WDC - Earnings call transcript Q2 2019 | Western Digital Corporation

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Operator

Good day, ladies and gentlemen. And welcome to the Western Digital Corp Second Quarter Fiscal 2019 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would like to introduce your host for today's call, Mr. Peter Andrew, Vice President of Investor Relations. Mr. begin. may you Andrew

Peter Andrew

and XX-K and SEC we and no statements everyone. the within obligation business on industry recent laws, you new forward-looking outlook. more will Please are events. or our statements the assume federal conference contain uncertainties including based to trends, strategies, and most forward-looking the reflect current risks the differ plans and and that actual good refer Thank report annual filed financial This information on These assumptions afternoon, management’s Form call could securities business expectations on information Okay. meaning for results update them with materially. to and to to cause of

today. We are will sections With that Investor call Milligan, Reconciliations our will financial comparable of CEO. in non-GAAP included are to the now website. Steve turn also and measures GAAP and being make the reference Guidance measures Relations press our financial between release the in Summary over I posted to that, the non-GAAP

Steve Milligan

Thank everyone. today President Mike Cordano, Financial Officer; With Chief Long, morning, you, Operating and are and Officer. and me Mark Peter, good Chief

highlighted to several macroeconomic progressed, demand with a from having and companies outlook. business conditions cash of quarter bias during were $X.XX Investor overall exhibited Day, more ranges. and cautious we $X.X commentaries XXXX, customers were negative of markets non-GAAP our earnings flow Despite our Geopolitical second per second operating environment, have non-GAAP generally served softening $XXX in weakness. our within fiscal million quarter Non-GAAP the reported demand our of operating indications contributed gross the a $XXX and in revenue we the at For million our Consistent in fiscal and continued delivered quarter provided guidance margin XX.X%. results expenses billion we with as a share trends quarter. subsequent

significantly be quarter that are business would be outlook we Consequently, will weaker given for taking otherwise the I to Additionally normal actions will dynamics our response challenging. remain the industry seasonality. current than in Flash March it on conditions. comment

First, we normalization the evolving we XXXX, then performing Flash first continue views have business to were December to how our disclosures environment in we'll into drives. so. the we've are sharing do Flash In and both we to describe in been greater and our trends enhanced provide in and hard since insight on transparent

XXXX portfolio from Second, calendar with perspective, our product in are a product strongest history. we entering the

to to throughout to expect our continue XX further industry's the In we BiCSX enhance We technology. layer transition Flash, lead portfolio the year.

of We this product portfolio expect broad implementation in technology XXXX. across our calendar

we layer yielding calendar investments XX XXXX, the customer made crossover development have BiCSX supply with to the standpoint. In BiCS a results. The of hands quarter product We December achieve today. mix from expect we in BiCSX are products have

Specifically, enterprise be across internal we portfolio firmware for categories mobile completed address the our key development We have controller all leveraged in of and architectures and the now SSD that enterprise, applications. embedded market. can client,

our be mid-XXXX. will enterprise sampling BiCSX NVMe with we by addition, product In

NVMe success. our to and with client this We further position a have portfolio capitalize market on significant expect

our We mainstream March client will based on shipping quarter. be BiCSX in the SSD

UFS for Flash global enterprise now In and portfolio most opportunities drives top growth cost-effective leading hard points provide we continue with highest automotive capacity inroads all expanding aerial densities, are making areas. solutions. Our the market attractive to products. enabling the we enabled already are by solutions to and the smartphone manufacturers in gaming these our shipping embedded of and of are Surveillance,

at we completed an for industry-leading qualification Center energy XX by at in quarter. commenced announced already year. to of on We shipments and Last its in our be terabyte the product, be offering activities assist our for described of to have all gain exceptionally process This all had current drive smooth which followed details technology. quarter XX-terabyte an offering revenue Investor Systems our virtually for qualification customers We've and customer a offerings helium continue this across for several expect will based calendar later plans XX-terabyte Data this product of momentum our XX-terabyte the will product a Day quarter. be shared customers.

changes. As we levels we In our competitiveness taking are we've previously are technology previously executing leadership. maintain to our indicated, on right-size Flash actions and production we factory ensuring the while announced

Operator

gentlemen and and please gentlemen please Ladies ladies standby. again standby. Once

Peter Andrew

Sherry. Hi

Operator

Hi can we hear yes, you now.

Peter Andrew

back I'm to going the on line me the Put begin call.

Operator

now. You're in you the hear can sir. line, We

Peter Andrew

hear? can You

Operator

Yes, I you. hear can

Peter Andrew

now? side on your Okay. We're okay

Operator

Yes, I believe so.

Peter Andrew

Okay.

Steve Milligan

where I script. right. - my little sorry going I'm up to that, I'm about off. we going a Anyway cut on bit All don't know Well, to back back

bit have on the we calendar previously announced factory for previously to technology actions we supply indicated, right-size As our taking wafer output reduce competitiveness executing are XXXX. Flash, maintaining to ensuring production growth and In are we levels while to we our leadership. our are levels our changes

to the of capital in our Flash align order our adjustments with making also pace market are We our output demand. in of to investments bit

the three Lumpur we facility hard quarters. closure of manufacturing our have Kuala accelerated drive Additionally, by almost

growth with preserved, volume of remains massive value and expenses. cost intelligence, to long-term remain are as company. the provide reductions vehicles, in artificial the captured, and to and Mike business across and on remarks. in the ongoing amounts opportunities Western now to Mike well-positioned substantial we unchanged. transformed. machine that million in $XXX data opportunities the be their autonomous that, continue With team ask for will capitalize The and all In growth business to their reductions support. further Digital Western non-GAAP Transformative annualized details and rapid trends are needs to accessed, targeting highlights. further fundamental Digital share IoT in expense cost the mobility, learning, I for want partners drive such our will our thank data. Mark prepared our Lastly, total, of implementing we and will I associated

Mike Cordano

afternoon everyone. good and Steve you, Thank

building line years the power spent last our and have product platforms We aggressively expansion. investing to two architectural

these investments confidence in the the where the ramping results that at we now the these we point company's enter have are launched us products of The strongest history. as gives portfolio the platforms XXXX. platforms and are We from these

into our our to Before portfolio on the on we I of and comment to details I'd the how strength of performance, the capitalize calendar like December throughout intend expanding get quarter beyond. year

and or Our a architectural industry-leading-based and platforms high internally manufacturing of technologies, firmware. corresponding controllers, hard heads combination the of test technology with consisted The processes mass-producer drive whether the industry-leading storage to media and and quality. underlying products the developed and yields Flash

to that our growth us allow strong developed prospects. have and our increase product to end participation markets portfolio We have differentiated

across working strengthening capabilities and go-to-market broader our our organizations. the innovate with also customers the in allowing sales, bring end market-facing markets to are quickly marketing, key ecosystem. These targeted our collaboratively to are and products ingredients We us

our expect We markets in of are a to today. greater I corresponding with the throughout now in achievements will position quality and to higher important a illustrate in improvement XXXX. drive value revenue participation few

began associated For by calendar our data to enterprise in we product and enterprise, center predictable revenue architectural the customers standard. SSD within product build the IP this Leveraging quarter ramp the middle in In throughout become due product highly the we of NVMe SSD products includes platform, our enterprise meaningful calendar portfolio to and and be technology stronger our we for successful this expand this upon year. our to an the cost-effective a are capacity to investments XXXX December qualifications helium which of we pull expect will year. This blocks, to platform manner. industry shipping able focused has a based customer BiCSX

our continue hard as XX-terabyte introduction to our of hard of drive calendar drive demonstrated position ramp later year. the and We maintain the ongoing our in XX-terabyte the leadership by

continues position enterprise terabyte Our X and ramp products, terabyte cost to customer midrange geographic with penetration. in our optimized the strengthen of the fueling market breadth capacity to X

which performance We solutions spanning continue our embedded the platform the UFS quality our expect offerings. top-tier of solutions Digital. five product cost of customer also design all and solutions expand through from will on products our reliability for among we've mainstream top successfully of the to automotive, announcements, enable with capitalize make complete address enhancing optimized products high this All it mobile connected quarters. our embedded, SSD throughout position given home, presence illustrated and client surveillance In second in our several portfolio Western categories. this with is half will in base gaining year. to coming developing and This derivative products will wins with and categories the This platform to customers We're and and accounts made manufacturers. industry-leading to being expect within we the announce further XXXX additional our of market. from We've exciting smartphone got expanding further leading eMMC

a taking. equipment. a capital XX% output already of details some reduction Flash investments We to value for The the announced bid in of actions magnitude the calendar with of and in of the benefits broadening I areas of two venture of to market now are we the planned XX% on will XXXX. the accelerated previously realizing the starts joint a of proportion way wafer actions the customer reduction greater of deployment additional years provide R&D product these and is along are of our term base. near participation higher terms of We

and size to need year the the right to to will continue make As we assess evaluate conditions adjustments market inventory. progresses, further our

rationalizing closure time HDD line Kuala almost our costs. other quarters accelerating also with manufacturing are facility by We along Lumpur three

terms differentiated maintain portfolio. in XX% portion presence client and of brands G-Tech, term capacity our delivered healthy Client our in pricing In trends performance market growth Within in smartphone near Demand on leadership lower a in such of to second the sold. increase Devices, basis results, elasticity in the our conditions while a revenue position declined in the of grew quarter year-over-year due each Client devices of year-over-year Solutions We Form aggressive Flash and across combination solid SSDs markets demand Flash contributed our end quarter our Solutions Factor soft. We bits to portfolio. SanDisk and strong during our on WD iXpand. as Flash despite demand and are client up average

key towards the shift at customers. in remains of our achieved XX% term grew quarter. average our the portfolio for higher in SSD mix SSD client over We fueled XXX quarter December Our an in year-over-year capacities our the SSD longer Average increase excellent by view of momentum client gigabyte unchanged. on capacity

exceeded as first compute density revenue and aerial capacity devices highest a data For have solutions HDD SSD maintained our center, leader our the we time HDD revenue. with client the compute In products. client in position

production As XX-terabyte helium the has progressed Steve smoothly. described ramp drive of a

commenced product year. calendar sampling to this to on-track drive first We X are shipments energy-assisted revenue later of our begin pleased this we of are XX-terabyte and solution have generation flatter

forecast of half Exabyte the are first we continue our Enterprise, rate for we calendar of seeing Based stated Capacity and on terms XXXX. record a of second customer discussions systems we portfolios. previously to momentum experienced resume In IntelliFlash to growth in Data moderation customer quarterly Center ActiveScale we our the as In new the year-over-year acquisitions bookings and in growth in half calendar with XXXX. excellent

and in platform We storage Ultrastar also servers. of had revenue our record portfolio

demand position For soft financial in handsets market product over term Year, the the current as Day. to the necessary current customer’s certain New to These are third hyperscale position. market conclude from market evolving many the geopolitical We strength portfolio taking we remarks Investor our quarter by now environment investments expect adjustments Mark customers inventory conditions. affected for to emerge the will mobile call be my slowdown enter to overview. turn products and at the the To include a fully confident of at the we of strength volatility. fiscal is for and our I a and our steps in we continued navigate highlighted in by expected for effectively factors demand near we the our of are reduced

Mark Long

hard sequential December revenue. afternoon per billion billion bit in $X.X good average a Non-GAAP Thank for the the hard lower was Flash of in drives guidance $X.X and was for margin guidance and XX% Flash, and Non-GAAP gigabyte X% gross price you, was sequential included range pricing. was capacity drive below XX.X% drives lower-than-expected declined products of to $X at was offsetting the due a better-than-anticipated the for XX%. mix quarter gross selling less for XX% margin billion. to hard revenue that end XX%. to Hard Mike everyone. due growth Flash Flash a and revenue of a the range, drive enterprise decline quarter with primarily XX% slightly Revenue product

rate the non-GAAP Continued was focus tax expenses expenses with lower operating was total compensation million. And on non-GAAP in combined of variable $XXX quarter which in XX.X% higher-than-expected. operating resulted

tax-related various reform for not result to for in taxes charge tax taxes and cash flow and GAAP-only payments. was the the cash due Kuala of a in income operating drive flow increase builds, in These plant repatriation to almost $XX about quarter. withholding cash and million, decisions future hard the accruals in $XXX free up driven of recorded true repurchase was also the a We for related Operating the December to the expected million the inventory. inventory we to December In Lumpur dividends sequential $X.XX. related are during did by continued any jurisdictions. $XXX foreign increase of to consisting driven million Non-GAAP million quarter term closure. permanent reinvestment returned We all $XXX was lower common sequential primarily near to EPS the the shareholders. by Within quarter, was stock not

repay scheduled At did we reducing debt quarter debt of available-for-sale principal in by $XXX our in outstanding billion overall and payments full our securities and had billion. revolver end, and cash, principal cash balance outstanding equivalents made million. we balance $X.X However, $XX.X

combined As million Steve we earlier, two evenly and the planned split to levels operating line by non-GAAP $XXX cost-of-goods our total items. sold annual reduce non-GAAP expense between noted

our of approximately the And XXXX. sold, planned September per new see see by non-GAAP normal by XXXX. expenses September the reflected operating designed full results we end the these reduce quarter of starting before fiscal expense be to are of would compensations of XX-week efforts the cost-of-goods million to of quarter in $XXX to expenses quarter. non-GAAP within quarter full level base operating variable $XXX December level expect we of actions for expect quarter variable our the reflected results total for For These a including operating million level compensation XXXX the

September the basis. instead normal quarter For of for that will third now modeling have fiscal provide non-GAAP quarter the guidance XXXX note weeks. XX XXXX purposes, I will please the on our XX of weeks a

the billion in Gross one-time other of expenses tax to approximately Interest Operating range the reflect approximately and XXX between effective $X.X payroll reset million, margin tax XX% normal of revenue $XXX $XXX rate to items. shares other expect of XX%. approximately million We expenses and $X.X million. $XXX XX%. and of million of and which billion. Diluted

over As expect the to non-GAAP $X.XX a to operator I'll share to begin result, the earnings the session. $X.XX. of Q&A per we turn Operator? now call

Operator

from Our Rakers Instructions] [Operator Aaron comes first question Fargo. with Wells

Aaron Rakers

your follow-up we've or gotten concerns, a sheet how thoughts the quarter to covenant roughly of mind start balance that have $X.XX of a course last dividend? as on Mark any EPS look the do questions well. I given situation just view kind the Maybe thoughts kind you through addressing and the you of the threshold wouldn't that as of on in so, structure, capital the month at the if you

Mark Long

about Well, can the talk and part Steve I'll the dividend. then first talk about

balance on we ratio, of are have with look focused believe the So flow necessary we cash are compliance as about our our and leverage I'll we certainly currently perspective business. And forward the we headroom we forecast from headroom. we And And to through significant a in liquidity period. the. terms sufficient have in operate and sheet through near Steve let the talk term

Steve Milligan

Aaron and committed we dividend. with regards Yes absolutely dividend to to remain our

And so as that. it's simple as

Aaron Rakers

a quick as then follow-up. And

rate see would that kind high-capacity I line, the capacity expected. think result the worse in next view year-over-year this into business were alluded of the last Clearly more had you the quarter flattish less CSP's the of possibly near quarter to shift. or growth

what's CSP so, as your thoughts looking as as March kind the well? quarter updated shipments capacity the any through of on well the June as And quarter into work view digestion into we

Steve Milligan

first tough view the year-over-year. was our flat the roughly growth of remains what's just as Yes reiterate our half. you half know back same, compare the is growth It in to resuming

Aaron Rakers

I want clear be to there.

quarter-over-quarter pretty ship capacity in notable roughly Is -- a So put flat year-over-year is March? numbers jump right? the into I don't you growth mouth, want total at XX put which to in exabyte that your would but

Steve Milligan

Yes.

zero it flat. year-over-year So mark think growth about

Operator

Our C.J. Evercore. with question comes from next Muse

C.J. Muse

the first of how side and side? question walk contribution through revenue NAND between the you're guess things guide. terms seeing your I in of Can HDD

Steve Milligan

Yes.

in of it's the So XX:XX about an terms guidance, split.

from of current to the the terms - delta quarter our quarter In quarter. past

Mike Cordano

being flat. With XX%

Steve Milligan

Exactly.

Mike Cordano

is line related share Flash related. opposed decline to the the as So HDD

C.J. Muse

a are follow-up, you in a And Is deck as curious to slide price would I'm on you HDDs seeing the in quick across aggression just then just all that. clarification verticals? discussed related and near-line? We that get that love

Steve Milligan

that business. devices of direct was businesses. business any it do drives. deck sort slide solutions to the We of Enterprise standard of our hard client not that other or The In any No. about see the of Capacity external OEM within talking

Operator

next Our from Vijay with Mizuho. question Rakesh comes

Vijay Rakesh

you same can Just the like at on give us and look when quarter the the you hard versus looking as what normal if disk NAND the December color for drive inventories wondering side, exhibiting some well?

Steve Milligan

Sure.

go on mute So can you we're feedbacks. getting

Vijay Rakesh

Sure.

just was - hard levels as exiting on drive December color some the well. can and side I inventory the Hello? disk give asking quarter if So us NAND wondering you

Operator

Ladies and gentlemen and again, gentlemen ladies please standby. Once standby. please

Peter Andrew

Sherry, your on are through side? we coming

Operator

Yes. We're through. coming

Steve Milligan

the I restate answer. will

inventory the hard the with terms million quarter a bills that little both was of basis $XXX levels for of enterprise. was In return a past and closures associated our and and on we function over inventory a inventory our related sequential for KL by drive all virtually that capacity to grew normal

holding Flash. over half hard we year-over-year a $X a more is So from for dollar of we it a but inventory. drivers Flash, little half and have drives, and hard and grown billion, with it's Flash On same basis, it's not have build the roughly basically, the standpoint did And a in a cycle significant drives. function

So position. that's our current

Vijay Rakesh

What has at back half about was I here? the it wondering, that of talked that the has continues come be second hiccups weaker. what NAND second a little hard you disk you've the bit Thanks. confidence come should demand it in one to the in given expectations still look back and side know when both in that your gives data been are? I half. center very should drive, been And you level low at the it's demand

Steve Milligan

have So to remains with rate through it's growth constant. of steady and the services a confidence conversations of of our combination Obviously, It's a is of sort relative number their customers. the direct things. we

some of some So what is their optimizations they system as need customers. for in well group this are to that collectively through do inventory get there in cases, as excess

of a business gives growth that confidence the will for of the those us see a both in factors half the So combination of resume year. sides us second and

Operator

Our comes from next question with Mehdi Hosseini SIG.

Mehdi Hosseini

have I question, one one follow-up.

the least market been in Going to launch, of how that and NVMe follow-up. half design you that able Korean SSD two you've that dominated traction? commentary gain product it new competitor understand and I market. by is for want to I context, and at it to is And under understand better value some the get want that quarter to wins. I'm your have three assumption you're what position confidence to what going NVMe the back dominating I one is gives a And you're that of

Mike Cordano

things. is So the all other guys of preferred we're product There They stated the two bringing a two the terms the share. relative to in diversify. And you sort of of competitiveness. market motivations. of its One of with quality lot is market one

factors those from significant. pull rather and a on is customer there two base So our they're

Steve Milligan

we to other mind these I in have that they product across are add the traditional that deal spectrum. to keep customers. this the I and that our thing Yes, is mean Mehdi with would

we're start the product able time the pre-existing have arguably a them We We are given anyway at good and to so pretty supplier our head a cost. with to right relationships. right the right deliver known

Mehdi Hosseini

to with been has in follow-up of going do you wafer ask amount a to agreement. cost-plus And certain to just to going I'm supply arrangement. answer wafer in my relationship a obligated this. you to we're been and feel Historically it's free and And TMC how you've purchase

not these in making the in forward? about everything the changes revenue you're and prior we second relationship? there based Given assume of both of going XXXX, Is of would sustain contribution backs context all how looking arrangements the should we should that process on room party benefit? realignments SSC And are the NAND that starts on the that half for still wafer cut where and think and are

Steve Milligan

things. I'm the two characterizing So No. you're that relationships sure right not the way.

to our throttle start We own. wafer have on the levels our ability

they fixed are Now certain have there costs incurred. that

building, pay example costs the some setting infrastructure are directly up of for. For don't pay the that we that to building, we obligated still

And kind we through the starts be. cut for essentially. you doing and us first on last this that demand talked earnings needs characterization and at cash is a perspective year were from are that level economic doing relationship determined and in economic we But that which this continue favorable our the of perspective our your supply half the that of economical process not about cash we'll from evaluate and it looked the from given will call more carry of broad to when to what consequences perspective And wafer well we was so to from a we of quarter are that situation your correct. the

Mehdi Hosseini

together? this a Perhaps downturn, will be, bringing talks more need question a the And parties for the is close relationship? opportunity Everyone consolidation. for two better the about current would

Steve Milligan

appreciate sure speculate to going not I'm that, on you that. I'm Mehdi, that. Well

Mehdi Hosseini

you adjust and dynamics to the better Would to agree needs that consolidate supply industry industry demand? to

Steve Milligan

call to going not questions comment next going I but appreciate Mehdi, to questions on please? to we not for your Operator, on comment the I'm go that. I'm can that.

Operator

comes question RBC Amit Capital next Our with Daryanani from Markets.

Amit Daryanani

time HDD well. have to. I'll got that slot that the four the on Steve margins and questions of think XX%, I surprised gross I I since I by Hopefully, don't I've the time. I'm guess, stick side as seen though two

just gross the margins there? path on HDD could do you the see going And the on over you XXXX? side how on what's touch So of

Steve Milligan

higher-margin two lower enterprise which disappointed weaker not we're And by in or a Lumpur profile. capacity level only Kuala reason enterprise way hard And It's by mix, is to capacity space, reason closing a HDD be upfront. burden Amit. of of by acceleration we're happy one, obviously the of it the reality we I'm with driven but drive the carrying the are why question, that. the the it, margins. Fair cost there. which things: No. is drive the closing carries I'm also just not hard and

capacity of And to closure mix we'll improves facility level half the levels more in are and the that the so to as see back acceptable hard we on traditional space. a enterprise drive finalize the margin of year, return and those

Amit Daryanani

to the do soft given and improve March quarter ramp-up year, do or And guys the margin ball things think if start you could just Digital somewhat you the think all have all I everyone’s trough extent trajectory at are they quarter you another initiatives doing? realize reductions the gross before cost you crystal in be the Western and cost the think the follow-up, Do cloudy up. the rest could margins reduction are you these How to of that June out backups? days. of for But to look and in guys gross aggregate from see

Steve Milligan

Well, a you let me bit. little give

me your I'm broaden to question. going answer Let that question.

out. how bit little see XXXX a talk let's playing So we about

line So let me first. talk about the top

So general terms, but you. that to next our speaking QX of fiscal quarter I'm going will expect and we would help relatively all this for

pretty fiscal Our revenue what expecting levels QX. for we're to consistent look with

the And other bump capacity of terms in as well of capacity additionally, volumes resumption call customers enterprise of in that to and normal terms terms half our buying in back Going both of hyperscale of across kind seasonal reasons: to as improvement would expect then in enterprise. it we will as revenue board Flash principal it begin improve our let's our into for more patterns revenues areas. call of year the one, return growth two the a in

So our will begin revenue to improve.

for this because I'm quarter on terms were And one question Inflated the will that a quarter. got of because December talk as beyond away inflated we've be. what taxes to different that reoccur on Now that really that for the quarter. bit couple then some move we about March expectations, margin in other It's kick reasons. comp, Mark little the start being. I'm kind or credits a of to touched wage of inflated the this in in in people terms OpEx. FICA your quarter go it is going would that OpEx we going variable it's inflated normally a of an had -- the fiscal QX, compared of it that to quarter through will thing not in is higher time

why little that's odd. year, we move that but the compared operating you that in a of of you expense that the in of we've So benefit then will taking full that bit see be will will When realized a balance will one begin September, – looks the of actions the got June to effect that more to be quarter.

complexity we $XXX of XX. versus So XX the September operating starting as expenses OpEx quarter's September will will quarter. weeks million a be one the to After trending in down we year move the level through have

is others always Flash need to perspective. from perspective all that keep a it modeling determine. we mind to From difficult a Clearly, a really So wildcard. margin said, to have from to is continue the through we going which the pressure with what the that in under And half first supply is of be we're expect year. as that and demand move consistent perspective, we

second will calendar The the I'll it's assuming It in XXXX. area that to through persist I'm what assuming. little that to happen, to doesn't we margin that assuming say, we mean pressure half you what going going but harder you Flash a tell are we're is is are tell but

to weeks with don't that make XXth know level it's nor from of words fair we are visibility can take year and new out as is us fully is our how quarter we production improvement perspective terms play in a as from have through look going can quarter out That's get to or amount in expense September for the a year clearly, the But we've that associated the EPS challenging is planning will XX-week for will cost exception bias, next so XX that Now kind based we supply our a we're it OpEx modeling do say get terms don't – know that answer. back sales. to terms worst outlined of perspective that a of the planned when – weeks. that you always an and is within of from quarter cost we system. thing we level perspective a already leading with actions that it's Flash in either calendar we not how doing week have right XX going demand and the look we're like of this purpose to long competitors. lot then, upon because expectations. one is that of accelerating we the move demand mean that that want - of that's principal now. the move is obviously financial of What our control one have through With we the fluidity do I'll conservative really of and of of other that to in half control we to expense a for But actions in that performance. we some complete obviously call in of have we not actions there year, our and uncertainty I current got And kind which a the taking probably EPS how we up

Operator

Ackerman Karl from Cowen comes Co. question with next & Our

Karl Ackerman

how exiting an extract which correctly, expect you. expected SanDisk are you integrating COGS end into $XXX from where growth million I reinvesting to market? if you calendar strategic then from? from you Thank XXXX, Secondly, equating the remind I rate of largest savings recall Thank two you the about savings that the those previously And of I clarify million. savings $XXX we all savings the gave. just areas million did XXXX called lastly, commentary you on I me, for margin of your what But a assumptions your Steve - Could you or how $XXX the these beyond OpEx much combined incremental gross that. and clarify appreciate to please to run through should are XXXX? think buckets of want you of wanted Mark incremental to out on

Steve Milligan

the first straightforward. related In to of question the previously announced synergies. are the incremental relatively that SanDisk actions the entirety is COGS So

were So we -- targeting that XXXX. will

our our And then, hard big HDD COGS KL related overall the an these are other are those. drivers COGS terms associated in rightsizing And from a with our the improvement And the these and second footprint. drive think the we side. primarily just of first about and acceleration expenses so in then driver standpoint, when on closure the from of is separate primary focus

side. is majority vast the with drive the hard So associated

main those think asked. Was you were points there? I the

Mark Long

have was follow-up I I cover I You question everything? was answer. -- a have think I that. there which going lost. last was do we there? a to missed There I'm sorry

Karl Ackerman

reinvestments. The

Mark Long

reinvest. Where do we

Steve Milligan

Yes, we other comment Reinvestment. Reinvestment. Yes. so One things make let me sorry. that. this I'm point. on

been things the that need under pressure. question to is that. do -- there tighten I it's no market. of One obviously, belts, about we challenging have we are a Margins mean, trying our to

our tighten do everything to belts that. and need to we we will So obviously do

our One want used of do phrase we nose of cut right. this the don't off as face, that before in spite our to things I've

to don't in unreasonably terms want product technology curtail offerings. our fundamental investments we in So of terms of fundamental or

to short-term either long-term will our not than our present like So areas trying or push making will at we're on competitiveness. those fundamental and we cuts other that that where believe things efficiencies are we hurt

with do cuts we're even as the said, that what aforementioned will both being we evolve, continue that we to expenses. believe that's evaluate. that and conditions we cost present Now making and that can we're trying in At market to do

Operator

comes Deutsche next Sidney from with Ho Bank. Our question

Sidney Ho

guess technology you the that I and changed I I X.X versus X.X year. assess of Can $X you kind maybe what wafer talk CapEx just that terms about additions of JV that understand capacity to assume planning of CapEx transitions? to about hasn't billion of in fiscal you another throughout XXXX talking within cash budget, previously are more

Steve Milligan

So capacity. we not wafer are expanding

So see that's all tech you us. transitions from that

Mike Cordano

billion $X.X And for just do to in for continue range expect to $X.X address total fiscal to to billion the qualitative we XXXX. that CapEx side, cash be

Sidney Ho

you bit that between calendar can And per of first normal Analyst of the slide in quarter talked this other maybe supply In road And at crossover? in expect remind Day words improvement to says that see Thank sometime in any map are BiCSX us in to supply technology happen the gigabyte showed you terms quarter XXXX. you. cost you lack layers XX Is prepared crossover the a and in then changes a of there year? three your to is you of kind what my question about gigabyte follow-up per do cost your calendar crossover bit in remarks XX this that will layers year. QX

Mike Cordano

the That And we So the to to to technology really crossover answer. have gets bit a benefit the But earlier. normal. transition you try let of the is transition continue me get crossover. to that's fab

XX cost And notion XX. So at over we as year the layer more lower XX talked that long-term the range driven BiCSX think end of is this we've and between the is of normal. and that output. this production standard about to of We down get is our and

Steve Milligan

NAND absolutely to the So, standby per Investor Day, bit from the going and lowest a we have to ability back perspective. – cost our

So conviction that belief and remains.

Operator

Our question Citigroup. Suva next from with comes Jim

Jim Suva

that if XX% gap. what to if cost-cutting you're where Day now those can or proactively of back that help to are a believe term or margin your the actions month perspective longer industry map you're gave you. kind us you guidance get of at I other Considering there from changes I'm XX% last doing? Thank gross to Investor or Is gets some to a is that compare XX% us and the you're table? looking doing given of a you at so quite timeline gross correct margin kind that road

Steve Milligan

No.

lot standby we for periodically side margins that range. HDD our returns on focused overtime out, balanced the our Investor we and Flash cycle, I are will because improve the XX% primarily operate as to the we range. normalizes is Flash back haven't think our financial But will the XX% a we gross the we highlighted, below pointed structure that as the target to for to get long-term timetable believe continue that. operate reasons that we periodically model range to given Day. our of Steve of said And of towards stage, market cost we designed are and stated a head the of above at a as Currently, things, range, actions we with below we but

Operator

from Our with Wamsi of Bank Mohan next question comes America.

Wamsi Mohan

just long Steve rest QX a of this was was down that one quickly of quarters in thinking you're your very weaker flow flow free fiscal drive time. the XXXX? work you free and how can company's wondering, cash from the I ability Lumpur Kuala to about how And the inventory in cash build?

Steve Milligan

absolutely words, the going as That se. I'm our QX. talk priority. current don't quarter per were take now, to you in cash absolutely challenge. right. I I our I to mean, a more going saying you're team But are team, pressure. as flow neutral one obviously, Certainly, that free for challenging under we for that terms flow cash free number I pushing positive were cash it be compress flow. we if remain about slightly -- flow So what essentially the is cash flow is quarter. Right flow that earnings not free that, you essentially guidance the fiscal were on That's pushing other mean, can am the cash cash well tell

operating before activities that are of of standpoint course, have. the free any our or And whether from we debt can flow so debt we might looking economical maintain inventory pay-downs at position And levers any financing dividend an a to neutral cash we -- that's perspective. all payment that's from an

call at in modest are free mean quarter. relatively March cash in our so that successful we'd operating decline of it I'll have aggregate And balance cash perspective from an flow we that maintaining would kind the ending

focus valid very team. And with my standpoint it high-priority from a challenging the and and that But ourselves. accordingly we're where that's remains rest of So on much of you're absolutely to management the right.

Operator

Our with comes from Sachs. Mark question next Goldman Delaney

Mark Delaney

question hard on The drive is enterprise business. the

came at lowest level model, my at the Looking I acquisition. HGST since in think units the

the any know lot about if critical and in could still prior business market there's to call. already and been But piece discussion So weakness you that so hard a I portion going that is mission new the is of view WD’s critical that's be that to your curious the the longer about critical mission line talk of how trending? is of there business. tail of of mission of drives a maybe on enterprise you has share think related

Steve Milligan

No. We've talked about previously.

developments new from We marketplace a have exited standpoint. that

We our near are the production tail from of getting end participation shipments.

investment in SSD and prioritized So areas. other from enterprise that we standpoint

scenario. our of share an the quarter reported, – that's shipment overall market the end So really seated but probably standpoint, of some share end from in our market we just life about

Operator

And Munjal next with our Shah UBS. comes question from

Munjal Shah

mean, channel I had do type inventory two is your then see customers the and the did quick ones. characterize the what trends How in at you levels? exposure demands, what you China, current on you would of And see demand at any there I and there?

Steve Milligan

me comment. Let

the think certain the amount quarter. that's we we a came customers channel inventories substantial muted end And I slightly pockets part as So in into and inventory there's of see at are elevated. demand

Mike Cordano

And that. China are In of it's guys think anything of kind that sense. in we've that certainly, what the a we've generally environment a that's have seen unusual in kind from I And don't don’t about deviates board. - smartphone I across or is words of kind mean, enterprise obviously and broad softening people other talked seen business. I

in that So just kind nothing to out highlight. a of general particular weakness stands but

Operator

Thank any to like closing for you. hand I would call to over back now remarks. the management

Steve Milligan

look very continuing us you thank we certainly dialogue. So joining our much for forward and to

have the very great a So day. of much. rest you Thank

Operator

in gentlemen, Ladies for conference. and today's you thank participating

You day. may wonderful a all have disconnect and

Western Digital (WDC) 24 Jan 192019 Q2 Earnings call transcript