WDC - Earnings call transcript Q3 2020 | Western Digital Corporation

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Operator

Good afternoon. And thank you for standing by. Welcome to Western Digital's Fiscal Third Quarter 2020 Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

Now I will turn the call over to Mr. Andrew. Peter

begin. may You

Peter Andrew

and everyone. you, good Thank afternoon, Okay.

Joining and Bob are David Executive Officer; Goeckeler, Chief Eulau, me today Chief Financial Officer.

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

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

the I'll now that, David. With turn over call to

David Goeckeler

everyone I families us given facing. Peter. to joining we are this I your and for you all and thank afternoon, are COVID-XX that pandemic like would the Thanks, well hope

joined of lives. continue over rapidly every ago in and strong increase all amount I have generated, every our live digital a in will is company Digital little the I because conviction industry, transformation world. data of stored how month This that a transition daily the us Western reshaping consumed the to and

a of positioned and array from the benefit providing uniquely company this HDD accelerate is to as Digital flash, broader SSD solutions. Western only NAND and transformation

endpoint. call, discuss to company to cloud and prepared success customer strong for have be doing relationships front us. established brand today's position capture from portfolio, significant the we'll the the to continued of a the to opportunities great we're to the and footprint, in scale, operational best what edge We On

a on are now the anticipated the several the a architecture events on we together do over cloud X, daily the joined since past transpired intelligent I innovation leveraging well array have high-speed by that all across the technology devices, couldn't that brought been wide underpinnings of increasingly public established series The of have accelerating March unprecedented company I years. of basis I While networks. believe has rapidly all

new architecture edge more and this and in emerging are for endpoint and of new any this incremental continually Increased XG capabilities upgraded, all elements architecture participate cloud opportunity capabilities APIs, All that powerful point of the ecosystem. drive across networks.

and in confident cloud drive edge is from Data critical our customers value NAND our value innovation component for opportunity positioned the the across for ecosystem, shareholders. our HDD is team's to technologies and that and I'm our endpoint. the the well new unlocks will this portfolio to significant

can As be Digital. here Western tell, probably you excited for see great to and I'm opportunities

amid Before we address operating we our the third like to are review COVID-XX quarter, how pandemic. would results I for the

our to customers suppliers. safety priority First health, of is ensure the and and and well-being foremost, our employees,

following are and across measures operational. We remain sites precautionary and our all carefully facilities global production best practices

encountered some in disruptions the We supply quarter.

operations to trends the progressed. we quarter supply due of as improve efforts our the However, team, saw

manufacturing activity. other additional We and also associated costs incurred logistics with

billion, the in as quarter at the remained $X.X midpoint strong Demand Revenue the in was provided third expected. guidance of January. right

drive will data the years, and well and drive the and friends and cloud, way continue These innovation storage families demand capacity number to customers movement businesses way the quarter operate, current the cloud trends we positioned. the experienced growth the of leading category. for accelerated major a position maintained to We our has and in our healthy throughout environment enterprise are transforming from connect. students learn, The

TCO providing efficiency. zettabyte essential unmatched and are enabling drives to hard scale capacity the foundation infrastructure, High-capacity world's the data

calendar XXXX. least perform point remain at through highest to quarter capacity volume Our this the expect well, industry's XX-terabyte of industry drive, products to and continued the analysts third

these on in We schedule. to our is quarter. our as and the and interest next-generation recognize during very leading we ramp in drive high drives the the specifically are XX-terabyte Customer bringing drives for industry XX- products, market revenue XX-terabyte energy-assisted is

of continue acceptance our to grow. enterprise Customer SSDs

NVMe-based qualifications with completed XX have well at in more customers and qualifications latest XX-layer OEM over cloud Our than worldwide. SSDs progress XXX multiple

client notebook expected the quarter for was during and our growth Demand in expect We solutions to the to experienced the fiscal home quarter. than e-learning. working and greater shift due continued from revenue record fourth SSD

towards normal seasonality Desktop notebook revenue down was hard drive shift solutions. mobile and to due a

In video expected as softer was a of smart hard than addition, drive result demand COVID-XX.

exposure COVID-XX flash in particularly our to quarter, strategically seasonally as a this bit modest the we shipments the Retail of weaker typically in part managed market. was Mobile remained by affected quarter.

a the approached they decline experienced retailers close demand the in their as of we brick-and-mortar traditional end to we started stores. quarter, temporarily from As

to and many While quarter. pickup store physical will retailers closures their headwind shifted pushing expect in sales through we online curbside our began fiscal fourth a channels, create

services streamers content track on gaming. come demand. of market creators the next-generation new will and not market terabyte are utilize growing that that cloud-based in remain drive - for to flash also to into ship part internal new We of empower storage one to the coming of this Finally, new but reimagining new gamers, storage, expected incremental cloud quarter. and only game shortly consoles These terabit nearly of platforms are the

we expect outlook the profitability. fourth for revenue growth Demand strong, and in our and Turning remains quarter.

performing pandemic to guidance. to QX will COVID-XX details go us create the our but are the teams through manage, course, a very dynamic of Of well. for our Bob continues environment

Western right engagement will opportunities for increasingly an tremendous markets us. combination end I play am convinced provides focus role transformation customer in digital that vital and of the The Digital products, underway.

Digital. greatest growth the Western long-term opportunity for holds Flash

will deeper and mentioned yet that flash flash edge is is a the TAM another adoption new enable of see previously, of penetrating the growth real-time support gaming of services opportunity. development. to flash multiyear into We another consoles example and to The expanding migration the As the endpoint. of edge within I build-out generation exciting a for an XG

on areas. In hard long-term to drives, growth our we portfolio have already capitalize aligned

to are products the of seminal indispensable era. cloud, and the trend growth technology our the of public technology Our

to We leadership. are energy-assisted upon the new market will to we density deliver continue innovations with and build aerial first to next-generation our drives,

joined Western at the incredible storage. Digital of building of of critical digital innovating this I blocks center be world, the one in the to opportunity,

portfolio attractive company of breadth Given operate to success. markets strength the the and in, ongoing we our position for the and we need best

a made support on more go As to decision our will our in suspend and the details result, deleveraging Bob business to objectives. reinvest we into deleveraging have in efforts. the order our dividend

time. to to teamwork see confident and thank who this Together, before. team, stronger am displayed I and Before I across been the over to Bob, turn all I'd this emerge entire the have It's Western leadership incredible to will support, get the through Digital together a during than challenging moment call take we like levels. come

now to Bob will financial I our highlights. share ask

Robert Eulau

Thanks, Dave, and welcome Western to Digital.

by generally minutes. will COVID-XX-related a with provided Digital few As Dave I'm the the end in together in the fiscal detail in as impressed up were line impacts, has has markets. how I mentioned, We in well guidance this Western last months. and well Results few held third in January the demand come had which most navigated quarter through team world changed challenging the quarter. in of our

client sequential was of most and year-over-year. end ago. Devices was $X.X and SSD Client from a Record revenue billion, By sequential sequentially of market, up basis on year revenue increased billion up Revenue the and XX% growth. year-over-year down a drove $X.X XX% X% X%

As fourth we we quarter, SSD another strong look of anticipate experience quarter into the will client growth. fiscal revenue

bit was total and a COVID-XX. of revenue. declined XX% and hard our drive Notebook HDD Smart PC-related revenue primarily expected, now weaker video due to under represents than

and remain under-indexed flat devices nearly And hard year-over-year. finally, while grew. we Capacity sequentially mobile revenue revenue and to billion a Data year-over-year, up and XX% enterprise the was drive this was market. of X% of revenue SSD part while up sequential enterprise sequentially $X.X basis, was on solutions up center

sequentially XX% was Solutions $XXX X% year-over-year. Client revenue and up million, down

impacted retail quarter. the an end of approached fiscal COVID-XX-related lockdown. fourth as business the was due to will have These quarter on our Our lockdowns impact we

and fourth offset as the solutions end devices remains strong look decline and in our than devices more should Growth we solutions. in the client into Demand data client markets in fiscal center quarter.

By shipments sequentially up year-over-year. revenue up sequentially. flash XX% $X.X product and ASPs billion, bit X% X% up category, up were sequentially was were and XX% Flash

look our solutions flash-based remains and fourth we fiscal anticipate will for into we prices flash quarter rise the sequential basis. that demand strong, As a on

XX% increased billion, revenue and exabyte X%. X% down were On sequential down a was basis, to X% the sequentially drive $X.X drive up and hard Hard year-over-year. price per shipments $XX, average

will please all impacts note, we to comments unless my results related appropriate. of with cost COVID-XX stated As to be otherwise detailed non-GAAP and where on expenses, move

the in Kitakami, points were Gross COVID-XX-related of margin sequentially was $XX our million the costs and the XX.X%. two up third to million. costs $XX start-up The in percentage for were KX, fab quarter quarter

logistics gross costs For to factory clarity, other reported were primarily in both and included COVID-XX the items non-GAAP higher costs. The and related are reduced margin. utilization

Our was cost points flash KX. of environment In stronger up pricing reductions. to we and percentage a margin gross units began out last quarter, from ship quarter the seven XX.X%, production to due

declined quarter, impact mostly the The hard prior from COVID-XX due margin gross the XX.X% drive to XX.X% to and in shifts. mix

expense movements. The $XXX the prior of in $XX expected than lower exchange for to range quarter, million, Operating Other unfavorable XX.X% million, the rate XX% income than in than and higher year. tax which came were due expected. was slightly was to expenses lower full foreign at rate our XX%

rate tax be between and $XXX was We and was flow now third $X.XX. million, year million. $XXX our cash XXXX Earnings quarter XX% share to cash per the for flow estimate was fiscal XX%. Operating free

in Our low. better free a usually cash is than was expected quarter flow seasonally that

$XXX the XXXX, good generated fiscal we quarter. million to cash in flow far, So generate in flow in cash expect have very free fourth and

ventures of joint of flow related forth expenditures, to cash flowing on timing million an which inflow include due back $XX to the to flash Capital and the equipment and and the plant activity our property, of statement, were funds venture. purchase

full an of cash, capital couple expenditures the dollars. fiscal million we For inflow hundred expect be a to year,

includes billion which self-operating our Gross is venture funding, this $X.X joint approximately be portion to capital year. expenditures, fiscal leasing expected of and

assessing based the capital fiscal XXXX our expenditures We economic on environment. are current

we've quarter, strong. $XXX Fiscal lowered end cash the to of position continues and and was in year-to-date, debt cash billion million liquidity billion. an paydown. debt be Our the $X.X about million outstanding our made our dividends and we third gross $XXX by million. $XXX $X.X to equivalents, the quarter, in had shareholders optional distributed fiscal we debt our In At

suspending dividend, to Our first of debt. our business. is priority we in priority the repayment is second utilization Since cash reinvest for are our

reevaluate policies, total billion our debt is $X net shareholder Our the is current dividend under return to billion. debt and under $X is and plan other and our

leverage EBITDA. goal of one to have cycle a in times the range growth to is Our a through X.X

in X.X leverage quarter. times third current the was debt-to-EBITDA Our

it I want related to is to make clear, the debt dividend not covenants. suspending our

We covenants. room have substantial under our

quarter. fourth fiscal the for guidance non-GAAP to on Moving

be billion to with revenue in XX%. Gross fab. impact margin be costs includes to is of We're the expect $X.XX XX% range $X.XX We expected million KX range approximately anticipating also COVID-XX. of $XX between associated billion. and the to This the in

Operating is and other be between normal $XXX are million. XX% between to guidance The variable million and tax should expense. range compensation expenses Interest to $XX the of expected million. million and rate and between $XXX be midpoint $XX assumes expense expected be The XX%.

we using between the this approximately diluted uncertainty a earnings As guidance, to in $X.XX, We're fully wider $X shares. environment. the assuming due and this a range million detailed of quarter, $XXX primarily share result in per expect

With Q&A Operator, we're first that, the we question. ready will for session. our now begin

Operator

Fargo. first Please will Aaron Thank Wells with Instructions] [Operator Our you. come question go ahead. from Rakers

Aaron Rakers

Wells. from asking start it. Maybe It's Rakers with Aaron I'll about just

expectation, gave noting the as as full for think supply high-capacity have commentary outlook bit previously the year. for growth, in growth well that nearline think the I shipments Slide drive on guys as that the presentation, some I prior business you you far you'd mid-XX% your expected industry on flash as eight around enterprise,

underperformed you of second nearline. And just like on on peers it can point, the some of looks - your you definitely kind

performance Just understand what could us relative your competitors? if seen market to you seeing help that in we've you're the out of

David Goeckeler

half second that missed and it, like was bit aligning the it in of part of but So the a sounded question, first supply of growth on demand year. the I

mean, let right what good seeing I look, now. mean, saw, We I out Bob talked saw me about, demand. up we're as margins So this start with we quarter.

we things the half expected to a guided, project. as really We're again. up next year, difficult second as was, quarter we get the we margins Obviously, as get little of into and more -

we'll think be different recovery we invest how I we and and in how scenarios various looking about at that. those, we're will prudent do

we're commitment, talked side, as On on mean, made The we we that. XX-terabyte performed. that play bit a shipped out in There's I to the delivered where do about. ramp is we're happy industry, doubt have next the you with and but over quarter, from couple this little We we're look, where nearline performing still for no on the revenue a well. is of we the in The Bob, transition is. portfolio anything of with happy interest product that great That XX-terabyte will quarters, schedule. the see add? product that.

Robert Eulau

that's ramping I summary. No, think I good we're a as planned. mean,

Aaron Rakers

a it mentioned I amount you've Bob, can look of that. than I covenants again the that debt-to-adjusted quick far What those us Okay. At think follow-up, your a covenants. are? lower an I know as times bit just can. ample you And what little room then, remind like? EBITDA, got as as X you just was if thresholds

forward? going refresh just when the on covenants change and us So again covenants maybe

Robert Eulau

Yes.

for adjusted related to covenants compliance use the So purposes. we EBITDA number that are an

five the saw, that in made non-GAAP we, as number. a show debt-to-EBITDA is so we the the progress below as And you well And quarter. ratio

X.X gross went from quarter. Our this to leverage X.X

the covenant. definitely we of And I lot trending have specifics of covenant. We given room the we're a actual So plenty in as compliance direction. right just haven't the on under said,

Aaron Rakers

Thanks. is That enough. fair it. Okay,

Robert Eulau

Yeah.

Operator

you. Thank

Our Morgan Moore Joe ahead. next Stanley. go question Please come from with will

Joe Moore

you. Thank Great.

leverage could is current much out? how I and If paying and start coming But decision talk curious it the dividend, environment about you CEO wanting uncertainties in just to cash is consider. and this the should highlighted you new around a before get the around you to we've the versus as COVID-XX just of targets these something

David Goeckeler

situation, the to and like think I You When it's desire happening when things. is combination about trends course, business, the - it's some going the is remarks, in that a I to lot I of the the technology in Obviously, issue of and mean, real cloud. the huge now, my But the really is knows talked about little well come current of I company transition. positioned. - on But a into think certainly, a issue bring anything, that focus know, cloud deleverage public the right are everybody it think I I faster. real a

see long in see a see will. to - that the We about for see years market we'll portfolio that enterprise several hard incredible can for to kind has growth, time. continue decline the talk that growth - positioned a and of return going market the very quarter. market. We'll drive the We and repositioned of We we of perform after capacity been capacity market, sideways that - We're drive actually fourth maybe and bit. little in well hard

And things So we're that to going time, very, market we kinds demand in technology all going our the of are well. the one have I long we've side markets we've the the trends time. all portfolio. then very we if flash see you as where is drive And well in online portfolio, VR biggest of indexed edge, have about that look a good at the of just to think as that's talked be very gaming, and coming seen we headsets, for continues, new which what to

different is the to positioned, together, the model. - playing we lots in business. to put of and - you we're right on And to well have when a growth portfolio of was all I move that opportunities invest when time think So it the the very

Joe Moore

Great. And then as a follow-up.

current seems of of underlying things of NAND could If tightness, both. is tighter NAND. it's a a think we particularly healthy? like tight of that assess do you amount versus NAND the much just you still that? supply/demand is PCB like combination pretty see you the Do enterprise-grade environment, of controllers, on market that think supply It How fair raw

Robert Eulau

very on that to still short go the right, the market to we've got making the SSD balancing as enterprise share And of XX% know, you with to We're up Joe, we've market. for right controllers bullish Yes. term, the goals a sure matter it's NAND get In and got market. you're there.

so very business. is side, And that more than but side the optimistic very, challenge of probably NAND controller the on a we're that's

Joe Moore

Thank Great. you.

David Goeckeler

Joe. Thanks,

Operator

Thank you.

Please Ackerman ahead. Cowen. Karl question go will with next come Our from

Karl Ackerman

welcome team good Hi, and I questions afternoon Dave. if may. Two to the

David Goeckeler

Karl. Thanks,

Karl Ackerman

if expect your hoping given cross bit drives when little can drives? the XX-terabyte XX-terabyte but could demand? may. we actually I your XX- accelerate to you half, we should robust provide conservatism center questions, the given should and the data was appreciate Two I time on of volumes a over line I clarity your limited of use more second XX-terabyte see

David Goeckeler

one on of quarter you're at things to going is focus a I'm really think see Karl, one to I time. going from forecasting the me

quarter, So but that. next knew you it's not happen to going

several what at looking we're is guess, say out, point. think quarters I this I I'll

will accelerate we're - given we're that accelerate lot seeing? have We're to for mean, think don't demand it's already. - demand demand we or think it on of going I cloud that another to the going the way need basically ramp we I a one based demand I the increased product. to product seeing if -

to is forward available, and to So excited great team supply the focused launch we're make a but being we're about product. continuing it the looking now, on very

Karl Ackerman

Thanks. the And difficult your while quarter? constrained customers' if March? as Are sheet how your could own inventory inventory thoughts ascertain trend on balance capacity follow-up, in And in any basis in today? a NAND, nearline levels probably you And a on what NAND it's June declined has are, on that on to may. I days

David Goeckeler

you question? take don't the inventory Why

Robert Eulau

question. Yes. I can inventory start with the

in were of quite in see challenges. because general. chain up actually the to But say next some this bit down just inventories equilibrium inventories I'd of everything think quarter, supply slightly our be you'll the a I So quarter. an coming seems

David Goeckeler

continue thing constrained? expected think this supply. would what I we at We there. balance say see the is strong I we supply point, Yes. demand right? the to about Are the same

Operator

you. Thank

from will Please Ho question Deutsche with next come Our go Bank. Sidney ahead.

Sidney Ho

for Thanks my questions. taking Great.

So I have questions. two

First is moving I number to on there being parts of margin on basis, one is there. guide a XX% the GAAP XX% gross know a

I bunch you between of expenses think, up. just you fiscal you talked a about fiscal included? going there's QX the in that were Can NAND bridge where And to QX? help us prices build how gets where

Robert Eulau

Yes.

So take is that. I'll Sidney, Bob. this

headwinds those actually, had fourth a trying more than prices market third. probably fiscal where the in have in we are And as - in cost move to can variance result up absorption the of we quarter and So the we we incremental costs. the

So environments the world. sure other costs costs, around it's the are it's logistics and safe absorption, making it's

it's in quarter. So a bigger challenge actually fourth the

Sidney Ho

Okay. CapEx you cash billion. your - Maybe my you quarter, follow-up said is, gross question from think lowered I $X.X to billion to $X billion last $X.X

things terms give Just in CapEx But figure additions, a thinking understand you maybe to trying out migration, what directionally, just how be or changed you I are plans? not next kind great? are year, qualitatively of there ready of you. to about would wafer has the guys Thank for those capacity tech guidance.

Robert Eulau

Yeah.

So some for number, we some ago, know, you took of had We about always a Because year without the specific And reducing capacity if be CapEx us. amount as then our off-line we go back was expectations. as year a had. out to talking were partner, of the recall. low the much too actually year you'll with growth along ago, a you pushed this CapEx we about anticipated

this next So expect say be how at be year. ready this CapEx not we'd that a And will always point expected be. to up year. will much I light to I'm still

Sidney Ho

you. Thank

Operator

Thank you.

with Mehdi come SIG. from Hosseini will Our next question

Mehdi Hosseini

for taking your want my question. Thanks I disk to drive. to go Yes. back hard

last few It skipping and You seems your are a node. competitor spoke you like years.

How hit pattern share forward, XX. density about looking a this XX two market have may there in ceiling? competitor you any this qualifying aggressively on gained is strategy? especially terabyte, are the to now and we areal should Is going And the for past update as think your years. Your been has some

the two are a time us quarterly see in on that company share my very follow-up are employing? one David please monthly, extent maybe very would NAND how if probably dynamic. I been the and board for is you moving both question And changes you key strategy us that that your disk the the you've context, drives on have tell do the you're vision for first you is, And strategies this long-term Things and helpful? but months, mic, can Thank could forward? your To be what you. that that basis. or you hard with understand

David Goeckeler

Okay.

the on So thanks, Mehdi. -

right, have question, to areal excited up in aggressively a sure getting in in are the we and and to but not on product you're we more enormous but I of On area. are lead we to amount come drive drive. drive R&D it right, I've about I'm density. transition, expert an quickly. we invest an going harder the relatively our yet this hard speed first mean, XX-terabyte it's on And make maintain you're we're harder to density density, areal

there hear of of to you'll from of is the been that map things in it's that's in, been and There's the up think me going drive I to one the us coming is that's just talent that. I things about And not has lots always that as the technology. great and in critical depth road more to on organizations, surprising when organization came but in R&D see

mean, to of like say is we think when about the is very as said it future. I world flash. And when is company more I in, the will I coming that this. I look the pivot strategy But fact evolves I way this well it at - how - at this company look in to have mean, - the you've at look the I positioned made I got this the the the And in

a be all change to is most the is almost the public API it the number technological through almost to cloud There's of every last call. mean, for amount can faster. like and kind every the have change reasons driven causing And and an the to astounding. always really, cliché about just change of democratizing of industry We're technology, company and this over us. that. And technological of the years, every advancement - of sophisticated it's say I it But that's and many now the of for amount going just of cloud pushing ways just change and unprecedented lots its every seems in that is huge everybody industry and wave investment technological access for company, on

not to growth side, building vector the I'm that, and Our fundamental there and and which support. happening blocks provide industry. we elements in got And in leadership what's key We that becoming storage. you've sophisticated the just history. of positioned very, or But it's something the of one also digital in is very the portfolio familiar are they're density, - correlated our flash is highly more very on that the think world, my and to well endpoints cloud with, areal networks, pretty giving edge I

Networks lot interconnected, higher that's the side this more end of - driving much the are a that's to capable in be more remarks. enabling We the getting flash prepared talked faster, points business. about

opens to sudden all becomes at - opens things up more And look a new that up of market, this to each other. then just of there's a more those reinforce and be - us. the And two happening. market these gaming Just will there

very is there becomes that it. derived more the it data on And needs that well be processed, company the data sides innovation this from data, insights that. needs that more to And more stored, both endpoints, that happens. be of edge, positioned to cycle be need is kind virtuous to of more The think at the I drives on

on we on zero in more have that. how say we'll to So

a dynamic that demand a is is a great in but the very TAMs It's growing. always sensitive market. trajectory great in changes, it and market. right, be to good to We're very You're are one. good general supply It's

now drive we, now which and here to capacity hard is great - said, which the to repositioned technology see. even As the I team say - seeing base, we've around business, the has come enterprise, back portfolio that I the is you're growth

So I'll But more in to to look, said, there. future. the We'll have here. be I stop I'm say super I'll as happy have -

is and world all this incredibly every what fundamental we're it's think we to, provides critical and I - the day. I for think company going use that

that dial that as dial we'll forward. we more and - - So more even go in

appreciate the for it. I thanks So question. really

Mehdi Hosseini

Thank you.

Operator

Thank you. Thank you.

from come will with question ahead. next go Our Please C.J. Evercore. Muse

C.J. Muse

the you charges share of us is repeat assuming, Thank what June margins. you the for with into afternoon. Good And that progressing the KX calendar you are thinking taking the that model in can first And COVID we of on should HDD you're the assuming? what year? see rest question that that's about half related. expenses Yeah. how Can you again, year? I'm out quarter? I question. through the gross mostly guess all as And And also something we back the then, be

Robert Eulau

guided Yes. This this, costs is and around I current a $XX Bob. I'll take million next to the KX believe said C.J. the I quarter $XX in cut million at at were quarter.

see quickly starts and more. the as that should to I ramp think of pretty off next calendar volume the will then to drop be you roughly it through rest start the level year, year

that's it of think right I now. seeing the kind So way we're

cost. of COVID-XX, of terms in the specific get we In going aren't terms to

to of some still detailed this headwind but how quarter to We're costs. share variances of too with As costs this in to logistics tell some partially that, I pricing. hard customers I But mentioned, have out. And going more going a other actually we're also able net-net, will be too absorption just because we'll quarter. that there it want have on don't play have that COVID-XX. our get it's and offset will to number more We'll to for

C.J. Muse

as of your you How you're my associated the how be visibility spending hear on thoughts helpful. part follow-up side Very much. of thinking to question. second I what of to Thanks on the kind to some so half I uncertainty wafers? your guess with of visibility, the managing about love COVID-XX? Sure. bit NAND in you would And inventory guess, managing are terms for cloud the And have lack do clearly, so of, sustainable? that,

Robert Eulau

Yes.

C.J., So as quarter now. just out guiding you right one know, we're

like we're that As imagine, multiple you company, every we scenarios can evaluating. have probably

to have roughly take time right move we said, is think we one I As now. it at in forward. quarter equilibrium just we'll as a inventory And

we'll pretty to far, has continues have held well But year. through and So don't how out right see now. for us, major changes that see demand I just the

David Goeckeler

Thanks, C.J.

Operator

Thank you.

comes with Goldman from Sachs. Toshiya ahead. next question Our Hari Please go

Toshiya Hari

Good thank for questions. afternoon. And the you taking

in XX% one, in business. March the potentially the XX half gross Very ago, of in in nice the on about you margins First being guys back days the to expansion XX% margins year. quarter. gross again, the talked range NAND

appropriate ramifications? Again, the that aren't and given guys COVID-XX right is for guiding but I its year, the range? appreciate you still Or full things evolved have

David Goeckeler

got it that stick I mean, is going quarter. demand right in they're right at for mean, where We time. So forecast I next - direction. one to for - we feel But the the is. good quarter the fact we're next about quarter forecast the the to mean, you going I a

well, looking the Bob scenarios for the to of I half information, decisions As think more mentioned we as portfolio get I as it kinds our support second of we'll investment year. said, all before And that. we're at make different about

surprising. not it's So

think quarter. how thing little but it's is through week-by-week - goes it Visibility as see go now. right a the I difficult, same everybody the bit sees we'll we

Toshiya Hari

for having you appreciate things that portfolio the comfortable the could a you'd I around of upon company? confidence company. But the plus the question of earlier. you David, two think hoping And one response to Mehdi's question, the being growth Understood. I you've of like improve follow-up, here. about at follow-up kind been to profile a a and maybe to in I change month as then talked sort with In question or was Mehdi's quick or share only

If to hope or add-on upon, guess, you to focus that But of speak from pick you change how kind be financial tend you standpoint? had those, helpful, to improve an can one about two whether you if and prioritize, two or of on as that Thank an that would or one Any you. EPS, to that? margins, operational I metrics revenue to be or flow? cash kind things it'd

David Goeckeler

long-term I I'll job. incredible it's mean, general, - play weeks mean, watched now Yes, I about here. to difficult or lots in I has anything Toshi, so guess say, of last the team will quarter this been just appreciate a I right say I The now. operations that think out I've - draw an seven it's conclusions I've much over the of done I the question.

those with here to of shared, with the And our functioning working that's Thailand, how open Philippines, all we and and best tremendous U.S. have have China, all all strength I and the fabs been of some the the suppliers, a company. a then the footprint And over global level have think been capabilities, practices Malaysia, and Japan, in factories kept increasing see world, at

situation again, to want I more past have dynamic long-term weeks I a not about in. where this - draw But that look you given think the time seven really a later. we're anything the to is Again, say conclusion and at

quite we're going focused there and as honestly, can gross places cash managing financial far metrics, of we're that margin obviously on, generation, big is As and is very lots sure focus something draw sure our to highest ones. Clearly, in make return. that. be we're investing for the That good very a making the resources is

So the those of long are top that are two a at list. whole

Toshiya Hari

Thank Very you. helpful.

Operator

Thank you.

Suva Please from go with ahead. Our question Citigroup. next comes Jim

Mike Cadiz

Mike appreciate for time? factory you. Thank This on good overview I more And please, you giving of the it. health Suva on an secondly, chain Jim us levels? component utilization at would Cadiz is at current your Gentlemen, the afternoon. color, Hi, supply little a mind Citi. this

David Goeckeler

Yes.

decision the it's mean, day, from been day, time. move start. it's the forward, situation. in you every team kept that, whole to things I course, that new about get week I'll as week. And make over And you're open improving a dynamic we're the of stands every going has think incredibly done now, best it but it an right say great how good job the shape. and changes. right I of Obviously, that information

forecast Literally, puts over the a two a we're but we're want operating anything term things three - position - I we're right in support in I just past at use and that have right at obviously, now it is where think a or level put think forward. gotten I significantly don't world that level I stronger, to now, can that normal don't the the because normal us we the operating mean, weeks,

make of one, they've feel world. sure, team facilities. across implement best done in to and what the our really position vigilant staying put around that the about has super all good we're us So And we the I practices

level at to to a are the significant hasn't good situation the people come safe, the the home sure essential as but there we making getting from But people are in about facilities well. an that and the of working making keep operate, that issue are and that everywhere as you success everywhere can, And an we to any that's better. in, we've And had have We business. that running. businesses been authorization operate, kind we know, are

supply appropriate fill to supply Our operate. better release a some now, supply same on to our thing sure chain our it's now the - working with week, to moves and again, been in that. where We've We've chain, we're some of right diversification supply some the make the as they like strong been we government doing to chain. It's been non-regrets to continue helping facilities. our chain, relatively out we've that gaps But own week gotten right it's feel position. by a point get

Robert Eulau

I change mean, it. that could everybody's and point, producing where producing Yes. at this vendors all when

Operator

you. Thank

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

Mitch Steves

my Hi, guys. ones, I guess. had couple Thanks small I for two taking of questions.

there. So the the of to first regard just dividend and one kind cancellation

about So sort it financial to think to Or a what terms guys any metric? type get of of is be leverage when metric of in to? are reinstated trying will way you there

chain units you we're smartphone frame believe the out, you terms XX disruptions time guys of then months, will in disruptions, use? to of to look seeing the supply view it, whatever secondly, XX And what new call like in what just want economic given what's wide

Robert Eulau

I'll Mitch, it's right. All Bob. start.

I to things gross $X a debt business. anywhere we through to from our take. studied I net works one our get to want we'll mentioned, bit. We manage down, is levels have X.X and times it's want debt $X billion. EBITDA One to debt depending about quite for capital on expecting, leverage that you know of don't the that cyclical where cycle. billion we goal our are structure in down if done yes, as growth And us the to obviously, we've the as bring is We're a to to we've we've is, concluded the the cycle. what And a And

David Goeckeler

we Mitch. second We are to to again, for point. hey, about next supply happen. Thanks this going How demand I see think guide the to quarter quarter. quarter-by-quarter that. all, obviously, at you question. take and of more going say second don't next for on in the to side have units. And First our - have and the what I about half good of and we the lot doing? it we We're mean, feel forecast a confidence smartphone what's we'll half the

Robert Eulau

would thing under-indexed the add, The to mean, I mobile I recall, Yes. we're market. Mitch, you as phone

forecast our exposed So as of we're not some and trying I'm competitors. our of not it, some we're to it to customers - as sorry,

Mitch Steves

Thanks. Understood.

David Goeckeler

Mitch. Thanks,

Operator

you. Thank

ahead. Our comes Advisors. with next question Steven Fox Fox from Please go

Steven Fox

Thanks. I question Good channel. retail afternoon. a just the had on

it current right you how impacted about, now. there's quarter? pretty for talk a the mentioned one, big there's obviously, Can You channel the guidance in the - disruption

you're of focus and Digital those into SanDisk those which are strong And Western think you. old those redeploy sort that in Thank and pretty could league, areas? probably then the retail profitable and longer-term of products, given sort secondly, media heads you when we on about more bits brands,

David Goeckeler

fourth headwinds business. some in So that expect as talked I we quarter, we think about for the

also stores weak we talked the closed. it's Last obviously quarter, a mix shift quarter lower-margin the being quarter, about stores makes we think open, a as deterioration it I not as of anyway. to it the seasonally end saw we lot well. towards as were a products And obviously, typically saw tougher. And with

the We've the again, we're got is I guide. guide. a that mean The - guide. guide all factored with into very comfortable

the we dynamics happen those got we've all to so baked in into retail numbers. that And channel expect the

term, longer-term those we'll it's think strategy. Longer more the company, strength I a have to of great But about again, say brands.

an I it's we in drive well. not drive differentiation those think as just not where channels area and can margin it's low-margin They're just all business. can - we

me good feel honestly, And the one that to I attracted about of that company. it's the capability. So things

definitely to think but I - it's again, more the we'll strategy say So there, what we'll asset. is have an about long-term

Steven Fox

very you going Thank much. Great. Good luck forward.

David Goeckeler

you, Thank Steve.

Operator

you. Thank

Nikko Our next question Pajjuri with Securities. ahead. will come go Please from SMBC Srini

Srini Pajjuri

Thank tend you. pretty guys. given Dave, the at the are all I'm cycles. we design do I'm demand the have half. that at sustainable, guess, current to that what But hyperscale cloud good side to understand afternoon, trying I into to trying guess trying I point. guys is second I Good is visibility to your get you guess, this on

And Any about what I half? your your side activity be are second just to want thoughts what design hear seeing? thoughts helpful? would saying drive as to of customers the sort you're the on

David Goeckeler

fair say there's strong only building question, are consumption we're see from demand the one we Again, I Everything - they mean, always is ahead, the couch buying inventory, we Yes. we always suppliers. cloud strong There's are. is old vendors, I a for thing. of are time, their quarter digestion to big kind cloud products they it's at what everything the guide see going but can I a a demand to thing question. we guess continue

new Not anything I saying thing. they're think saying the there. same

more home, cloud there's unfortunately, set I global mean, that every some lot in intro that endpoint on architecture I massive impacting because we're time to How a long home, world of about of my COVID-XX, business. and I just - learn lot prepared in We've a what think I been lasts? there's the seen has this at at and living mean, where it's of now, because remarks, think acceleration just a in it talked more for all I a work dependence technology, that, pandemic.

fast now. I stay like subside? as is - be to in some to much how continue home that that going So it's second how I is the to question it is that move I there'll think it so get to we're given into I and at think question set, going on obviously, a people said, see don't there's I But - we'll starts there. model the The destination? as right is many the we half. think variability there's don't

customers fantastic, right. those all continue to be with conversations you're Our

understand to and is our I've just into the of impressive. that's strength as those company, One been our footprint depth the is this of the come extremely great and of customers relationship things

think very close it's right - us we But well, nothing and tells demand. see extends infrastructure. into far get is as more we'll nothing they out And sign them work increased so we're what to think I that the don't don't them with continue that it stay demand have we how as to half, going I but to and we're And - second any real build now, seeing visibility. their the

Srini Pajjuri

as guess, couple try of a I Bob, then, I cash flow improve on. to you thoughts to want your items, line hear And you. Thank forward, Helpful. the free going

least that compared to thing tax And First, other do you've paying noticed OpEx. that speaking, then on Thank And your to a down? you rate, fairly on relatively to that why expect at semi curious just you. high as is? been I'm is a the I the non-GAAP come when basis peers.

Robert Eulau

Yes.

quarters to this anyway. So quarter good be will it OpEx, levels two the questions. the around for I assumption we guided next think is few best the

a we structure are On dilemma the tax is money we're the when rate, we than fantastic more right now. have making

to have around world it quite rate And minimum we high. when pay and the levels tax our relatively certain we our makes taxes now, are profitability have so low, right

So it overall profitability come down the to come up. as starts will

Srini Pajjuri

Thank All right. you.

Operator

you. JPMorgan. Instructions] Harlan Thank Please question Our comes [Operator next from Sur ahead. with go

Harlan Sur

your platforms. It in question. saw shipments, the my share actually continued achieve Thanks March I XX% are March guys industry enterprise in assumption the quarter based market taking and on looks But new percentage quarter? you guys shipments in you Good of market strong for double-digit afternoon. targeting know share. growth the ramp like your team did on the SSD

Robert Eulau

is flat. I'd market fairly bit. the a was That share quite Yes. say growing

we're constrained definitely - the bit is right but there. controllers a mentioned we're now, as So demand on earlier, I

Harlan Sur

- Thailand, or team, shelter-in-place operational and guys point have from Bay creating movement Great. a color more maybe control issues, which guys know geographies, on you. Thank are of Okay. footprint COVID-XX Malaysia, the Area, you of areas a Philippines, where bit logistics coming the where perspective? an from? on pressure operational just us give that And you the there Any are in a these operations. then more all of a I are

David Goeckeler

changes any situations. couple categories I fall things want it on out really in of based different another - -one, But it obviously, a over to local a call one quite don't if there's because bit area to.

stuff to went around. stuff flight. It's move is get First more of lot on A logistics. gotten to expensive domestic

there's lot There's of those. So lot fewer flights. a a or passenger

So those costs are up. going

is the big to general cost. of open Just around and it number difficult places is a that things move how are of category

run Bob to that costs general some cleaning those But then Bob, else kinds talked just there's And then about. at mind? just those an last a issue over bit less And be little less absorption don't full in and places can't getting of costs of under anything are do I of maybe two. where although other minor we of the - couple know, of we increased on things. relatively have capacity, to weeks and come that's some based there's the

Robert Eulau

better No, I will I think May. than April, even better June certainly, little than May be be I that's will think I and a think right. mean,

David Goeckeler

been Yes. It's has week. much better. a It over gotten really week

Harlan Sur

Thank you.

Operator

Thank you.

Baird. Gerra Our come Tristan Please ahead. go with next will question from

Tristan Gerra

sense What's Hi, We've for the your going will forward? going costs. pricing of to reading few quarters? the supply where up good create next in could HDD environment about afternoon. logistical match pricing And higher recently been favorable HDD be an pricing disruption potentially

David Goeckeler

in cover of successful moving don't Oh, But I quarters. somewhat increased the some next have we know few about to costs. for the been pricing

good what next Bob, there, be going add get business. figure And those anything out happen to when that. have what's for that? we'll to quarter. the to we going on takes not industry. we're increased that I to think at pricing have We're costs anything we But cover it at the looking what the it. in focus the sense what in it is in a are in we idea And of looking our that's to around

Robert Eulau

I agree. No,

Tristan Gerra

Okay. Great. And then just follow-up. a quick

current that's be improved has chain talked of but inventory into But levels about is for there quantification put this you supply percentage come to lot by to know down. that that about disruptions? could going expectation I You've output your - a those impacted for this a quarter and a maybe disruptions, currently recently. how you've talked

meaningful things material coming - there is on put to trying the impact those Just quarter? disruptions of a still terms this impact together supply from whether in

David Goeckeler

next very specific I I for the said would - I it produced times, want number because very don't to guide to support the have environment. that's going a that Yes. confidence to quarter. dynamic - a put supply on the said potential - it's in say we what as supply a be several the - the

better has we I of lot a in us the in it's to day. But to - guide been and - put trend confidence the things the it going every that. given have But better getting been could confidence it's where change place We have. said that

Tristan Gerra

you. Great. Thank

Operator

Please Capital The you. from statement Twigg with go short ahead. KeyBanc we a Weston end comes by before question CEO. Thank our last with

Weston Twigg

Hi. my had of I a you taking Thank ones. quick question. couple for

First, military was just company chance to the I look if wondering at China, exposure a had recent Russia commerce you change regarding in rule and Venezuela.

have think previously XX% you to under that might wondering definition think much how in And to fall new I specifically had a China, XX% if of had I'm about you the rule? you this exposure. under said chance

David Goeckeler

at to going we chance We've it. monitor obviously, our we're have take had it look But it don't a material very, business. quick will And very a impact believe on closely. a to

Weston Twigg

density up if if are not, of stable that I might if or was be been trends in the driver It's That question Can revenue. down? don't the half but if that in or an helpful. big makes back offset a of other just it's talk sense. near-term about be on had That's the units And year I you the - going then notebooks. might notebooks know

David Goeckeler

talking have Bob, and about particularly notebooks you for at Yes. don't do. to if going say trends point. to things I stick know density Again, anything in to about we're next quarter. insightful don't I this

Robert Eulau

last obviously, we it's No, know. but I up don't the come don't. go think really year, I as I Yes. we over mean, forward,

David Goeckeler

with details. with We can follow-up some more you

Weston Twigg

right. All

Thank good. you. Sounds

David Goeckeler

Thank you, Weston.

David Goeckeler

to Enjoy Thank today. Thank of forward for JPMorgan rest day. you the right. upcoming the all your seeing look All Bank We joining you America of at you. here us of virtually and conferences.

Robert Eulau

Yes. everyone. Thanks,

Operator

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

disconnect. now may You

Western Digital (WDC) 30 Apr 202020 Q3 Earnings call transcript