Q1 2027 Western Digital Corp Earnings Call

October 22, 2026

Operator: Good afternoon, and thank you for standing by. Welcome to Western Digital's Q1 fiscal 2027 conference call. Presently, all participants are in a listen-only mode. Later, we will conduct a question and answer session. At that time, if you would like to ask a question, you may press star and then one on your phones. As a reminder, this call is being recorded. Now, I would like to turn the call over to Mr. Ambrish Srivastava, Vice President, Investor Relations. You may begin.

Speaker #1: Good afternoon, and thank you for standing by. Welcome to WESTERN DIGITAL's first quarter fiscal 2027 conference call. Presently, all participants are in a listen-only mode.

Speaker #1: 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 then 1 on your phones.

Speaker #1: As a reminder, this call is being recorded. Now, I would like to turn the call over to Mr. Ambrish Srivastava, Vice President, Investor Relations.

Speaker #1: You may begin.

Ambrish Srivastava: Thank you, and good afternoon, everyone. Joining me today are Irving Tan, WD's Chief Executive Officer, and Kris Sennesael, WD'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, business plans and performance, ongoing market trends, and future financial results. We assume no obligation to update these statements. Please refer to our most recent annual report on Form 10-K and other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations. Unless stated otherwise, today's remarks reflect non-GAAP results. Reconciliations to GAAP results are available in our press release and at investor.wdc.com. With that, I will now turn the call over to Irv.

Speaker #2: Thank you. And good afternoon, everyone. Joining me today are Irving Tan, WD's Chief Executive Officer, and Kris Sennesaele, WD'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.

Speaker #2: These forward-looking statements include expectations for our product portfolio, business plans and performance, ongoing market trends and future financial results. We assume no obligation to update these statements.

Speaker #2: Please refer to our most recent annual report on Form 10-K and other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations.

Speaker #2: Unless stated otherwise, today's remarks reflect non-GAAP results. Reconciliations to GAAP results are available in our press release and at investor.wdc.com. With that, I will now turn the call over to Irving.

Irving Tan: Thanks, Ambrish. Good afternoon, everyone, and thank you for joining us today. Q1 marks a strong start to fiscal 2027, reflecting solid execution across the business and results ahead of our expectations. Revenue grew 55% year-over-year, while gross and operating margins expanded meaningfully to 58% and 49%, respectively. EPS grew 161% year-over-year, and we generated $1.4 billion in free cash flow. These results reflect ongoing robust customer demand, operational discipline, and successful execution of our product and technology roadmap. Demand remains strong across our customer base and end markets. Our visibility is extending further, and with it, our conviction in the durability of demand for data storage on HDDs.

Speaker #3: Thanks, Ambrish. Good afternoon, everyone, and thank you for joining us today. Q1 marked a strong start to fiscal 2027. Reflecting solid execution across the business and results ahead of our expectations.

Speaker #3: Revenue grew 55% year over year, while gross and operating margins expanded meaningfully to 58% in 49% respectively. EPS grew 161% year over year, and we generated $1.4 billion in free cash flow.

Speaker #3: These results reflect ongoing robust customer demand, operational discipline, and successful execution of our product and technology roadmap. Demand remains strong, across our customer base and end markets.

Speaker #3: Our visibility is extending further, and with it, our conviction in the durability of demand for data storage on HDDs. We are increasingly seeing storage demand grow beyond our core cloud and hyperscale customers.

Irving Tan: We are increasingly seeing storage demand grow beyond our core cloud and hyperscale customers into enterprise environments and into newer end markets, such as Neoclouds and AI frontier labs, resulting in a larger and more diversified customer base. Our customers are making longer-term infrastructure investments and continue to extend their planning horizons into the next decade. As the value of data is increasing, they are investing with confidence to support their growing needs for data storage, with the vast majority of the data being stored on HDDs. We see this firsthand in our customer conversations and in broader industry research. A recent IDC survey of more than 750 companies across several countries found that organizations are storing more data, retaining it for longer periods, and increasingly putting archive data back to work.

Speaker #3: Into enterprise environments, and into newer end markets, such as NeoCloud and AI Frontier Labs. Resulting in a larger, and more diversified customer base. Our customers are making longer-term infrastructure investments, and continue to extend their planning horizons into the next decade.

Speaker #3: As the value of data is increasing, they are investing with confidence to support their growing needs for data storage. With the vast majority of the data being stored on HDDs, we see this firsthand in our customer conversations and in broader industry research.

Speaker #3: A recent IDC survey of more than 750 companies across several countries found that organizations are storing more data; retaining it for longer periods; and increasingly putting archived data back to work.

Irving Tan: At the core of these trends is continued data growth, fueled by the ongoing expansion of cloud environments and the increasing storage demands from AI. While much of the conversation around AI focuses on compute, we believe the more enduring opportunity is in data. AI is fundamentally a data system. Every workload creates more data, and that data must be stored, managed, and accessed in a scalable and economical manner. As AI adoption continues to expand across industries worldwide, data creation and storage requirements are expanding with it. Inference and agentic AI systems are generating significant volumes of logs, model outputs, and system performance data that must be stored and retained. Physical AI applications such as robotics, factory automation, and autonomous vehicles are further accelerating this trend with AI-generated content and video workloads that are creating and retaining data at scale.

Speaker #3: At the core of these trends is continued data growth, fueled by the ongoing expansion of cloud environments and the increasing storage demands from AI.

Speaker #3: While much of the conversation around AI focuses on compute, we believe the more enduring opportunity is in data. AI is fundamentally a data system.

Speaker #3: Every workload creates more data, and that data must be stored, managed, and accessed. In a scalable and economical manner. As AI adoption continues to expand across industries worldwide, data creation and storage requirements are expanding with it.

Speaker #3: Inference and agentic AI systems are generating significant volumes of logs, model outputs, and system performance data, that must be stored and retained. Physical AI applications, such as robotics, factory automation, and autonomous vehicles, are further accelerating this trend, with AI-generated content and video workloads that are creating and retaining data at scale.

Irving Tan: Let me now turn to our industry-leading technology and innovative products. We are executing well against our technology roadmap and remain on track transitioning our customers to higher capacity drives. As we ramp production across our next generation ePMR and HAMR platforms, we expect our exabyte shipments to continue to increase through fiscal 2027 and beyond. Volume production of our latest ePMR platform, delivering up to 40 terabytes of capacity, is off to a strong start. Customer adoption is progressing ahead of prior transitions, and we expect this platform to represent close to 30% of our nearline shipments by Q2 and 50% by Q3 of fiscal 2027.

Speaker #3: Let me now turn to our industry-leading technology and innovative products. We are executing well against our technology roadmap, and remain on track, transitioning our customers to higher capacity drives.

Speaker #3: As we ramp production across our next generation ePMR and Hammer platforms, we expect our expedited shipments to continue to increase through fiscal 2027 and beyond.

Speaker #3: Volume production of our latest ePMR platform, delivering up to 40 terabytes of capacity, is off to a strong start. Customer adoption is progressing ahead of prior transitions, and we expect this platform to represent close to 30% of our near-line shipments by the second quarter, and 50% by the third quarter of fiscal 2027.

Irving Tan: On our first generation HAMR product, we are on track to finish qualifications with two hyperscale customers in Q1 of calendar year 2027 and are on schedule to begin volume shipments in H1 of calendar year 2027. We also expect to begin qualifications with two additional customers during H1 of calendar year 2027, further expanding customer validation and supporting broader adoption of our HAMR products. As AI workloads scale, customers not only need more capacity, but also greater performance from their storage infrastructure. We are expanding the role of HDDs within cloud and AI infrastructure through innovations such as our high bandwidth drive and Dual Pivot technology. By combining the economics of HDDs with significantly higher levels of performance, we believe this technology can address a broader range of existing and emerging workloads.

Speaker #3: On our first-generation Hammer product, we are on track to finish qualifications with two hyperscale customers in the first quarter of calendar year 2027, and are on schedule to begin volume shipments in the first half of calendar year 2027.

Speaker #3: We also expect to begin qualifications with two additional customers during the first half of calendar year 2027, further expanding customer validation and supporting broader adoption of our Hammer products.

Speaker #3: As AI workloads scale, customers not only need more capacity, but also greater performance from their storage infrastructure. We are expanding the role of HDDs within cloud and AI infrastructure, through innovations such as our high-bandwidth drive and dual pivot technology.

Speaker #3: By combining the economics of HDDs with significantly higher levels of performance we believe this technology can address a broader range of existing and emerging workloads.

Irving Tan: We are currently sampling our high bandwidth drives with multiple customers, and the feedback has been positive with clear use cases and value creation identified. In summary, WD is executing with momentum. We are deepening customer relationships, extending visibility, and broadening the customer base, while our product and technology roadmap delivers precisely what customers need. As data grows in volume and value across cloud, AI, and emerging workloads, we have high confidence in the durability of long-term storage demand. With that, let me turn it over to Kris.

Speaker #3: We are currently sampling our high-bandwidth drives with multiple customers, and the feedback has been positive, with clear use cases and value creation identified. In summary, WD is executing with momentum.

Speaker #3: We are deepening customer relationships, extending visibility, and broadening the customer base. While our product and technology roadmap delivers precisely what customers need. As data grows in volume and value, across cloud, AI, and emerging workloads, we have high confidence in the durability of long-term storage demand.

Speaker #3: With that, let me turn it over to Kris.

Kris Sennesael: Thank you, Irving. Our Q1 results demonstrate ongoing strength of our business in combination with outstanding execution on all fronts. Customer demand remains healthy, and our visibility is extending further out. Our product transitions are progressing well, resulting in higher capacity products, solid year-over-year growth in exabyte ship, and improved pricing, all driving another quarter of strong financial performance. During Q1 of fiscal year 2027, revenue was $4.4 billion, up 55% year over year, driven by strong exabyte growth and a favorable pricing environment. We delivered 248 exabytes in the quarter, up 22% year over year and up 8% sequentially.

Speaker #2: Thank you, Irving. I would first want to results, demonstrate ongoing strength of our business, in combination with outstanding execution on all fronts. Customer demand remains healthy, and our visibility is extending further out.

Speaker #2: Our product transitions are progressing well, resulting in higher capacity products; solid year-over-year growth and expedited ship; and improved pricing. All driving another quarter of strong financial performance.

Speaker #2: During the first quarter of fiscal year 2027, revenue was $4.4 billion, up 55% year over year, driven by strong expedited growth and a favorable pricing environment.

Speaker #2: We delivered $248 expedited in the quarter, up 22% year over year, and up 8% sequentially. Near-line products continue to drive growth, as we execute on our product transitions, starting with the ramp of our latest generation ePMR drives with capacities up to 40 terabytes, and followed by the introduction of our Hammer technology in the first half of calendar year 2027, setting us up for stronger year-over-year growth and expedited shipments.

Kris Sennesael: Nearline products continue to drive growth as we execute on our product transitions, starting with the ramp of our latest generation ePMR drives with capacities up to 40 terabytes and followed by the introduction of our HAMR technology in H1 of calendar year 2027, setting us up for stronger year-over-year growth in exabyte shipments. Cloud revenue was $3.9 billion, representing 88% of total revenue and increasing 54% year over year, driven by durable demand for our high-capacity nearline HDDs, including the initial ramp of our latest ePMR platform. In addition, continued pricing strength reflects the value and TCO advantages we deliver to our customers. Client represented 7% of total revenue at $320 million, up 119% year over year. Consumer represented 5% of revenue at $193 million, up 19% year over year.

Speaker #2: Cloud revenue was $3.9 billion, representing 88% of total revenue, and increasing 54% year over year. Driven by durable demand for our high-capacity near-line HDDs.

Speaker #2: Including the initial ramp of our latest ePMR platform. In addition, continued pricing strength reflects the value and TCO advantages we deliver to our customers.

Speaker #2: Client represented 7% of total revenue at $320 million, up 119% year over year. Consumer represented 5% of revenue, at 193 million, up 19% year over year.

Kris Sennesael: Gross margin expanded to 58.1%, up 1,420 basis points year over year, with incremental year-over-year gross margin above 80%. Gross margin reflects a mix shift towards higher capacity drives, disciplined operational execution, and a favorable pricing environment across our portfolio as we continue to deliver greater value to our customers. Year-over-year growth and average price per terabyte further increased to 28% versus the high teens we reported in the prior quarter. Operating expenses were $391 million or approximately 9% of revenue, a 130 basis point sequential improvement demonstrating continuing operating leverage in the model. Operating income of $2.2 billion increased 152% year-over-year, driven by strong revenue growth, expanding gross margin, and operating leverage. Operating margin expanded to 49.1% in the quarter, demonstrating our ability to continue to drive sustainably higher levels of profitability in the business. Interest and other expenses were $10 million, and our effective tax rate was 17%.

Speaker #2: Gross margin expanded to $58.1%, up 1,420 basis points year over year. With incremental year-over-year gross margin above 80%. Gross margin reflects a mix shift towards higher capacity drives, disciplined operational execution, and a favorable pricing environment across our portfolio.

Speaker #2: As we continue to deliver greater value to our customers. Year-over-year growth and average price per terabyte, further increased to $28%, versus the high teens we reported in the prior quarter.

Speaker #2: Operating expenses were $391 million, or approximately 9% of revenue, a $130 basis point sequential improvement, demonstrating continuing operating leverage in the model. Operating income of $2.2 billion, increased 152% year over year, driven by strong revenue growth, expanding gross margin, and operating leverage.

Speaker #2: Operating margin expanded to $49.1% in the quarter, demonstrating our ability to continue to drive sustainably higher levels of profitability in the business. Interest and other expenses were $10 million, and our effective tax rate was 17%.

Kris Sennesael: Taking into account the diluted share count of 383 million shares, EPS was $4.64, an increase of 161% year-over-year. We generated $1.4 billion in free cash flow during the quarter and returned $1.1 billion to shareholders through share repurchases and dividends, reflecting confidence in the durability of free cash flow generation and our ability to drive long-term shareholder value. Supported by the strength of the free cash flow generation and consistent with our capital allocation framework, the board has approved a 17% increase in the quarterly cash dividend from $0.15 per share to $0.175 per share, which will be paid on 17 December 2026, to shareholders of record on 4 December 2026. Turning to the balance sheet. During the quarter, we took additional steps to simplify our capital structure by substantially reducing our remaining 2028 convertible notes.

Speaker #2: Taking into account a diluted share count of 383 million shares, EPS was $4.64, an increase of 161% year over year. We generated $1.4 billion in free cash flow during the quarter.

Speaker #2: And returned $1.1 billion to shareholders through share repurchases and dividends. Reflecting confidence in the durability of free cash flow generation and our ability to drive long-term shareholder value.

Speaker #2: Supported by the strength of the free cash flow generation, and consistent with our capital allocation framework, the board has approved a 17% increase in the quarterly cash dividend, from $0.15 per share to $0.75 per share.

Speaker #2: Which will be paid on December 17, 2026, to shareholders of record on December 4, 2026. Turning to the balance sheet, during the quarter we took additional steps to simplify our capital structure, by substantially reducing our remaining 2028 convertible notes.

Kris Sennesael: Our balance sheet remains strong, and we ended the quarter with a net cash position of $0.5 billion. Let me now turn to the outlook for Q2 of fiscal 2027. We continue to operate in an environment of strong demand and favorable pricing in all our end markets. For Q2 of fiscal 2027, we expect revenue to be $5.1 billion ±$100 million. At the midpoint, this reflects a 69% increase year-over-year. Gross margin is expected to be in the range of 60% to 61% as we continue to benefit from the shift to higher capacity drives along with a strong pricing environment. We anticipate operating expenses of $400 million to $410 million, a sequential increase driven by the project expenses related to increased product qualification activities. Interest and other expenses are expected to be $15 million.

Speaker #2: Our balance sheet remains strong and we ended the quarter with a net cash position of half a billion. Let me now turn to the outlook for the second quarter of fiscal 2027.

Speaker #2: We continue to operate in an environment of strong demand and favorable pricing, in all our end markets. For the second quarter of fiscal 2027, we expect revenue to be $5.1 billion, plus/minus $100 million.

Speaker #2: At the midpoint, this reflects a 69% increase year over year. Gross margin is expected to be in the range of 60 to 61%, as we continue to benefit from the shift to higher capacity drives along with a strong pricing environment.

Speaker #2: We anticipate operating expenses of $400 to $410 million. A sequential increase driven by the project expenses related to increased product qualification activities. Interest and other expenses are expected to be $15 million.

Kris Sennesael: The tax rate is expected to be 17%. As a result, we expect diluted earnings per share to be $5.80 ±$0.20, based on a non-GAAP diluted share count of 380 million shares. As we look ahead, demand remains robust. Customer engagements continue to deepen and broaden, and our visibility continues to improve. As we execute on our technology and product transitions, we expect to accelerate exabyte supply growth throughout fiscal year 2027 and 2028. Our strong balance sheet and free cash flow generation give us the ability to make targeted investments that strengthen our technology leadership and support our customers' growing storage needs.

Speaker #2: The tax rate is expected to be 17%. As a result, we expect diluted earnings per share to be $5.80, plus/minus $0.20, based on a non-GAAP diluted share count of 380 million shares.

Speaker #2: As we look ahead, demand remains robust, customer engagements continue to deepen, and broaden, and our visibility continues to improve. And as we execute on our technology and product transitions, we expect to accelerate expedited supply growth throughout fiscal year 2027 and 2028.

Speaker #2: Our strong balance sheet and free cash flow generation give us the ability to make targeted investments that strengthen our technology leadership and support our customers' growing storage needs.

Kris Sennesael: While we expect capital expenditures to average 4% to 6% of revenue over a five-year period, we anticipate that CapEx as a percentage of revenue will be modestly above that range over the next two years as we continue to invest in heads and media technology and factory automation, supporting our industry-leading areal density and higher capacity drives without having to spend CapEx to add unit capacity. In summary, accelerating exabyte growth, technology leadership, expanding margins, and disciplined capital allocation provide a solid foundation for sustainable earnings, free cash flow growth, and long-term shareholder value creation. With that, let's now begin the Q&A. Ambrish?

Speaker #2: While we expect capital expenditures to average 4 to 6% of revenue over a five-year period, we anticipate that CapEx, as a percentage of revenue, will be modestly above that range over the next two years, as we continue to invest in heads and media technology and factory automation.

Speaker #2: Supporting our industry-leading aerial density and higher-capacity drives. Without having to spend CapEx to add unit capacity. In summary, accelerating expedited growth, technology leadership, expanding margins, and disciplined capital allocation provide a solid foundation for sustainable earnings free cash flow growth and long-term shareholder value creation.

Speaker #2: With that, let's now begin the Q&A. Ambrish?

Ambrish Srivastava: Thank you, Kris. 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 #1: Thank you, Kris. Operator, you can now open the line to questions, please. And to ensure that we hear from as many analysts as possible, please ask one question at a time after we respond.

Speaker #1: We will give you an opportunity to ask one follow-up question. Operator?

Operator: We will begin that question and answer session. To ask a question, you may press star and then 1 using a touch-tone telephone. If you are using a speakerphone, we do ask that you please pick up the handset before pressing the keys. To withdraw your questions, you may press star and 2. As mentioned, we do ask that you please limit yourselves to a single question and a follow-up. At this time, we will pause momentarily to assemble our roster. Our first question today comes from Amit Daryanani from Evercore. Please go ahead with your question.

Speaker #3: We will begin that question and answer session. To ask a question, you may press star and then one using a touchtone telephone. If you are using a speakerphone, we do ask that you please pick up the handset before pressing the keys.

Speaker #3: So withdraw your questions. You may press star and two. And as mentioned, we do ask that you please limit yourselves to a single question and a follow-up.

Speaker #3: At this time, we will pause momentarily to assemble our roster. Our first question today comes from Amit Daryanani from Evercorp. Please go ahead with your question.

Amit Daryanani: Yep. Thanks a lot. Good afternoon, everyone. I guess maybe to start with, Irving, there's always a lot of focus on HAMR and you outlined completing qualifications with two hyperscalers in March, volume shipments mid 2027. Can you just talk about what are the remaining milestones between those two steps from your perspective, and then what determines how quickly you scale from there? Is it more driven by customer deployment schedules or your manufacturing readiness? Just any help there.

Speaker #4: Yep. Thanks a lot. Good afternoon, everyone. I guess maybe to start with, Irving, there's always a lot of focus on Hammer and you outlined sort of completing qualifications with two hyperscalers in March, volume ship in mid-2027.

Speaker #4: Can you just talk about what are the remaining milestones between those two steps from your perspective? And then what determines how quickly you scale from there?

Speaker #4: Is it more driven by customer deployment schedules or your manufacturing readiness? Just any help there.

Irving Tan: Yeah, Amit, thanks for the question. First of all, I would say I'm very pleased with the progress that we're making with HAMR. As we've highlighted in the past, feedback from our customers have been very positive, particularly around the failure rates that we've seen, in our drive performance vis-a-vis what they've seen with other players within the market. As a result of that, we're very confident in terms of finishing qualifications with the two customers that we have, our first-generation HAMR products in Q1. We will be starting qualification with two additional customers in H1 of calendar 2027 as well. We haven't had any feedback that would give us any reason for pause in terms of us translating that qual completion to volume shipments starting H1 2027.

Speaker #5: Yeah. I mean, thanks for the question. First of all, I would say I'm very pleased with the progress that we're making. With Hammer, as we've highlighted in the past, feedback from our customers has been very positive, particularly around the failure rates that we've seen.

Speaker #5: In our drive performance vis-à-vis what they've seen with other players. Within the market, as a result of that, we're very confident in terms of finishing qualifications with the two customers that we have, our first-generation Hammer products in Q1.

Speaker #5: We will be starting qualification with two additional customers in the first half of calendar. 2027, as well. We haven't had any feedback that would give us any reason for pause in terms of us translating that call completion to volume shipments starting first half 2027.

Irving Tan: Both our customer technical support teams are working very closely with customers to complete those qual schedules and get them into production. Across our global operations teams, we are working closely with our own internal manufacturing assets and vendors to get the supply chain ready to support the ramp as well. Then starting in H2 of calendar year 2027, we will also start qualification of our second-generation HAMR drives, and this will be at 5 terabytes per platter on an 11-disk platform. So overall, very pleased with the progress. I think the engineering and operations teams across the company have done a great job in really helping us accelerate development of the products, the reliability of it, and then we're focused very much on scaling it up and getting it into customers' hands.

Speaker #5: Both our customer technical support teams are working very closely with customers to complete those call schedules and get them into production. Across our global operations teams, we're working closely with our own internal manufacturing assets and vendors to get the supply chain ready to support the RAM.

Speaker #5: As well. And then starting in the second half of calendar year 2027, we will also start qualification of our second-generation Hammer drives. And this will be at five terabytes per platter on a 11-disc platform.

Speaker #5: So overall, very pleased with the progress. I think the engineering and operations teams across the company have done a great job in really helping us accelerate development of the products, the reliability, of it, and then we're focused very much on scaling it up and getting it into customers' hands.

Amit Daryanani: Did you have a follow-up, Amit? I do. Thanks a lot, Ambrish. Maybe just to follow up on the cost per terabyte. I realize you folks in the past have talked about this input cost inflation headwind, but I think cost per terabyte was down 4% or 5% in the September quarter. That is the lowest we have seen in a while. Maybe you can just touch on what is happening there and what is the right way to think about this longer term, because I do realize you are guiding for some really strong gross margins in December. Just a little bit on the cost per terabyte number would be helpful.

Ambrish Srivastava: Did you have a follow-up, Amit?

Speaker #1: Did you have a follow-up, Amit?

Amit Daryanani: I do. Thanks a lot, Ambrish. Maybe just to follow up on the cost per terabyte. I realize you folks in the past have talked about this input cost inflation headwind, but I think cost per terabyte was down 4% or 5% in the September quarter. That is the lowest we have seen in a while. Maybe you can just touch on what is happening there and what is the right way to think about this longer term, because I do realize you are guiding for some really strong gross margins in December. Just a little bit on the cost per terabyte number would be helpful.

Speaker #4: I do. Thanks a lot, Ambrish. And maybe just to follow up on the cost per terabyte, I realize you folks in the past have talked about sort of this input cost inflation headwind.

Speaker #4: But I think cost per terabyte was down like four or five percent in September quarter. That's the lowest we've seen in a while. Maybe you can just touch on what's happening there and what's the right way to think about this longer term, because I do realize you're guiding for some really strong gross margins in December.

Speaker #4: So just a little bit on the cost per terabyte number would be helpful.

Kris Sennesael: Well, as Irving just indicated, we continue to execute well on our technology roadmap and product transitions, basically moving to higher capacity drives based on better and higher areal density. We are well on track in the long run to reduce our cost per terabyte approximately 10% year over year. In the near term, and I have indicated this before, this is not a surprise, we are facing some input cost increases. As most of you know, we use some DRAM and some NAND inside our hard disk drives. The whole supply chain really operates in a very tight environment. We are seeing some of those input cost increases. We are addressing all of them through value engineering initiatives that we are seeing some good traction. It takes a little bit of time to implement and qualify those solutions.

Speaker #5: Yeah. So as Irving just indicated, we continue to execute well on our technology roadmap and product transitions. Basically, moving to higher capacity drives based on better and higher aerial density.

Speaker #5: And so we're well on track. In the long run, to reduce our cost per terabyte, approximately 10% year over year. And the near term, and I've indicated this before, this is not a surprise, we are facing some input cost increases as most of you know, we use some DRAM and some NAND inside our hard disk drives.

Speaker #5: And the whole supply chain really operates in a very tight environment. And so we are seeing some of those input cost increases we are addressing all of them, through value engineering initiatives that we are seeing some good traction.

Speaker #5: It takes a little bit of time to implement and qualify those solutions. And so in the near term, our cost per terabyte will be less than 10% down year over year.

Kris Sennesael: In the near term, our cost per terabyte will be less than 10% down year over year. Taking that all into account, as you indicated as well, we are delivering very strong gross margins in the September quarter, as well as a strong guide for the December quarter. Our incremental gross margins continue to be very strong, well above 80%. I think we are very well set up to continue to increase our gross margins over time.

Speaker #5: Taken as all into account, as you indicated as well, we are delivering very strong free gross margins. And in the September quarter, as well as a strong guide for the December quarter, our incremental gross margins continue to be very strong well above 80%.

Speaker #5: And so I think we're very well set up to continue to increase our gross margins over time.

Ambrish Srivastava: Thank you, Amit.

Speaker #1: Thank you, Amit.

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

Speaker #3: Our next question comes from Wamsy Mohan from Bank of America. Please go ahead with your question.

Wamsi Mohan: Yes, thank you. Irving, I was wondering if you could just address this angst around incremental capacity adds from the smallest player in the market, and there's been some chatter around potential consolidation in the industry. Just would love to get your high-level take on what you think could be, if there was any potential impact from that at an industry level, and is that impacting any of your price negotiations with hyperscale customers and the outliers?

Speaker #4: Yes. Thank you. Irving, I was wondering if you could just address this angst around incremental capacity adds from the smallest player in the market.

Speaker #4: And there's been some chatter around potential consolidation in the industry. Just would love to get your high-level take on what do you think could be if there is any potential impact from that at an industry level?

Speaker #4: And is that impacting any of your price negotiations with hyperscale customers in the outer years?

Irving Tan: Yeah. Wamsi, thanks for the question. I would say at a high level, we don't see any change in terms of the long-term fundamentals of both the industry or our business specifically, right? We continue to see demand continuing to be very strong. 25% plus CAGR, as we've highlighted, consistently in a very tight supply environment. We remain committed to our strategy and our focus to meet that supply-demand growth, based on delivering areal density. That's delivered through technology, particularly through our head and media technology, because that is the best way to deliver the best TCO to our customers and to also drive greatest profitability of our business for our business as well. You can see that focus in terms of the investments we're making, both into R&D and into capital investment into our head and media parts of the business.

Speaker #5: Yeah. Wamsy, thanks for the question. I would say at a high level, we don't see any change in terms of the long-term fundamentals of both the industry or our business specifically, right?

Speaker #5: We continue to see demand continuing to be very strong. 25% plus CAGR, as we've highlighted consistently in a very tight supply. Environment. And we remain committed to our strategy and our focus to meet that supply-demand growth based on delivering aerial density.

Speaker #5: And that's delivered through technology, particularly through our head and media technology, because that is the best way to deliver the best TCO to our customers and to also drive greatest profitability of our business.

Speaker #5: For our business, as well. And that's you can see that focus in terms of the both the investments we're making both into research and development and into capital investment into our head and media parts of the business.

Irving Tan: I think the unique differentiation that we have with our own head and media development, the drive integration capability that we have gives us that confidence to be able to meet that growth trajectory through areal density, and therefore remain committed to not investing in any incremental unit capacity. There may be some other players in the market who don't have that unique ability to build their own media, build their own heads, drive that areal density improvement, and they have to compensate that by potentially maybe increasing the number of units just to maintain their share and position in the marketplace.

Speaker #5: And I think the unique differentiation that we have with our own head and media development, the drive integration capability, that we have gives us that confidence to be able to meet that growth trajectory through aerial density and therefore remain committed to not investing in any incremental unit capacity.

Speaker #5: There may be some other players in the market who don't have that unique ability to build their own media, build their own hits, drive that aerial density improvement.

Speaker #5: And they have to compensate that by potentially maybe increasing the number of units just to maintain their share in position in the marketplace.

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

Speaker #1: Do you have a follow-up, Wamsy?

Wamsi Mohan: Yeah, I do, Ambrish. Thanks. On the exabyte shipments, you grew 22%. As I am hearing you talk about the trajectory here for the rest of the year, it looks like you expect that growth to improve as you execute on these product transitions and then have HAMR in the mix. Could you just give us some sense of what it is at the high level? Is it right to think of fiscal 2027 at roughly your longer term range for the year? Is that the right way to think about it? Maybe just if you think about unconstrained demand, how much higher is that relative to where your supply is? Do you see that widening because of just how strong the demand is over the next couple of years? Thank you.

Speaker #4: Yeah. Ambrish, thanks. So on the exabyte shipments, you grew 22%. And as I'm hearing you talk about sort of the trajectory here for the rest of the year, it looks like you expect that growth to improve as you execute on these product transitions and then have Hammer in the mix.

Speaker #4: Could you just give us some sense of what it is at the high level, like is it right to think of fiscal 27 at roughly your longer-term range for the year?

Speaker #4: Is that the right way to think about it? And maybe just if you think about unconstrained sort of demand, like how much higher is that relative to where your supply is?

Speaker #4: And do you see that widening because of just how strong the demand is over the next couple of years? Thank you.

Irving Tan: Yeah. Thanks for the question, Wamsi. We see the current quarter as being the floor in terms of exabyte growth, and we see that accelerating through the rest of the fiscal year and obviously, as Kris highlighted in the script to 2028 and beyond that as well. That is really driven by the confidence that we have in the new platforms that we will be introducing. Obviously, we have HAMR coming out in the H1 of fiscal 2027. Then as I highlighted, we have our second generation HAMR drive starting qualification in H2 as well. So we are very quickly at the top end, going from a 32-terabyte drive to a 44-terabyte drive to a 55-terabyte drive, and beyond.

Speaker #5: Yeah. Thanks for the question, Wamsy. We sort of see the current quarter as being sort of the floor. In terms of exabyte growth, and we see that accelerating through the rest of the fiscal year and obviously as Kris highlighted in the script to 28 and beyond that, as well.

Speaker #5: That's really driven by the confidence that we have in the new platforms that will be introducing. Obviously, we have Hammer coming out in the first half of fiscal 27.

Speaker #5: And then as I highlighted, we have our second generation Hammer drive starting qualification in second half as well. So we're very quickly at the top end going from a 32 terabyte drive to a 44 terabyte drive to a 55 terabyte drive.

Irving Tan: That is the best way and the most economical way for both our customers and for us to be able to meet the demands that they have in terms of our products. To your question around the demand, as I said, we see that continuing to grow. We see it being very doable. There has not been any diminishing in demand, and we do not see the gap in supply or demand that exists today perishable in the near term as well. So we continue to focus on supporting our customers the best we can with the technology that we have.

Speaker #5: And beyond. And that's the best way and the most economical way for both our customers and for us to be able to meet the demands that they have in terms of our products.

Speaker #5: To your question around the demand, as I said, we see that continuing to grow. We see it being very doable. There hasn't been any diminishing in demand.

Speaker #5: And we don't see the gap in supply or demand that exists today perishable in the near term as well. So we continue to focus on supporting our customers the best we can with the technology that we have.

Ambrish Srivastava: Thank you, Wamsi.

Speaker #1: Thank you, Wamsy.

Operator: Our next question comes from Erik Woodring from Morgan Stanley. Please go ahead with your question.

Speaker #3: Our next question comes from Eric Woodring from Morgan Stanley. Please go ahead with your question.

Erik Woodring: Super, guys. Thank you so much for taking my questions and congrats on a quarter and a guide. Irving, can you maybe just share a bit more granular detail on your visibility comments? Meaning, how far out are we talking? How many customers are we talking? For those customers that are planning that far out, just what are their exabyte needs today or in the future relative to three or six months ago? Do you see that demand expanding relative to, again, three to six months ago? Thanks.

Speaker #5: Super, guys. Thank you so much for taking my questions. And congrats on a quarter and a guide. Irving, can you maybe just share a bit more, granular detail, on your visibility comments, meaning how far out are we talking?

Speaker #5: How many customers are we talking? And for those customers that are planning that far out, just what are their exabyte needs today or in the future relative to three or six months ago?

Speaker #5: Do you see that demand kind of expanding relative to, again, three or six months ago? Thanks. Yeah. Eric, thanks for the question. I think in terms of visibility outlook, if you take our top seven customers as an example, we have good visibility up to 2030, 2031 for across all seven.

Irving Tan: Yeah, Erik, thanks for the question. I think in terms of visibility outlook, if you take our top seven customers as an example, we have good visibility up to 2030, 2031 across all seven of them, and that is something that we have highlighted that we have always really much appreciated, so we can make sure we both deliver both the technology and the supply to meet that growth and demand going forward. We have good visibility in that. In fact, we see quarter after quarter, the demand signal actually increasing over time. As we move forward into the 2028, 2029, 2030 timeframe, we see that demand continuing to be very durable.

Speaker #5: Of them. And that's something that we've highlighted that we've always really much appreciated so we can make sure we both deliver both the technology and the supply to meet that growth in demand going forward.

Speaker #5: And so we have good visibility in that. In fact, we see a quarter after quarter, the demand signal actually increasing. Over time. And as we move forward into the 28, 29, 30 timeframe, we see that demand continuing to be very doable.

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

Speaker #1: Do you have a follow-up, Eric?

Erik Woodring: Yeah. Thank you, Ambrish. Just as a follow-up, you obviously just grew revenue 55% year-over-year. You are guiding to 69% year-over-year revenue growth at the midpoint in December. Incredibly strong, you are referencing some exabyte growth acceleration, but that also implies that you are going to be accelerating pricing in the December quarter as well. Could you maybe just help us understand, what is the source of that pricing acceleration? Is that coming from a non-nearline side? Is that the nearline side? I assume it is probably both, but just any more granular color you can provide on why we are seeing that acceleration in pricing the December quarter and how sustainable that is. Thank you.

Speaker #4: Yeah. Thank you, Ambrish. And then just as a follow-up, you obviously just grew revenue 55% year over year. You're guiding to 69% year over year revenue growth at the midpoint in December.

Speaker #4: Incredibly strong. And obviously, your referencing some exabyte growth acceleration. But that also then excuse me. That also implies that you're going to be accelerating pricing in the December quarter as well.

Speaker #4: So can you maybe just help us understand what is the source of that pricing acceleration? Is that coming from the non-nearline side? Is that the nearline side?

Speaker #4: I assume it's probably both. But just any more granular color, you can provide on why we're seeing that acceleration in pricing in the December quarter and how sustainable that is.

Speaker #4: Thank you.

Irving Tan: Yeah, Erik, we continue to operate in a very strong, favorable pricing environment. You saw our blended average selling price per terabyte was up 28% on a year-over-year basis, and we saw that strength across the board in nearline and non-nearline, some of our consumer and client businesses as well. The pricing environment is strong because we do execute on our technology and product roadmap, and we continue to deliver higher capacity drives to our customers that help our customers to reduce their total cost of ownership, because we have better rack density, lower power consumption, and a lot of benefits for our customers. As we continue to execute on that strategy and continue to deliver higher capacity drives, there is an opportunity to further enhance our price per terabyte over time.

Kris Sennesael: Yeah, Erik, we continue to operate in a very strong, favorable pricing environment. You saw our blended average selling price per terabyte was up 28% on a year-over-year basis, and we saw that strength across the board in nearline and non-nearline, some of our consumer and client businesses as well. The pricing environment is strong because we do execute on our technology and product roadmap, and we continue to deliver higher capacity drives to our customers that help our customers to reduce their total cost of ownership, because we have better rack density, lower power consumption, and a lot of benefits for our customers. As we continue to execute on that strategy and continue to deliver higher capacity drives, there is an opportunity to further enhance our price per terabyte over time.

Speaker #5: Yeah. Eric, we continue to operate in a very strong favorable pricing environment. You saw our blended average selling price per terabyte was up 28% on a year over year basis.

Speaker #5: And we saw that strength across the board in nearline and non-nearline some of our consumer and client businesses as well. Pricing environment is strong because we do execute on our technology and product roadmap.

Speaker #5: And we continue to deliver higher capacity drives to our customers that help our customers to reduce their total cost of ownership. Because you have better rack density, lower power consumption, and a lot of benefits for our customers.

Speaker #5: As we continue to execute on that strategy and continue to deliver higher capacity drives, there is an opportunity to further enhance our price per terabyte over time.

Irving Tan: As you probably know, some of that business is under LTAs. Some of the LTAs are expiring and new agreements are being put on place. In addition to that, of course, some of our exabytes are not under contract as well, and we do see a very strong price environment for those exabytes that are not under contract as well.

Kris Sennesael: As you probably know, some of that business is under LTAs. Some of the LTAs are expiring and new agreements are being put on place. In addition to that, of course, some of our exabytes are not under contract as well, and we do see a very strong price environment for those exabytes that are not under contract as well.

Speaker #5: As you probably know, some of that business is under LTAs. Some of the LTAs are expiring and new agreements are being put on place.

Speaker #5: And in addition to that, of course, some of our exabytes are not under contracts as well. And we do see a very strong price environment for those exabytes that are not under contract as well.

Ambrish Srivastava: Thank you, Erik.

Speaker #1: Thank you, Eric.

Operator: Our next question comes from CJ Muse from Cantor Fitzgerald. Please go ahead with your question.

Speaker #3: Our next question comes from CJ Mews from Cancer Fitzgerald. Please go ahead with your question.

CJ Muse: Yeah, good afternoon. Thank you for taking the question. I guess, Irving, you started the conversation talking about results ahead of expectations. Just to follow up on the last question, for gross margins, you initially guided incremental 62% and you reported 80% and now guiding 75%. So really trying to drill down as to what is driving that incremental strength. Is it more bits that are not under contract? Is it contracts that are unwinding and repricing? I guess, as we think beyond the near term, how should we think about the sustainability in FY27 and beyond?

Speaker #5: Yeah. Good afternoon. Thank you for taking the question. I guess, Irving, you started the conversation talking about results ahead of expectations. And just to follow up on the last question, for gross margins, you initially guided kind of incremental 62%.

Speaker #5: And you reported 80%. And now guiding 75%. So really trying to drill down as to what is driving that incremental strength. Is it more bits that are not under contract?

Speaker #5: Is it contracts that are unwinding and repricing? And I guess, as we think beyond the near term, how should we think about the sustainability in 27 and beyond?

Irving Tan: Yeah. I think at a high level, CJ, first of all, we think the sustainability of gross margin expansion is absolutely there. There are three drivers of that. Obviously, pricing, as Kris highlighted. We have a bunch of LTAs that have contractual price increases as we move into different periods, as they reach sort of their anniversary, their price adjustments, as we deliver higher capacity platforms to get better TCO values, so we are able to share in that and drive higher pricing for those contracts that we have customers with LTAs with. We also have been able to get better spot pricing with nearline customers who are not on LTAs, given the tight supply environment. As Kris also highlighted, across the board, we are seeing better pricing environment in our client and consumer segments of the business as well. So pricing is one key element.

Speaker #5: Yeah. I think at a high level, CJ, first of all, we think the sustainability of gross margin expansion is absolutely there. There are three drivers of that.

Speaker #5: Obviously, pricing as Chris highlighted, we have a bunch of LTAs. That have contractual price increases as we move into different periods. As they reach sort of their anniversary, their price adjustments, as we deliver higher capacity platforms to get better TCO.

Speaker #5: Values that we're able to share in that and drive higher pricing. For those contracts that we have customers we have LTAs with, we are also been able to get better spot pricing with nearline customers who aren't on LTAs, given the tight supply environment.

Speaker #5: And as Chris also highlighted, across the board, we are seeing better pricing environment in our client and consumer segments of the business as well.

Speaker #5: So pricing is one key element. Second, we've also been upmixing our customers to higher capacity drives. So as we move them up to higher capacity drives of CDs, are more profitable for us because the ASPs per drive are much higher as well.

Irving Tan: The second, we have also been upmixing our customers to higher capacity drives. As we move them up to higher capacity drives, obviously these are more profitable for us because the ASPs per drive are much higher as well. That is a second driver of gross margin expansion that we expect to remain over a longer-term time period as well. And third, obviously, we will be shipping more exabytes, right? Through higher areal density. We are able to deliver more exabytes through higher areal density. You avoid the fixed cost of having to produce more units, and that is another driver of gross margin expansion. You put the combination of those three factors together, we feel very optimistic about ongoing gross margin expansion.

Speaker #5: So that's a second driver of gross margin expansion that we expect to remain over a longer-term time period as well. And third, obviously, we'll be shipping more exabytes, right?

Speaker #5: Through higher error density. And so we are able to deliver more exabytes to higher error density. You avoid the fixed cost of having to produce more units and that's another driver of gross margin expansion.

Speaker #5: So you put the combination of those three factors together, we feel very optimistic about ongoing gross margin. Expansion.

Ambrish Srivastava: Do you want to follow up, CJ?

Speaker #1: Do you have a follow-up, CJ?

CJ Muse: I do, Ambrish. Thank you. You talked about a broadening breadth of customers, including enterprise and MCBs. I am curious, how is that perhaps changing the duration of LTAs, pricing, and deposits, perhaps? I would love to hear how your customer base is evolving and how that might impact your contracts. Thank you.

Speaker #5: I do, Ambrish. Thank you. You talked about a broadening breadth of customers including enterprise and MCPs. I'm curious, how is that perhaps changing the duration of LTAs, pricing, and deposits perhaps?

Speaker #5: Just would love to hear how your customer base is evolving and how that might impact kind of your contracts. Thank you.

Irving Tan: Yeah. We definitely see a, I would say, a diversification of our customer base, right? It is something that we have communicated in the past where the sort of three-tier architecture, the critical role that HDDs play, both in terms of the scalability, reliability, and the economic value that it provides to customers is truly playing out, right? We definitely see that demanding happening from the frontier AI labs, from the Neocloud players, and also hybrid cloud solution OEM providers as well. We are factoring in their demand signal as well as we look forward, and that is translating into the expanding demand signal that we have highlighted in my response to the earlier questions. Again, we are delivering, we are building technology, we are making investments into head and media to be able to provide the areal density and the capacity to support all our customers in this more diversified customer environment.

Speaker #4: Yeah. So we definitely see I would say a diversification of our customer base, right? And it's something that we've communicated in the past where the sort of three-tier architecture, the critical role that HDDs play, both in terms of the scalability, reliability, and the economic value they provides to customers is truly playing out, right?

Speaker #4: And we definitely see that demanding happening from the frontier AI labs, from the neo cloud players, and also hybrid cloud solution OEM providers. As well, so we're factoring in their demand signal as well as we look forward.

Speaker #4: And that's translating into the expanding demand signal that we've highlighted in my response to the earlier questions. And again, we're delivering we're building technology we're making investments into hit and media to be able to provide the error density and the capacity to support all our customers in this more diversified customer environment.

Irving Tan: Again, we are delivering, we are building technology, we are making investments into head and media to be able to provide the areal density and the capacity to support all our customers in this more diversified customer environment.

Operator: Our next question comes from Asiya Merchant from Citigroup. Please go ahead with your question.

Speaker #3: Our next question comes from Asaya Merchant from Citigroup. Please go ahead with your question.

Asiya Merchant: Great. Thanks a lot. Irving, I think you talked about some of the high bandwidth drives as well, an opportunity there to grow. Maybe if you could just double-click on how big is that opportunity today, how many of these are you shipping, if you can elaborate on that, and how big do you think that opportunity could be for you? Thank you.

Speaker #2: Great. Thanks a lot. Irving, I think you talked about some of the high bandwidth drives as well. And opportunity there to grow, maybe if you could just double-click on how big is that opportunity today?

Speaker #2: How many of these are you shipping, if you can elaborate on that? And how big do you think that opportunity could be for you?

Speaker #2: Thank you.

Irving Tan: Yeah. Thanks for the question, Asiya. Look, I think the opportunity is still somewhat nascent today. Our primary focus is obviously to get capacity into the hands of the customers. As we move into latter part of calendar year 2027, 2028, and beyond, this becomes what we feel a big differentiator for us, because things like high bandwidth drives provide customers with an opportunity to use HDDs for different workloads that they may have to use alternative storage media for, which may be much more costly. For example, KV cache workloads in AI inferencing and in video streaming as well. So we have been actually providing samples to many of our customers in terms of this product so that they can test out different use cases. I highlighted that is been very positively received.

Speaker #5: Yeah. Thanks for the question, Asaya. I look, I think the opportunity is still somewhat nascent today. Our primary focus is obviously to get capacity into the hands of the customers.

Speaker #5: But as we move into latter part of calendar year 27, 28, and beyond, this becomes what we feel a big differentiator for us because things like high bandwidth drives provide customers with an opportunity to use HDDs for different workloads that they may have to use alternative storage media for, which will be much more costly.

Speaker #5: For example, KV Cache workloads, in AI inferencing, and in video streaming, as well. So we've been actually providing samples to many of our customers in terms of this product so that they can test out different use cases and I highlighted that's been very positively received.

Irving Tan: We are working through sort of the commercial structure of how we would price those high bandwidth capabilities to customers. From a technical capability standpoint, very positive. We are working through the sort of commercial construct of how we would price that going forward.

Speaker #5: And so we're working through sort of the commercial structure of how we would price those high bandwidth capabilities to customers but from a technical capability standpoint, very positive.

Speaker #5: We're working through the sort of commercial construct of how we would price that going forward.

Ambrish Srivastava: Did you have a follow-up, Asiya?

Speaker #1: Did you have a follow-up, Asaya? Yep, go ahead.

Asiya Merchant: Then-

Operator: Yeah, go ahead.

Ambrish Srivastava: Yeah, go ahead.

Asiya Merchant: Yeah, sure. If I can just ask about the physical AI as well. I think you talked about that as well in your script. Any early indications again of how big is that opportunity today? Are you shipping towards that? Probably still in the early innings now, but how do you think about it through calendar 2027 and into calendar 2028? Thank you.

Speaker #2: Sure. If I can just ask about the physical AI as well. I think you talked about that as well in your script. Any early indications, again, of how big is that opportunity today?

Speaker #2: Are you shipping towards that? Probably still in the early innings now, but how do you think about it through calendar 27 and into calendar 28?

Speaker #2: Thank you.

Irving Tan: Yeah, I think we are definitely seeing very promising signs from the physical AI segment of the markets. For example, some of our customers in Asia, who are in the autonomous vehicle space, are definitely looking for increased demands, supply from us to be able to support their physical AI initiatives. A good data point of that is, NVIDIA themselves have just recently highlighted the opportunity in terms of their revenue from physical AI being in the $10 billion range. If you see that happening in compute, there is obviously the demand for storage to support that compute as well. So we see it very positively. Obviously, autonomous vehicles will be one. Robotics is also becoming a key area for us.

Speaker #5: Yeah. I think we're re definitely seeing very promising signs from the physical AI segment of the markets. For example, some of our customers in Asia who are in the autonomous vehicle space are definitely looking for increased demands supply from us to be able to support their physical AI initiatives.

Speaker #5: A good data point of that is NVIDIA themselves have just recently highlighted the opportunity in terms of their revenue from physical AI being in the $10 billion range, right?

Speaker #5: So if you see that happening in compute, there's obviously the demand for storage to support that compute. As well, so we see it very positively obviously autonomous vehicles will be one robotics is also becoming a key area for us.

Irving Tan: A lot of it is actually happening out in Asia, but I anticipate that will happen throughout the rest of the world, over the next two to three years as well.

Speaker #5: A lot of it's actually happening out in Asia. But I anticipate that will happen throughout the rest of the world over the next two to three years as well.

Asiya Merchant: Thank you.

Speaker #2: Thank you.

Operator: Our next question comes from Ben Reitzes from Melius Research. Please go ahead with your question.

Speaker #3: Our next question comes from Ben Ratzis from Melius Research. Please go ahead with your question.

Ben Reitzes: Yeah. Hey, guys. Thank you. I appreciate it. I wanted to go back to one of the earlier questions on the competitive aspect of adding capacity. I think there's just some basics that would be helpful. How can somebody go from 10% to 30% capacity share? Is there enough materials to do media and heads to be able to do something like that? Maybe you can address the question from that. Is your view that somebody could do that? What would be the bottlenecks in doing so? Thanks.

Speaker #4: Yeah. Hey, guys. Thank you. I appreciate it. I wanted to go back to one of the earlier questions on the competitive aspect of adding capacity.

Speaker #4: I think there's just some basics that would be helpful. How can somebody go from 10 to 30 percent capacity share? Is there enough materials to do media and heads to be able to do something like that?

Speaker #4: Maybe you can address the question from that. And what would be the is your view that somebody could do that? And what would be the bottlenecks in doing so?

Irving Tan: Yeah, Ben, thanks for the question. I can't comment about somebody else doing it. I can share what we are doing to enable it. First and foremost, it all starts with technology. Our R&D teams do a great job in terms of designing head designs, media recipes to really enable high areal density products. Obviously, we combine that with our firmware capabilities and drive servo mechanics capability. It's not only about the individual components, but when you integrate all of it together, do you get the optimum areal density per drive? That's really at the engineering level, and that's one of the big differentiators that we feel versus maybe one other player in the market who is dependent on third-party suppliers, so they're not vertically integrated.

Speaker #5: Yeah. Ben, thanks for the question. I can't comment about somebody else doing it. I can share what we are doing.

Speaker #4: To enable it. So first and foremost, it all starts with technology. R&D teams do a great job in terms of designing head designs, media recipes to really enable high aerial density products.

Speaker #4: Obviously, we combine that with our firmware capabilities and drive servo mechanics capabilities. So it's not only about the individual components, but when you integrate all of it together, do you get the optimum aerial density per drive?

Speaker #4: So that's really at the engineering level. And that's one of the big differentiators that we feel versus maybe one other player in the market who is dependent on third-party supplies.

Speaker #4: So they're not vertically integrated. Secondly, as you've touched on, a key element of it is not so much the unit capacity that you have.

Irving Tan: Secondly, as you've touched on, a key element of it is not so much the unit capacity that you have, it's the availability to produce at scale the needed media and heads, to support the higher areal density in the drives as well. Again, that's something we have been and will continue to make investments in WD, both in terms of our R&D capability, but also into our manufacturing assets, specifically to enable greater areal density to our head and media assets to drive that. I think that's what we're doing, and we see the results of that. Other organizations that don't have that degree of vertical integration, I would say, will have a harder time being able to reach the same levels of growth that we are seeing.

Speaker #4: It's the availability to produce at scale the needed media and heads to support the higher aerial density in the drives as well. And again, that's something we have been and will continue to make investments in in WD.

Speaker #4: Both in terms of our R&D capability, but also into our manufacturing assets. Specifically to enable greater aerial density to our head and media assets to drive that.

Speaker #4: So I think that's what we're doing. And we see the results of that. Other organizations that don't have that degree of vertical integration I would say will have a harder time being able to reach the same levels of growth that we are seeing.

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

Speaker #1: Do you have a follow-up, Ben?

Ben Reitzes: Yeah. Thanks a lot, Ambrish. There is obviously a lot of fear out there as you guys see and well know going into this call. I was just wondering if you could give more color around how big Neoclouds are for you now and in your forecast. If there was a hiccup in demand there just due to timing of capital, how we would see it, and how big a concern would that be for you? Thanks.

Speaker #3: Yeah. Thanks a lot, Ambrish. There's obviously a lot of fear out there as you guys see and well know going into this call. I was just wondering if you could give more color around how big NeoClouds are for you now and in your forecast.

Speaker #3: And if there was a hiccup in demand there, just due to timing of capital, how we would see it and how big a concern would that be for you?

Irving Tan: Yeah. I think first of all, we need to take a step back. There are really four drivers of growth within the storage space, right? One is the ongoing secular growth of the cloud. The cloud itself that has been around for close to two decades is still growing at a very healthy pace. In fact, accelerating, really driven by a lot more storage being driven by video content. So a lot more demands, because a lot of content being stored is video, and obviously, a lot of the cloud-based services are becoming AI-enabled, so that is driving greater storage requirements. So that is one key driver of growth that will continue over the foreseeable future. The second driver of growth has been model training and development, and we see that continuing to grow as new models get created.

Speaker #3: Thanks.

Speaker #5: Yeah. I think first of all, we need to take a step back there. There are really four drivers of growth within the storage space, right?

Speaker #5: One is the ongoing secular growth of the cloud. And the cloud itself that's been around for close to two decades is still growing at a very healthy pace.

Speaker #5: In fact, accelerating really driven by a lot more storage being driven by video content. So a lot more demands because a lot of content being stored is video and obviously a lot of the cloud-based services are becoming AI-enabled.

Speaker #5: So that's driving greater storage requirements. So that's one key driver of growth that will continue over the foreseeable future. The second driver of growth has been model training and development.

Speaker #5: And we see that continuing to grow as new models get created, as reinforcement learning is happening more data needs to be stored to support reinforcement learning of existing models.

Irving Tan: As reinforcement learning is happening, more data needs to be stored to support reinforcement learning of existing models as well. That is where the Neoclouds do play a part in. But we do not see that being, in any way, a major hiccup if there is a bit of a slowdown in the Neocloud segment. The third is around inferencing and agentic AI, and that is where we see a lot of opportunity going forward, and we are starting to see a tremendous amount of growth coming from that area as customers need to store logs, checkpoints, outputs of that inferencing, and sort of the agentic system decision points to support reinforcement learning as well. Then finally, physical AI that we have just touched on as well. So if you add those four things together, I think the demand remains very durable.

Speaker #5: As well, and that's where the NeoClouds do play a part in. But we don't see that being in any way a major hiccup if there is a bit of a slowdown in the NeoCloud segment.

Speaker #5: The third is around inferencing and agentic AI. And that's where we see a lot of opportunity going forward. And we're starting to see tremendous amount of growth coming from that area.

Speaker #5: As customers need to store logs, checkpoints, outputs of that inferencing and sort of the agentic system decision points to support reinforcement learning as well.

Speaker #5: And then finally, physical AI that we've just touched on as well. So if you add those four things together, I think the demand remains very doable even if there may be a slight softness in one of the four segments that demand will be easily picked up by any one of the other three.

Irving Tan: Even if there may be a slight softness in one of the four segments, the demand will be easily picked up by any one of the other three. So all things added together, we see very positive outlook in terms of the demand remaining strong and remaining durable. In terms of how we look at the Neocloud segment, obviously, we are very diligent in looking at the strategic Neoclouds that we want to engage with, those that we think have a very strong balance sheet, have underpinned by a very good end customer base as well. So we prioritize that over other players within the market.

Speaker #5: So all things added together, we see very positive outlook in terms of the demand remaining strong and remaining doable. In terms of how we look at the NeoCloud segment, obviously we are very diligent in looking at the strategic NeoClouds that we want to engage with, those that we think have a very strong balance sheet, have underpinned by a very good end customer base as well.

Speaker #5: And so we prioritize that over other players within the market.

Ambrish Srivastava: Thank you.

Speaker #3: Thank you. Our next question comes from Tom O'Malley from Barclays. Please go ahead with your question.

Operator: Our next question comes from Tom O'Malley from Barclays. Please go ahead with your question.

Tom O'Malley: Hey, guys. Thanks for taking my question. Appreciate it. If I look at the CAGR of total HDD exabyte shipments over the last couple of quarters, it has ranged from low 20s up to the mid-30s. I plugged that in for your guide. It looks like your year-over-year pricing that is implied for the December quarter is above that 30% year-over-year mark. You guys have historically said high teens is the sustainable growth rate. You are now well above that for the past couple of quarters. Do you think you could give us an update about what the right way to look at that is in terms of sustainability of that pricing increases on a go-forward basis?

Speaker #6: Hey, guys. Thanks for taking my question. Appreciate it. So if I look at kind of the CAGR of total HGDX by shipments over the last couple of quarters, it ranged from low 20s kind of up to the mid-30s.

Speaker #6: And I plugged that in for your guide. It looks like your year-over-year pricing that's implied for the December quarter is above that 30% year-over-year mark.

Speaker #6: So you guys have historically kind of said high teens is the sustainable growth rate. You are now well above that for the past couple of quarters.

Speaker #6: Do you think you could give us an update about what the right way to look at that is in terms of sustainability of that pricing increases on a go-forward basis?

Kris Sennesael: Yeah, Tom, I think the 10% or whatever number you were referencing, we are operating well above that, right? Just one quarter ago, we were already at 18% ASP increase on an ASP per terabyte basis. Last quarter, we did 28%. As I indicated before, given the strong demand environment that we operate in, given the fact that we continue to move to higher capacity drives and continue to add more value to our customers, there is definitely further room for ASP per terabyte increases going forward over the next, call it, three, four quarters. I would assume eventually that is going to slow down a little bit. For the next three, four quarters, there is definitely further room to expand our ASP per terabyte year-over-year growth.

Speaker #5: Yeah. Tom, I think the 10% or whatever number you were referencing, I think we're operating well above that, right? Just in the one quarter ago, we were already at 18% ASP increase on an ASP per terabyte basis.

Speaker #5: And so last quarter we did 28. And as I indicated before, given the strong demand environment that we operate in, given the fact that we continue to move to higher capacity drives and continue to add more value to our customers, there is definitely further room for ASP per terabyte increases going forward over the next call it three, four quarters.

Speaker #5: I would assume eventually that is going to slow down a little bit. But for the next three, four quarters, there's definitely further room to expand our ASP per terabyte year-over-year growth.

Ambrish Srivastava: You have a follow-up, Tom?

Speaker #1: Do you have a follow-up, Tom?

Tom O'Malley: I do. Thank you. Just following up on the commentary, just the CapEx on average, 4% to 6% of revs over a five-year period, but modestly ahead that in the next two years. I think the knee-jerk reaction to that is making sure that that is just investing in heads, and this is not something about expanding capacity or feeling like you need to take advantage of a market as it's nearing a potential peak. Not saying that, just outlining what you could hear. So maybe could you spend a little bit of time talking to us about why the investment is needed in heads? Is this around diversification efforts because of what we've heard in the media lately, or just a desire to get your internal efforts to a better spot? Would love just to hear your thoughts on that. Thank you.

Speaker #5: Just.

Speaker #6: I do. Thank you. Just following up on the commentary just to CapEx on average 4 to 6% of revs over a five-year period, but modestly ahead of that in the next two years.

Speaker #6: I think like the knee-jerk reaction to that is making sure that that is just investing in heads and this is not something about expanding capacity or feeling like you need to take advantage of a market as it's nearing a potential peak, not saying that just outlining what you could hear.

Speaker #6: So maybe could you spend a little bit of time talking to us about why the investment is needed in heads? Is this around diversification efforts because of what we've heard in the media lately?

Speaker #6: Or just a desire to get your internal efforts to a better spot? We'd love just to hear your kind of thoughts on that. Thank you.

Kris Sennesael: Yeah. Tom, just to be clear, in the prepared remarks, we explicitly said that the CapEx is going to head and media and factory automation and not to expanding our unit capacity.

Speaker #5: Yeah. Yeah. And Tom, just to be clear in the prepared remarks, we explicitly said that the CapEx is going to head in media and factory automation and not to expanding our unit capacity.

Irving Tan: Yeah. Kris summarized it really well. As we look to transition to HAMR, obviously, there are longer cycle times in terms of the steps that are involved, in terms of the head wafers that we need to produce and also the media products that we need to produce. So we're making the appropriate investments to support both the technology capabilities and at the same time to recognize that there are slightly longer cycle times because there are slightly more steps that are involved to produce the head and media components that's needed for HAMR.

Speaker #5: Yeah. So I didn't quiz summarize it really well. And obviously, as we look to transition to Hammer, obviously there are longer cycle times in terms of the steps that are involved in terms of the hits that we need hit wafers that we need to produce and also the media products that we need to produce.

Speaker #5: So we're making the appropriate investments to support both the technology capabilities and at the same time to recognize that there are slightly longer cycle times because there are slightly more steps that are involved to produce the hit and media components that's needed for Hammer.

Kris Sennesael: Thank you, Tom.

Ambrish Srivastava: Thank you, Tom.

Speaker #1: Thank you, Tom.

Operator: Our next question comes from Timothy Arcuri from UBS. Please go ahead with your question.

Speaker #3: Our next question comes from Timothy Archery from UBS. Please go ahead with your question.

Timothy Arcuri: Thanks a lot. You guys talked about an acceleration in exabyte growth. You have been under shipping your peer by about 10 points. You are mid-20s, and they are mid-30s. Kris, when you mention that, what is the target? Should we think that maybe over a multitude of quarters, you could get to the mid-30s as the goal to close that gap?

Speaker #6: Thanks a lot. You guys talked about an acceleration in exabyte growth. You've been under shipping your peer by about 10 points. You're sort of mid-20s and they're sort of mid-30s.

Speaker #6: So Chris, when you mentioned that, what is the target? Should we think that maybe over a multitude of quarters you could get to the mid-30s is the goal to sort of close that gap?

Kris Sennesael: Well, we did 22% last quarter, and we have talked about that. We are in between two product transitions. The last couple of quarters, we executed really well on our up to 32 terabyte ePMR transition. We have now started to execute on our up to 44 terabyte ePMR transition, and then we have our HAMR transitions, first and second generation, coming up. That is going to drive a meaningful increase in our areal density and a meaningful increase to higher capacity drives, and that will definitely accelerate our exabyte year-over-year supply growth over the next six, seven, eight quarters.

Speaker #5: So yeah, we did 22% last quarter. And we've talked about that. We are in between two product transitions. We the last couple of quarters, we executed really our up to 32 terabyte EPMR transition.

Speaker #5: We are now started to execute on our up to 44 terabyte EPMR transition. And then we have our Hammer transitions first and second generation coming up.

Speaker #5: And that is going to drive meaningful increase in our aerial density and a meaningful increase to higher capacity drives and that will definitely accelerate our exabyte year-over-year supply growth over the next six, seven, eight quarters.

Ambrish Srivastava: Do you want to follow up, Tim?

Speaker #1: Do you have a follow-up, Tim?

Speaker #6: Do you think I do. I do. Yeah. So just to kind of double-click on that. So Chris, should we think of you in six quarters shipping like 35% exabyte growth?

Timothy Arcuri: I do. I do, yeah. Just to double-click on that. Kris, should we think of you in six quarters shipping 35% exabyte growth? Is that the message?

Speaker #6: Is that the message?

Kris Sennesael: We only guide in one quarter at a time, but you are thinking about it in the right direction.

Speaker #5: So we only guide in one quarter at a time, but you're thinking about it in the right direction.

Timothy Arcuri: Yeah. Okay. Thanks.

Speaker #6: Yeah. Okay.

Ambrish Srivastava: Thank you, Tim.

Speaker #1: Thanks. Thank you, Tim.

Operator: Our next question comes from Krish Sankar from TD Cowen. Please go ahead with your question.

Speaker #3: Our next question comes from Krish Sankar from TD Cowan. Please go ahead with your question.

Krish Sankar: Yeah. Thanks for taking my question, I have two of them too. Chris, thanks for the color on the pricing. I am just curious, as your sort of set of HAMR customers ramp in the H1, would there be any impact on the ASP growth mainly because you are helping your early customers ramp HAMR, or it should not have any impact?

Speaker #4: Yeah. Hi. Thanks for taking my question. I have two of them too. And Chris, thanks for the color on the pricing. I'm just curious as your first set of Hammer customers ran, in the first half, would there be any impact on the ASP growth mainly because you're helping your early customers ramp Hammer, or you should not have any impact?

Irving Tan: No, we are not discounting our HAMR products in any way versus our ePMR products. So we price them on a dollar per terabyte basis, and we have LTAs that I mentioned that have appropriate price reviews periodically. So whether we ship a HAMR bit or an ePMR bit, the price is the price.

Speaker #5: No, we're not discounting our Hammer products in any way versus our EPMR products. So we price them on a dollar per terabyte basis and we have LTAs that I mentioned that have appropriate price reviews and periodically.

Speaker #5: And so whether we ship a Hammer bit or EPMR bit, the price is the price.

Krish Sankar: Got it. Then as a quick follow-up, I totally understand your argument about adding head capacity but not units. I am just trying to play the devil's advocate. By adding head capacity, you are increasing the capacity per unit. I am just wondering, isn't that lead to the fact that you are actually adding capacity, even though if it is head not unit, leading to more capacity increase versus the minutiae between a unit or a head?

Speaker #4: Got it. Got it. And then as a quick follow-up, I totally understand your argument about adding head capacity, but not units. I'm just trying to play the devil's advocate by adding head capacity, you are increasing the capacity, per unit.

Speaker #4: So I'm just wondering isn't that lead to the fact that you are actually adding capacity even though if it's head, not unit, leading to more capacity increase versus the manuscript between a unit or a head?

Irving Tan: Yeah, I think there are two factors here. First of all, we say we are investing into head capacity, and part of it is, as I mentioned, for example, a HAMR head does require more cycles to produce, so there is a bit of throughput loss, so we need to offset, so we do need to put in more capacity. So that does not translate into more heads and therefore more units. We have also indicated at our innovation day back in February 2024, we have a roadmap to deliver drives with up to 14 platters as well. Therefore, you will need more heads within the existing number of drives that we have as well. So we are making the investments to support that roadmap going forward as well.

Speaker #5: Yeah. I think there are two factors there. First of all, we say we are investing into head capacity. And part of it is, as I mentioned, for example, a Hammer head does require more cycles to produce.

Speaker #5: So there's a bit of throughput loss. So we need to offset. So we do need to put in more capacity. So that does not translate into more heads and therefore more units.

Speaker #5: And we have also indicated that our innovation day back in February of this year, we have a roadmap to deliver drives with up to 14 platters as well.

Speaker #5: And therefore you will need more heads within the existing number of drives that we have as well. So we're making the investments to support that roadmap going forward as well.

Ambrish Srivastava: Krish, last quarter, we shared with you the platter count growth on very minimal unit growth, right? So that is one of the reasons we have to invest on the head side.

Kris Sennesael: Krish, last quarter, we shared with you the platter count growth on very minimal unit growth, right? So that is one of the reasons we have to invest on the head side.

Speaker #1: And Krish, last quarter, we shared with you the platter count growth on very minimal unit growth, right? So that's one of the reasons we have to invest on the head side.

Krish Sankar: Thank you very much.

Irving Tan: And that applies to media as well. Same thing.

Speaker #4: Thank you very much.

Speaker #5: And that applies to me there as well. Same thing.

Krish Sankar: Great.

Ambrish Srivastava: The next caller, please.

Speaker #1: The next caller, please.

Operator: Our next question comes from Jim Schneider from Goldman Sachs. Please go ahead with your question.

Speaker #3: Our next question comes from Jim Schneider from Goldman Sachs. Please go ahead with your question.

Jim Schneider: Good afternoon. Thanks for taking my question. I was wondering if you could maybe just clarify with respect to your head strategy currently, whether you use external vendors for any of your products or for surge capacity, and to what extent the head investments, beyond just the HAMR items you mentioned before, are meant to sort of eliminate the need for any potential vendors in the future and sort of take that external reliance off the table completely. Thank you.

Speaker #7: Good afternoon. Thanks for taking my question. I was wondering if you could maybe just clarify with respect to your head strategy currently whether you use external vendors for any of your products or for surge capacity.

Speaker #7: And to what extent the head investments beyond just the Hammer items you mentioned before are meant to sort of eliminate the need for any potential vendors in the future and sort of take that external alliance off the table completely.

Speaker #7: Thank you.

Irving Tan: Yeah, thanks for the question. We do use some external head capacity that we always have done, and we do that for media as well. That is part of our innovation approach where we build and buy. So we are able to benchmark our performance of our components with the third-party suppliers as well. It is a great way for us to continue to drive innovation both internally and with our partners as well. Our focus on our investment is to continue to ensure that we have the latest technology internally to support our products going forward. What we do buy from third parties are typically used in our lower capacity drives. So all the high-cap leading-edge platforms that we introduce are all on our own internal heads.

Speaker #5: Yeah. Thanks for the question. So we do use some external head capacity that we always have done. We do that for meter as well.

Speaker #5: That is part of our sort of innovation approach where we bill and buy. So we're able to benchmark our performance of our components with our the third-party suppliers as well.

Speaker #5: It's a great way for us to continue to drive innovation both internally and with our partners. As well, our focus on our investment is to continue to ensure that we have the latest technology internally to support our products going forward.

Speaker #5: What we do buy from third parties typically used in our lower capacity drives. So all the high-cap leading-edge platforms that we introduce are all on our own internal heads.

Ambrish Srivastava: You have a follow-up, Jim?

Speaker #1: Do you have a follow-up, Tim?

Jim Schneider: Thank you. Just as a follow-up. In a hypothetical situation where one of your competitors were to meaningfully expand unit capacity, what, hypothetically, would be your response in that case?

Speaker #7: Thank you. Yeah. Just as a follow-up, in a hypothetical situation where one of your competitors were to meaningfully expand unit capacity what hypothetic would be your response in that case?

Irving Tan: Well, again, it boils down to not just unit capacity, but at what capacity point is unit shipping at as well. Again, our focus is on delivering that capacity that customers need through higher capacity drives through areal density. So our response is going to be the same as we have communicated over the last year, to continue to focus on areal density, to translate that into the highest capacity drives that we can bring into the market. That is the best TCO for our customers and drives the best economics for us as well.

Speaker #5: Well, again, you can it boils down to not just unit capacity, but at what capacity point is unit shipping at as well. So again, our focus is on delivering that capacity that customers need through higher capacity drives through aerial density.

Speaker #5: So our response is going to be the same as we've communicated over the last year. To continue to focus on aerial density to translate that into the highest capacity drives that we can bring into the market.

Speaker #5: That's the best TCO for our customers and drives the best economics for us as well.

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

Speaker #1: Thank you. Next caller, please.

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

Speaker #3: Our next question comes from Carl Ackerman from BNP Paribas. Please go ahead with your question.

Karl Ackerman: Yeah, thanks for squeezing me in. Irving and Kris, you indicated that HAMR will ramp over the next couple of quarters. Would you expect non-HAMR nearline drive capacity to also expand while HAMR ramps as well?

Speaker #8: Yeah. Thanks for squeezing me in. Urban and Chris, you indicated that Hammer will ramp over the next couple of quarters. But do you expect non-Hammer nearline drive capacity to also expand while Hammer ramps as well?

Irving Tan: We expect, obviously, we are looking to ramp HAMR in H1 of calendar 2027. In parallel, we will also continue to ramp and supply our latest ePMR platform. As we highlighted, it is making a very successful transition, in fact, the fastest transition of any ePMR platform that we have seen. in Q2, we expect 30% of all the nearline bits to be on that up to 40 terabyte platform. By Q3 of fiscal year 2027, we expect 50% of all the nearline bits that we ship will be on that 40 terabyte platform as well. Then obviously, we will continue to scale. I think we have two very strong horses in the mix to deliver high-cap drives to support the demand that our customers need.

Speaker #5: So we expect obviously that we are looking to ramp Hammer in the first half of calendar year '27. In parallel, we will also continue to ramp and supply our latest EPMR platform as we highlighted it's making a very successful transition.

Speaker #5: In fact, the fastest transition of any EPMR platform that we've seen. In this quarter, Q2, we expect 30% of all the nearline bits to be on that 40 up to 40 terabyte platform.

Speaker #5: By Q3 of calendar year, fiscal '27, we expect 50% of all the nearline bits that we ship will be on that 40 terabyte platform as well.

Speaker #5: And then obviously we'll continue to scale. So I think we have two very strong horses in the mix to deliver high-cap drives to support the demand that our customers need.

Ambrish Srivastava: Great. Thank you, Karl. We have time for one more caller.

Speaker #1: Thank you, Carl. We have time for one more caller operator, please.

Operator: Our next question comes from Mark Newman from Bernstein. Please go ahead with your question.

Speaker #3: Our next question comes from Mark Newman from Bernstein. Please go ahead with your question.

Mark Newman: Hi, thanks for squeezing me in. It is about the numbers today. I wonder if I could just ask a bit more on the pricing. Pricing continues to be extremely strong and this last quarter seems to be further accelerating. You talked about demand visibility all the way till 2030, 2031. I wonder if you could update us on how far out you have for price visibility, such as in your purchase orders already signed or long-term agreements. How far out should we expect this price to remain continuing at this cadence, or potentially, could we expect it to further accelerate from here? Any comments on price visibility from here would be great. Thanks.

Speaker #7: Hi. Thanks for squeezing me in. That's a number today. I wonder if I could just ask a bit more on the pricing. Pricing continues to be extremely strong.

Speaker #7: And this last quarter, it seems to be further accelerating. You talked about you have demand visibility all the way through 2030, 2031. I wonder if you could update us on how far out you have for price visibility such as in your purchase orders already signed or long-term agreements.

Speaker #7: How far out should we expect this price to remain continuing at this cadence or potentially can we expect it to further accelerate from here?

Speaker #7: Any comments on price visibility from here would be great. Thanks.

Kris Sennesael: Yeah. The most important thing with LTAs and our customer engagements is to create that long-term visibility and making sure we are aligned from a technology and product roadmap. We are aligned on those product transitions that are being planned ahead for the next couple of quarters and years, and making sure that we put in place the necessary exabyte capacity to support their demand. That is the most important thing that we are trying to achieve here. In terms of pricing, in those LTAs, we do have some pricing components. Keep in mind that there is base volume, there is upside volume, so there is definitely some flexibility. Keep in mind, of course, that not all our exabytes are covered by the LTAs. The further you go out, the less of it is covered under LTAs and for sure under pricing component of the LTAs.

Speaker #5: Yeah. So the most important thing with LTAs in our customer engagements is to create that long-term visibility. And making sure we are aligned from a technology and product roadmap.

Speaker #5: We're aligned on those product transitions. That are being planned ahead for the next couple of quarters and years. And making sure that we put in place the necessary exabyte capacity to support their demand.

Speaker #5: That's the most important thing that we're trying to achieve here in terms of pricing. In those LTAs, we do have some pricing components. Keep in mind that there is base volume.

Speaker #5: There is upside volume. So there is definitely some flexibility and keep in mind, of course, that not all our exabytes are covered by the LTAs.

Speaker #5: The further you go out, the less of it is covered under LTAs. And for sure under pricing component of the LTAs. So we think in the current environment, that's the best way to approach it.

Kris Sennesael: So, we think in the current environment, that is the best way to approach it. For us, it is all about execution on our technology product roadmap, get to the higher capacity drives, deliver more value to our customers, and that is a very favorable setup for pricing and further increases in our ASP per terabyte.

Speaker #5: And again, as we for us, it's all about execution on our technology product roadmap. Get to the higher capacity drives. Deliver more value to our customers.

Speaker #5: And that's a very favorable setup for pricing and further increases in our ASP per terabyte.

Ambrish Srivastava: Thank you, Mark.

Speaker #1: Thank you, Mark.

Mark Newman: Great. Can I ask one quick follow-up? On the exabyte growth, 22% year-on-year. I believe you guided long-term exabyte growth for nearline at 25%. I just wanted to clarify if that is still intact, which also your competitor had also outlined. Is that 25% of good guidance long term for nearline exabyte growth?

Speaker #7: Well, can I ask one quick follow-up on the exabyte growth 22% year-on-year? Is your I believe you guided long-term exabyte growth for nearline at 25%.

Speaker #7: I just want to clarify that if that is still intact, which also your competitor had also outlined. Is that 25% a good guidance long-term for nearline exabyte growth?

Kris Sennesael: Well, we actually said greater than 25%. Again, we have indicated that currently it is slightly below the 25% because we are in between those two product transitions. But as the product transitions are getting more traction, we will exceed that 25%.

Speaker #5: Yeah. We actually said greater than 25%, right? And again, we've indicated that currently it's slightly below the 25% because we're in between those two product transitions.

Speaker #5: But as the product transitions are getting more traction, we will exceed that 25%.

Mark Newman: Great. Thank you very much.

Speaker #7: Great. Thank you very much.

Operator: At this time, we will conclude today's question and answer session. I would like to turn the floor back over to Irving Tan for closing remarks.

Speaker #3: And at this time, we'll conclude today's question and answer session. I would like to turn the floor back over to Irving Tan for closing remarks.

Irving Tan: Thank you, operator. I would like to leave all of you with a few thoughts. The first phase of AI investment focused on building the infrastructure to train models. Even as that continues, the next phases are about deploying AI to work at scale, from inference to agents to physical AI. As that happens, data will continue to compound, driving customers to plan further ahead, adopt higher capacity products, and align their infrastructure roadmaps more closely with our technology roadmap. For WD, this creates an opportunity that extends well beyond the initial AI infrastructure build-out. As AI scales, data creation and associated storage requirements will accelerate and compound. As always, my thanks to our customers, partners, and the entire WD team, for all of you for your interest and support of WD. Thank you.

Speaker #5: Thank you, operator. I would like to leave all of you with a few thoughts. The first phase of AI investment focus on building the infrastructure to train models.

Speaker #5: Even as that continues, the next phases are about deploying AI to work at scale from inference to agents to physical AI. As that happens, data will continue to compound, driving customers to plan further ahead adopt higher capacity products, and align their infrastructure roadmaps more closely with our technology roadmap.

Speaker #5: For WD, this creates an opportunity that extends well beyond the initial AI infrastructure build-out. As AI scales, data creation and associated storage requirements will accelerate and compound.

Speaker #5: As always, my thanks to our customers, partners, and the entire WD team for all of you for your interest and support of WD. Thank you.

Operator: The conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.