WDC - Earnings call transcript Q1 2020 | Western Digital Corporation

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Operator

Ladies and gentlemen, thank you for standing by and welcome to Western Digital's First Quarter of Fiscal 2020 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your speaker, Mr. Andrew. Peter sir. ahead, go Please

Peter Andrew

Thank you afternoon and good everyone. Okay.

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

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

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

Steve Milligan

you, and good Thank afternoon everyone. Peter,

President Mike Operating today Cordano, and me Officer. and Joining Financial Eulau Bob Chief Chief are Officer;

our to after fiscal and the discuss announced today, career first a we moment for other we of the decades. identified with a about spend fulfilling quarter results spanning successor. news Board serve CEO. Before want CEO long I Western XXXX. to that Board will two to a retire Digital informed as have I I the until as and continue I appointed has plan our talking

a company Digital first than different XXXX. significantly Western joined as the one in I

resilient better marketplace. to positioned much capture more of and data more today's opportunities diversified, evolving We are the

powerful infrastructure hard to the the CEO storage in western combination diversified, broadest appointment as transformed a data products. flash a memory drive offering component Since has with customers of industry, and a my from storage enabler of Digital provider portfolio

XX-year velocity HGST to the Western new key company's partnership data. architectures including and capabilities platform many with the now well and a Digital's positions We extension acquisition powerful initiatives the to that Digital, of of as manage integration SanDisk, operate us We SanDisk the volume Western uniquely provide as have Kioxia. and successfully executed of variety and strategic

right As been Western Western company. next and to next highlights years the what of the begin the Digital for for one time my as we I is leadership. of want its for career; now truly thank to support CEO about Digital dedication. X our past Serving of to team has think the comes phase for I our believe transition their

have I myself and we quite could alongside be to worked what accomplished have team. not consider of prouder fortunate such a together talented

the I steps to next to look with closely work of terms In team. continuing forward

to Board the CEO. While conducts search our for next

team, seamless. we transition be Given this our expect to management strong

shareholders, our XXXX products. our serve transition I to is my and that customers will Digital Director board, period role to smooth advisory Western employees after continue successor appointed. I Board a for with ensure until will on September the an also is transition. For company a our on rely best-in-class Once the and the remain in as on service my a successor

was quarter. drives that for start. With a at capacity me range provided EPS primarily the to in July, for our center. is off by The in upside performance the to our end let range. of we guidance Fiscal this was good Revenue turn XXXX the the the upper of success enterprise driven non-GAAP data exceeded said,

and industry-leading center success provide data our we drive Center executing of utilizing At needs. in capacity solutions on our core are the hard portfolio. for the their well of market Data diverse enterprise value this exceptional We the the power our storage our customers is to

further product two announcements important made leadership. the to quarter, we extend During our

the energy assisted sample drives recording introduced drive First, are XX by and we CMR quarter. SMR these drives expected terabyte enabled this all and XX XX terabyte technology, our

providing through began design. shipping XX drive air our an We significant terabyte mechanical media and based customers. our investments continued Additionally, benefits in heads, to

revenue initial to participation the customers commenced SSDs and further we announce and our the qualify to quarter. are major during with our ramp and ramp MBME in flash increase market. generation XD technology XX to of position September well customers should to going next Efforts this us OEM enterprise based based our pleased on layer additional hyper-scale important am I products our

our solutions is retail Digital's the partner ability customers. across environment consumer, drives to solid. to flash mobile, and both Western hard offer competitors Outside us more us overall and demand the center data PC end strategically and flash-based markets our from differentiates allows center the with data

a are to trends seeing and that our across trough. industry product improving we continue cyclical passed flash portfolio Furthermore, flash has believe the

western growth in portfolio growing benefit drivers With of data. to from positioned product the the long-term broad value Digital remains well the and of

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

Mike Cordano

afternoon. and you, Steve good Thank

Digital. get into I the upcoming congratulate we want Steve want to Steve retirement. have the and his over contributions Western I to my value I on leadership and to together prepared past numerous his and acknowledge Before appreciate partnership remarks, decade for built

now a and on September of year between to to execute time work forward to and look together quite bit have plans. working of do We and our next

start. to Steve is a mentioned, XXXX fiscal As good off

shipments We drive of by drive exabyte success had driven the family. record hard enterprise our capacity

shipments also benefited flash SSDs as we We exabyte and gains in from PCs notebooks. for in share and the record demand had elasticity

XX% capacity the capacity now the first through our of terabyte capacity drives. enterprise shipment represent our In be unit industry's of half the analysts exabyte XXXX. by exabytes highest of majority Devices enterprise point growth product XX terabyte led to ramp volume over XX the year and shipments. the expect Data calendar year-over-year, Center and our Industry drives These Solutions was

accelerate our assisted mechanical platform. X enterprise platter drive Building design, energy our announced plan and our execution on capacity aerial density of on to the introduction leadership we

and us SMR platform, XX terabyte the to a on enables unified simplifying XX our for to and drives ship reducing terabyte customers. This CMR qualification and the process market XX time

of all half these shipments of will of and sampling the quarter be in by drives volume end will we XXXX. commence We the this first calendar

design powered our by innovative our leadership. flow air-based began architecture, underscoring terabyte mechanical product addition, density we shipping XX In and a air new aerial

capacity in up In XXXX, in and we exabyte see of quarter. from portfolio will products in the quarter of enterprise our our opportunities SSDs the prior December the market. year our strong enterprise Given growth NDME continued of our now and growth calendar XX%. estimate We this a exceed we based experienced believe shipment expect growth strength XX%

We XXXX our next with XX are positions share which us generation beyond. qualifying layer in market product year further for additional calendar customers, gains and

a advantage We data have portfolio. and strong competitive built center the unique sustainable and product relationships customer a on strong within

strategic this Our drive end future will growth. market within revenue important position

environment an increase In revenue Solutions a pricing Client and improving in seasonal sequential basis, driven shipments. by a grew on bit

based shipping products and external QLC retail began This quarter we SSDs. XX layer

reputation our preference brand solutions performance limit the the to reliability decline customers our our decision our and in In mobile contributor of to are and differentiators. and Trust our Devices participation was main year-over-year The key market. Client for our of the

mobile quarter. year-over-year. a expect growth exabytes more the bits On notebooks, the PCs into market basis, as December share in ship to our exceeded we SSDs and gained market In shipment XX% we sequential and client

of bit September the production XX during XX BiCSX BiCSX surpassed Our quarter.

by on are XXXX. We track all end lines across BiCSX our the to calendar of commercialize product

well four and after the output fabs partner Our production to Western exabytes. outage Digital reduction KX Yokkaichi fab power limiting executed full bringing the JV back

of the any Our flash chain substantially to calendar that believe be in supply inventory we the is industry XXXX. excess reduced will flash supply and end continue tight by

the low calendar And growth expect bit industry to mid the in in flash XXXX. in range XX% range in XXXX. be We XX% supply calendar

addition existing and see enterprise we new portfolio opportunities. in capacity continued growth In incremental to our markets, flash growth several

flash and gaming generation be industry console the important First, our flash to storage for gaming events consoles launch gaming high the the of capacity these experience. new utilize expect improve the will business, we next to

Second, UFS, and our product mobile we solutions. expect and to base diversify the our expand for with market custom portfolio our eMMC customer

flash flash-based markets announcements will XD of automotive expand products our more further the opportunities industrial and in recent markets. stable these for Finally our growing and

financial over to now for I Bob performance. our will call turn details on the

Bob Eulau

I in to the to of also for forward Steve CEO. pleased the congratulate earnings to on the and want his July and to end of Mike. came at quarter per the next guidance enable the seamless I'm provided look September exceeded announce range. share we upcoming to end high the the high retirement non-GAAP transition range a helping revenue in Thanks,

data September tough and up XX% and in tough and Data Revenue we Devices This sequentially a fiscal faced Center the Solutions. end-markets comparable compare Solutions year-over-year X% was year-over-year success the for as by growth experienced of Center client sequentially the in centers. Devices Data billion. XXXX, enterprise XX% for and quarter revenue Revenue drives we was $X as to was increased quarter our down XX% capacity due Solutions

We growth we would Please our ago predicted on in recall based a that calendar half that with of discussions to return XXXX. enterprise. customers capacity in the second year

and flash On now. basis on rebound revenue pricing a stronger predicted We environment. flash solutions stronger are experiencing shipments XX% seasonally that sequential client a grew bit

in declined market, TAM. and flash hard back drive revenue price sequential to decreased revenue of shipments decision decline X% scale XX% due Solutions year-over-year. a drive our Client a flash and year-over-year Devices to was the basis the year-over-year hard The a on up TAM. bit was X% reduction result primarily to mobile Client reduction declines in

up down billion, bit was shipments average and was sequentially. X% revenue Hard drive per record year-over-year, up XX% $X.X hitting up sequentially new X% were revenue sequentially hard was up category, flat product Exabyte XX% XX% sequentially, Flash By were level. shipments $X.X ASPs and billion, drive flash and were $XX. X% down year-over-year. a price

in was all than margin be stated hard we of of September margin gross January, our As quarter non-GAAP and we drive activities revenue and of expenses; move a please We million of XX.X%. more flash our XX.X% for in results margin comments in spending. gross on decrease related will otherwise. resulting my $XXX with a Gross to reduction to costs XX.X% all of unless cost outlined quarterly completed the note

benefits be The XX% expect from was June quarter fully we efforts. the drive margin the reduction as cost and quarter margin December gross slightly to the up of hard the realize approximately gross we

benefited higher $XX pricing outage. better cost environment. of million basis cost Flash, was the on power from charge the flash related to than Excluded million expected. gross was we was KX fab a from margin a sequential a revenue up as $XX

$XXX XX target. $XXX expenses operating rate were the million Adjusting million. normal were Operating run for below week expenses a quarter

all we efforts quarter operating expense in announced completed the our January. During reduction of

start should systems beginning expenses million in we per the March to In storage quarter we in see exit our addition, of operating quarter. reduction $XX complete the approximately an business, once

flow flow million. of expenditures, quarter inflow $XXX flow activity $XX was of Capital related million flash on and cash $XXX was and to and for ventures million. were purchase Operating free September statement equipment which the plant include cash the our cash property,

expenditures from joint fiscal our that will between us a forth are and flowing benefiting As the be year, timing previously $XXX capital noted, full to the we to and continue under statement back From the through million. funds flow flow we expect cash of venture.

Total and be include debt capital distributed paid $X expected and expenditures, which dividends included leasing similar our shareholders. $XXX $X.X pay quarter, between last self $XXX which operating down our year of optional to to $XXX venture billion joint we an down. to in In fiscal million million September the We by million billion. is portion funding debt

improve. As continues to our generation cash

to Our the $X.X will $X.XX to and the reinvest we remains our was next cash paying revolver billion and our cash will billion At our reduce end gross billion. equivalents, business shareholder debt. our debt $XX.X maximize long-term value. priority have first outstanding priority our unused dividend be be in to After of in quarter the

$XXX but were sequential hard while higher resulted a expected. dollars basis, inventory, projected flat This increase of sequential particularly the a venture inventory quarter flash joint in faster million at in inventory end on drive the Total than than recovered a about sequentially. fab declined as

with Difficulty] the [Technical guidance. on Moving

So again as guidance this is non-GAAP follows. and

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

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

expected $XXX expenses are and million to above due rate higher between target Operating million compensation $XXX spending. to the run be $XXX million variable

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

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

now will I that call question. operator the over now the our Q&A session. With Operator, to turn the to we'll begin take first

Operator

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

Aaron Rakers

great And thanks taking I questions the for you. quick. been the real congrats Two with Yeah, if has retirement question. on can, working Steve,

on my digits one of By all that bit X% basis. out guess shipment So math first up stands single year-over-year number the I the only little that's of about on a is up a things maybe capacity flash high sequential.

client portfolio curious is we, position about, be and of seems a the product you SSD, I'm bit So can it little just ramping in a talk capacity muted. shipments seems a little to strong. it why great like bit were

your capacity capacity and As into And flash. trends shipment far as what's for going the the quarter ship? December expectation

Mike Cordano

Aaron, So address let that. me

that really marketplace and for completed. is in did reason primary comments the mobile point the not the is we a in made in So participate the in made that our just quarter I substantial Bob way

So that's driver the quarter. bit in shipment primary of the

Steve Milligan

Steve. of in From was given profitability Aaron, recall attractive. participation is all choice. the that not And the market, by - that this our of the segment we're mobile that market that for levels lack Recall, standpoint at

Aaron Rakers

a second enterprise on drives slide question Okay, capacity fair enough. deck. in then near And as the

unquote year-over-year market You know the that approach overall expect to quote the you now XX% growth.

north shipments. of meaningfully that growth growth XX% think know quarter guys your about are you in I level. talked I capacity talking XX% you exceeding last about

is softening December been quarter, your going I into driving really of What's quarter. have last terms growth expectation. the expectations? of there of over changed in bit what's that change the a a guess, But

Mike Cordano

us, of actually So, XX. the originally We're across updated performance for capacity think in year. enterprise segment. strength We us. quarter, we'd of seeing had last I XX% guidance Aaron the We for our consumption exabyte north actually we be north that updated stated on

more thing are of an in up doing unique that's terabyte happening the quite And we Now basis. that gaining segment share XX is other obviously market that's the is us for exabyte product is showing well. the on power

Aaron Rakers

the which under the market, is tempering industry constraints It expectation? overall the in is market,

Steve Milligan

will suggest grow on of outlook north from north XX, both would and we that's XX last again at at all think of up industry I we grow will No, our numbers. the

Aaron Rakers

you. fair Okay, enough. Thank

Operator

Thank you.

come question from will next with Our Mehdi SIG. Hosseini

Mehdi Hosseini

with nice good thank you. you. was Yes, endeavor with working very And Steve luck your next and

questions. to on Moving

line into to very shipment the Just do for exabyte changing for percentage exabyte the helpful near-line look Digital. talk mix year, and of again how of Western a this near is It's think you the that XXXX about overall and as how up. when target the you and next guide, about the you shipment for especially versus see XXXX should we as exabyte shipment follow exabyte

Mike Cordano

current capacity let We specifically growth. me so expect Yeah, XXXX, comment for XX% is year-over-year would outlook about enterprise. just our

exabyte and we growth, specify strength don't split so So year-over-year continued HDD we them. don't out total

Steve Milligan

And term XX% by is consistent the with way longer many our expectations. then

Mike Cordano

Sure.

is the as to shipment NAND saying mobile as that into kind you as the that inventory participate You the to a question of March it mobiles debate pre-into to happens channel didn't in my relates prepared by segment your in quarter. segment, what and look there reserved as you

background, March you supply participate understand looking context, how asking do So in prices and quarter not I'm and didn't with the demand I a NAND market view just the to that do guide. that your you in you trending how March and for better want see in the your as into the see into quarter.

Steve Milligan

Yeah.

and the flash we So indicated, we off, cycle. terms take as other aligned the first the in In is now that of as improving and ourselves December fairly we getting for we maybe you words the industry March to we quarter. move imbalanced is trough quarter we would expect inventory that the the overall demand, supply exit much into passed and that when we'll that largely believe will things more for situation be

question And move of let half when me broaden you a into first the the that year. bit, actually

decline keep to perspective. that in terms linear. things we a typical from mind the will we Supply have of in that see a is One demand seasonal relatively is of

the calendar see. of to terms then where will but of cyclicality, move back we as to the we through just manage we'll we we year largely half in every do will so to like year have And have the that,

back to calendar saying, improvement accelerating we in see will that calendar as the is XX, financial see of than half our improvement from see our will demand we to back into financial year calendar and XXXX. will results this been move of year a performance that a the begin we've And an perspective, we modest flip should in rather half begin improve we

Mike Cordano

would Mehdi, numbers on the to give year for growth. demand 'XXs work be slightly expect talked We supply there. to some above We that. low bit I just will with calendar you about

Mike Cordano

you. Thank Great.

Operator

Thank you.

Our Ackerman Cowen. comes with from Karl next question

Karl Ackerman

my congrats on questions have that referenced future Thank of mobile if Good taking the and you quarters afternoon. best questions. moment, don't retirement been two last captive Taking may. endeavors. Two luck for is DRAM. you your Steve a because your again in not mobile you And margins have I for attractive for that but

for DRAM it that, contemplate to over your how phones smart important is or for competitive new have agreement I either guess, you time. supply a position captive long-term and is you in DRAM

Steve Milligan

answer that. me let Yeah,

So delineate let me mobile.

and So is includes there then the MCP mobile component discrete the there part of DRAM. and is which

think, for our… we long-term a is do us place to strategically, I not strategic focusing MCP We're operate. see

Operator

and please Ladies Speaker? standby. gentlemen,

Steve Milligan

Yes.

us you can hear Sorry, now?

Operator

Yes, can. we

Steve Milligan

and Okay, off. know let dropped don't that. me up I repeat back where we

Our mobile market that the discrete is DRAM, is One end-use in and applications. components. second the participation let component mobile me MCP break participation includes into business two

in away MCP for It's area longer and product moved not we've Strategically an investment over the from product focus us. of horizon.

So the bets. as which that, reasons is to discrete when put participation chose business for for we higher participation to talk places us about minimize value our we our had we economic

So the along mobile see with the that in segments other sequentially of market. we economics improving and improving

Karl Ackerman

Mike. That's helpful,

and rates hard I in so same drive a roughly still gross were shifting year my As are normalized But follow-up NAND. margins for ago. for are we margins little good. below you gross gears your where your a time operating bit the moment. At well think to a peers Clearly outlook below run

I margin gross the improvement heads I those implications guess the of drives. we the margin on in think capacity higher driver systems systems or hard Thank the of how do be the you. areas business from for and disk and drives, exit guess incremental about primary be we'll business

Steve Milligan

Yeah, Bob can And so color. Mike additional I'll join that. add in address and and then any

is impact So or way exiting have the other first material in the on will one thing system business no gross margins. the the our

you our hard if gross look at that. be mean, margins. about let's So drive clear I

be. them drive good are margins, although where want levels to hard we gross Our not

We XX% hard want low to those drive north in margins be the range. gross XX% of

We our of facility. with is some [indiscernible] behind the us. dealing manufacturing cost now exiting of overhang are That still

improve to should intent into as so this our exit improve obviously, time. quarter a see and XX% over sustain drive possibly we range period margins then of is And that the December we and low our that

we They market are clearly expect them sort levels. at albeit would of Flash, different started the at different not to as this rate. improving where to gross be. at different started through margins slow want We are continue we a ripple levels, market different because customers see

of linear improvement into and is pace And continue into a we at flash The calendar that in those not we'll the of better I expect at then earlier, rate half improved But of this to margins second we indicated XXXX. improvement steady all our see that rate a aspects. quarter as subsequent improve improvement for as to quarters. move

Karl Ackerman

you, gentlemen. Thank

Operator

you. Thank

Mark comes with Our from next Sachs. question Delaney Goldman

Mark Delaney

for and somewhat, margins it the ups follow quarter. Thank maybe guiding versus get to have margins for next around afternoon. gross good NAND understand Yes, taking I outlook improve that the question. you to the and for better

on can you're on assuming understand sort You ASPs there what basis, a you a bottom? comments of cyclical around about if more given the give color like-for-like

Steve Milligan

production probably neighborhood improve being then that volume, and the of I there. And bringing up a we as the will headwinds have in X.X with we've KX everything obviously side. we're to are and beginning We startup margins first ramped side. on NAND NAND want is fab costs the with on all, faced can that equal. I start. But else do headwind Yeah, you remind the And of the there

overall of we terms definitely flash will equilibrium that as supply and a we're expecting through demand, between Mike to in get or the XX. move saying. get Steve better pricing So as we was

we're that, will take price. to of I time good be bit to So a work think it going think I a little but through

Mark Delaney

especially margin that Bob. drive at under think gross have And drive my given not line gross upside which hard the questioning. the quarter, business, least has Thanks, company along December the the again impression higher. seen for XX% that Okay. the prior was the the could of margins hit the on then been hard lines runs XX%, near follow-up I typically I if

headwinds seen under kind expectations XX% has maybe around there in terms drive of of the impression margins increased gross Is This wrong with anything December XX% was company in December. hard ability to margins or keeping previous the the gross hit of about the the for my quarter.

Steve Milligan

kind about. I Let of I strongly me, this feel one because get

We hard December the to drive will our -- for of north are have is business margins quarter. gross intent we this XX% quarter,

that so happen. that present, of And there things But no can we be won't is will nothing at headwind present that there hit at there's that level. course, indicates

Mike Cordano

add, if Marc will up And look of as is, capacity percentage overall we well. the terms our other help become of time and thing I will margins mix more growth expect a you out would enterprise in the that more over go bigger and

Mark Delaney

That's future it, luck you Got endeavors. with And good it. thank much. Steve very your

Steve Milligan

you. Thank

Operator

Thank you.

Mitch from question Steves comes Markets. with RBC next Capital Our

Mitch Steves

thanks guys, question. taking for my Hey

the I NAND kind margin just folks the on on the gross inflection. think of a,

people I quarter lot December think $X.XX kind guide environment. or even a for improving for of memory in the $X like you looking of

X the leverage, understand side, you on maybe guys inflection think material us half in guess gross I out, how how look about how we for the you the much you're at a you're of at And the I'm help to So understand if to calendar back to inflection going get quarters. terms can or least trying in margin going say X more 'XX? comment let's see

Steve Milligan

of a So things. couple

talked Let in current period. about. talk We about me dynamics the the

margin. where we look when equal from we started to created not all were pricing markets relative So in end at and flash

inferior was for mobile us. that noted a performing also segment We

more taking the percentage of that of this as total. quarter, on are a We

flash relative margin a So headwind, having is in quarter. to that current the bit a of the

seasonality sure To in we and through as the see good is to that a in moves demand a expect of earlier that got cautious the Steve's year year shape XXXX way we pretty on we we're normal on. comments make But we come managing supply XXXX. into

the continue flash in margin back in of of head middle we the the improve towards As the in rate end the year. back accelerate that of to the will year half will improvement in

Mitch Steves

Okay. of in in rough of like XX. mean, to 'XXs back the is I of would terms NAND metric margin that just helpful? the sort be go And then gross back half any

Steve Milligan

be I gross we are, beyond let mean, we get providing XX% of get where need tell to me where clear this gross to flash margins where we I'll what not in on Well, we're range. guidance that done to margins. But flash in and want terms you we've to are is back to

That a capital view attainable of required to that's level a a and return level believe business. in we get as time the margin is we that investing this sufficient we over also period are that that margin on it's

to. So we that's to where want head

Mitch Steves

Thank very you. Okay. That's helpful.

Operator

you. Thank

question Our with Evercore. CJ comes from next Muse

CJ Muse

guess thanks the Yeah, quarter. another the costs the Specific KX in on September question question. for the can fab gross I you taking to margins. NAND side, quantify

And I we million like $XX how the quarter about as should flash that there. question looks on a then into you implied there in in XXXX. bit the side, it December think think guess said progressing and I second

roughly XX% in quarter. costs these of Given bit only so or the growth

a a versus 'XXs I you. function that having Thank want is is industry else. or play the mobility looks right it something for of really to of not low so many for XX% is it there function to XX%, you're about the are not who side, of the just competitors your So deciding guess growing bids like suggesting year the and in

Steve Milligan

let me, address me last let first. Now, the question

that growing changed amount we and outage meaningful offline of it production the perspective earlier In you first off, saw that have the terms demand is a Independent well, that seeing way, conditions saw this mind of expectations. things a oversupply we're big power the and we we by of to one year. of the starting growth previous coming. in is revenue consistent of keep took It us because the with hasn't from

supply output to growth saw let's also price just from growth our so unnecessary the XX that in And we reducing a that from the situation back we a realized ' help bit perspective substantial untenable that of that we call and created the being offset perspective XXXX. supply half were industry and in into decline that it

Mike Cordano

ask I to Bob So address.

$XX in were in $XX September That point time. this in the start the come in we're capacity a down we CJ we So place, they of is and neighborhood KX of guidance to over think will is, fixed be But just I million mean as that the quarter million. in it at December from We the that quarter. I becomes finished production of said putting time. terms the our will cost in this costs new what part expect

Bob Eulau

capacity Yeah C.J I'll share bit bit basis. ratio one from comparative others. Obviously, think proximity it a about continue output this a you remain you about on other comment same a make when when we is basis to think to in the

as produce very for [indiscernible] simply to low was margin this the not reasons product us So choosing

CJ Muse

you. It Thank makes sense.

Operator

Thank you.

Steven Research. comes Cross Our from next with question Fox

Steven Fox

and for question, Good but Excuse maybe… me. afternoon sorry gross margin another

Steve Milligan

start to have banning We margin gross question.

Steven Fox

know I one. last Yeah,

get me this in. Let

can versus margins gross mix affecting you just from the and a mix impact NAND of the the margin terms for generation industrial. margins, in along similar incremental how lines, So is what's guidance next you things current reported what quarter little about bit you gross like year on and next on, maybe mentioned talk going gaming gross then just growth some NAND

little? year, around you impact where based backtrack on calendar or you gross if mix margins? to current first their half it I at what about in are to we able on of do you. Thank you what hold margins given least do I with choose put levels you your a or the one the about talk said bids gross more get you And Can did

Bob Eulau

last half continue first Well our improve margin first. profitability I'm from standpoint that the question as the move will of expect we year. levels into to going to We percentage address modestly certainly the a would

Mike Cordano

the back mix. And to Okay.

within the degree. reiterate just to a on taking and margin is performance, sequential greater some a flash me this proportion margin our business, business Let we're dampening mobile which drag is quarter,

talked then startup. the On also side and flash about Bob the fact

affecting the flash margin are things So those this two quarter. in

the go that margins but consumer consumers we industrial we yet certainly stable non-cyclical. to markets and that at attractive good the only a be bits are of into bit relative reasonably of to think number gaming is business, a good are margins going XXXX more automotive better even and When new not and

Steve Milligan

mix. yeah KX indicated costs drag that are if X-point for already kind then and you Bob And of the -- a neutralize

I important And items. think in satisfying that the moving in are you to other just be that's trends. two our mask to tend in that the mind, trajectory It's I for direction. us we keep margins improving more there when for that would right parts seeing that a think much increase those neutralize all flash all those is of

Steven Fox

Got Steve your congrats on accomplishments And Thanks. at Digital. it. all Western

Operator

Thank you.

question next Deutsche Sidney from Ho Our with Bank. comes

Sidney Ho

Maybe areas more do a better and change today average margins Is year business? away the what thanks. question I great, you about you than times this think coming this, know you have mix side, within one mix, mix how more that are more flash the will about talk of us remind and flash can strategically your few from that from mobile the the walking change from worth on on tailwinds there in Okay, now. business the NAND the mix, for

Steve Milligan

we to relative investment we the of ratio you specifically on emphasize But big own some don't us where give areas disclose participation. participation. color certainly our want our grow the that flash can I a we So performance, for

the higher over margins. average embedded growing So similarly time. Industrial margins situation higher enterprise overall the both in SSD than fast

higher focused of and that over on Good those. of marketplace. ultimately product so performance attractive are higher we're mobile time segments the growth certain UFS investment, Hence our then rates end part and

more So higher of markets will examples revenue be and on focused we that big end we're those out on. stable and margin those emphasis seeking put a quality

Sidney Ho

of follow-up drive from My about made call, kind about you about are ended XX last the and a hard up months getting far? higher question; you two talked I'm welcome roadmap in capacity as XX a you Great. that The introducing SMR. change But sure feedback why CMR your you customers can you question. talk launching what earnings and later, you terabyte so terabyte

Steve Milligan

Yeah.

that is X it's anticipated. made what we, and previously faster we we made that we actually the terms platform simple So than progress reason decision in quite of platter that had our

making so ask to market place pull sooner perspective on. which anticipated, from that our which than we elaborate that Mike advancements what us a mechanical was to platform perspective, received customers And were allowed favorably the I'll we a in from by

Mike Cordano

Yeah. otherwise. think to of number And it a would and Obviously, they of XX have this. dimensions I XX terabyte gets than sooner them

benefit get whole TCO with that equation the you you slot deliver tax combine like bit required about, know talked the a slots better then we also elements some qualification. other when multi because you products, we economic quality the with the is and cost per our and we eliminate So platform

it is So their a their platform and efforts of a for qualify market of simplifying them reduction their all single that configurations ability of both gets to on those us covers to efforts cost earlier.

trends in So the and getting CMR capacity SMR value. terabyte earlier a that perspective all positive XX from terabyte XX customers' big is to new

Operator

Thank you.

Loop question Capital. comes Our Baruah from from Ananda next

Ananda Baruah

congrats we gross Steve, guys. here. I'm question a And question have hyperscale taking been, margin have But little going to for provide the with well do as I some it's but a more the the questions. for know me, guys leaf you, start I certainly thanks with time Hi, just

earlier in for the year-over-year ' that clarification, for Q&A another. So growth your first or that hyperscale comment was calendar XX% about XX ' was calendar the outlook a XX

Steve Milligan

enterprise. total yeah No, that's -- capacity that's

together. that and consumption So OEM hyperscale of class

Ananda Baruah

Thanks for could for us. that. you And update

updated You look look view what like hyperscale an cycle like. might this this have might on cycle

of last comments couple Now, the I think you made some quarters.

Steve Milligan

the only can over the we growth XX. to year of XX% see want supported say year think the think End thing we half of I in any don't that of go parameters. to Yeah, we strength beyond I that cycle. continue first the as

see So yet. No. over enrolling we don't

Ananda Baruah

is any of the, into strength in -- the if sense, year we stronger than bit it's sustainability as the year And pull a point to March incremental move pro kind your is for we this this into little thought move quarter. been

Steve Milligan

'XX. year So sustainability the the calendar of end half it would point first of to

Ananda Baruah

then quickly on Okay, great. gross the And just flash margin. that's

So with get XXX sounds doing you until will different and is that sorry gradually quarters mobile the sounds we the basically incoming the off, headwind. cost diminish few but of like like it about we that the off inflection layers get XXX, Will before basis headwinds as it of think the sort quarters, participate into the of roll KX September will kind we more mobile the could spread, the the there headwind as roll in of also quarter? points that KX

And I just then in to appropriately. I to second want it don't that miss levers get sure year. also I'm whether will margin before next understanding the other contribute Thanks. the want the anything. make into to half expansion gradual of we

Steve Milligan

Yeah.

the with start I'll So question. KX

and few so mean it fab improvement I elsewhere. fully be next we cost will beginning structure. experienced will now over it be absorption right to and and absorbed gradual in we're the what in a have a Similar production So just that quarters eventually

Mike Cordano

Yeah, expand the XXXX. it and let's about, segments. the participation other and revenue the other into quality drivers really progress as I product sort and enterprise And portfolio we I we continuing increased marketplaces mobile are individual SSD to looking high-end think higher talked call segments at like as of are

is product think well. So as improvements of it customer and mix

Operator

Thank you.

question from with Vijay next Mizuho. Our Rakesh comes

Vijay Rakesh

hi, Yeah, and next Steven, good luck guys, with thanks congrats endeavors. your

on markets SSD, of sensitive as exit the is the ahead. up in mobile and more that, kind you the improvement segments side question on into to some flash gross look Just wondering here, same should margin, but could back of half, side. expect less you step that's you exit if go or I as was move with you're the look this sorry the question you going said wondering first last expect do to as segments the margin price and trying at, what on at mobile flash you on

Steve Milligan

me that. Well, clarify. let respond so sorry. I was to going to I'm But,

of not mobile market have period economic exited of not margins, no we participate segments chose it the time in made not, for sense. a We to market, and was made that from because it the

Okay.

consistent supply this in quarter. will dynamics, our participation be we in to see Begin environment we market that and market. starting the improving improve with demand and increasing stabilize that pricing As

Vijay Rakesh

Got it. And but on when ramp as you some us can the hard how, to strive through side expect you've go got of color products of talked trade, to about Thanks. some those XXXX. XX give you you and

Mike Cordano

Yeah.

those in in quarter calendar that current first half in sampling the expect so XX we're not to of and the ' said the ramp we that's we obviously future. too distant So

Operator

Maxim. question today final Chokshi our from with come And will you. Nehal Thank

Nehal Chokshi

you. Thank

NAND a purposes demand Just or What for typically the verification purposes. industry flash here from terms perspective? of monthly education is seasonally bit peak in

Steve Milligan

Well, that best literally October, time and It's don't know, but December, the I it's a mean the month. is which answer. this old adage year of quarter around I November that selling the

Nehal Chokshi

Okay.

the so, industry from made think loss outage I a power year. the that X be would X And by out exabyte, that wide Mike, be comment still you this exabytes end turned the flushed expect exabyte excess inventory the you to out of but

loss, have better lower months. past over demand that expected given the So and seen exabyte three you

Steve Milligan

consumption or thought. So I been what of think has in at general, our demand well a bit we above

So our the comments and the inventories substantially improved thought. would stand were of year we be end industry by the By we that.

Nehal Chokshi

been And the that Flash demand the what's bits? better-than-expected NAND for driver of

Steve Milligan

mobile. more of including than in And bit think expected, end markets mix maybe I I some speaking, we've of originally the better unit. a we per a terms little robust capacity little seen are some generally think

Nehal Chokshi

thank Alright, you.

Operator

remarks. back I'd the in for no I'm showing closing to to call turn like further over any questions management the queue, Speakers

Peter Andrew

look Thank you together. thank a to great joining rest all a customers successful you today. for employees, us would the Have of to and business extend year a All of our to right. day. like also forward I partners. We

Operator

today's for concludes you Thank joining. conference call. This

You may disconnect. now

Western Digital (WDC) 30 Oct 192020 Q1 Earnings call transcript