Q4 2025 Western Digital Corp Earnings Call

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Operator: Good afternoon, and thank you for standing by. Welcome to Western Digital's fourth 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 and one on your phone. As a reminder, this call is being recorded. Now, I will turn the call over to Mr. Ambrish Srivastava, Vice President, Investor Relations. You may begin.

good afternoon and thank you for standing by. Welcome to Western digital's, fourth 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 then 1 on your phone. As a reminder, this call is being recorded. Now I will turn the call over to Mr.

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Vice President, Investor Relations. You may begin.

Ambrish Srivastava: Thank you, and good afternoon, everyone. Joining me today are Irving Tan, Western Digital's Chief Executive Officer, and Chris Senesal, Western Digital's Chief Financial Officer. Before we begin, please note that today's discussion will contain forward-looking statements 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. We assume no obligation to update these statements. Please refer to our most recent annual report on Form 10-K and our other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations. In our prepared remarks, our comments will be related to non-GAAP results on a continuing operations basis unless stated otherwise.

Thank you, and good afternoon, everyone. Joining me today are Irving Tan, Western Digital's Chief Executive Officer, and Chris Sisolak, Western Digital's Chief Financial Officer.

Before we begin, please note that today's discussion will contain forward-looking statements 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.

Ambrish Srivastava: Reconciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the Investor Relations section of our website at investor.wdc.com. Lastly, I want to note that when we refer to we, us, our, or similar terms, we are referring only to Western Digital as a company and not speaking on behalf of the industry. With that, I will now turn the call over to Irving for introductory remarks. Irving?

And uncertainties that could cause actual results to differ materially from expectations. In our prepared. Remarks, our comments will be related to non-gaap results on a continuing operations basis, unless stated otherwise,

reconciliations between the non-gaap and comparable gaap, Financial measures are included in the press release, and other materials that are being posted in the investor relations section of our website at investor.wdny.io.

Lastly.

I want to note that when we refer to,

we us are or similar terms, we are referring only to Western Digital as a company and not speaking on behalf of the industry.

With that, I will now turn the call over to Irving for introductory remarks. Irving?

Irving Tan: Thanks, Ambrish. Good afternoon, everyone, and thank you for joining us today. Let me first begin by welcoming and introducing Chris Senesal, our new Chief Financial Officer. Chris brings extensive experience and a strong track record as a public company CFO. His leadership will be instrumental as we sharpen our focus on operational execution, accelerate our capital return program, and continue to create value for our shareholders. We are excited to have Chris on board. Let me now walk you through our business update. AI is ushering in a new era of data growth by fundamentally transforming how data is created, collected, processed, and stored, and more importantly, valued. Looking beyond large language models, which have been a key driver of storage needs, the emergence of agentic AI at scale in multiple industries is creating an increasing need to store unstructured data.

Thanks Amber.

Good afternoon, everyone, and thank you for joining us today.

Let me first begin by welcoming and introducing Chris seasoul.

Our new Chief Financial Officer.

Chris brings extensive experience and a strong track record as a public company CFO.

His leadership will be instrumental as we sharpen our focus on operational execution.

Accelerate our capital return program and continue to create value for our shareholders.

We excited to have Chris on board.

Let me now. Walk you through our business update,

EI is a sharing in a new era of data growth.

By fundamentally transforming how data is created and collected.

Processed and stored.

And more importantly value.

Looking Beyond large language models, which have been a key driver of storage needs.

The emergence of agentic AI app skills in multiple industries is creating an increasing need to store unstructured data.

Irving Tan: Agents customized with domain-specific knowledge will create a significant amount of distinct use cases and generate data at an unprecedented pace. To cite a few examples, applications leveraging agentic AI range from business tools like enterprise chatbots and code development assistants, all the way to agents assisting in engineering design and development. Within our own engineering organization, we are already realizing tangible benefits of agentic AI to help accelerate our product development cycles. These trends are still in their early stages but are expanding rapidly across industries globally. As data becomes more valuable and central to AI-driven innovation, the need to store and retain it at scale grows in parallel. And no storage technology matches the cost efficiency and reliability of HDDs, which remain the foundation of the world's data infrastructure, delivering unmatched value for mass storage in an AI-driven future.

Agents customized with domain-specific knowledge.

Will create a significant amount of distinct use cases.

and generate data at an unprecedented pace,

the side of a few examples.

Applications leveraging, agentic AI.

The range of business tools includes enterprise chatbots and code development assistance.

All the way to agents assisting in engineering design and development.

Within our own engineering organization.

We are already realizing tangible benefits of agentic AI.

To help accelerate our product development Cycles.

These Trends are still in the early stages but our expanding rapidly across Industries globally.

As data becomes more valuable and Central to AI driven innovation.

The need to store and retain it at scale, grows in parallel.

And no storage technology matches the cost efficiency and reliability of hdds.

Which Remain the foundation of the world's data infrastructure?

Delivering, unmatched value for mass storage in an aide driven future.

Irving Tan: Against this backdrop, demand for our products continues to strengthen. We remain disciplined in managing capacity and are addressing long-term market demand through high-quality, reliable, and larger capacity products. Shipments of our latest generation ePMR drives with capacity up to 26 terabyte CMR and 32 terabyte ultra-SMR more than doubled quarter over quarter, exceeding 1.7 million units in the June quarter. This marks one of the shortest qualification and VAM cycles in our history. The reliability, scalability, and TCO value of our ePMR and ultra-SMR technologies that deliver the fastest time to value for our customers is core to our continued success in the data center market. We aim to extend ePMR's strong track record of high yield, reliability, and a scalable performance into our next generation of hammer drives. The feedback from tests at two of our hyperscale customers continues to be encouraging.

Against this backdrop.

Demand for our products continues to strengthen.

We remain disciplined in managing capacity and are addressing long-term market demand.

To high quality reliable and larger capacity products.

Shipments of our latest generation EPR drives.

With capacity up to 26 terabyte, CMR and 32 terabyte Ultra ASMR.

More than double quarter-over-quarter, exceeding 1.7 million units in the June quarter.

This marks one of the shortest qualifications and Vamp Cycles in our history.

The reliability, scalability, and TCO value of our EPR and Ultra SMR technologies.

That delivers the fastest time to value for our customers.

is core to our continued success in the data center market.

We aim to extend epr's strong track record of high yields, reliability and a scalable performance into our next generation of hammer drives.

Irving Tan: I am pleased to note that we are ahead of our internal milestones with steady progress in aerial density improvement and continue to focus on increasing long-term reliability and manufacturing yield of our hammer products. Next, we will transition from testing to qualification stage with these customers, staying well on track for a ramp in the first half of calendar year 2027. Meanwhile, our next generation of ePMR drives will complete qualification in the first half of calendar year 2026. These drives will continue to deliver strong TCO along with the hallmark reliability and predictability, paving the way for a smooth and economically sound transition to hammer. In addition, the rapid rise of AI is also accelerating our platform's business. Our platform's technology enables us to deliver dense systems that extract the full performance and capacity of our drives.

The feedback from tests at 2 of our hyperscale customers continues to be encouraging.

I'm pleased to note that we are ahead of our internal Milestones with steady progress in aerial density Improvement, and continue to focus on increasing long-term, reliability and Manufacturing yield of our Hammer Products.

Next, we will transition from testing to the qualification stage with these customers.

Calendar year 2027.

Meanwhile, our next generation of EPM drives will complete qualification in the first half of calendar year 2026.

These drives will continue to deliver strong TCO along with the Hallmark reliability and predictability.

Paving the way for a smooth and economically sound transition to hammer in addition.

The rapid rise of AI is also accelerating our platforms business.

Irving Tan: This business is building traction with infrastructure providers and is well positioned to support the growing number of native AI companies that don't have their own storage infrastructure teams. Let me now turn to our quarterly results and capital allocation updates. For the fiscal fourth quarter, Western Digital delivered revenue of $2.6 billion, non-GAAP gross margin of 41.3%, and non-GAAP earnings per share of $1.66. Free cash flow for the quarter was $675 million. During the June quarter, we lowered our debt by $2.6 billion via a combination of using cash on hand and a debt for equity exchange of a portion of our stake in Sandus. As a result, we have strengthened our balance sheet and achieved the net leverage target range of 1 to 1.5x, we communicated at our Investor Day in February in less than two quarters.

Our platform's technology enables us to deliver dense systems that extract the full performance and capacity of our drive.

This business is building traction with infrastructure providers.

And is well positioned to support the growing number of native AI companies that don't have their own storage infrastructure teams.

Let me now turn to our quarterly results and capital allocation updates.

For the fiscal fourth quarter, Western Digital delivered revenue of $2.6 billion.

Non-gaap gross margin of 41.3%.

And non-gaap earnings per share of $1.66.

BC cash flow for the quarter was $675 million.

Doing the June quarter. We lowered our debt by 2.6 billion via a combination of using cash on hand.

And a debt for Equity, exchange of a portion of our state incentives.

Irving Tan: Keeping with our commitment to returning cash to shareholders, we initiated a quarterly cash dividend program, and the board authorized a $2 billion share repurchase program. In our fiscal fourth quarter, we repurchased nearly $150 million worth of shares. Looking ahead, while the broader environment continues to be marked with uncertainty related to tariffs, we are seeing strong demand for our products driven by AI and related tailwinds in our business. Our visibility into our customers' plans continues to improve, and we currently have firm POs or LTAs with all of our top five hyperscale customers covering our entire fiscal year 2026. This close collaboration with our customers enables us to plan more effectively and address their growing needs for storage. For the fiscal first quarter of 2026, we expect continued revenue growth driven by data center demand and improved profitability led by adoption of our high-capacity drives.

As a result, we have strengthened our balance sheet and achieved the net leverage target range of 1 to 1.5x, which we communicated at our Investor Day in February, in less than 2 quarters.

Keeping with our commitment to returning cash to shareholders.

We need initiated a quarterly, cash dividend program, and the board authorized a 2 billion. Share repurchase program.

In our fiscal fourth quarter, we repurchased nearly $150 million worth of shares.

Looking ahead, while the broader environment continues to be marked with uncertainty related to terrorism.

We are seeing strong demand for our products, driven by AI and related tailwinds in our business.

Our visibility into our customers' plans continues to improve.

And we currently have firm pose or LTAs with all of our top 5 hyperscale customers covering our entire fiscal year 2026.

This close collaboration with our customers enables us to plan more effectively and address their growing needs for storage for the fiscal first quarter of 2026.

We expect continued Revenue growth driven by data center demand.

Irving Tan: Let me now turn the call over to Chris, who will discuss our fiscal fourth quarter results and Q1 fiscal year '26 guidance in more detail.

And improved profitability led by the adoption of high-capacity drives.

Let me now turn the call over to Chris, who will discuss our fiscal fourth quarter results.

And Q1 Fiscal Year 26 guidance in more detail.

Chris Senesal: Thank you, Irving, and good afternoon, everyone. I'm honored to be joining you today for my first earnings call as the Chief Financial Officer of Western Digital. Over the past several weeks, I had the opportunity to perform a deep dive into our business and met with many of our valued employees across the company. I also had several meaningful engagements with customers, suppliers, and partners in the investor community. It's been a tremendously energizing experience, providing great insight into our strategic financial and operational priorities. It's clear to me that Western Digital is now operating as a strategically focused hard disk drive company. The company is leveraging its technology leadership position, operational excellence, and deep customer engagements to provide innovative solutions to meet the evolving needs of its customers. This provides a strong foundation for growth, profitability, and cash flow generation that creates long-term shareholder value.

As the Chief Financial Officer of Western Digital.

Over the past several weeks ahead of the opportunity to perform a deep dive into our business and met with many of our valued employees across the company.

I also had several meaningful engagements with customers, suppliers, partners, and the investor community.

It's been a tremendously energizing experience, providing great insight into our strategic financial and operational priorities.

It's clear to me that Western Digital is now operating as a strategically focused hard disk drive company.

The company is leveraging its technology leadership position.

Operational excellence and deep customer engagements to provide innovative solutions to meet the evolving needs of its customers.

This provides a strong foundation for growth profitability and cash flow generation, that creates long-term shareholder value.

Chris Senesal: During the fourth quarter of fiscal 2025, Western Digital delivered very strong financial results. Revenue was $2.6 billion, up 30% year over year, and earnings per share was $1.66. Revenue and EPS were above the high end of the guidance range. We delivered 190 exabytes to our customers, up 32% year over year, driven by strong nearline shipments and the ramp of our 26-terabyte CMR and 32-terabyte ultra-SMR drives. Cloud represented 90% of total revenue at $2.3 billion, up 36% year over year, driven by strong demand for our higher capacity nearline product portfolio. Client represented 5% of total revenue at $140 million, up 2% year over year. And consumer also represented 5% of revenue at $136 million, down 12% year over year. Gross margin for the fiscal fourth quarter was 41.3%.

During the fourth quarter of fiscal 2025, Western Digital delivered, very strong financial results. Revenue was 2.6 billion up 30% year-over-year and earnings per share was $1.66.

Revenue and EPS were above the high end of the guidance range.

We delivered 190 exabytes to our customers, up 32% year-over-year, driven by strong nearline shipments and the ramp of our 26 terabyte CMR and 32 terabyte Ultra SMR drives.

Cloud represented 90% of total revenue at 2.3 billion. Up 36% year-over-year driven by strong demand for our higher capacity in nearline product portfolio.

Million up 2% year-over-year.

And consumer also represented 5% of Revenue at 136 million down, 12% year-over-year.

Chris Senesal: Gross margin improved 610 basis points year over year on a continuing operating basis and was above our guidance range. The improved gross margin performance reflects continued makeshift towards higher capacity drives and tight cost control in our manufacturing sites and throughout the supply chain. Operating expenses were $345 million, slightly above guidance due to higher variable compensation on stronger than expected results. Operating income was $732 million, translating into an operating margin of 28.1%. Interest and other expenses were $52 million, a substantial reduction from the prior quarter due to the repayment of $2.6 billion of debt during the quarter. Taking into account an effective tax rate of 9.3% and a diluted share count of 362 million shares, EPS was $1.66, up 22% sequentially.

Growth margin for the fiscal fourth quarter was 41.3%.

Gross margin improved 610 basis points year-over-year on a continuing operating basis and was above our guidance range.

The improved gross margin performance. Reflects continued mix shift towards higher capacity, drives and tight cost control in our manufacturing sites and throughout the supply chain.

Operating expenses were $345 million, slightly above guidance due to higher variable compensation on stronger-than-expected results.

Operating income was $732 million, translating into an operating margin of 28.1%.

Interest and other expenses were 52 million. A substantial reduction from the prior quarter, due to the repayment of 2.6 billion of debt during the quarter.

Taken into account an effective tax rate of 9.3% and a diluted share count of 362 million shares, EPS was $1.66, up 22% sequentially.

Chris Senesal: Turning to the balance sheet, at the end of our fiscal fourth quarter, cash and cash equivalents were $2.1 billion, and the total liquidity was $3.4 billion, including the earned ROM revolver capacity. During the quarter, we exchanged approximately 21 million shares of Sandisk for debt. As a result, our Term Loan A reduced by $800 million, and we still own 7.5 million shares of Sandisk. In addition, we redeemed $1.8 billion of the senior unsecured notes, resulting in gross debt outstanding of $4.7 billion at the end of fiscal 2025. We strengthened our balance sheet and achieved our target net leverage ratio of 1 to 1.5 times, as outlined at our Investor Day. Operating cash flow for the fiscal fourth quarter was $746 million, and capital expenditures were $71 million, resulting in strong free cash flow generation of $675 million for the quarter.

Turning to the balance sheet at the end of our fiscal fourth quarter, cash and cash equivalents were $2.1 billion, and the total liquidity was $3.4 billion, including the undrawn revolver capacity.

during the quarter, we exchanged approximately 21 million shares of SanDisk for depth

As a result, our Term Loan A reduced by 800 million and we still own 7.5 million shares of SanDisk.

In addition, we redeemed 1.8 billion of the senior unsecured notes resulting in Gross depth outstanding of 4.7 billion at the end of fiscal 2025.

We strengthen our balance sheet and achieved our Target net. Leverage ratio of 1 to 1.5 times as outlined at our investor day.

Operating cash flow for the fiscal fourth quarter was $746 million, and capital expenditures were $71 million, resulting in strong free cash flow generation of $675 million for the quarter.

Chris Senesal: Backed by strong cash flow generation, a robust balance sheet, and confidence in the fundamentals of our business, the board authorized up to $2 billion of share repurchases. During the quarter, we repurchased approximately 2.8 million shares for a total of $149 million. In addition, as announced during the last earnings call, the board initiated a cash dividend of $0.10 per share, resulting in $36 million of dividend payments during the quarter. The board also declared a quarterly cash dividend of $0.10 per share of the company's common stock payable on September 18, 2025, to shareholders of record as of September 4, 2025. I will now turn to the outlook for the first quarter of fiscal 2026. This guidance includes our current estimate of all anticipated or known tariff-related impacts on our business in this period. We anticipate revenue to be $2.7 billion, plus/minus $100 million.

Backed by strong cash flow generation, a robust balance sheet, and confidence in the fundamentals of our business, the board authorized up to $2 billion of share repurchases.

During the quarter, we repurchased approximately 2.8 million shares for a total of $149 million.

In addition, as announced during the last earnings, call the board initiated a cash dividend of 10 cents per share. Resulting in 36 million of dividend payments during the quarter.

The board. Also declared a quarterly cash dividend of 10 cents per share of the company's common stock payable on, September 18th, 2025 to shareholders of record as of September 4th 2025

I will now turn to the outlook for the first quarter of fiscal 2026.

Chris Senesal: At the midpoint, this reflects a growth of approximately 22% year over year. Gross margin is expected to be between 41% and 42%. We expect operating expenses to increase on a sequential basis to a range of $370 million to $380 million, including an additional week of expenses as Q1 will be a 14-week quarter. Interest and other expenses are anticipated to be approximately $50 million. The tax rate is expected to be between 16% and 19%. As a result, we expect EPS to be $1.54, plus/minus $0.15, based on a non-GAAP diluted share count of approximately 363 million shares. In closing, Western Digital is well positioned to succeed in the AI-driven data economy. We remain committed to meeting our customers' growing storage needs while using our cash flow generation and strong balance sheet to deliver long-term value for our shareholders.

This guidance includes our current estimate of all anticipated or known tariff related impacts on our business. In this period, we anticipate the revenue to be 2.7 billion plus minus 100 million at the midpoint. This reflects a growth of approximately 22% year-over-year gross margin is expected to be between 41% and 42%.

We expect operating expenses to increase on a sequential basis to arrange of 370 million to 380 million.

Including an additional week of expenses, as q1 will be a 14 week quarter.

Interest in other expenses is anticipated to be approximately $50 million.

The tax rate is expected to be between 16% and 19%. As a result, we expect EPS to be $154 cents plus -5 cents, based on a non-gaap diluted share count of approximately 363 million shares.

In closing Western Digital is well, positioned to succeed in the ai-driven data economy.

Chris Senesal: With that, I will now turn the call back to Irving.

We remain committed to meeting our customers growing storage needs while using our cash flow generation and strong balance sheet to deliver long-term value for our shareholders.

With that, I will now turn the call back to Irving.

Irving Tan: Thank you, Chris. Western Digital's strong result and positive outlook this quarter reflect the ongoing successful execution of our strategy and the continued trust our customers place in the performance, reliability, and TCO advantages of our products. This combination of customer trust, strategic focus, and disciplined execution is driving our strong financial results. With that, let's now begin with the Q&A. Over to you, Ambrish.

Thank you, Chris.

This quarter reflects the ongoing successful execution of our strategy.

In the continued, trust our customers place in the performance, reliability and TCU advantages of our products.

This combination of customer trust, strategic, focus, and discipline execution is driving our strong financial results.

Ambrish Srivastava: Thank you, 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?

With that, let's now begin with the Q&A over the Embrace. Thank you, 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.

Operator: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Eric Woodring with Morgan Stanley. Your line is now open.

We will now begin the question and answer session to ask a question. You may press star then 1 on your telephone keypad. If you're using a speaker-phone please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question please press star then 2

At this time, we will pause momentarily to assemble our roster.

The first question comes from Eric Woodring with Morgan Stanley, your line is now open.

Analyst: Hey, guys. Thank you. Thank you very much for taking my questions and congrats on the results tonight. You know, Chris, I wanted to kind of better understand the gross margin guidance for the September quarter. You're calling for, I believe, 20 basis points of sequential gross margin expansion at the midpoint. Can you maybe just help us unpack maybe why we're seeing that sequential gross margin expansion slow into the September quarter? If there are any one-timers or headwinds that are unusual in the quarter to call out. And I'll just ask the follow-up because it's related, which is, you know, beyond September, I realize you have a 38% gross margin in your three-year financial model.

Analyst: You know, as we progress through this upcycle, though, how should we be thinking about the incremental margins in this business and maybe help us dream the dream of what's possible during this upcycle? Thanks so much.

Chris Senesal: Yes, thanks, Eric, for the question. And so, first of all, I'm very pleased with the progress that we are making with our gross margin. As you probably recall, at the February Investor Day, we had or we announced a business model with a 38% gross margin. And so, last quarter, even before I joined the company, I was very pleased to see that the company, for the first time, had gross margins with a forehandle in the 40% range. And last quarter, in Q4 of fiscal '25, I'm very pleased with the fact that we delivered 41.3% gross margin. So, really good progress for many quarters in a row. As you know, in gross margins, there are multiple elements that go into it. There is pricing, there is mix, there is cost. And on each of those fronts, I think the company is executing really well.

Hey guys, thank you. Uh, thank you very much for taking my questions and, and congrats on the results tonight. Um, you know, Chris, uh, I, I wanted to kind of better understand the gross margin guidance for the September quarter, uh, you're calling for, I, I believe, 20 basis points of sequential gross margin expansion at the midpoint, um, C. Can you maybe just help us unpack, maybe why why we're seeing that sequential gross margin expansion, slowed into the September quarter. If there are any 1-time or, or headwinds that are unusual in the quarter to call out and I'll just ask the follow-up because it's related which is you know, beyond September. I realize you have a 38% gross margin in your in your 3 3 year financial model. You know, as we progress through this up upcycle though, how should we be thinking about the incremental margins um in this business and and maybe help us stream the dream of of what's possible during this UPS of of what's possible during this upcycled. Thanks so much.

Yes, uh, thanks, uh, Eric for the question. And so, first of all, I'm very pleased with the progress that we are making with our gross margin as you probably recall at the February investor day. We had or we announced a business model with a 38%, gross margin. And so, last quarter, even before I joined the company, I was very pleased to see that the company for the first time uh had gross margins with a Ford handle uh, in the 40% range and uh, last quarter in Q4 or fiscal 20.

Chris Senesal: Pricing is a very stable environment. The mix is shifting in the right direction to higher capacity drives that are accretive to gross margins. And the operational team is executing really well, driving down cost reductions in the factories as well throughout the supply chain. And so, I do believe there is further gross margin progression. We guided now Q1 of fiscal '26 to 41 to 42%. I'm confident that the team will execute well and continue to focus on further gross margin improvements over time.

5, I'm very pleased with the fact that we delivered 41.3% gross margin so really good progress for many quarters in a row. Uh, as you know, in Gross margins, there's multiple elements that go into it. There is pricing, there is mixed, there is cost and in each of those fronts, I think the company is executing really well. Pricing is very stable environment, the mix is Shifting in the right direction to higher capacity drives that is agreed to gross margins and the operational team is executing really well driving down cost reductions in the factories as well throughout the supply chain. And so I do believe there is further, gross margin progression, we guided now, q1 of fiscal 26 to 41 to 42%. Uh I I I'm confident that the team will execute well and continue to focus on further, gross margin uh, improvements over time.

Irving Tan: Thank you very much, Chris.

Chris Senesal: Next caller, please, operator.

Operator: Yes, once again, a reminder to please wait to ask your follow-up after management answers your first question. The next question comes from Aaron Rakers with Wells Fargo. Please go ahead. Your line is open.

Next caller, please operator.

Yes, once again, a reminder to, please wait to ask your follow-up after management. Answers. Your first question.

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

Analyst: Thanks for taking the question. I do have two, and I'll wait to ask a follow-up. I guess the first question, you know, Chris, congrats on the results as well. But you've know, you've taken the debt down. You're well within your targeted range of 1 to 1.5 on a leverage ratio basis. You know, strong free cash flow generation. You've got $2.1 billion in cash on the balance sheet. I'm curious, as you start to think about share repurchase activity going forward, you know, how should we as investors think about that? Or how do you think about excess cash generation or the right level of cash on the balance sheet that you'll operate the business at, or rather the capacity for, you know, even stepping further on share repurchase going forward?

Your line is open for taking.

Yeah, thanks for taking the question. I I do have 2 and I I'll wait to ask follow-up. Um, I guess the first question you know, Chris, uh, congrats on the results as well but you know, you, you've taken the debt down. You're you're well within your targeted range of 1 to 1 at 1 1/2, you know, strong free, cash flow generation. You've got 2.1 billion in cash on the balance sheet. I'm I'm curious as you start to think about sharing purchase activity. Going forward you know how should we as investors think about that or or how do you think about excess cash generation or the right level of cash and a balance sheet that that you'll operate the business at or rather the the the capacity for, you know, even stepping further on Sherry purchase going forward?

Chris Senesal: You know, Aaron, that's a great question. And here again, I'm really pleased with what I've seen in the company as well in terms of capital, capital structure, and capital allocation. And just to summarize it as well, there is very strong free cash flow. Just last quarter, the first quarter as the standalone hard disk drive company, we generated $675 million of free cash flow, which was a 26% free cash flow margin. Now, not each and every quarter will be as strong as last quarter, but the business model is really a strong free cash flow business model.

Chris Senesal: In addition to that, the company has done a great job at strengthening the balance sheet at the time of the separation, as well as last quarter where we retired $2.6 billion of debt, now getting to a net debt of $2.6 billion, which is on or about one-time LTM EBITDA. So, really good job there. And so, there's no hesitation from the board to the management team to continue to return cash back to the shareholders through a combination of our dividend program and the share repurchase program. The dividend program we started with $0.10 per quarter. I think there is room to grow that dividend over time. We're going to be very thoughtful about that. But there was also no hesitation to switch on the buyback the day it got approved. You saw we did $150 million.

And I'm, I'm really pleased with, uh, what I've seen in the company as well in terms of capital capital structure and capital allocation and and and just to summarize it as well. There is very strong free cash flow. Just last quarter, the first quarter as the Standalone hardest Drive company, we generated 675 million of free cash flow, which was a 26% free. Cash flow margin. Now, not each and every quarter will be a strong as as, uh, as lost quarter. But but the business model is really a strong free cash flow business model. In addition to that, the company has done a great job at strengthening the balance sheet at the time of the separation as well as last quarter where we retired 2.6 billion of uh debt. Now getting to a net depth of 2.6 billion which is all about 1 time uh uh LTM ebida. So really

Huge job there. And so there's no hesitation from the board to the management team to continue to return cash back to the shareholders, through a combination of our dividend program. And uh, the share repurchase program, the dividend program, we started um uh with 10 cents per quarter. I think there is room to grow that dividend over time. We're going to be very thoughtful about that, but there was also no hesitation to switch on.

Chris Senesal: I think over time, as the cash flow generation continues to grow, we can do more. And there will be no hesitation to execute the share repurchase program.

Ambrish Srivastava: Do you have a follow-up, Eric? Aaron, sorry.

Analyst: Yeah, yeah, I do, Ambrish. Thank you. One of the metrics that you guys have historically given and helped kind of bridge the hard disk drive versus the non-hard disk drive business was the ASP. I didn't see that in tonight's release. So, I'm curious if that's something that you could talk to or I guess maybe put another way, you know, how do we think about the non-HDD revenue in this most recent quarter?

Irving Tan: Yeah, Aaron, thanks for the question. This is Irving. Obviously, ASP per terabyte is obviously a function of the mix by and large. But I would say for last quarter, ASP per terabyte was down low single digits.

The buyback the day. It got approved. You saw, we did 150 million. Uh, I think over time as the cash flow generation continues to grow, we can do more and there will be no hesitation to, uh, execute to share repurchase program. Do you follow up Eric? Uh, Aaron sorry. Yeah. Yeah, I do have reach. Thank you. Um, 1 of the metrics that that you guys have historically given and it helps kind of bridge. The hard disk drive versus the non hard disk drive business was the ASP. Um I didn't see that in tonight's release. So I'm curious if if that's something that that you could talk to or I guess, maybe put another way, you know, how do we think about the non-hd revenue in this most recent quarter,

Yeah, Aaron. Thanks for the question. Uh, this is Irving. Uh obviously ASP uh but terabyte is obviously a function of mix.

Uh, by and large. But I would say for last quarter, ASP per terabyte was down low single digits.

Analyst: Thank you.

Thank you.

Operator: The next question comes from Wamsi Mohan with Bank of America. Your line is open.

The next question comes from wamsi. Mohan with Bank of America, your line is open.

Analyst: Hi, yes, thank you so much. And congrats on your solid results as well. Could you maybe help us think a little bit longer term here? When you look at sort of the revenue contribution, 90% coming from cloud, does it really mean that the seasonality in the business is going to be materially different? And what I'm particularly wondering is, should we be thinking that you're just going to see sequential growth as demand is kind of strong still, all indications of cloud CapEx remain very strong, that you could grow through even typically a seasonal weaker quarter like the March quarter? And I will follow up.

Ah, yes. Thank you so much and, uh, congrats on your solid results as well. Uh, could you, uh, maybe help us think a little bit longer term here? Uh, when you, uh, look at sort of the revenue contribution, 90% coming from cloud, uh, doesn't really mean that the seasonality in the business is going to be materially different.

And what I'm particularly wondering is uh, should we be thinking that you're just going to see sequential growth as demand is kind of strong still all indications of cloud capex remain very strong that you could grow through even uh, typically a seasonal week or like quarter, like like the March quarter and I will follow up.

Irving Tan: Yeah, thanks, Wamsi, for the question. Look, I think you sort of got it well in the sense that we're structurally quite a different business today than we were in the past. As you highlighted, 90% of our business is in the data center. A large portion of that business is driven by a few sets of key hyperscale customers that we have. They have multi-year CapEx programs to really invest in their data storage assets, both to support the ongoing growth in the cloud and to also support the additional tailwind that they see coming from the AI revolution as well. So, that plus the fact that we also now have moved to a 52-week lead time program with them. And as we've highlighted, we have POs or LTAs for all five of our top customers spanning the entire fiscal year '26.

Irving Tan: And for two out of five of them, all the way to the middle of fiscal year '27, we don't think that the seasonality of the past applies anymore. It's really driven by the cloud CapEx spend of the big hyperscalers in terms of their new data center deployments, their refresh cycles as well. Having said that, you know, we do recognize that we are in a cyclical business. At some point, those cycles, there will be periods of digestion, as we highlighted in our Q3 result as well. But we pretty much have a really good handle on how the business is flowing over a 12, 18-month time frame. But if I summarize it, you got it pretty right. The traditional seasonality of the past doesn't really apply to this business a lot more.

Yeah, thanks wi for the question. Look, I think you, you sort of got it, uh, well, in the sense that it, we are structurally quite a different business today than we were in the past. As you highlighted, 90% of our business, uh, is in the data center, a large portion of that business is driven by a few set of key hyper scale customers that we have. Um, they have multi-year capex programs to really invest in their data storage assets, both to support the ongoing growth in the cloud and to also support, uh, the additional Tailwind that they see coming from the AI Revolution, um, as well. So that plus the fact that we we also now have moved to a, um, 52 week lead time, uh, program, uh, with them. And as we've highlighted, uh, we have posed or or ltas for all 5 of our top customers spending the entire fiscal year 26, and for 2 out of 5 of them all the way to the middle.

Fiscal Year 27. We don't think that the seasonality of the past applies anymore. It's really driven by the cloud, capex spend of the big hyperscalers, in terms of their new data center deployments and their refresh.

Irving Tan: It's really driven by the programs that our hyperscale customers have in terms of new data centers coming online and their refresh cycles.

18-month time frame. But if I summarize it, you got it pretty right? The traditional seasonality of the past doesn't really apply to this business. A lot more, it's really driven by the programs that our hyperscale customers have in terms of new data centers coming online and their refresh cycles.

Analyst: OK, that's super helpful, Irving. And as my follow-up, Chris, I just wanted to go back to the incremental margin question that Eric asked around, and you answered with the moving pieces being price, mix, and cost. So, if we think about the sequential improvement in this June quarter of 120 bips, what would you say was the biggest driver between those three elements? And as we look forward, where do you see the most opportunity? I would think that, you know, the pricing is what it's going to be. It's pretty stable. It's kind of, you know, not maybe a huge incremental driver. So, should we think that mix is really the biggest kind of contributor on a go-forward basis as you mix up to these ultra-SMR drives, or should I be thinking about it differently? Thank you so much.

Chris Senesal: No, you have it right. Mix is the most important item that we as a company focus on. That's why we continue to invest in our technology and product roadmaps and really focusing on higher capacity drives. That is something that our customers are asking us for. That's something we are working and collaborating with our customers on. And it's a win-win situation for us. Higher capacity drives typically translate into higher gross margin. And the company is executing really well on that.

Okay. That's that's super helpful or ring. And and as my follow-up um Chris I just wanted to go back to the incremental margin question. Uh that Eric has around and you answered with the moving pieces, being price, mix and cost. So if you think about the sequential Improvement in this June quarter of 120 bibs, uh, what would you say was the biggest driver between those 3 elements? And as we look forward, uh, where do you see the most opportunity? Uh, I would think that, you know, the pricing is what it's going to be. It's pretty stable, it's kind of you know um not maybe a huge incremental driver. So should we think that mix is really the biggest kind of contributor on a go forward basis as you mix up with these uh Auto SMR drives or or should I be thinking about it differently? Thank you so much.

No. You you have it. You have it, right? Mix is the most important, uh, item that we as a company focus on. That's why we continue to invest in our technology and product road maps and really focusing on higher capacity. Drives that is something that our customers are asking us for. That's something we are working.

And collaborating with our customers on it is a win-win situation for us. A higher capacity drive typically translates into a higher gross margin. The company is executing really well on that.

Irving Tan: Yeah, maybe, Wamsi, this is Irving. I'll just add on to what Chris said. So, I echo exactly what he said. It's really driven very much by mix. And you would have seen that our latest generation of EPMR drives, that 26-terabyte CMR and 32-terabyte ultra-SMR, the number of units that we shipped doubled in the second quarter, out from just over 800,000 units in last quarter to over 1.7 million units this quarter. That's a clear recognition of our customers, seeing the TCO value that it delivers, the strong reliability that it delivers, and quality that they are comfortable and used to from our EPMR drives. And as I've highlighted in the past as well, these drives are not only at the leading edge of capacity points, but the ability of our operations teams to deliver very high yields is also adding to the profitability of that business.

Irving Tan: And we look forward to introducing our next generation EPMR drives in the not-too-distant future. So, I think there will be continued room to continue to deliver value, innovation, TCO benefit that we can benefit from and drive further margin expansion.

Yeah, maybe Wie. This is Irving. I'll just add on to what Chris said. Uh, so I Echo exactly what it says, really driven very much by mix, and you would have seen that our latest generation of EPM, power drives at 26 terabyte, CMR and 32 terabyte Ultra SMR. Um, the number of units that we ship double in the second quarter out from just over 800,000 units in, uh, last quarter to over 1.7 million units. This quarter, that's a clear recognition of our customers. Uh, seeing the TCO value, that it delivers the strong reliability, uh, that it delivers to, uh, to and quality that they are comfortable and used to, from our epmi drives. And I, as I've highlighted in the past as well. Uh, these drives are not only at the Leading Edge of capacity points where the ability of our operations teams to deliver very high yields, uh, is ALS adding to the profitability of that business. Um, and we look forward to introducing, uh, our next Generation epmi drives, uh, in the North to the

Ambrish Srivastava: Thank you, Wamsi.

Future. So I think that there will be continued room to deliver value, innovation, and TCO benefits that we can leverage to drive further margin expansion.

Irving Tan: Thank you.

Thank you, Ramsey. Thank you.

Operator: Our next question comes from Carl Ackerman with BNP Paribas. Your line is now open.

Our next question comes from Carl Akerman with BNP Paribas. Your line is now open.

Analyst: Yes, thank you. Thank you, gentlemen. So, one of the main ways you have driven higher margins is from the adoption of ultra-SMR. And I was hoping if you could discuss the adoption curve and willingness of hyperscalers to grow their hard drive fleets based exclusively on ultra-SMR. I guess, is there a certain workload? Are there certain workloads where ultra-SMR is disadvantaged that would prevent you from attaining perhaps 100% of your fleet on ultra-SMR? Thank you.

Yes, thank you.

Uh, thank you gentlemen. Um, so 1 of the main ways you have driven higher margins is from the adoption of ultra SMR.

Irving Tan: Hey, Carl. Thanks for the question. Well, we have in the past had two key customers on ultra-SMR. We've just completed the qualification of a third hyperscale customer out of our top five on ultra-SMR and are starting to ramp ultra-SMR in the second half of the calendar year. We now have a fourth customer in the process of qualifying ultra-SMR as well. And, you know, again, to reiterate, it's very important to note that ultra-SMR is a technology that will be extensible into Hammer as well. As we transition into our Hammer products in the not-too-distant future, we will be able to deliver that on the ultra-SMR platforms as well to enable our customers to take advantage of the incremental capacity points within that. Specifically, a question around workloads. You know, it really depends on the application.

And I was hoping if you could discuss the adoption curve and willingness of hyperscalers to grow their hard drive, space exclusively on Ultra SMR I I guess, is there a certain workload? Are there certain workloads where Ultra SMR is disadvantage that we prevent you from attaining? Perhaps 100% of your Fleet on all try some more. Thank you.

Hey Carl, thanks for. Thanks for the question. Well, we have uh in the past had 2 key customers on Ultra SMR we've just completed the qualification of a third. Uh, hyperscale customer out of our top 5 on Ultra SMR, and they're starting to Ram. I'll try to smile in the second half of the calendar year. We now have a fourth customer in the process of qualifying Ultra SMR, um, as well. Um, and, you know, again to reiterate, it's very important to know that Ultra SMR is a technology that is a that will be extensible into Hammer as well as we transition into Hammer. Our

Irving Tan: So, even in the existing customer environments that do use ultra-SMR today, there are some specific legacy workloads that they buy lower capacity drives, 18s, 20-terabyte drives. But what we are seeing is for any new workloads that they are bringing to the market, it's all on the highest capacity points that they can adopt, which is typically on ultra-SMR.

Grammar products in the not too distant future. We will be able to deliver that on the ultra SMR, uh, platforms as well to enable our customers to take advantage of the incremental capacity points within that, um, specifically a question around workloads. Um, you know, it really depends on the application. So, even in the existing customer environments that do use ultra SMR today, there are some specific Legacy workloads that they buy lower capacity, Drive 18s 20 terabyte drives. But what we are seeing is for any new workloads that they are bringing to the market. It's all on the highest capacity points that they can adopt.

Ambrish Srivastava: Do you have a follow-up, Carl?

Which is typically on Ultra smart.

Analyst: I do, if I may. So, you and your peer have seen the strongest visibility in terms of order rates in really the longest time ever. That clearly speaks to the demand requests from hyperscale customers. Clearly, they would love to have you add capacity. Given the longer lead times and the sophistication of these customers, how do you balance the visibility with those customers as well as the demand requests for those customers as you plan your capacity planning and they plan their hyperscale buildouts for the next two years? Thank you.

Irving Tan: Yeah, thanks. It's a great question. So, on the demand signal, I think the first step was really to educate our customers on the long lead times as the products become much more sophisticated as we move to higher capacity drives. We have highlighted and they're aware that really the long lead times are driven by the hit wafers that we have to produce. It takes roughly nine months to produce a hit wafer and another three months to convert them into a hit stack. So, it's a one-year lead time on that component alone. And that's been instrumental in driving us to that 12-month LTA visibility. We are now also having conversations with them. As I've highlighted, with two of them, we now have 18 months visibility. So, that really is key in terms of that partnership to get greater visibility to support their growth requirements.

Uh, I do if I met. Um so you and your peer has have seen the strongest visibility uh in terms of order rates uh and and really the longest time ever, uh, but clearly speaks to the demand requests uh, from hyperscale customers. Clearly, they would love to have you add capacity given the longer lead times, uh, and the sophistication of these customers. How do you balance the visibility with those customers, as well as the demand request for those customers? As you plan, your uh, capacity plan and they can plan their H to build outs for the next 2 years. Thank you.

Irving Tan: That's giving us a lot of insight into how we need to accelerate our aerial density improvements in our products. That also is a function of why you saw the very rapid take-up of our latest generation of EPMR drives. I think we will see something very similar in our next generation of EPMR drives out very soon as well. But again, the focus is on really delivering increased aerial density to our customers through technologies like ultra-SMR, OptNAN. And if there's any investment that we do need to make into capacity, it's really on the hit and media side of our business to support aerial density improvement.

Yeah, thanks, it's a great question. So on, on the demand signal, I think the first step was really to educate our customers on the long lead times as the products become much more sophisticated. As we move to higher capacity drives uh, we have highlighted and they're aware. That really the long lead times are driven by the head Wafers that we have to produce that think about the 9 months to produce a head wafer and another 3 months, to convert them into a head stack. So, so 1 year lead time on that, uh, component alone and that's been instrumental in driving us to that, uh, 12 a month, uh, LTA visibility. Uh, we are now also having conversations with them. As I've highlighted 2 with 2 of them, we now have 18 months, uh, visibility. So, that really is a key in terms of that partnership to get greater visibility to support their growth requirements. Uh, that's giving us a lot of, uh, insight into how we need to accelerate our aerial density improvements.

Uh, in our products, uh, that also is a function of why you saw the very rapid take up of our latest generation of epml drives. I think we will see something very similar, uh, in our next generation of epml drives, uh, out very soon, uh, as well. But again, the focus is on really delivering increased aerial density, uh, to our customers, uh, through Technologies like Ultra ASMR option. And, uh, and if there's any investment that we do need to make into capacity, it's really on the head and media side of our business.

Ambrish Srivastava: Thank you, Carl.

To support density Improvement.

Thank you, Carl.

Operator: Our next question comes from Asihab Merchant with Citigroup. Your line is now open.

Our next question comes from AIA, Merchants with Citigroup, your line is now open.

Analyst: Great, thank you. Thanks for taking my question. I think in the last call, there was some discussion on tariffs and some potential for enterprise slowdown. Just curious if you have anything to suggest there, you know, any updates there. And, you know, how do we make sure, how do we, how are you making sure that some of the demand is not just related to tariff pull forward? Thank you.

Irving Tan: Yeah, thanks, Asihab, for the question. I guess there are two parts to the question. First, on the enterprise demand, we called it out as a risk with the potential concern that the impact of tariffs might have. We haven't seen that materialize. So, obviously, the tariffs, some of the reciprocal tariffs got pushed out as well. So, we haven't seen that yet. But again, as I highlighted, some of the potential softness in enterprise which didn't materialize, we would pick up in the cloud anyway because enterprises would move from CapEx to consumption-based models. So, we sort of netted off regardless. But we haven't seen any of that risk materialize. To your second question about tariffs, it's a very fluid and dynamic situation. But we don't see any double ordering based on the analysis that we've done.

Great. Thank you. Thanks for taking my questions. Um, I think, in the last call, there were some discussion on tariffs and some potential for Enterprise slowdown. Uh, just curious, if you have anything to suggest there, you know, any updates there and you know, how do we make? Sure how do we? How are you making sure that some of the demand is not just related to tariff. Pull forward. Thank you. Thank you.

Yeah, thanks. Ashley for the question. I guess it's a 2 parts to the question first on the the Enterprise demand. We, we called it out as a risk with the potential concern that the impact of terrorists might have. Uh, we haven't seen that materialize. Uh, so, uh, obviously the terrorists, some of the reciprocal, terrorists, got pushed out as well, so we haven't seen that, uh, yet. But again, as I highlighted some of the potential, uh,

Irving Tan: We look at in-quarter linearity trends, and they're very similar to what we've seen historically. We compare that against the 12-month lead times that our customers have given us, either through firm POs or through LTAs, and they're pretty much matching those same projections to the T. And last but not least, we're in a very, very tight supply environment. So, our ability to deliver upside within a quarter is also very limited. For those reasons and the fact that we do monitor our customer inventory levels the best we can, we don't see any pull forwards as a result of tariffs as of now.

Softness and Enterprise, which did a materialized, we would pick up in the cloud anyway because Enterprises would move from capex to consumption, uh, based models. Um, so we sort of net it off regardless, but we haven't seen any of that risk materialized, uh, to your second question about terrorists. Um, you know, it's a very fluid and dynamic, uh, situation. Uh, but we we don't see any double ordering, uh, based on the analysis that we've done. Um, we look at in quarterly linearity Trends and they're very similar, uh, to what we've seen historically. Uh, we compare that against the, uh, 12 month lead times, that our customers have given us either through firm P's, uh, or through ltas. And they're pretty much matching, uh, those same projections, uh, to the T, and last but not least, uh, we're in a very, very tight Supply environment. So, our ability to deliver, uh, upside within a quarter is also very limited for those reasons. And the fact that we do monitor, uh, our customer inventory levels the best we can, uh, we don't see.

Ambrish Srivastava: Thank you for your two questions, Asihab. We'll go to the next caller, please.

Operator: Yes, the next question comes from Tom O'Malley with Barclays. Your line is now open.

Any, uh, pull forwards as the result of terrorists as of now. Thank you for your 2 questions as here. We'll go to the next stop. Uh, next caller, please. Yes, the next question comes from. Tom Ali with Barkley's. Your line is now open.

Analyst: Hi, guys. Thanks for taking my question. I just wanted to make sure I heard this correctly. You guys said ASPs in the June quarter were down low single digits. Is that correct?

Hi guys, thanks for taking my question. I just wanted to make sure I heard this correctly. You guys said ASPs in the June quarter were down low single digits. Is that correct?

Chris Senesal: So, Tom, so ASPs per drive continue to go up as we move to higher capacity drives. But ASP per terabyte was slightly down, but mostly driven by mix because the price environment is very stable.

Analyst: Got it. That makes sense. And then, I guess as a follow-up, if you look at the market today, I think that, you know, your competitor had talked about an exabyte target where after that certain target, I think they said around 160 exabytes, they would need to see growth really exclusively from technology transitions. I asked you last quarter, but in terms of where you guys stand, is there any mark that you would call out as that kind of waterfall? Is there a spot that you would say from this point forward, we only need technology transitions to move forward, just in your ability to capacity kind of constrain the market? Anything you have there?

Oh, so Tom saw ESP per drive continue to go up as we move to higher capacity drives, but ASP per terabyte was slightly down. Got it. But mostly driven by mix because the price environment is very stable.

Irving Tan: Yeah, Tom, I would say that if you look at the last quarter, we delivered 190 exabytes. And that's really a result of the latest generation of EPMR drives that we've delivered. So, our ability to not only produce higher capacity drives, but our ability to produce them at scale with high yields, I think has really differentiated us. And so, we are laser-focused on continuing to ensure we have high yields of our components, our drives, and continuing to deliver products to our customers at scale. So, as a result of that, we don't have to make any incremental investments into capacity.

They said around 160 exabytes. They would need to see growth really exclusively from technology transitions. I, I asked you last quarter, but in terms of where you guys stand, is there any Mark, uh, that you would call out as that kind of, as that kind of waterfall? Is there a spot that you would say? From this point forward, we only need technology transitions to move forward. Just in your ability to, to capacity, kind of constrain the market. Anything you have, their

Yeah. Tom, I would say that if you if you look at the last quarter we delivered 190 exabytes. Uh and and that's really uh a result of the uh latest generation of EPM drives that we've delivered. So our ability to not only produce higher capacity drives but our ability to produce them at scale.

With high yields, I think has really differentiated us. And so, uh, we look, we are laser focused on continuing to ensure we have high yields, uh, of our components. Uh, our drives and continuing to, uh, deliver, um, products to our customers at scale. So, as a result that we don't have to make any incremental, uh, investments into capacity.

Ambrish Srivastava: Thank you. Next caller, please, operator.

Operator: Our next question comes from Amit Daryanani with Evercore. Your line is open.

Thank you next, please operator.

Our next question comes from Ahmed, darani with evercore, your line is open.

Analyst: Thanks. I guess maybe to start with, I was hoping you folks would spend a bit of time on talking about how does the extra week flow through your P&L and, you know, on the revenue and OpEx side, and what's the right OpEx run rate to think about beyond that extra week?

Um thanks um I guess maybe the stock would uh I was hoping you folks would spend a bit of time on talking about. How does the extra weak flow through your pnl and you know, on the revenue and Opex side and what's the right Opex? Run rate to think about beyond that extra week.

Chris Senesal: Yeah, on the revenue side, our customers, they think in quarterly buckets in line with their long-term forecasts and LTAs and POs that they have placed. So, we don't really see much on the revenue side. There might be a little bit of a benefit in the consumer retail side of the business. But as you know, that's relatively small for Western Digital. On the OpEx side, however, it is an extra week. And so, I would say it's all about $15 million of incremental spend that happens in Q1 of fiscal '26. Obviously, looking ahead to Q2, Q3, Q4, that comes out of it as those quarters are normal 13-week quarters.

Ambrish Srivastava: Follow-up, Amit?

Yeah, on the revenue side, our customers, they think, in in quarterly, buckets in line with their long-term forecasts and lta's and POS that they have placed, so we don't really see much. Uh, on on the revenue side, there might be a little bit of a benefit in the in the consumer, uh, retail side of the business. But as, you know, that's relatively small for Western Digital on the OPEC side, however, it is an extra week and so, it's, I would say it's all about 15115 million dollar of incremental spend, uh, that happens in q1 or fiscal 26. Um, uh, obviously looking ahead to Q2 Q3 Q4 that comes out of it, as those quarters are normal 13 week, uh quarter.

A follow up on.

Analyst: I do. Thanks a lot. Irving, you initially, I think, spoke a good bit about agentic AI deployment and how that could drive demand for HDDs. You know, if I think about your analyst there, you talked about, like, you know, 20% exabyte growth, mid to high single-digit revenue growth for the company. As you start to see AI getting deployed, I'm wondering, how do you think those numbers can move higher? And if there's a way to quantify what kind of tailwind this would provide for your business longer term? Thank you.

It, I do. Uh, uh, thanks a lot. Uh, Irving, you initially, I think, spoke a good bit about agentic AI deployments and how that could drive demand for HDDs. Um, you know, if I think about your analysts that you talked about, like, you know, 20% exabyte growth, mid to high single-digit revenue growth for the company.

Irving Tan: Yeah, thanks, Amit, for the question. Yeah, if you recall what we presented at Investor Day, was the base model of 15 exabyte growth. That was primarily driven by the sort of secular growth in the cloud. And we highlighted the potential upside of that 15 exabyte CAGR growth to 23% as a result of an AI uplift. We're starting to see some of that uplift materialize. So, it's still early days, but we think that the exabyte growth is more between that 15% to 23% range rather than the base number that we've highlighted. In that model that we presented at Investor Day, we also had a 7% ASP decline. As Chris highlighted, we're seeing a much lower ASP decline in the low single digits as well.

Irving Tan: So, you know, as we see exabyte growth trend more to that 23% level and ASPs in the low single digits, there's definitely opportunity for revenue growth from a CAGR perspective to go from the sort of mid to high single-digit range that we had highlighted at Investor Day to trend more towards the mid-teens. And if you take that mid-teens revenue growth with the OpEx levels that we've highlighted, we will probably be at an OpEx level of 10% of OpEx to revenue. So, hopefully, that gives you a sense of bridging what we shared at Investor Day and the changing outlook that we see in the business as a result of the AI tailwinds that we're beginning to highlight.

As you start to see AI getting deployed, I'm wondering, how do you think those numbers can move higher? And if the, if there's a way to quantify, what kind of Tailwind this would provide for your business longer term. Thank you. Yeah, thanks for the question. Yeah. If you recall, what we presented is investor day was the base model that or 15 extra bite growth. Uh, that was primarily driven by the S secular growth in the cloud and we highlighted the potential upside of that 15x abite K. Girl growth to 23% uh, as a result of an AI, uh, uplift. We're starting to see some of that uplift materialize. So, um, it's still early days but we think that the XY growth is more between that 15 to 23% range rather than the base number that we've highlighted, um, in that model that we presented at, uh, investor day. We also had a 7% ASP decline, uh, as Chris highlighted, uh, we're seeing a much lower ASP decline in the low, uh, single digits, um, as well.

So, you know, as we see exabyte growth Trend more to that 23% level. Um, and, um, ESP is in the low single digits. Um, there's definitely, uh, opportunity for Revenue growth from the kgra perspective to go from the sort of mid to high single-digit range that we have highlighted uh at investor day to Trend more towards the mid teens.

Ambrish Srivastava: Thank you, Amit.

Analyst: Thank you.

Operator: Our next question comes from Ananda Baruria with Loop Capital. Your line is now open.

Um, and if you take that mid teens Revenue growth with the Opex levels that we've highlighted, uh, we will probably be at an Opex level of 10% of our Opex to revenue. So hopefully that gives you a sense of, uh, bridging what we shared at investor day and the changing Outlook that we see in the business. Uh, as a result of the uh, AI Tailwind that. We're beginning to uh highlight. Thank you. Um, Miss, thank you.

Our next question comes from Ananda.

Burua with loop capital.

Your line is now open.

Analyst: Yeah, good afternoon, guys. Thanks for taking the question. I really appreciate it. Two, if I could, I'll go one-to-one. Could you, Irving, could you remind us of the aerial density roadmap from here until Hammer? And where do you think Hammer, where do you think you come out aerial density-wise? Let's say you sort of execute through the first half of 2020, calendar year 2027 roadmap. Where do you think you are aerial density-wise there? So, the roadmap up to that point, and then where do you think you come out at with Hammer? Thanks.

Yeah, good afternoon guys. Thanks for taking the question. I really appreciate it, too. If I could, I'll go, I'll go 1 and 1. Um, could you could you remind us of the, uh, of the

The road map from here until hammer.

Irving Tan: Sure, no problem. So, our current EPMR product that we've brought into the marketplace is a 26-terabyte CMR, 32-terabyte ultra-SMR. We have highlighted in our roadmap that we look to start qualification for our next generation of EPMR, which will be our final generation of EPMR in the first half of calendar year '26. That will be a 28-terabyte CMR, 36-terabyte ultra-SMR. And then we will start qualification of Hammer in the second half of calendar year '27 with ramp in the first half of '27, calendar year '27. That will be at the 38-terabyte CMR, 44-terabyte ultra-SMR. As we've highlighted in the past, we feel the 4-terabyte per platter, or if you assume a 10 disc drive, 40-terabyte drive, 4 terabytes per platter is sort of where we see things as of now, the economic crossover where it makes economic sense to transition to Hammer.

And and where do you think, Hammer? Uh, where do you think you come out? Aerial density, wise, let's say you you sort of execute do the first half, 2020 calendar, year 2027, uh, road map, where, where do you think you are able to be wise there. So the road map up to that point in the where do you think you come out at with hammer? Thanks.

Sure, no problem. Uh, so Karen, uh, EPM product, uh, that we've brought into the marketplace at 26 terabyte CMR, 32 terabyte Ultra SMR. Uh, we have highlighted in our roadmap that we look to start qualification for our next generation of EPM. How would you be our final generation?

Of P amount on the first half of calendar year 26, that will be at 28 terabyte. CMR, 36 terabyte, Ultra SMR

Um, and then we will start qualification of hammer in the second half of calendar year 27 with ramp in the first half of 27, the calendar year 27, uh, that will be at the 38th terabyte. CMR 44 terabyte Ultra SMR as we've highlighted in the past, we feel the 4 terabyte per platter or if you assume a 10 this drive 40 terabyte drive uh 4 terabytes per platter is sort of where we see things. As of now, the economic crossover, where it makes economic sense to transition to hammer,

Analyst: That's great. Thanks.

That's great. Thanks.

Ambrish Srivastava: Should I follow up on it?

Analyst: I do, Ambrish. And really more of a clarification, you guys mentioned the platform's business and opportunity to sell dense systems into native AI companies that don't have their own infrastructure teams. Are those the NeoCloud? Is that what you're talking about? And then how many of the, like, and if yes, like, what's a useful way to think about, you know, which of that cadre may not have their own infrastructure teams? I'd imagine some of the larger ones do. So, just any useful context would be helpful, thanks.

Irving Tan: Sure, thanks for the question. I'll give you some insight. We actually do have really one large cloud provider that's buying platforms from us today that's being deployed at scale. We also have quite a significant number of storage as a service providers that are leveraging our platform's business as well to deliver those services to customers. And as you've highlighted, a lot of the NeoClouds, their primary focus is really on driving compute capability, supporting their customers with their LLM development, and then really looking at how they can either leverage the cloud or our platform-like systems to really support their storage requirements going forward. So, we think there's a lot of links to this business. Obviously, it's early days.

To a follow up on it. I I I do Ambush and uh really more of a clarification. You guys mentioned uh the platforms business and opportunity to sell Dent systems in the native AI companies. Don't have their own infrastructure team are those the Neo clowns? Is that what you're talking about? And then how many of the like and if yes like what's a useful way to think about, you know, which which of that Cadre may not have their own infrastructure teams? Other, imagine some of the larger ones do so just in a useful context would be helpful thing.

Sure, thanks for the question. I'll give you some insight that we we actually do have really 1 large, um, uh, cloud provider that's buying platforms, uh, from us today that's uh, being deployed at scale. Um, we also have a quite a significant number of, uh, storage as a service providers that are leveraging. Um, our platforms business as well to deliver uh, those Services uh to customers. And uh, as you've highlighted, a lot of the Neo clouds, uh, their primary focus is really on driving, uh, compute capabilities supporting their customers with their uh, llm development. Uh, and then really looking at how they can either Leverage The Cloud.

Irving Tan: And very similar to what we saw in the cloud, it starts with compute, and then eventually it will come down to storage, as we saw even in AI in the mainstream cloud where it was GPUs first, HBMs, DRAMs, and then eventually we are seeing that flow through to storage. We think that sort of trend will play itself out in the NeoCloud as well and be very beneficial for our platform's business.

Ambrish Srivastava: Thank you, Anand.

Or our platform like systems, to really support their storage requirements going forward. So, uh, we think there's a lot of legs to this business. Obviously, it's early days and very similar to what we saw, uh, in the cloud. It starts with compute, uh, and then eventually it will come down to storage as we, we saw, uh, even in AI in the mainstream Cloud where it was gpus first hbms D Rams. And then eventually we are seeing that flow through to storage. Uh, we think that sort of Trend will play itself out in the nio cloud as well and be very beneficial for our platforms business.

Thank you. An

thank you. And

Analyst: Thank you.

Operator: And our last questioner today will come from Mark Miller with the Benchmark Company. Your line is open.

And our last questioner today will come from Mark Miller with the Benchmark Company. Your line is open.

Chris Senesal: Thank you for the question. I'm just wondering, could you actually quantify the hard drive ASPs in a quarter?

I’m just wondering, could you actually quantify...

Ambrish Srivastava: Sorry, what's the question?

Chris Senesal: What were your hard drive ASPs in the June quarter?

Ambrish Srivastava: You mean unit?

Sorry, what's the question? What were your hard drive? Asps in the June quarter?

You mean unit?

Chris Senesal: The average selling price at, yeah, for your hard drives.

The average selling price. Yeah. Pretty hard drives.

Ambrish Srivastava: Yeah, so we, as you see in our disclosures, this is Ambrish, we have stopped providing ASP per unit because, as Irving highlighted earlier, that what's more important for our business is EB. And so, just to give you context of why we changed and what we're providing now. Chris, you want to add to that?

We have stopped providing ASP per unit because as Irving highlighted earlier that, what's more important uh, for a business is EB.

And, um, so just to give you context of why we changed and, uh, what we are providing now. Chris, you want to add to that?

Chris Senesal: Yeah, and I think we provided the units. And so, I think you can easily do the math, and you will see, I think, a substantial sequential as well as year-over-year growth in our revenue per drive that we have. But again, a lot of it depends on the mix of our overall revenue. And so, for me, that number is somewhat meaningful. Yes, it's trending upwards, again, mostly driven by the move to higher capacity drives, something that we work with our customers on.

Yeah, and and I think we we provided the units. Uh,

Ambrish Srivastava: And just finally, DSOs for the quarter?

And so, I think it's you, you can easily do the math and you will see, I think a substantial, uh, sequential, as well as year-over-year growth in our um, uh, Revenue per drive that we have. But but again uh it's it's uh a lot of. It depends on the mix uh of our overall revenue. And um and so for me that that number is somewhat meaningful. Yes it's trending. Upwards again mostly driven by the move to higher capacity, drives something that we work with our customers on

And just finally dsos through the quarter.

Chris Senesal: DSO?

DSO.

Ambrish Srivastava: Right.

Right.

Chris Senesal: I don't have it on the top of my head, but we did, as a company, we did a really good job at managing our working capital. I'm very comfortable with the level of inventory that we have right now, which is on or about 1.3 billion that translates into days of inventory of 76 days. And then the DSOs came down, I believe, six days on a sequential basis and is now at 52 days. So, again, really, as you know, DSOs are mostly driven by the billing linearity within the quarter. And as Irving indicated that before, that continues to be very strong as well.

Um I I I I don't have it on the top of my head but we did as a company. We did a really good job at managing our working capital. Uh I'm very comfortable with the level of inventory that we have right now which is honor about 1.3 billion uh that translate into days of inventory of 76 days and then the DSO came down

Ambrish Srivastava: Thank you.

I believe it is 6 days on a sequential basis and is now at 52 days. So again, as you know, DSO is mostly driven by the billing linearity within the quarter, and as Irving indicated, that continues to be very strong as well.

Thank you.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Irving Tan for any closing remarks.

This concludes our question and answer session. I would like to turn the conference back over to Irving tan for any closing remarks.

Irving Tan: Thank you all again for joining us today and your interest in Western Digital. As our results and guidance show, we continue to make good progress executing on our strategy. And we look forward to sharing more on the exciting innovations we have in the pipeline and actions we are taking towards creating long-term shareholder value in future calls. Let me close by giving a call out to all our WD drivers who show up every day, making a difference for our customers, shareholders, ecosystem partners, and each other. Thank you all very much, and have a great day ahead.

Thank you all again for joining us today and your interest in Western Digital.

As our results and guidance, show we continue to make good progress executing on our strategy.

And we look forward to sharing more and exciting Innovations. We have in the pipeline and actions. We are taking towards creating long-term, shareholder value in future calls.

Let me close by giving a call out to all our WD. Drivers who show up every day. Making a difference for our customers, shareholders ecosystem, partners, and each other.

Thank you all very much and have a great day ahead.

Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.

This concludes today's conference call, thank you for joining. You may now disconnect