WDC - Earnings call transcript Q3 2021 | Western Digital Corporation

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Operator

Good afternoon, and thank you for standing by. Welcome to Western Digital's Fiscal Third Quarter 2021 Conference Call. [Operator Instructions].

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

begin. may You

Peter Andrew

good and Thank afternoon, you, everyone.

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

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

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

David Goeckeler

the Sequential We January, call trends, $X.XX. continued digital of Thank NVMe third gross energy-assisted quarter you, transformation joining billion, earnings SSDs, $X.X XX.X% for by Peter. margin above the range thanks non-GAAP end Good of everyone, and second-generation solid was flash reported and revenue growth our the and of high guidance non-GAAP share per capacity increasing momentum drives NAND improving markets. enterprise along our driven with provided pricing today. afternoon, of results revenue with in across accelerated

Western are pandemic, an new in expansive the our routes storage focus edge upon component strengths, to we building enabled our intelligent strengths ever are with As portfolio is a that business cloud, These combined by From than impact more only the technology structure, the the essential global data product know a as block results. increased solidifying are but before. to and we continue strategic driving operational foundation to also market more dependent our the architecture. underpinning of fundamental economy. technology unit Digital's broad position leadership, manage of the technology not world digital cost which is we providing technology-enabled, and and the

to our continue of the hard and we to diverse and in the Western portfolio, unique environment, our are flash seeing As solutions we both the ability base. markets a breadth synergistic Digital's drives end deliver and to benefits face of value dynamic customer

Within now Let depth recap and of me line, provide of base differentiators. significant channels, Flash Flash, customer our breadth businesses. our cost leadership HDD and a distribution and product are the

markets, and quarter from revenue third in to margin bits enabled ranging ability us a titan. to retail, meet enterprise and significant with growth Devices in shift second-generation to our in to act the data grow experienced centers Solutions, Center Within various NVMe Data cloud in Our swiftly customer both quarter. SSD we the end demand gross and

we many utilize balance for as addition, In their partner flash for and This end serve. are diversify a consumer NAND also cloud product many lines. as opportunities us customers continue seeing we to we markets the strategic creates

to best. is WD by solutions. towards experience, double over strong experienced interest at-home VR levels already remained from significant year devices trusted distinguish bit competitors. and gravitated headsets, more XXx a have broad In gamers product game as our new sequential typical of gamers the portfolio drove demand, was gaming revenue particular, Client extensive their having our in maintained Devices, perform product market delivering reliable ramps trends. WD seasonal distribution a it brand recognition, gaming quarter growth industry-leading for channels along Black strength Western our continue continued console PC as Retail expansive Black line Digital above high-performing with a end are consoles we expect game and last have calendar We where again year. performance, other In and achieving in By growth to solid storage customized hyperrealistic progress and capabilities with portfolio our this entertainment to calendar

future technology the performance ramp, depend to we of excited and and BiCSX using of needed upon. technology and and our Digital's also have customers' will exceeding are is lower intensity. the BiCSX costs Moreover, made We layers road advancements capital the lower allowed meet and as efficiency significant bit lower about achieve midst continue the Western needs. customers' a growth drive number in the to in us to map resulting customers reliability while cost with scale, a expectations delivering our ability leadership

We continue to expect XXXX. bit BiCSX in crossover later

drives HDD demand client offset layer our better allows Meanwhile, to our their long-standing growth respective XXX numerous and applications. led next-generation based scaling, CuA optimal entertainment venture, at-home successful flash drives, work in enterprise milestone expected, for drives. drive growth Kioxia will trend HDD, device, more in us Kioxia. was in we as BiCSX, at the demand meet overall and our architectural the as developed enterprise home, with retail than market innovation learning BiCSX joint diverse of this major advancements, marks This was Finally, technology, HDD capacity on XX-year In partnership revealed capacity including continued than February, trends. improved relationship the in to we needs cost. our deliver an with of together, distance in product from part high-performing which tilts lateral to revenue will to supported a decline by And by continue features customers another that

as enterprise and We stabilizing demand employees continue to to up expect return work. pick to see

our all to a titans for titans XX-terabyte our long-term We our leadership XX-terabyte drives an of Building capacity into customers, These agreements underscore of expect cloud cloud enterprise have with ramp entered our commitments product aggressive drives. drives. the our of on for all this we've our hard cloud customers. importance qualifications center and completed number data with energy-assisted and success, including drives nearly enterprise and the

and fundamental more highlighting the technology-enabled, is but As solutions, storage and only of brought a by also and on Western pricing not of that we we're this improving believe expect are We continue trend, we market, encouraged of portions ahead. to in to the fourth the the dependent. in navigate and portions better transactional retail of In continue know trends broad negotiated market the a more trend portfolio in fiscal quarter. sustainable to we technology importance challenges by what's flash, this translating is Digital's COVID-XX, the world pricing

in unique high positioned remain end to team are enabling hard demand Our profitability. flash of hard and and broad to solutions benefit and flash diversified and our ability growth optimize sector, with where NAND the from to extensive product distribution drives to visibility, cloud, uniquely provides provide channels us solutions. volumes we through markets mix the In this complementary drive strong

strength we drives led We expect growth through largely some about watch To to well able these of chain of the management. ramp XX-terabyte drivers, date, And the progress keeping hard the have we build supply been flash. component in to calendar while on the headwinds. broad-based the are as our as proactive close we impact industry-wide excited as semiconductor year, mitigate are also we by shortages through

upside flash, in the We are, tightness as however, potential future. as which in could limit experiencing controllers well

in pandemic also experiencing We while wave another the are others unfortunately that effects cases. some are lessening regions, of recognize

this to turn I'll through Bob details environment, our are share over to now call actively financial the managing business. which on to to ongoing We results. have continues impacts our

Robert Eulau

everyone. afternoon, good and Dave, Thanks,

provided the year-over-year. sequentially improvement up end upper mentioned, to January. quarter were and and of for down fiscal revenue X% Total ranges Flash above the gross versus the was primary X% the As overall results in $X.X guidance contributors Dave upside were the third revenue margin guidance. billion,

basis. Devices decreased used basis, seasonality. what client to up markets, end revenue revenue on billion, it based down, X% a on was our desktop a revenue SSD flat than hard at notebook sequential and client seeing was revenue down we're sequentially and though and down was PC mobile Looking was grew, revenue On less while typical Gaming year-over-year. $X drive XX% sequential

XX-terabyte was on XX% to enterprise billion, enterprise growth second-generation Solutions. points up Data the hard see targeted a from to NVMe from for capacity new encouraged and Revenue Center large-scale Moving drives OEMs. the both grew SSD our our and both hard Revenue enterprise enterprise down sequential SSDs and We and the drives at XX% XX- sequentially. products, by energy-assisted cloud but and driven year were Devices capacity ago. sequentially, $X.X

revenue sequentially X% up and a year Lastly, from $XXX Client ago. XX% was million, down Solutions

a by revenue drive down On were revenue ASPs Flash per was revenue sequentially billion, down year-over-year. basis. sequentially. increased a Flash Flash X% X% up year-over-year. X% hard exabyte to while increased by total up $X.X X% basis average technology. Turning and and price billion, was X%, sequential increased X% Hard $XX. bit drive to XX% blended hard X% basis, a on sequentially like-for-like sequentially shipments on flat up drive the and $X shipments

third margin This above my comments that stated expenses, we to quarter move up to results, Gross percentage be guidance January. costs in was X.X upper As the non-GAAP the was otherwise. sequentially. points unless please note range of XX.X%, provided end and will related the for

X.X coupled markets, in flash end success drove more margin down our bits ability Continued improving sequentially an with points driving and XX.X%. to attractive pricing environment to percentage costs, to shift gross our up

margin gross drive points percentage sequentially. hard Our XX%, was down X.X

improved accrual which reduction new rate noted With X.X and expectations to well points. impact share to expect As a profitability, our expenses were $X.XX tax to larger-than-expected quarter profitability. of includes This rate prior $X.XX. Earnings was $XXX in tied margin. year resulted approximately costs units share. be for was our per earnings variable energy-assisted shipped of than due million production $XX drives in percentage fiscal to our below XX% X%, also ramp compensation a gross million planned our per a our in pressured third Operating the or directly our improving quarter, XXXX. tax of last We COVID-XX-related our higher was fiscal guidance now and benefit overall

quarter, a additional per $XXX have of million making debt Capital off we the of confidence payment Friday, paydown an and $XXX third Operating highlighting $XXX this was cash cash the and the in quarter. for outflow flow benefit, including of statement optional the $XXX in Excluding flow fiscal negative million. also quarter related million well $XX our earnings our which to of joint In still an for flow include on $XXX debt be property, was third million. purchase cash the cash plant paid the generation cash ventures million. above debt, activity fourth was free share expenditures, We'll we optional was tax flow equipment guidance. flash and million

to in and At the billion $X the liquidity billion. end debt outstanding strong. quarter, was we had be equivalents, Our of $X.X cash cash gross and position continues our

as resulting credit in our agreement, a EBITDA, Our leverage gross defined in $X.X of adjusted was X.Xx. billion,

the on credit in This is Please billion Relations flow ventures. for with joint $X to our a the earnings reflected includes a presentation add-back statement. As not the cash reminder, Investor agreement associated depreciation of our website details. further refer

on our to outlook. Moving

fiscal guidance is quarter Our as non-GAAP follows. fourth

We $X.X to expect the be to revenue hard in drive to revenues both billion, be and flash up expect sequentially. of billion $X.X range and we

margin be XX%. gross between We XX% expect to and

We drive expect improve sequentially hard well. both gross margin flash to and as

expense be fiscal other and $XX be We tax expect $XXX million. million. $XXX is in is to and fourth and operating be expected the Interest $XX XX% The to expenses approximately and rate expected year. million between to the million quarter between

We to expect approximately between in assuming be the per fully fourth and diluted $X.XX million shares XXX share $X.XX outstanding. quarter, earnings

to it turn I'll Now back Dave. over

David Goeckeler

Thanks, Bob.

benefits customers to solutions unique a ability products on storage flash complementary our Western to centered offer developing our continues Digital's will hard our customers' company powerful needs. the as and whole. advance, our technology remain drive and portfolio evolving industry, As to

and organization strengths conditions leadership collectively and are market execution stronger improving, underlying last now changes are more the the portfolio made over year of I a unlocking and and the better Western results Digital. agility, While believe driving continue delivering

and We a leadership innovation, we to of feel unique continue for are all delivering stakeholders. while our value that can in position drive confident

Q&A session. We will begin the now

Operator

[Operator Instructions].

Aaron Rakers Our with from Fargo. first question Wells will come

Aaron Rakers

cloud of the remarks execution engagements of the cloud I structured? agreements us any and mentioned of quarter. context or customers Are any with in you I pay? you how us would product the those with is, agreements they give volume-related? to kind your in question Just appreciate how you those Can compare customers that titans. that bit take about the on on establishing Are little some that. Congratulations on cycles? first they are prior a Can more? of And clarity help guess purchase prepared have long-term kind

David Goeckeler

when Yes. more into going I demand as capital we've something certainty would And of been I it a us, a year right of capacity it for around, to working mean this and put be struck big and business. guess. could trying shifts very for on Aaron, me was thank you. all investing judge to the world supply here it's that a We're it where the get and kind it I a Yes, market while, be to was especially going got business transactional. we that better we're enterprise. ago, in

multi-quarter agreements, imagine. going are And talk set they are demand there that and as So would we of we a price about for you to amount the period. have,

agreements as we're visibility to quarter-by-quarter, both opposed multi-quarter out us to to business. the So more just around extending going that give

Aaron Rakers

level? bring do back Okay. And plus hard simple maybe that, least just not disk drive hard my is target How of think I XX% I XX%, about from margin variables is, go us in back question think guess, to to guess, still a drives? probably margin we related business the the we thinking is, somewhat that at as to gross a I what XX% how about disk do gross follow-up if higher to the

David Goeckeler

-- of think part -- I out COVID. so getting the I first Well, is mean

good then had get impact get -- And deliver continues more we client but an we're continue be for costs thing, that's to I -- so an and the capacity from the there. And bad on continuing control we a long we continued continuing storage customers. We work down. density not to TCO home. market, That's a what foundational be. Obviously, continue getting on a in but improvements as to strong is to better very we margin things where of place points different gross margin definitely think They're mix it's cloud, have proposition the the in the the a to necessarily all COVID, scale density map we due to drive which hoping I And on a aerial And road our to X.X% issue question we're that believe can issue. is in profile. do. the HDDs. element think to can't pricing a

And so from those we're of all working on angles. it

Operator

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

Christopher Muse

overall was I guess gross margins. discuss I question first just Yes. hoping to

most So there. fairly saw quarter And the March sales NAND than spectacular very we and clearly across on other your what nice uplift the were side NAND better cost in in particular, players.

gross improvement year-on-year what the into margins should So about we June? as And can go XX% that continue we drivers kind other through of year? be thinking impacting

David Goeckeler

Yes.

we're A the that. -- we're we -- where in technology quarters, mean, XX%. good better, very So quarters I In I for little is of on our BiCSX, target do the we're happy high-performing maybe node think us. a some We're do some to is. we portfolio spot. going a still is lot at which we than worse a

strongly We with Sivaram's Kioxia. investor and So very kind us, technology biggest into technology downs. we're what's Hopefully, we're of do believe very tuned the all happy in Dr. NAND with of cost map you of this. the in NAND. driving, road our discussion Between

to to sustain road able be we so of a and that. confidence And our in have lot map

we we quarter, about it. As look next into talked the

see good continue environment. to We pricing a

continue cost get in good downs in environment gross in price good to margin. a and a us the expect that to portfolio rising puts to spot we So drive

Christopher Muse

helpful. Very Okay.

Robert Eulau

ramp continue we're the our XXX-layer as which will BiCSX And to help down. technology cost beginning bring well, to

Christopher Muse

how strong, Great. I rebound HDD And you saw share for as to we bit to pretty prospect XX-, through with XX-terabyte year? can then, speak the us growth units? about guess, you enterprise sequential you XX% and Can in go a ramp the the up side, faster the think

David Goeckeler

Yes.

in We market. sequential expect that growth

that drive sequential in balanced we capacity growth and exabyte and I shifting XX as see had and this to quarter, across forward see we we -- enterprise expect improvement shipment that to basically we we margin our we move sequential -- XX XX, and good gross of sequentially, as strongly also had a think the a XX, well. portfolio

Operator

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

Joseph Moore

your Are titan Also, say there could with customer NAND? say to is? the on can is in cloud NVMe a kind would about the your had side, I there. citing overall more? had? share And where and you if start you've talk -- a your the you get where enterprise NVMe. you late And you You're for would share know enterprise you similar of prospects that enterprise Where share progress to enterprise

David Goeckeler

the that's on OEMs, we're enterprise with in So calls so big process. working still

going talked last We're product. multi-quarter I It's fine. good the As a about process. in demand that for along time, that's seeing channel

So that's a good indication.

a the in As far portfolio share, one -- think client where of running on mean, we're of things I SSD different really markets we're as we're going to to a land across whole from mobility. bunch I balanced to

SSD is the to up we're I then start coming to enterprise But of and, things big going balanced us retail. a the scale. client mobility, quickly and well. get still think SSD, the SSD for which enterprise to portfolio thing have, like markets we now run And at is course, qualified ship as big across with gaming

about good titan, the when feel for product cloud where at a call it past last was of think and us is. we this got quarter. benefits that the milestone done So major we quarter saw We the we a

Joseph Moore

Great. of my that you follow-up is pretty on from a And much Can XXX sense is of drives? give significant. versus margin NAND basis then coming points of improvement how us qualitative gross

Robert Eulau

actually margins both margins down I'm in gross sorry, were sequentially. flash on gross -- the were up side. Well, up They're

Joseph Moore

mean I Yes. quarter, June your in the more guidance.

Robert Eulau

Yes. In little side. businesses, will more the Sequentially, a be both flash up June probably driven bit the in quarter. on

Operator

Our Sachs. come with from next Goldman will Hari question Toshiya

Toshiya Hari

actual quarter the of in guidance the David, embedded issues the What's bit NAND as resolved? your it Can you these little raw to be controllers impact some in June you well. you to and your relates talk strong in business talked and results you'd quarter? NAND when as perhaps outlook. on a about expect and saw Congrats shortages about

David Goeckeler

Yes.

working on But we working vice So in in get into can. like channel in that, little obviously, controllers we're or get channel I return. and portfolio we it's to we where with -- places much where and get Chromebooks, the see highest those more quarter, that. in supply let's what products moving shortages controllers, as as could supply this to a we're the liked have couldn't probably return biggest get mean general, would is shift we around the do we're as many past say, we're whether controllers to shipped as we retail I have able mean, from have did where the for -- we versa, is in retail the the to going into

agility, I as team think, implementing routes over the well. our So very is the be going all the it has quarters, and different forward beneficial that last couple of on to expect been I go-to-market of

we So we're little it the forecast. it, we can. but a able definitely going And bit. completely to mitigate to working the we supply able get know We're to not to what to all we're have. escape continue It's matched the supply

that So expect we regard. don't any surprises from

Toshiya Hari

the from much supply/demand flood what want to market obviously supply. fiscal the with at it. overall wanted too you and are the forward. perspective? get you is as you a And plan looking to to don't your term just Got supply/demand maintain to good, on thoughts I going in your You transitions and start to spoke share, a but really and the near the your thoughts want 'XX, as make Clearly, remarks. CapEx same for time, intentions your prepared follow-up. NAND on then But quick that market

So what's debate of sort the internally?

David Goeckeler

Yes.

we're 'XX invest it So demand to situation. got right. I you feel the is about far maintain good share. pretty out. We mean going I to mean

bullish. X say -- or a course, I see in As this in we're to of strong we it's cloud -- PC have infrastructure half we market, yes, certainly. mean into quarter to second I that. of the demand whether But year, we as you pretty at know, we're guide the the continue time, market

a So be and we'll with go of the manage year our investment it one time. through quarter the disciplined end CapEx and

Operator

question America. come Our Wamsi will next Mohan Bank with from of

Wamsi Mohan

And targeting back to go for at basis XX to long-term how want there share the I those Is much on agreements? these share if you any not, customers? are TB. agreements Dave,

David Goeckeler

don't we their I deep and storage that on to a into detail very Yes. relationships much basis. that our fair go given given cloud customer-by-customer position hard we We customers, data have in on the -- long-standing is XX% centers it's drive. these say and in of mean the with

where simple So plans business from the are what it's of look headed. next where just is making anything as and allow market, us to sure with and that quarter the us and our with to kind getting to for time give to It's plan this we're aligned visibility business that I quarters transactional move as more as more their about going get said, several of like. their what and try is visibility aligned both

Wamsi Mohan

Okay. gross us a here? June on lower the in transitory help just the cost think you more think that as you cost headwind mix related improving And follow-up, improving are quarter, or headwinds? more mix is in margins maybe side ACD the versus an Can through what

David Goeckeler

mix. of A part is it big

we've long quarter. of think us. and XXs, point talking XXs point strongly better as said, tilt balanced shipped capacity And next I is I XX see to this time for pretty and that number we quarter, been that XXs we'll XXs, for a a

Robert Eulau

here the quarter-to-quarter well. and we're June think as a get better back production quarter. bit And costs little production We at March down in slowed full the will quarter, I the in

Operator

Our next with from come question Hosseini Mehdi Susquehanna. will

Mehdi Hosseini

I'm follow-up. you forecast articulate helpful continue as guide earnings. for how And have me I out. years could X of joined, And fast not about you execute? just months, to you're so X earnings. you of around to going I been would were are but be earning. if a almost earnings views since or asking million And it's Great still But the that forward you your year doing the company or a at of when it $X first XXXX, assuming to doing was improvement, David, to $XXX joined very remember, here, or give you XXXX, And company. $XX well a think below when north somewhere annualized you annualized improve XX

David Goeckeler

think mean, clearly across established big I the And Yes. I see on out portfolio getting SSD have SSD think -- piece flash markets, We was which number execution. a better very of build starting the strong the I I client cloud that portfolio. what think a enterprise it's of the you're with a to end that side, titans.

of have, gaming customers lot also coming We I less participate because new home a all portfolio. a maybe We relationships we've seat very front-row definitely strong that devices, less than big think, Mobility, have others. products retail those with top our around qualified the of We us much strong -- than of and stay some drive gives those about. where as smart in vendors. portfolio are with developed. very that market, kind cloud a talked that we And then

the and react and be and So from the able where much in out balance It's flash across continue best in return leadership, drive more our think in deliver we're And we can, quarter, market. environment the last we to forward. and as the that. a just system think built to this and outcome position In sure given I doing with use we're market get the to I density agility the to it's all I it's quarter to best say able that to hard a market. put then good way would to routes markets XX portfolio can. in to the the the system did that aerial portfolio we we a now that continue the to leadership pricing year ago there's the side, then the -- do the we and And and are drive make executed return drive and agility

we've seen portfolios I there. long-standing there's a the the in space. had position -- we've then think client I synergy think between And the X

technologies, with the portfolio a more manage they're center, for transition. in is We data where think relationships had substitutes customers these the And I we complementary can ability front SSD where technologies synergy us. great to have of those execute that We other. client each in and long-standing that were

Mehdi Hosseini

quick How believe certain you're assuming restricted follow-up and ship. there see that do Okay. primary you still playing specific to your with geography I'm to And has your are competitor And just I a you're HDD. but to on customers, shipment continued customers restricted. disadvantage? still that

David Goeckeler

Yes. in the We shipping -- back the rules frequently. since September, to We're stopped rules. -- commerce commerce came talked out, we've been we I think per

own position attorneys movement and and have licenses the know commerce, are recently. -- right I position don't We see that, that out. outside hasn't any we in. be there there's the pending think firms. we'll We our how been with that's any been that's plays to The continue there and

As far competitors as speak doing. to what can't they're what our do, I and

only not are into I our we're insight have not per So to where shipping and we supposed commerce places to position, clearly department regulation.

Operator

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

Sidney Ho

on the is XX-terabyte first question drives. My

of do to strategy of the how XX-terabyte terms XX-terabyte right on XX? are off be terms you cross ramping in your congrats XX Maybe all, follow-up will all ramp, that is, the thinking the this calendar exiting year? But versus XX bat? expect drives terabyte qualification. the drives you of in to about over margin accretive First And a

David Goeckeler

Yes.

expect -- the to shipped we primary highest the So XX be this volume quarter. we

margin first and the question, to to yes, yes, expect we So accretive. it be

We expect sequential improvement in HDD again, please? What margin. was second question gross the

Sidney Ho

and it's customers XX. for? all putting versus XX-terabyte your is basket asking eggs XX into Are just part, second whatever its The the are you XX the

David Goeckeler

Well, for. mean, is whatever Yes. I customer I asking it's the always think

evolution their they're of data in is point So every what center the different at deploying. customer a of

deploying still XX at are scale. Some

to different XX and possible, quickly Some others went at points as are or XX. as of XX deploying

process. are they the customers meet in we so And that where

better but expect It's -- just to forward. be a point going we XX So predominant equation. the TCO

expect customers they architectural So can, when own it's the there given -- to evolution. you their would internal go

Sidney Ho

to nearline it. things. of a the Maybe Got side follow-up

strong, you're year? and, that -- nearline the been stack against has how seeing the industry-wide you'll do you the Given this what growth improvement obviously, exabyte your is enterprise in for And expectation of side that up the cloud year? think for this drive

David Goeckeler

coming of We Yes. growth a quarter see up. strong

for growth the I year. think XX% we're still in that exabyte around

an So to I -- stronger and position. think we're the as that XX, shifts market incrementally

out. So to rest the that's I the of expect year play how

Operator

Our from Barclays. O'Malley will next with question come Tom

Thomas O'Malley

Congrats on was end the really markets. question nice results. first around My

Could on Solutions doing to You quarter? helpful any and would color general gave and into June side. be some Just flash guys the there. talk see guys kind you Devices Data HDD helpful color Client Center of the what Devices, you Client

David Goeckeler

expect and mean, of we modular devices improvement. the decline seasonality. I decline. think lot we saw around very this think I better way saw continue -- quarter, strong. to client, strength to mean we we see think we here trying I than I'm in saw seasonal but are in mean I I data -- a center, and past mean PC I

So think to market is continue. We expect that we that strong.

Our number that is units us The customers telling shipped is are up. of strong. market

So a that continues good market. to be

data think with XX I stronger. ramping center

to see little a And space, but retail going the in we'll think growth smaller You're I probably than others, still performance. the sequential very but there. see good growth,

Thomas O'Malley

was follow-up around margins. My cadence really the helpful. That's gross of

to the just here You coming of even guys talk above part think guys to that can that bigger indicated that. for sequentially. And COVID this from XXs? internally? $XX the But becoming term are off, mix you and the the with that HDD you I the million nearline of headwinds But progression some drives longer talk obviously, are of expecting the the a you cadence progression kind to is can should margins year? improving gross that see you target and some

David Goeckeler

the going think market, are the going costs. but working we're bring teams forecast to to And the to do you you'll very which down -- I scale bring at continued they're working cost. X a Yes. to products, the I any hard storage do in quarter we're has as that at mean, down time,

So the is XX% to industry back I think driving gross whole margins.

one going we're going bit. which but time, got we're supply at on the make of in to on work sure talked certainty step I get then of think there about both the I it what think, on and some then matching market. is the give we sides good a a demand cost is helps And supply/demand kind to work agreements, we've multi-quarter side

and drive quarter, So -- to all on we'll continue we're elements, every focused we're it. those

got aerial great improvement. And a as customers drive big delivering that introducing that big proposition was with on was energy thing a higher density implementing higher map to assist. A densities. road TCO drive and XX, continuing value with us Now XX. And our of our we long a for better equation piece and it a or starts aerial we've

'XX, it. decade now of just starting and in the ramp we're now over commercialized to behind well As assist research we've a energy we've that, market. That's got there's -- the

And that to technology is improve to that generations on continue our equation density, customers. many improve for us so going to TCO the gives which aerial

Operator

from come Cross will with question Cross next Research. Shannon Our

Shannon Cross

curious your just regard I'm to customers. cloud with

from to CapEx you know hearing you're period they're excess believe But starting through a what curious the seen up couple of pretty digestion much they're on that a the ramp If weeks I we've follow-up. then them? over some And I'm capacity? of I again. have

David Goeckeler

Yes.

for into think I the digestion we word when about abating slightly but time they're most spot, in an phase I talked But this. ingestion the used different we're cloud part. all a last was

Shannon Cross

capital? curious terms that market. inventory. in working Okay. at and I was kind having your the AP looking components some overall in in impact We're of tightness is of And What movements the on in of then

Robert Eulau

Yes. And logistics COVID-XX, more with associated of No, we particularly that's we're a we the the inventory costs the on frankly, ocean definitely would, in normally the because than and good hard drive a side tightness of on products air. not more putting on little also, the are carrying question. And because controllers.

impact definitely of terms respect. having working it's that So an in in capital

really this down March the back will mean go quarter. on it quarter, of a quarter. think down did I come a I that slowing was payable in production up this again and accounts Our the result

Operator

Baird. Our next with question from Gerra Tristan come will

Tristan Gerra

We've margin their peers outlook concern that some the the that in capacity seen around some could back peak gross the reported in in see for view? supply/demand. concern but about time to that coming in path capacity out you is back year, about earlier your talk do industry-wide in question Just on following frame? you Or too you XXXX had up pull know type ultimately fiscal early excess next I a a of an get to the earlier NAND. it's

David Goeckeler

Yes. overly about at It's we're this not point. something worried

And in now pretty think industry the for the years. I the strong has been think last there's I several disciplined demand market. pretty

industry to supply/demand everybody just is the unique And a trying let So I I balanced the has to staying technology balance forward. but good think where for mean, coming me that I we it. whole mean, is. mean, in of demand figure We're out market pretty -- on so is we're of there's what's the about kind pretty long-term our happy with -- view -- leave the been topic. pandemic. balance the very I out it of situation, that. close well, even feel It's pretty going at again, supply/demand

Operator

Suva Our with will come from next Investments. question Jim Citigroup

James Suva

softness, my answer mentioned titans opportunity they contracts I'll go you cloud and the why better, just or you of that the a want through Do to reason at and on it the worst demand data And phase? missing And Or ask you there recent center? data is both you're quite relationships from long back coming can in the I time, of order hyperscalers. allow the kind for came is sure economics want. not is getting any and to that pricing and And visibility The make pricing. digestion are ways part? we center And for and longer-term NAND ask mostly But positive. kind pricing? we the the questions for then with better was out same flexibility

of of won't it? pricing to and any do you? help will quantity kind volumes abilities wondering are or of was there some just without I so get and maybe adjust pricing, some your And relationships in and locked specific Or you

David Goeckeler

issue your us. the into concern think second is for all going details, without not is, I a

shipments we as the well, not But I as up hard maybe saw, expect I growth but compared growth think on data flash very your year side was Jim. drive to drives improvement very point in sequential On in be year-over-year. expect us it there, think of starts -- strong growth the quarter issue, really for although on first XX XX%, as strong industry. get a exabyte sequential of ago the center first and we sequential major see we in this I we the all, shipment, mean, there on I in I exabyte strong was down as point expected the

Operator

from come next Our Ananda will with Loop Baruah question Capital.

Ananda Baruah

on margin side? so, sort guess strong a going if the about the remains if think flash year? the of is How results. are flash now, to I would seeing you to to then expected, half have do about like margins like the just balanced back supply/demand and us And sooner And positive the think thing? I of quick you're right gross which on the than through how XX% follow-up. balance going second Congrats to feel you that a you guys calendar

David Goeckeler

to think is one guided. what we Yes. above guess we I delivered that way about

So ahead are OEM faster to channel when I a as quarter-by-quarter not is other phenomenon, we markets, and we market to than transactional walked pricing it. into we strong allows price exposure that negotiation. phenomena those mean, in lot which retail. in it much quarter-by-quarter markets, in think the I us really tightens, -- the move have markets, of big And lot would a we're be of And where thought of markets

said, think best the the shifting far and And in yes. teams for BU mean, where on So could good we our market the teams was it very quarter. as for us. I I return as around supply as go-to-market agile the I were the get

forward, that the we flash markets. We're I the markets improvement mean, saw margin. the saw in -- we're pricing translate As far strength into that sequential seeing or going firmness transactional we that. negotiated gross in guiding as for We

to I happen. think was to We that that last see see we going if waiting QX. quarter, were going into

this so incrementally flash in And we're current margins stronger forecasting definitely quarter.

Ananda Baruah

feels it are like the actually it seems it just is, reason me. 'XX, year follow-up And that could it through beginning be for Okay. wondering And that more it that well. for it feels just slightly sounds the dynamics I fiscal I underpinning there just any follow there's you've what CapEx, was lowered the if maybe CapEx guess would accurately. that's and if is. for expectation at on if like just that seems like And my seeing direct I'm like as like because your structurally,

Robert Eulau

$X No, that's about quarter Yes. year. million. all is tune we billion this real we this expected of estate pretty delta good observation. to year, be sold the much some a And CapEx actually to $XXX The main past around

Operator

Research. next will Longbow come Our from question Nick with Todorov

Nikolay Todorov

products use for correctly, heard about also you David, starting if their base talked cloud consumer seeing I titans to client business. SSD your

that's time think I first about the that. hear we

those How a think opportunity bit? -- portfolio? that impact existing about little And maybe with are the addressing you opportunity? you should can that So we your

David Goeckeler

kind in our also market talked client of about headsets, VR it's of parts to us that well. I'm think HDDs relationship the we've part synergy a given as with customers I easiest Whether the necessarily we as these gaming, -- about. the home not talking have the way tablets, business talked about is from relationship. portfolio of big consumer builds, well, titans to SSDs, about, or consumer in of them the we of only and these I what whether and that's lot think HDD No, much also all participating those have tend is it think There of they of that, those that some as as enterprise big think automation And portfolios. go-to-market products. And because than I but the of where depth broader things it most have big cloud it's it's the

in So for our what the is parts those to ability about. market of flash we're participate just talking

Operator

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

Srinivas Pajjuri

well. costs. gross I hear On as KX you the margins talk about didn't NAND

quarters, from look costs it's those meaningfully. down I just you about fabs came KX I'm the But any coming next wondering incremental my through think potential should YX. either online, guess additional as or do they factories. how few pretty we question guessing have is, new we I'm So

Robert Eulau

Yes.

costs all your heard of we period immaterial are you're the ramped so getting I comment, volume levels, inventory. don't there quite but expenses and KX the beginning are think that We've normal to now. So those correct

it's So kind a state. of in think -- I we're normal

with as As that standpoint it's from New did not big to on, a KX. the as impact we greenfield fabs come York start-up an going cost have

up on production costs, those fixed we'll campus. costs some fabs have also because on but given be bringing a you're definitely, amortizing and bigger So base we bringing a over volumes multiple

Operator

Steven will from Our Fox next with Fox come question Advisors.

Steven Fox

real quick. questions Two

here you're expecting stay? about if kind think then of tax you sort taxes, First secondly, this, Do the is of have little Bob, And going I it a all, to lower? trends apologize talked video I capacity recent high what in the go on bit And XX% but HDDs? you rate forward? missed the of can

Robert Eulau

do didn't talk about video. taxes, I and Dave

come up the what world. prior last over taxes minimum we yes, So years we we been in I been have around we our have in expected. have calls. where profits of that pay the below couple operating -- to has And this situation and mean we've a

we our so rate And was consider higher than would last of what the years. normal couple

those of this as the is year -- years, rate we're the rest forecasting a But will profitable it it we're function I with of will we number Now planning right of very future how are in fiscal And be be the in XX%. a look profitability confident we're to think now, XX%. as good expecting, we years.

David Goeckeler

about but is driving demand video one in mean, it more just Steven, storage. about haven't to particular, for way I high-definition talked think or Yes, we

think carry have I is capability more higher just which and to definition store we video, the need devices per for storage more driving the all more device.

that, than on more and So something if I'm specific go... to have happy you follow-up

Steven Fox

Yes. expand think ship last the June like, Yes, seasonality maybe have there was just quarter, I availability seeing on -- quarter. into was you're you market? just to could to you some if that I what How

David Goeckeler

market Smart video, in that Smart pretty the the been see sorry, misinterpreted. right market, I'm HDD market. -- video We stable. video smart I has

and I see that good we for to anything But it. except continue there's particularly that's I noteworthy, us a think forward. in move market mean, think it's some improvement don't I

Robert Eulau

market. growing a it's Yes,

David Goeckeler

for Look, we us. follow Take joining care. everyone. quarter. us. right, We'll spending really with thanks you time appreciate throughout you the And with again, All up

Robert Eulau

everyone. Thanks, Yes.

Operator

your today's gentlemen, concludes call. Ladies conference Thank you this and for participation.

You wonderful have may and day. now disconnect, a

Western Digital (WDC) 30 Apr 212021 Q3 Earnings call transcript