counter Q2 ahead of tariffs and secondarily, how you think about the demand dynamic for those customers in the second half. Thank you.

Speaker Change #101: Thank you.

Speaker Change #101: We definitely do see opportunities, especially in sovereign clouds private clouds going forward.

Speaker Change #101: Even in the age of AI are the primary beneficiaries have been the large hyperscale is we also see growth.

Speaker Change #101: Sort of it happening.

Speaker Change #101: So thats an opportunity that we look to pursue going forward.

Speaker Change #101: Well as a growth driver we haven't seen any.

Pull forwards the linearity that we saw within Q3 was very consistent with the linearity that we've seen.

Speaker Change #101: In the past and then also as we look at the sequential quarter on quarter growth very consistent with what we've seen in the past so.

Speaker Change #101: No real change in terms of pull ins, both last quarter and what we see happening this quarter as well.

Speaker Change #102: Thank you Kurt.

Speaker Change #101: Thank you.

CJ Muse: The next question comes from CJ Muse with Cantor Fitzgerald. Please go ahead.

CJ Muse: Yes. Good morning. Thank you for taking the question I guess to follow up on the prior question was hoping you could speak a bit.

CJ Muse: About supply and what kind of exabyte growth you can get just from delivering higher capacity drives and I guess, what is the timeframe, where you would potentially consider.

CJ Muse: Adding adding more capacity.

Speaker Change #104: Thanks for the question C. J, we feel confident right now with the forecast that we have an outlook that we see in terms of exabyte growth.

Speaker Change #104: We are able to deliver that to again, the technology and innovation and we're delivering that provides us the capacity uplift without putting in any capacity. If there was any need to put in any capacity would probably be more on the hidden media side of the house, but we don't anticipate any cause.

Speaker Change #104: <unk> investments in those areas for the near term.

Speaker Change #104: And C. J I'll just add that in this uncertain environment.

Speaker Change #104: Very tightly managing our capital expenditures and where we continue to manage the business to the low end of our guidance range of 4% to 6%.

Speaker Change #104: You have a follow up C J.

Speaker Change #104: Thank you.

Speaker Change #104: I guess could you speak to gross margins.

Speaker Change #104: Obviously, great results and guide I'm curious in terms of the drivers from here is there still kind of a fixed cost benefit that would arise or is it really all about higher capacity drives delivering higher asps.

Speaker Change #104: Main driver or are there other factors that we should consider thanks so much.

CJ Muse: Yes C. J you hit it right, it's really about the <unk>.

<unk> technology that we're delivering to our customers, we continue to add tcl benefit to them and we're participating in that value that we're bringing to the customers.

CJ Muse: We're tightly matching supply and demand so we're not going to see great great impact from.

CJ Muse: Increased production.

CJ Muse: Production over time, because we're we're very tight in our supply allocation. So it's really about delivering value to our customers through technology and continuing to drive leading edge products at scale.

Speaker Change #105: Thank you C J.

Speaker Change #106: Thank you. The next question comes from <unk> Mohan with.

Speaker Change #106: Bank of America. Please go ahead.

Speaker Change #107: Yeah. Thank you so much nice results here.

Speaker Change #106: Irving.

Irving: I heard right you noted the potential for some enterprise slowdown driven by tariffs I was curious have you seen anything in your order patterns to suggest that or is this sort of.

Speaker Change #106: More.

Pat: And as Pat already in terms of.

Pat: What could happen if a tariff regime became became more onerous.

Pat: Yes. Thanks for the question was is more of a ladder right we haven't seen any.

Pat: Slowdown just yet, but obviously there is demand uncertainty.

Pat: Cost of the tariffs and obviously.

Pat: We put a lot of news coming out of <unk>.

Pat: Enterprises, and earning something over the last few days around customers being a bit more cautious in terms of spending and capital investments as well so given that we've just factored that into the guide.

Pat: But nothing onto what's for the time being that's probably just right and widened the range in terms of our guide for Q4.

Pat: A follow up onesie.

Pat: Secondly, maybe.

Speaker Change #110: Maybe for Don as you look into the September quarter, where you're calling out the 14 weeks any any parameters you can help us think through in terms of.

Revenue on Opex.

Pat: Last quarter. Please thank you.

Pat: Yeah. So we guide one quarter at a time, but the reason I mentioned, a 14 week is because obviously, we will have 14 weeks of expenses typically are or our customer order on a quarterly basis.

Pat: So the revenue will be.

Pat: It will follow typical seasonal patterns, but at this point, we're not guiding revenue for that quarter.

Pat: Thank you Hamzah.

Speaker Change #111: Thank you. The next question comes from RCM margin with Citigroup. Please go ahead.

Speaker Change #112: Great. Thank you for the question.

Speaker Change #112: Great quarter by the way.

Speaker Change #111: There seems to be.

Speaker Change #114: I'm concerned like just around hyper scaler I know your competitor talked about demand being very strong there as well and good visibility just anything on why you don't think this could be double ordering anything as it relates to.

Speaker Change #114: Pricing negotiations that would limit or limit the impact if indeed, there was any double ordering.

Speaker Change #114: Yes.

Speaker Change #114: Yes. Thanks for the question I am sure we definitely don't see any double ordering at this time is I think one of the key things is we are in a very tight supply.

Speaker Change #114: The demand environment. So even if there were double orders I think we would be challenged to fulfill them.

Speaker Change #114: Right now.

Speaker Change #114: More importantly, the demand profile that we're seeing given the LTA visibility that we have all the way to middle of 2026.

Speaker Change #114: As we are seeing order patterns very much follow the LTE 80 months, so theres nothing really abnormal.

Don Bennett: Don mentioned it follows very much both seasonality.

Speaker Change #114: Quarter to quarter and linearity we didn't.

Don Bennett: Quarter.

Don Bennett: As well so we don't see any double ordering.

Don Bennett: Anything on pricing, obviously, as we transition to new platforms that always gives us an ability to deliver better tissue and value to our customers and an opportunity for us to deliver greater pricing upside as well.

Don Bennett: Did you have a follow up.

Speaker Change #115: Yeah sure. Thank you very much.

Speaker Change #115: On gross margins.

Speaker Change #115: With better than expected in the current quarter that you reported.

Speaker Change #115: Gross margin SKU.

Mark Miller: Miller incremental step up you're seeing better revenues in the June quarter, and then as you think about.

Mark Miller: The remainder of the calendar or fiscal 'twenty six should we continue to expect margin expansion from these levels. Thank you.

Speaker Change #117: Yes, thanks for the question.

Speaker Change #118: I think the strong gross margins that we deliver it and also guided to it's a reflection of the value that we bring to our customers, particularly to the technology enhancements that really gives them.

Speaker Change #117: Both better TCU, but also very fast time to value and.

Speaker Change #118: And that's what we continue to focus on them.

Speaker Change #118: Able to continue to deliver that innovation continues to deliver at a total cost of ownership benefit and giving them fast time to value.

Speaker Change #118: We don't see any reason why gross margins not expand going forward as well. So that's our focus we don't worry too much about the gross margin will continue to focus on delivering value to our customers.

Speaker Change #118: Turning to gross margin will flow from that thank you guys here.

Speaker Change #118: Yes.

Amit: The next question comes from Amit <unk> with Evercore. Please go ahead.

Speaker Change #118: Yep.

Speaker Change #119: Thanks, a lot I guess, maybe just to stop it on the tariff dynamic yes, I realize you don't have much impact on tariff right now, but as you're signing these lta's into calendar 'twenty. Six can you talk about if you sort of have tariff escalators embedded in them to ensure you can pass through the cost of these to your customers or would that would be a different set of discussions have you had once you know what the tariff scenario looks like.

Speaker Change #119: Yes. Thanks for the question, we're obviously working very closely with our customers.

Speaker Change #119: You all know I think the situation is evolving on a daily basis and extremely fluid. So it's hard for us to really speculate what the outcome would be right now.

Speaker Change #119: As I mentioned in my prepared remarks, and Don emphasize as well we have teams that are.

Speaker Change #119: Looking across the company closely from customers really understand how we can.

Speaker Change #119: Mitigate.

Speaker Change #119: The impacts of tariffs and also any supply disruptions in.

Speaker Change #119: In the near term and then in the long term, we're also evaluating with them what their supply chain shifts maybe so that we can also aligned to that so we're also prepared both from agility with resiliency.

Speaker Change #119: And long term readiness.

Speaker Change #119: <unk> perspective.

Speaker Change #119: To be able to walk from customers as they shift our supply chain to be able to best support them as well.

Speaker Change #120: Did you have a follow up.

Speaker Change #120: I do think some reach out and then maybe just on the Hammer side I know you folks mentioned youre working with two cloud customers at this point on Hammer just any sense on when you expect these qualifications to happen and as you work towards them should we think of some sort of upside bias your R&D, our opex investments through that process. Thank you.

Speaker Change #120: Yeah. Thanks for the question I think we laid it out very clearly at Investor day, we are looking to.

Speaker Change #120: Stop qualification in the second half of calendar 'twenty, six and then ramping up production at scale in the first half of calendar 'twenty seven.

Speaker Change #121: <unk> engineering samples with two large hyperscale is already today, we are in close contact with them on the performance of those drives were getting regular feedback.

Speaker Change #120: From them I would say so far the performance has been meeting the milestones that we have both.

Speaker Change #120: Played out on a quarterly basis based on the feedback that.

Speaker Change #120: That we see from them we are delivering.

Speaker Change #120: The next generation of enhancements on those dry so I would say, we're comfortable with where we are on track with a roadmap that we laid out.

Speaker Change #120: At the same time, we are also preparing to introduce our new 28 terabyte in the six terabyte <unk> platforms.

Speaker Change #120: As well so our whole focus is on ensuring that we really derisk transitions.

Speaker Change #120: Our customers continued to deliver very scalable predictable reliable capacity points that give stemmed the fastest time to value.

Amit: Thank you Amit.

Speaker Change #122: The next question comes from Tom O'malley with Barclays. Please go ahead.

Speaker Change #122: Hey, guys. Thanks for taking my questions I, just wanted to focus in a little bit on the <unk>.

Speaker Change #122: LTA. So we had this period in in memory, and NAND and DRAM side through the pandemic, where in the end lta's, where pretty much torn up and were largely hyperscale or has advantage over suppliers. So like could you talk about like what benefit you get from these LTA is like is this take or pay agreements are these.

Speaker Change #122: In writing, where you get some sort of compensation if your customers aren't going to take these or is this just like a framework that you have with your customers that says we will supply. This much over this period of time could you just maybe dive into those a little bit because historically, they really haven't met much.

Speaker Change #123: Yes, thanks for the question Tom.

Speaker Change #123: First of all we don't disclose the terms of the commercial contracts that we have but I think it's important to note.

Speaker Change #123: This is <unk>.

Speaker Change #123: Some quite significant structural changes that.

Speaker Change #123: To have happen within our business I would say across the entire hard drive industry over the last year, where a lot of the excess capacity.

Speaker Change #123: And <unk>.

Speaker Change #123: Existing inventory within the supply chain has been removed.

Speaker Change #123: From the system to really reset the entire supply base to where we think the right demand profile is going forward.

Speaker Change #123: The Lta's play a very critical role to ensure that we have the right supply demand balance and given the criticality that hard drives plays to the business of our Hyperscale customers I think as I've mentioned in my opening comments as well.

Speaker Change #123: <unk> been working very closely with us to ensure best.

Speaker Change #123: Is that sort of supply demand imbalance that we saw during COVID-19 and full period post COVID-19 as well doesn't reoccur and I think we're in a good place with LTE is really gives us good visibility we're seeing.

Speaker Change #123: Pretty much demand stick to those LTA is that we've outlined with them.

Speaker Change #123: The Otas have moved from pretty much three to six months another nine to 12 months as well so that's giving us a lot more visibility to plan our supply chain very closely from our customers.

Tom O'malley: As well you have a follow up Tom.

Tom O'malley: I just wanted to dive into the differences between the unit and pricing in the guide. So like you had a pretty consistent track over the last couple of years of increased pricing is there any different type of dynamic. We should think about I know you guys don't guide by more than one quarter out, but looking into the June quarter.

Tom O'malley: Units versus pricing any commentary you have that get you to that guide.

Speaker Change #124: Sure Tom Yes, we've had as Irving mention a structural change in our business. So the majority of our business today is in data centers or at the edge and so.

Speaker Change #124: We've seen this continued progression of ASP currently we announced we're at a $179, which is up 23% year over year on an aggregate weighted average basis. So as as that mix continues to move to the cloud we should see sustained increases in Asps, obviously don't move.

Speaker Change #124: Around quarter to quarter, depending on what our client and consumer mix is because that typically is a lower capacity drive overall, but it's so it's impacted by segment mix customer mix as well as we continue to drive TCR value to our customers. So we see price per unit.

Speaker Change #124: Stable or up in most cases as we deliver.

Speaker Change #124: Further technology into those accounts.

Tom O'malley: Thank you Tom.

Steven Fox: The next question comes from Steven Fox with Fox Advisors. Please go ahead.

Steven Fox: Hi, Good morning, Thanks for taking my question I guess first one I just was curious if you could sort of give yourself a grade on the free cash flow for the quarter seemed pretty good to me at 78% of net income and how we can think about sort of what you're measuring yourselves against in future quarters for free cash flow and then I had a follow up thanks.

Steven Fox: Yes. Thanks for the question so free cash flow, we don't guide cash flow on a quarterly basis, because theres a lot of moving parts in cash flow.

Steven Fox: As you mentioned, we did have very strong both operating and free cash flow. We are measured we are driving the business to operating profit and to free cash flow generation. So that we can execute on our capital allocation priorities.

Speaker Change #125: And Irving laid those out in the script, but I'll just repeat them one is to reinvest in the business to deliver leading edge technology at scale to our customers. The second second thing is to Delever, our balance sheet and you've seen us do that with taking out $1 $8 billion of our 2026 notes. So we're now down below.

Steven Fox: $4 billion of.

Steven Fox: Net debt on the balance sheet, and lastly is returning capital to our shareholders.

Steven Fox: We started that with the initiation of the dividend and there'll be more to come on that in the future.

Steven Fox: Joe a follow up Steve Yes, I was just curious when do we think about non enterprise and non cloud markets, how you're managing those against all the demand Youre seeing do you feel like Youre deemphasizing knows or figuring out a way to maybe.

Steven Fox: Maybe more efficiently managing that but I'm just curious what we think about those markets over the next year, yeah, Yeah, I would definitely not deemphasizing them, there's still a material part of our business the supply chain for cloud and non cloud business are really quite discrete.

Steven Fox: And separate and we sort of manage them independently if anything we are looking at opportunities to see whenever we can.

Steven Fox: Drive incremental growth in those areas.

Steven Fox: Thank you Steve.

Steven Fox: Thank you.

Steven Fox: The next question comes from Mark Miller.

Steven Fox: The benchmark company. Please go ahead.

Speaker Change #126: Congratulations on your first report after the spin out.

Speaker Change #127: Just curious can you tell us how many shares you currently hold sandisk and heavier plans change because of the.

Speaker Change #127: Relatively low price of sandisk about what youre going to do with the shares.

Speaker Change #127: Yes, we own 19, 9%.

Speaker Change #127: Sanders is the retained stake.

Speaker Change #127: We have and as we've communicated in Investor day, we will look to disposition those shares.

Speaker Change #127: Ideally over a 12 month period starting in February.

Speaker Change #127: Part of our deleveraging strategy going forward.

Speaker Change #127: Thank you.

Harlan Sur: Thank you. The next question comes from Harlan sur with Jpmorgan. Please go ahead.

Harlan Sur: Good morning, Thanks for taking my question and great job on the quarterly execution back in February the team outlined the three year near line Exabyte growth CAGR.

Harlan Sur: Around 20%, 25%, which is what some of the third party research firms are kind of forecasting.

Harlan Sur: This calendar year, which is also consistent.

Harlan Sur: With the strong cloud data center Capex spending trends that you talked about this year.

Harlan Sur: Given you are.

Harlan Sur: Fairly good visibility does cause demand profile also suggest a low 20% extra Blake growth profile in this calendar year or better.

Harlan Sur: I think you are in the ballpark.

And Heartland has embraced remember we had given a three to five year forecast.

Harlan Sur: Did you have a follow up Harlan.

Harlan Sur: Yes, I know I know.

Harlan Sur: <unk> had given a three to five year forecast, but that that sort of 2018% kind of aligns with some of the what.

Harlan Sur: Third Party research guys are kind of forecasting for this calendar year, but.

Harlan Sur: Appreciate the answer there also back in February when you did articulate about a 40% mix of near line capacity was ultra SME as you as you look at your order book and shipment plans, what do you expect that mix to be either second half of this year or exiting this calendar year on year dragging obviously.

Harlan Sur: Strong tcl benefits are driving strong pricing power, but on a like for like basis capacity wise, which carries a higher gross margin profile is at a CMO or ultra.

Harlan Sur: Altra SMIC based drives.

Harlan Sur: Well I think we look to deliver value across the portfolio. So I think we see pricing leverage across both our CMO.

Harlan Sur: And ultra some AR platforms, obviously are ultra ultra small platforms give us better.

Harlan Sur: ASP per drive because of the additional capacity would deliver from it.

Harlan Sur: It also helps us with Capex as I've highlighted earlier because of the technology benefit we have without having to put capex.

Harlan Sur: In terms of mix in any given quarter, it's probably around the 40% to 45% ratio. So it depends on because these are large hyper scaler and they have different deployment timeframes.

Harlan Sur: Different hyperscale is use different technologies, so we can fluctuate from quarter to quarter, but somewhere between 40% to 45% in any given quarter is what we see.

Harlan Sur: Thank you Harlan.

Speaker Change #128: Thank you. The next question comes from Ananda Baruah with loop capital. Please go ahead.

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

Speaker Change #129: Congrats on getting out the gate here.

Speaker Change #129: <unk> Nikko.

Speaker Change #129: I guess, yes, we still as I could I guess the first slide is really an architectural question.

Speaker Change #129: So as Nick assuming CJ continues to progress with hammer.

Speaker Change #129: You guys continue to progress over the next call. It 24 months with your legacy Tech kind of three getting to hammer volume just as for the analyst day is that create new architect any new architectural realities inside the data center with with what can be mixed and matched or households to begin thinking about.

Speaker Change #129: <unk>.

Speaker Change #129: Yes storage system stacks.

Speaker Change #129: Would love any context, there if theres anything and then I have a quick follow up thanks sandwich.

Speaker Change #129: Yeah look I think there will be some architectural adjustments accordingly, obviously at the highest level.

The interplay between what's on flash was on hard drives and Watson take will continue to be there. So we've highlighted at Investor day, how drives again will be the predominant storage media with over 80% of <unk> start on hard drives we don't anticipate that changing whether that's the <unk>.

Speaker Change #129: <unk> our hammer.

Speaker Change #129: Going forward there are some rack level changes that will be required.

Speaker Change #129: And for the deployment of hammer, so youre not going to be able to mix and match.

Speaker Change #129: They are drives that easily similar to altra, some art and some whole site software changes.

Speaker Change #129: Then I'll be quiet.

Speaker Change #129: But these are very sophisticated customers data center I'm very familiar with what's needed to be done.

Speaker Change #129: The success that we've had and the continued growth that we see.

Speaker Change #129: <unk> portfolio is a great example of people really embracing the technology and really making and investing in the architectural changes.

Speaker Change #129: It would involve data center environment and their software stack to be able to take advantage of that benefit and we see that going forward.

Speaker Change #129: And a follow up on that.

Don Bennett: Yeah, Thanks, Nathan for Don I guess.

Speaker Change #131: March quarter your gross margin.

Speaker Change #131: Am I correct, Andrew recalling that March quarter gross margin was actually originally anticipated.

Speaker Change #131: <unk> impacted by product transition yield dynamics normal stuff.

Speaker Change #131: Yes that did in fact occur does that actually mean that the normal the structural margin is actually set up higher than what you guys reported.

Speaker Change #131: Well I think we guided at 50 basis point improvement, we actually saw better yields and utilization and the ramp up of our new product technology was faster than expected as we announced in our in our press release. So we shipped over 800000 units of our new 11 this platform.

Speaker Change #131: And that's being produced at very high.

Speaker Change #131: Quality reliability and.

Speaker Change #131: And yields and our factory today, so that was one of the one of the things that improved gross margin above guidance.

Anand Baruah: Thank you Anand.

Speaker Change #133: The next question comes from Hendi <unk> with <unk>. Please go ahead.

Speaker Change #133: Yes, thanks for taking my question.

Speaker Change #135: Our recently announced their intention to.

Speaker Change #136: Interbank and I wanted to learn more how you're thinking about procuring the key components for <unk>.

Speaker Change #136: Technology, especially as you're engaged with two Hyperscale is that you highlighted in the prepared remarks.

Speaker Change #136: It's funny.

Speaker Change #136: Yeah.

Speaker Change #136: First and foremost I think the indirect acquisition by.

Speaker Change #136: Our pure doesn't have any impact on us because we have obviously two sputtering systems that we use so we have resiliency.

Speaker Change #136: Within our technology supply chains.

Speaker Change #136: As well, we're obviously looking out for opportunities in which we can continue to.

Speaker Change #136: Capture even more value.

Speaker Change #136: Even more value to our.

Speaker Change #136: Products through potential acquisitions and vertical integration. So we continue to keep a look out for.

Speaker Change #136: For them in many cases and in terms of tool providers, we actually do feel and our philosophy is that they actually benefit from actually servicing multiple customers because thats, how they can innovate.

Speaker Change #136: Better as well, but that's generally our rule of thumb, but we're constantly looking at opportunities to see how we can.

Speaker Change #136: To vertically integrate and capture more value within our portfolio.

Maybe.

Speaker Change #137: Yes, Sir and follow up has to do with the CFO search, especially since you're executing.

Speaker Change #136: Well.

Speaker Change #136: Right at the gate and committing to dividend cash dividend.

Speaker Change #138: To what extent, what's the update on the CFO search and how should we think about.

Speaker Change #136: The execution.

Speaker Change #138: And search for the CFO.

Speaker Change #139: Yes. Thanks for the question first and foremost I believe my staying dawn for agreeing and stepping into the interim CFO CFO roles. He's done a great job as you can hear from the results.

Speaker Change #139: As well the search is progressing very well and we will communicate in due course once we have a.

Speaker Change #139: CFO identified.

Speaker Change #140: Thank you Marty.

Speaker Change #140: Thank you. The next question comes from Tim Arcuri with UBS. Please go ahead.

Speaker Change #140: Thanks, a lot.

Tim Arcuri: Drive units were down from $13 5 million down to like $12. One in March. So is $13 5 million of that kind of like should we think about that is the high watermark for the number of drives you can produce in a quarter.

Speaker Change #140: Yeah.

Speaker Change #140: Yeah.

Speaker Change #141: I wouldn't use that as a watermark I think it really depends on mix. It also depends on the various capacities that we are delivering.

Speaker Change #142: As Don mentioned the teams continue to do a great job on really pushing the boundaries of yield and output that we can within the <unk>.

Speaker Change #142: The supply environment.

Speaker Change #142: We have so again it fluctuates really based on yield.

Speaker Change #142: The mix of products that we have and I'll just add there is segment mix client and consumer was down for the quarter as we ramp in the seasonal periods with.

Speaker Change #142: Prime day and back to school and Christmas, We May see some some of that volume come back in that client consumer space as well and we have capacity there to expand.

Speaker Change #144: I have a follow up Tim.

Speaker Change #142: I do yes, just back on this question about this LTA is I mean.

Speaker Change #142: These same large customers have similar deals for memory and they and they routinely overstate what they what they what they need.

Speaker Change #142: So why why would they not be doing that with you as well so I mean.

Speaker Change #142: I certainly understand that demand is good but but.

Speaker Change #142: For this stuff that is looking out to next year why would they not if they need to drives why would that that would tell you that they need three and if they didn't take the drive are you going to enforce the cancellation policy on that.

Speaker Change #142: Yes.

Speaker Change #142: We've got into a good healthy relationship with our customers they have.

Speaker Change #142: Understood that in order for the.

Speaker Change #142: The hard drive industry to be healthy for us to continue to.

Speaker Change #142: Be able to be profitable and invest in innovation that they benefit from from a <unk>.

Speaker Change #142: Advantage is in both our best interests to provide in as best as possible the demand outlook given the long lead times, especially when it comes to near line drives.

Speaker Change #142: So that's something we've clearly got into visibility and in fact for the two <unk> that we have into the first half of calendar 'twenty six.

Speaker Change #142: Actually I'm from Peel was associated with them.

Speaker Change #142: Well I guess the question is do we do we put in a clause around take or pay.

Speaker Change #142: To be Frank I'm, not we're not a fan of that because all you're doing is creating.

Speaker Change #142: Problems down the road and so we'd rather work with our customers to smooth out demand and make sure. We continue to what would happen to have the right and appropriate supply demand balance to sustain our profitable business that we can continue to invest in innovation for them going forward. Thank you Tim.

Speaker Change #142: Yes.

Speaker Change #145: The next question comes from Vijay Rakesh from Mizuho. Please go ahead.

Speaker Change #142: Yes.

Speaker Change #142: Just a quick question on the Hammer site.

Speaker Change #142: I didn't look at.

Speaker Change #142: Two hyperscale customers. You mentioned is that are you still looking at ramping does.

Speaker Change #142: Mike.

Speaker Change #142: <unk>.

Speaker Change #142: I think as you mentioned.

Speaker Change #142: Analyst here.

Speaker Change #142: Yes.

Speaker Change #142: The roadmap, we've communicated which has been shared with our customers for quite a while at analyst day was when we made it more public to the general population, but that roadmap, but its been.

Speaker Change #142: Done in partnership from customers for quite a while.

Speaker Change #142: Just to reiterate what we shared we're looking to start qualifications in the second half of calendar 'twenty six.

Speaker Change #142: With high volume.

Speaker Change #142: Production ramp in the first half calendar 2007.

Speaker Change #142: Got it and then on the status there just a quick clarification.

Speaker Change #142: When you look at.

Speaker Change #142: Shipping into China is that grade from.

Speaker Change #142: Malaysia is that.

Speaker Change #142: Do you ship.

Speaker Change #142: Progress in Duchenne and likewise in the U S.

Speaker Change #142: How much of that is.

Speaker Change #142: You have production you have versus coming into Malaysia et cetera.

Speaker Change #142: Yes.

Speaker Change #142: Hello.

Speaker Change #146: Yes, we have production facilities throughout Asia, so none of our products that we ship into the U S is coming from China.

Speaker Change #142: Most of it's coming in from.

Speaker Change #142: Southeast Asia products going into China, not subject to any tariffs.

Speaker Change #142: As of April 11 products that we ship into the U S are also not subject to.

Speaker Change #142: Any targets, obviously that situation is evolving and fluid so we stay very.

Vijay Rakesh: Close to it thank you Vijay.

Speaker Change #142: Thanks.

Speaker Change #147: Thank you. The last question comes from Krish Shankar from TD Cowen. Please go ahead.

Speaker Change #147: Hey, guys. This is Eddie for Chris.

Speaker Change #148: How should the investors think about the impact from rare Earth export control from China, I think historically you guys were able to recycle some of these models but.

Speaker Change #147: At some point.

Speaker Change #147: Impact your margins I, just wonder if down the road that scenario investors should be thinking about.

Speaker Change #147: Yes. Thanks for the question is and there is a good one.

Speaker Change #147: We over the last few years have really been on any supply chain resiliency program, where we have been able to develop alternate sources of supply for both rare earth and precious minerals.

Speaker Change #147: As well also.

Speaker Change #147: We don't anticipate there being any material impact.

Speaker Change #147: Some of those controls.

Speaker Change #149: I have a follow up.

Speaker Change #149: Sure. Thanks, everyone and as you guys ramp 11, a desk platform.

Speaker Change #149: How should we think about the margin impact because my understanding is as you add desks.

Speaker Change #149: May reduce the gross margin equation or do you think it's at a point, where it's mature enough where margins would be on.

Speaker Change #149: Unaffected by that time, thank you.

Speaker Change #149: Yes. So the margin accretion is included in our guidance. So we factor the ramp of the new technology into guidance.

Speaker Change #149: Yes, maybe just to add onto Dan's comment.

Speaker Change #149: We're already ahead of our Ram plans in Q3, and as I mentioned in my prepared remarks, we shipped over 800000 units.

Speaker Change #149: The new 11 this platform.

Speaker Change #149: We will be shipping well over a million units in Q4.

Speaker Change #149: We are seeing very high yields and productivity coming out of those platforms. So.

Speaker Change #149: I guess to your question.

Speaker Change #149: Yes.

Speaker Change #149: They actually margin accretive as opposed to being diluted.

Speaker Change #149: Thank you.

Speaker Change #149: Thank you operator.

Mr. Irving: This concludes our question and answer session I would like to turn the conference back over to Mr. Irving Chief.

Speaker Change #149: Chief Executive officer for any closing remarks.

Speaker Change #149: Well first thank you all very much for joining us today, and it's very exciting to have our first quarter out as a stand alone <unk>.

Speaker Change #150: Judy company.

Speaker Change #150: As you can see from the results and the guide we're executing well on our strategy that we've laid out at.

Speaker Change #150: At Investor day, really being focused on our customers driving leading edge.

Speaker Change #150: Innovation being extremely disciplined on operational excellence.

Speaker Change #150: And having a rigorous financial discipline and a very capital friendly return.

Speaker Change #150: Policy.

Speaker Change #150: This quarter and the guide that we've shared I think truly reflects that and so we ask that we thank you for your ongoing interest in <unk> and I look forward to catching up with all of you in due course.

Speaker Change #151: This concludes today's conference call. Thank you for joining US you may now disconnect.