WDC - Earnings call transcript Q4 2019 | Western Digital Corporation

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Operator

Good afternoon and thank you for standing by. Welcome to Western Digital's Fourth Quarter of Fiscal 2019 Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

Now, I would like to turn the call over to Mr. Peter Andrew.

begin. may You

Peter Andrew

good and Thank afternoon. you

cause based Before we such today's plans, does to assumptions outlook, that include risks would contains I trends expectations forward-looking as financial business like discussion these expectations, uncertainties obligation information statements everyone results with to the actual development current for Please more uncertainties. begin, including and our that Form most assume no statements. on filed management's We recent upon the XX-Q and risks on and and and could to update materially. differ refer financial product report to SEC

materials We the are the in Relations to non-GAAP reference are being non-GAAP section between GAAP Investor website. of comparable today. other financial measures Reconciliations press will that also and the included posted financial make in our measures and release

that, to will over With Steve Milligan, turn call now CEO. I the our

Steve Milligan

today Chief Chief Thank With everyone. you, Cordano, me Bob Eulau, Mike and and and good Peter Financial Officer are President Officer. afternoon, Operating

ended operational for We midst fiscal client building on its portfolio with began strongest on delivered and the company's presence market and in in the both history. market improved the of further The accomplished execution, and this efficiency SSDs of challenges enterprise all expanded momentum both focus significantly capacity product enterprise the various Digital in team and fronts. SSDs. geopolitical Western maintained We our a XXXX

higher on to enterprise. continue the In margin focus we namely higher the hard capacity portion drives, growth, of market,

us our of to exabyte market In strength drive due our Our capacities across the range breadth gain technology with the portfolio. of share. combined enabled portfolio XX-terabyte doubled a shipments client leadership we by our of flash, SSD our demonstrated to

for in both our XXXX latest growth hyper commencing Memory NVMe us Toshiba major technologies. area JV will the the current transition invest I'm scale agreement at quarter XD its in Corporation, a new revenue also continued in with for announced and is space OEM strong and beyond. partner, we our ramp this KX formal positioning May, future fiscal in the fab. needed to customers, to In facility pleased flash This jointly provide product that enterprise flash

drive streamlining On the of hard front, accelerated footprint. we the our manufacturing cost

significant our operating expenses, We in additional will progress details. made provide also Bob lowering and

In sequential the we overall terms ongoing quarter in of our performance, enterprise were our results capacity revenue the June to XX transition hard growth. In drove within terabyte meaningful drives, customer drive expectations April. provided

sequentially revenue was product as In than improved flash, mix weak more by an pricing. declined offset

environment our calendar demand second intact year hard for of drive remains stronger a the for for half expectation XXXX both Our flash and products.

Huawei and we to products regulations BIS the have to flash Commerce Western and for I a three Digital time. in shipments restrictions US remain license provide for stopped to those entity Huawei started activities Department's were the shipments we Mike, call hold. not do that laws Before inventory. the list determined on the But list apply and on subject additional the to discussions comments previously are products Huawei, or for to regulations, with and resume the relevant we its Industry Huawei list. business BIS added resuming that those of Bureau that that I of the After qualified to Digital's Security XX, Yokkaichi hand entity mid-June. applied activities. Huawei to topics, Commerce Effective some on want JV at May to over Department entity the fabs Western

diligently Western activities. all now, to operations. a on teams power output TMC. June unexpected impact fab Consistent fabs Turning on exabytes wafer with the returned production loss the approximately the in nearly of have of contained of quarter. TMC wafer Digital that expected the And outage of normal at be Digital, for recovery disruption flash to operations occurred Yokkaichi most output fabs, our caused XX, Western an the worked operations comments, to equipment Since has in with affecting X September by prior the fabrication of facilities the to operated event, as and the

will characterize of it that calendar any reduced the too early stronger by As be stable With Mike still will trend, a able business. substantially to largely and be our estimate will based we September for environment pricing inventory, It's are we more but industry flash revenue explain, announcements, environment, this recent impact to any December seeing as end we and excess inventory anticipate a we the for quarters. mitigate respect on a flash demand year. to

market we summary, conditions. In are successfully dynamic navigating

drive hard The trough. market drivers our we increasing well growth data cyclical has reached opportunities business value, that is and secular are a key flash of believe its performing Our of business and strong. trends the

Western a company look to Our we ongoing Digital our their for progress. and footing reporting and forward our continued on transformation support. solid into the I want data infrastructure team is partners on thank to

With to that, Mike share highlights. business now will our I ask

Mike Cordano

our We fiscal Thank like products, in perspectives and strides maintaining particularly enterprise enterprise drives, and capacity I'd afternoon. offerings. and Steve client on Steve's you, product significant while in begin SSDs XXXX. portfolio, SSDs, made amplifying strength by broadening retail embedded good our to strengthening in our

density lead based the we’re were XX portfolio of calendar enterprise layer the range In and XD the the standard. commercialize of first across will successfully established remainder In implement XXXX. drive in technology to assisted flash, XX continue terabyte our a first of across fiscal And XX we to our it our the products. our technology. capacity on in recording We and announce rest the to XXXX, energy industry as we XX an expanded terabyte aerial products

a will capacity products quarter. digit XXXX, broad the for growth XX% for Data of Center Devices growth year. confidence industry our capacity this have to resulting adoption in our mid-single half Solutions, shipment half June in and Moving In our share calendar expectation meaningfully exabyte for year-over-year demand growth the XXXX, a highlights of high stronger exceed calendar enterprise first exabyte of we new outpacing calendar continuing that with gain. shipment exabytes second Coupled for the enterprise drove

our signs some supply seeing capacity are constraints portfolio. within we demand, of product strong this enterprise With

been capacity enterprise drive at offering have accelerating that terabyte some skipping adopt leadership the drive the XX hyper terabyte of market our this invalidate rumors suggesting point, And virtually XX There to capacity and higher all our those performance further customers complete generation with adoption customers. extended our terabyte terabyte category. demonstrated are OEM XX in XX capacity the qualification claims. should but are this activities Our scale

drives current SSDs, our I'm our year. calendar revenue customers and at ramp NVMe internally this platform enterprise pleased CMR XX In recording is first hyperscale assisted addition, XX In developed to on that in we're terabyte quarter. energy introduce SMR track OEM hard the terabyte commencing and later

Next at additional we Summit, be the implemented with week announcing NVMe enterprise Memory will BiCSX. Flash products,

over fiscal We product XXXX and course expect a of enterprise significant beyond. acceleration revenues the NVMe of our

surveillance Devices, be term continues Client HDDs. client Within to driver for long a

We are meaningfully portfolio. the in drive of surveillance expect In September revenue our transition we see participate the leading strong allowing drive this a ramp managed with managed quarter, area to us to to compelling products, SMR. SMR

based shipments SSD revenue. nearly products SSDs, client of For our representing client grew our significantly, of NVMe XX%

unit to have As capacity increased on SSDs are higher year-over-year the XX% of basis. price seeing our and migrating points per a capacity customers client declined, we average points

mobile per expansion our September capabilities. category the capacity success Due for during capacities quarter with Client in and NAND participation mobile continuing the broadening the embedded, and devices automotive in offering our our immediate we XD external including to of reduced In in grade Solutions, strengthen SSD product, pleased very and unique conditions with a further expect announcement of In to participation share. in we sorry. with see I'm we flash geopolitical Average unit recovery our product mobile market in are to portfolio, dynamics, and continue quarter. -- the our market our June

make would Huawei. comment like I to now on a

shipments stopped resumed As having Steve a for about month, shipments. described subsequently to Huawei previously, we

a stoppage, in of we As estimate June revenue quarter. the was $XXX there approximately impact result million the

Huawei near ongoing given uncertainties, been our reduced. term the opportunities at have addition, In

further power our in share. preference their in solution SSD us Solutions, pleased flash of position. our maintain to our Average devices expansion and our we Client The performance of grew for per reliability market our customers’ success our capacity very leadership year-over-year. for allowed In continuing external category unit and were the brand XX% with with

From share a Steve will operations. supply mentioned, and additional as few Bob perspective, financial resumed essentially a the on impact I flash normal JV of the will the implications. fabs power details have outage provide fab the

wafer We of Digital's availability of in a anticipate Western prior with exabytes, flash estimates. approximately X our consistent will the incident result reduction

constrained with working balance we're their to the customers supply, calendar demand. of align XXXX, our For to given increasing closely

XXXX, the, calendar low we in estimate For flash supply range. industry growth XX%

expect flash exiting bit our BiCSX, quarter. of ramp progressing the technology, September flash well we XX technology XD is to and the layer Turning crossover

lines We before of BiCSX offerings calendar in technology each product the of end expect XXXX. ship to our

beyond an formally in the industry called and open the which next demonstrated based of level initiative, June Zoned Storage. was Looking memory standards with an flash normal This will approach summit important and source week. is further announced discussed driving we're course be business, initiative

great perspective, benefits the customers. and a deep NVMe expertise system IoT. Zoned scale data include video, technologies together Storage economies QLC our key such utilize for a storage SSDs, including is total our offerings. of for lower the and artificial deliver a machine The level the Storage as our of From of learning Storage of example what power portfolio drives applications intelligent and intelligence, greater and customer Zoned and Zoned hard placement, initiative both cost SMR of combination brings ownership, in of will underlying can

platform continues data. on year ongoing address summary, increasing presented strengthen a enhanced we're and in positioned product are the significantly capture combined of in a fiscal to by portfolio, opportunities variety Western the The structure of market new our focus and well cost growth entering expense perform to drive conditions. with value and execution, In persistent Digital with to leaner we a the and and

discussion. now over to financial turn Bob will the for the call I

Bob Eulau

basis, experienced client drives. the quarter declined line Thanks, applications. Solutions growth a the SSD good from that Devices flash June as the everyone. strength in billion, Data in continued market Mike April. HDD slightly with Center was in we to were offset for provided for in X%, and increased Revenue enterprise as declines announce quarter. and by and results On slightly, client expectations $X.X Devices down quarter was sequential mobile the our Client the revenue I'm in March afternoon, June revenue capacity pleased

revenue up June billion demand sequential X% for $X.X due revenue flash X%. sequentially, sequential capacity $X.X quarter, of was average flash price gigabyte bits the lower to pricing. selling a decreased per revenue drive X% enterprise Client In strong primarily was drives. Hard by and billion, a in with Solutions X% led decline of decline

Moving on to costs and expenses.

June the a All of be XX%, was the non-GAAP margin will to XX.X%, hard Hard drive gross related margin unless to declines facility. for with in stated comments were a of Hard the gross surveillance XX%. otherwise. margins and the drives. margin drive margin Kuala quarter in below results gross my of Gross discussed margins full margin quarter December Lumpur due from previously enterprise offsetting of improved capacity slightly will our desktop expectations benefits flash show drive and closure gross the

a our $XX of underutilization from the revenue Excluded late was venture in planned joint related cost million final announced that calendar the charge to we bringing XXXX. this flash portion an of program end of fab, to the

GAAP revenue operations unexpected that cost only to of in outage a $XXX charge the took we and manufacturing quarter, power million of Yokkaichi equipment the facility. flash impacted for This

$XXX additional an incur this of the to related event. to quarter $XXX September expect million in charge to the range in We million

paid $XXX outstanding $XXX $X.XX in dividends shareholders. our and was was result of million. in partner the end At our billion low we was the with be for recovery progress this losses of were Operating the our billion. gross end cash Operating In continued and the June the of our quarter free on quarter, vigorously to June cash cash flow $XX.X debt a our million, our of cash million $XXX million associated quarter, guidance pursuing have and expense negative we and expenses targets. $XXX reduction will as at We event. equivalents flow

to especially be equivalents and $X.XX with debt amendments cash continues covenants, position just to April. have of undrawn mentioned concern I cash the capacity. no I agreement the liquidity made regarding in billion revolver very the given Our the credit strong and our

with maximize forward, be our priority value. cash our After free business going to priority paying generate reduce first gross will we to to reinvest shareholder our cash our flow our the As will be in long term dividend, leverage. free next flow

closure. built the Inventory to scrap the inventory sequentially primarily Flash dollars approximately fab were Lumpur inventory Hard at inventory due a million to decreased as billion. power enable work-in down outage. the drive Kuala result $XXX also of $X.X facility to of the due drawdown inventory of process to decreased,

flash September both inventories We decline to expect drive the and further in quarter. hard

for fiscal a the quarter week the quarter I non-GAAP Now, that our will note a of first Please guidance provide XX XXXX will basis. period. September on be

$X.X We expect range the revenues billion to to $X of be in billion.

We XX% fab. note with this million expect approximately to that gross KX be costs includes range $XX associated of the in startup investment XX%. to margin Please approximately our

with on our We're announced $XXX million the be million million approximately quarter quarter quarter. target quarter. a track basis. lower $XXX with $XXX XX original to our revenue on operating track cost September XXth to and expenses previously by in will $XX expected a the Operating the The in add per between $XXX difference week on We're by of reach basis. million the XX to expenses week of end September of are million December week on

interest of XX% expect and two we expense other the and to $XX million points. or plus rate approximately tax minus We expect be

result we a of As share of XXX diluted per and this $X.XX, between approximately fully assuming detailed in shares. expect million earnings $X.XX guidance,

focus. me worked always all prudent you of you in one been of management of who've my key those know with has past, that For cash the areas

in cash, include flash Total capital sheet, net along balance the for the at CapEx notes cash joint our change expenditures Western ventures. our with Digital receivable on

capital drivers total on from cash reduction XXXX. for financing equipment preliminary billion planned for for in in an JVs. in timing For deployment, previously announced than $X.XX expenditures are which the the and increase key payment estimate fiscal our in significant slowdown for cash a is the the expenditures XXXX, is fiscal capital million, capital anticipated the less $XXX our The lease flash spent total capital reduction the

to as over turn position about the note like I'm the call the fiscal we very I to I enter year. the would new excited Before that operator, company's

be ramping have our For strong our Digital. platforms capacity me, HDD it personally, successfully maintaining applications, enterprise retail is in at client clearly while we Western time our of a and Flash, presence. part the to in We And great business. are NVMe enterprise business the future. that There momentum look we to stronger cyclical financial are as the we have seasonally reached and deliver the signs entering in Flash conditions My ensure the of trough, now calendar market is part to discipline that goal are year. maintain the best results we into for

With operator to turn the the Q&A session. will the to that, call now I Operator? begin over

Operator

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

Aaron Rakers

can, Two if real I quick.

So think hoping of business, the for gross we we first see relatively more of play the of higher we I bit gross out, kind in the think your margin that assumption should margin, I'm cyclical the the of think a this with quarters? but how all, trajectory given underpinning next last to this drive flash can the do about granularity was think disc on current the you weak, just story quarter, that gross us of we And moving little hard quarter. versus as that about gross expectations just margin then how for quarter, over current couple margin how start the not about provide trough

I do follow have then up. And a

Steve Milligan

Yeah.

Aaron, little that bit add So then of I'll a and color. address Bob Mike and can

that you you're the we expect in of know XX%, go Aaron, In familiar us, say well to range, HDD be XX%. our with margins, of terms XX% back margins gross kind historically, if I gross normally low would

range. the we our margins like this year, into that certainly So where would and move begin more as be. we would below back XXXX, of we're And to move that we gross to through operating see balance into we'd expect

our kind that that's from expectation standpoint. so of And

as quarters. over will say down on we similar of last a kind that's that fiscal And XXXX, of where we're I through see maybe environment. seeing now, the gross be the hard. will we're balance But a upon we've to it seen -- similar what environment flash performance, that, Flash, the more would profile let's to stable several would business roughly expect lot slightly improving an range, to well. we from And depend going our move say margin pricing we of as pricing right at

Mike Cordano

Yeah. Bob mentioned And Aaron, this. let me just and add,

desktop transition category, is just really a desktop we're reported drag and surveillance. our in of the so so in quarter on the midst So the the in product

So of and beyond. that this HD was a drag back the to And trending half to expect HDD we just said, to Steve margin. in see reiterate sequential what margin year up

Steve Milligan

thing. add I’d just one

mentioned headwind I KX quarter, again quarter and throughout the in startup in on fourth saw some first year. will this side, flash improvement, a costs, but have thing we other the the the do The which we are of is fiscal see we expecting

Aaron Rakers

Very business, differs in notable X% then shipment your on follow-up quick just I things here tonight flash think, of basis. helpful. on results And capacity is as the the real kind down of sequential that a one a the number

and Hynix think like Samsung XX%. XX% I First, or were

I'm lack about differential. Is far of your Is discrete bit as growth it is in of the of quarter? So what that the it Thank how your participating you. driven? as And Huawei into you curious think kind expectation September market?

Steve Milligan

Yeah, a both mobile my talked the see has in And that around geopolitical Aaron, profitability we really business about impacted but script, choices also some standpoint activity, the impact was lower as some so it's category. or favorable to from ASP. this didn't I

side. the the bits So spend through the shipment two we we've And bit we of obviously, progress to more places delta got our on year. think calendar those our drove interesting as

Mike Cordano

correlation segment. in in Aaron, as point, ASP I than participation the in our notice a our terms and which reported mobile -- data direct lower of meaningfully And Yeah. that decline well, was the area other’s flash sequential you'll mean, you this there's can numbers

Operator

of America. from question of Bank comes Wamsi Mohan next line our with the And

Wamsi Mohan

here for that forecasting Bob, How is driving should the tax the A that modeling tax for And QX follow rate in rate quarter, have the should think year? -- we a about be for the and quick I is how what quite we up. you're high. that of rest one

Bob Eulau

the Wamsi Thanks Yeah. for question.

tax forecast our the a our And actually here what right of at year. do we where But now, somewhat beginning why profitability as going experience the the so rate good expecting year, we're to improves. is improves, have setup very to we given actually, that is have fiscal So the we we're profit around we at, the for make forward, rate we the have is rate tax minimum as in that's down. some as payments we move jurisdictions come that our certain to world, profitability inflated

Wamsi Mohan

And broadly, just on you've more Can bit more one a the then a a more for EU. tone this of you areas you're as demand And little noted quick up specifically, what specific positive on Huawei well. demand signs address follow seeing environment. around

there month, shipments, said the been You lost here you're stoppage have as XXX sounded a of doing that not rate. you but shipments about might like of million your at for for sales resume it flow

So you to rate you’re maybe reduction be the September the at what in quarter, here? relative expecting are shipping anticipated foreseeing that to

Steve Milligan

look year. at I get we growth overall flash, the end for both the market market in Okay, basis, us. back the an we data We both at and think half and specifically think there's we of HDD level into possibilities, on strength the way growth, see across center certainly as

the and historical PC flowing cyclical We continued demand category. also through see normal, resilience

capacity to than be that demand, on good, in first half of terms in second demand. relative And terms speaking, half. in trend unit the mix basis, that we also in was generally the mobile see of is it of continuing stronger a both So but

So that's theme. the general I think

across And tend see continuing normal way. forward. robust data that moving the capital markets behave expectations is then So obviously, spending to show we that do seasonality center to

Mike Cordano

from some Huawei, the to shipment we they in the resumed And we when have at of moved list the rate we resumed time noted prepared our relative to so shipment, impacted their shipment, during by components international the when requirements Yeah. subsequently the other remarks. But reduced competitors as see it Huawei, sourcing a that them, that was were and contemplated not sourcing competitors. we entity

Operator

Harlan of line the from Sur comes question JPMorgan. next with Our

Harlan Sur

year industry about outlook shipment very of exabytes I'm math petabyte half. correctly, That growth versus year-over-year enterprise first in capacity, the the the If your XX% half second for doing strong second -- so the acceleration implies HDD, half. in That's XX% XX%. full consumption

about And this the First implies of all, half. shipments enterprise is this strong capacity right. second in

data limited strong center, pretty Secondly most uptake, large just or of US the and cloud hyperscale is, based the broad across cloud to guys few.

Steve Milligan

We so the think strength I we're really And general right. in the that's rate market, think growth. growing the market. you're Yeah, do rest at than about reflective faster see a I our of but of

Bob Eulau

Yeah.

XX% growth, that our were about we the not necessarily So was talking industry.

Steve Milligan

Correct. if But on, to your at half is half look math comparison. you

Bob Eulau

math. our with consistent is XX-XX

Harlan Sur

Got it.

see terabyte. And more margin appreciate think? traction initial good next Is the gross it good Okay. to higher these revenue NVMe year? of win will start the a you traction, in related this I design profile it XX show the that when ramp first products mix up On half of quarter commencing enterprise to is as December quarter, calendar impact, margin

Steve Milligan

impact positive think forward. we I of December as the there's accelerate and it will sort quarter some move Yeah, in

Bob Eulau

Yeah. our do going that, to aside what margins, forward. And to placement and bits putting the also allows thing other of is it de-risk us diversify it'll

Operator

Cowen. comes Our Karl from next of Ackerman line question with the

Karl Ackerman

I me may. Two Thanks if the for ask question. letting

XX Mike, your much is and NAND on about now that SSD demand or electricity, your you in to businesses, a making effectively to rose I'd transitioning consumer progress client X year-over-year. Steve great on indicated to XX% how you've your First, And ask layer capacity NAND in SSD client like prepared half I called relative made think SSDs guess out hard more you remarks philosophically today. drive NAND. have been disk you businesses basis prices economical cut that as year-over-year

Steve Milligan

into this part is market. X.X. the penetration what and there I But think it's pricing of we what think X.X into these we've long client the was continued combine HD tail PC be seen and we both way sort as HD the predicted essential about assets, so -- regime will SSDs I historically of that, Huawei think on of move reasonably this Yeah, back assets, to

as sort continues of in that So our recognition Obviously, was with footprint, manufacturing made the of adjustment planned. we in that.

as So moves are of sort standpoint, other into planned. profit HDD its I we're stages of within segment, the of business to shift that grow the side. the progressing from things maintaining advantage the within And think the transition to situated the delivery generally later one it well PC from other, but on take as our SSD

Karl Ackerman

areas, be going guess, industry appear production idling I term near after my I relation And how we capacity bit to to structure? think going assume imagine low-XXs, wafer would share when supply that's of the number. follow-up assumption we that, earlier, or the NAND be as which implications mobile, higher? Korean guess, as cost in about your question, regarding think after about that bit how in peers certain how in should should would some I But a own guess supply of receiving I'm as of I number, market our think regards South I about described we mid-XXs share to we curious and term? longer your

Steve Milligan

Yeah.

I think capacity carefully we about on the of very think is relative So to focus things share. one

a I upon sort term we’ll is see current Right. of think we make economic conditions position. and The market we remain more tertiary. competitive based decisions short in quite

that would underutilized a our economic made ultimately, that had. ago in And able with than ultimately, year have inventory overall with So place the us we way to quarters bets we the gives the middle us comfortable otherwise we position several to of run outcome. brought a into a overall better decision we're were better

Mike Cordano

were quibble did not I at it wording, And that the -- mobile little Yeah. take a just of that bit that market would determine your choice business. the say market, would I economic share make to we with in we effect, that not seeded prices sense in to

And so it went that market was as to an into seeding opposed of share. economic the decision that

Operator

of comes with Muse from Evercore. Our the question next line C.J.

C.J. Muse

percent guess your XX bit completely growth heard sure guys are NAND understood. a from believe we've I the board, for follow-up I calendar three talking I ‘XX major you of a low-XX. outlook competitors. bit Not on plus across the And question.

less to implications you low-XXs should you that's production. can growing as be if So are is NAND to margins? about industry, the speak bits? expect how we year you what that, are what to of this gross part thinking And in focus And the those the fact, ship due you're to going than

Bob Eulau

Yeah, is in the the and of bits XX%. me this and in consumption so of If which an inventory, the the look supply. our XX%. growth XX% consumption is let it customers, by that XX% industry between be about largely as exit will Well, talking statement, and range. is be and the estimate we industry XX% of we clarify our would estimate both, at balance, XX% That we the industry this back year. The difference calendar we're

C.J. Muse

downstream inventory talking maker industry on you're And or bit books?

Bob Eulau

channel or our inventory supply up either built the Industry in at the ours that chain, on customers. whether it's books, if or in inventory and our was competitors’

C.J. Muse

half as we low model shipments about range thinking year, to the XXs So you bit be the of revenue we of through guess in the I should low guys range. second the your XXs

Mike Cordano

in us about think the should you so low-XXs Yeah, range.

C.J. Muse

revenue the just XX% you term guide, the of fairly roughly I for And my guess about coming QX as incremental NAND, accurate? to I'm coming follow growth that is as up, then short think from

Steve Milligan

and going We're see in growth the hard NAND. growth but both specific if get it's we’re to in good both on in I show going going areas. to to drive know markets, too don't

Operator

Our next line question the comes [indiscernible] of from

Unidentified Analyst

it to of me going that a better And I But to -- volatile. is think the control bottoming. you seems couple for It’s ups. of be cycle I actually demand to a hear have have encouraging follow cost.

asking going margin, how flat, layer flat, should trying business just So on NAND would just NAND to expand if your high ASPs XX given I and about were to margin how I the assume hypothesize that, your the ability that specific pursuing, a XD understand, be for your to ASPs I'm think to preference I'm impact and is mix you're business, b, margin NAND target, and especially cost. a, not of

any assuming will expansion, flat be the in ‘XX great. margin prices will So on be color

up? I a And follow have

Steve Milligan

This is Steve.

sense. me a Let broader address that in

that XXXX earnings fiscal our gross as through fiscal flash XXXX. hard we for and through increasing will move drives we resulting both as move expect, We in improve, margins

Unidentified Analyst

We margin, pricing just that better the would dynamics of see sense wait would demand how impact have to gross be to and have supply a and fair?

Steve Milligan

the Yes, move EPS But we performance continue both expect dynamics reductions margins in with through a that XXXX. Also, for improve drives our literal sense. fiscal and fiscal gross move and things an hard improving we to and that increasing as will we are, specific other flash with as a see would we XXXX. asset expense through

Unidentified Analyst

had and free consecutive question accelerate We've half cash the and should of for second cash improving new evolve profile, conservative how given your expect quarter calendar does into just Bob. the calendar growth flow, we year? Okay. follow-up free it CapEx the of margin flow year And two a into negative

Steve Milligan

Yeah, respect very we're a us for are right question we're for forecast benefits We're CapEx cash. I free and expecting year. And now. some do to see on there as timing focused expect give definitely next cash with cash we'll generation so But flow improvement. next generate mentioned, I for not to year. good going And to

a pretty good generation So I think year. cash it'll be

Unidentified Analyst

year? into at worst the of the it Would be kind case second the of breakeven half

Steve Milligan

say would a definitely worst I case.

Operator

Fox from line next Our Cross with comes Steven question of the Research.

Steven Fox

as me from well. questions Two

see where might margin given into talked get you opening year? of this HDDs and just some getting all, of Is mix, the that you start second positive NAND. fiscal the on to in maybe mix And product to we it issue. assume, see from gross quarter third benefits you to the reasonable the that back developments or as First of about

up. So, then quick a I had follow

Mike Cordano

Yeah.

let me about talk flash. So

in -- margin mix and on the to HDD upward to overall direction Steve through So rate. continue becomes us see on on it flash for the a to goes migrate capacity mix the margin year. of will assume comment trend positive our help basis, I think flash reasonable as a rate Same as increasingly market. on large the is enterprise affects it we the every expect Obviously, we part our to made, margin an output, an on that normalized HDD,

Steven Fox

average at that capacity get pretty the a XX answer per ’XX with for we HDD we do XX guide the as over do TBs drive, following it's XX going just as back you now reaccelerating, ‘XX about going to forward? maybe and been on then especially TB on strong, the look ramp how into last think months or And side

Mike Cordano

long this XX% see our roughly XX% sort obviously expect exabyte is have that seen I to growth. of year-over-year annualized rate going We a down to we year of, over return time think we're growth. to sort but term year,

Steve Milligan

And enterprise, that's Steven. capacity

Steven Fox

you're And which in your say product that's seeing beyond what a based including, of own year. terms is on development,

Mike Cordano

Yeah.

the Now, our we're out at short performing. industry And term, a that yes, in is and obviously, number. least performance

Operator

Our the of Rakesh next from question Vijay Mizuho. comes with line

Vijay Rakesh

side, what’s of wondering the and, split exiting Just XX NAND on year? the your XX to layer especially

Steve Milligan

Big this Yeah, as crossover my XX so about in That’s happens prepared layer. that the in exit remarks. we we talked quarter September.

crossover happens output total So the September. bit in point n

Vijay Rakesh

impact supply you it. fiscal you think And billion bit as or Got correct just to for Is fiscal million fiscal ‘XX? from any you cash your think will go I mentioned XXX X.X and that goes CapEx, ‘XX do into clarify, CapEx of to that transitions in ‘XX.

Mike Cordano

Yeah, I all. impact it's production think volumes to going at our don't

we timing mentioned, benefit the As capital the to of from deployment year. going are next I

year. and have it within pay of to we'll deployed, all for So capital the not the we're expecting

Operator

from comes Our Shah next Munjal line UBS. question the with of

Munjal Shah

two go real Just quick.

the business. Data Center First, Solutions on

If strong. there sequentially, revenue up offsets you was wondering I look while were could enterprise where if just was it really were that business X%, at only in any be revenues stronger. capacity

Mike Cordano

Yeah.

resume offset fiscal in some growth will half the of is modest back half the degree, discussed, as SSD, of think year, I So the which year. first calendar the enterprise to we

Munjal Shah

on question second your -- think you'll you or you'll still able be be this be? would comes the Yokkaichi do comes NAND and from the side, you everywhere back on to then it place the equally supply fab fully, as And

Steve Milligan

We expect in for that demand we beyond will near term. this generating be have that sufficient we bits and the quarter the will

We to in be sold fully out expect regard. that

Operator

from comes Baruah question next Ananda Loop with Capital. Our

Ananda Baruah

could, I if Mike. Two Steve and

I potentially the think would year. love at that updated where thought the calendar remarks the you made thought Steve, go on last call, potential it to the you guys your Just June would you're fiscal could you But for through that hyperscale of get go cycle? least until ‘XX. viewing on you quarter said thoughts this how

your love there. thoughts would I to So get

follow maybe quick potentially of strength also then up. I thoughts And a have then it as well, on and

Steve Milligan

as about first can the so year, so Yeah, I our we've and of end strength core into fiscal this calendar what of of half half think talked we was, through best see year, the tell we second year.

So anything beyond of that normal is outside our little a visibility.

Ananda Baruah

Okay, great. guess degree on And of then any context I on strength? how

Steve Milligan

guide. degree sort of strength, in we think talked I of Yeah, our to

year. above growth going XX% rate think we this to we're So the be

it's that back the I it's think towards sort strengthening progressed. of So has of heading as year And really XX% year-on-year growth. average been

Mike Cordano

don't bit. at year, beginning high But, frankly, And that has the constant regarding helps year know would since talking been and through say then moved of level pretty a half in had second terms calendar that about that of we've we I the level. I hyperscale this conviction of if our mean, I demand. strength a remained Yeah. remains little as

in that got regard we've good that we've pretty So, effect. that comments confidence made in previous remain

Operator

Steves comes The a our Mitch end before short we statement with last Capital, RBC question from CEO. with by

Mitch Steves

say, let's improves? a to levels environment pricing Very bottoming NAND had just have that But question on you reduce and further, half prior big NAND one have that do when a could a have terms if demand a think that the questions even think the in you is, the to you year cost ability good exceed actually that’s of OpEx meaning ago, of here. I margin operating quick similar you the the just I controls, I color about

Bob Eulau

September, we're with. not would going continue XXth roadmap, had it the I and done probably the cost in place I have from we're, have this execute the week, Well, as has had structure don't the December the cost to of going for a mentioned, that we're there an opportunity And, team in structure year. work to to know quarter, pretty in of lot which a OpEx been the from we pleased reduce terms want standpoint in getting of lot it see to

Mike Cordano

the things on bit of that, one been And I'll add than around longer a a little Bob. color of little bit I've

the is of this we bit back a taken that will necessarily we of because add terms we're want the cycle cycle to So cyclical environment continue to I of going the think, million. up add market, demand drive we down and that we that a to can trough I and things drive flash were up and cycle, gone cycle. going that expenses promise we're improve, going we not is an expecting as that little But through out through drive for down $XXX probably more. the But, having through learned as efficiency things below flash are pricing want the one to what efficiency, about in That's we a talked are for to not previously do the improves.

Mitch Steves

then just the related to up one kind business. quick And disk of follow hard drive

a one that is longer understood drives essentially, of XX days. XX to bit things the extra I build the XX an maybe So larger terabyte take to little

or drives say, you your data or to selling, let's So guys were better comment you do smaller drives than center terabyte kind change is visibility size when about X no of incorrect? have expectations, had you that your

Steve Milligan

cloud of have increasingly evolving maturity the Well, of because the good visibility sort in general, providers. we of

with just And them us that often, the some into instances, engagement we've for feel plans. intentions. even their a operational a in view arrangements of us course, their better gives good very give of got sort commercial So

supply paid We deployment good have plans. their gives us feel one for inventory particular case where that some reasons. we actually carry continuity to a for very And are

And And it. us a as there so you lengthening lead time. it's say, do to capacities that allows grow, that isn’t as really

important lead but with obviously over time time. improvements that's shorten us want we our best So for that to time, help lengthening that time to cycle counter have,

Steve Milligan

dialog. rest day. a our us we look the great for you Alright, well, and of thank joining all forward Have to continuing

Mike Cordano

Thank you.

Operator

today's Thank gentlemen, joining. Ladies this you concludes and for conference.

now disconnect. wonderful day. Everyone, may a have You

Western Digital (WDC) 31 Jul 192019 Q4 Earnings call transcript