WDC - Earnings call transcript Q3 2022 | Western Digital Corporation

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Operator

Good afternoon, and thank you for standing by. Welcome to Western Digital's Fiscal Third Quarter 2022 Conference Call. Presently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions].

call recorded. this reminder, a is being As

Now, Peter and Andrew, turn the Analysis to Mr. call over Vice Investor I Relations. will and President, Financial Planning

You begin. may

Peter Andrew

everyone. Thank good you, afternoon, and

Executive me Officer; Officer. Joining David are Goeckeler, and Jabre, Chief today Wissam Financial Chief

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

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

David Goeckeler

March. you, fiscal Thank results. updated XX.X%, third everyone, ranges Good of revenue delivered joining our guidance thanks and quarter, of gross $X.X early both We are we the performance with XXXX excellent in quarter higher which of discuss end to billion Peter. the call of provided the for non-GAAP afternoon, our and margin in at

we through fully as is contamination per Overall, challenges. share and we proud fab top geopolitical non-GAAP ongoing that $X.XX, navigated earnings am as well resolved. of event now successfully that, revised we On environment we Additionally, execution I as supply macroeconomic managed amazing of exceeded the to team's a reported of which our the This guidance. all improvements dynamic the team and true operational made storage of power couple the did enable of made evolving customers' an us over unlock Western needs. that Digital years growing and last been possible technological has the have the model. job of by Western our meeting earnings Digital

we XXXX. We believe in drive will consumer of stored the edge seasonally product are outlook Flash, our our on Looking for world's growth the for of across ecosystem heart With new optimistic markets. calendar business year, devices technology innovation ramps second the the to from ahead, stronger about XX% of Digital the with half the combined demand our in storage HDD the secular end calendar and Western global to data cloud. powers the the products, year

convergence to an storage growing inspired established human in to create potential the is Digital, Western transformation the large enables position that admirable and innovation aspirations. breakthrough of by markets. actualize have digital vision we world Our its At and the

market, unique and Our opportunities broad us. ahead with to update an a proven ability to HDD turn to diversified coupled Flash routes to products, Western portfolio capitalize in of our I'll the businesses. on on position Digital industry-leading develop of our a puts promising growth now

in the year. last quarter in shipments percentage led demand the end Of for high note, XX-terabyte enterprise revenue nearline total enterprise Our of line cloud HDD as drives shipments. forecast from generated capacity typical our in drive same revenue seasonality drives. XX% and and by increase single-digit a exabyte with market XX-terabyte period XX- growth capacity nearly March in Robust was approached

enterprise and OEM our calendar SMR of business rest in have drives the our all marketplace. positioned OptiNAND the hard as our progressed customers. cloud into with leadership to across Digital quarter, for we the During future. qualification and Putting together, uniquely innovations in in positions Western year this Combining and results planned SMR drive OptiNAND it multiple of business the OptiNAND-based capacity

year. products SMR aligned cloud are are later and customers within with accelerating of strategy this adoption largest data this Our centers

new bringing functions storage. on to our laser-focused cutting-edge for are products features and cloud We

will Investor our Day more May on innovations XX. details at exciting We provide these around

Turning Flash. to

us, to to impacted due customers chain our I to companies coupled across like business was together the challenges by overall event, for and ability the the facing ship the Digital light fab Our all with industry, supply product teams working of thank diligently would to excursion. this the continue our mitigate issues. Western shipment our In nearly worked in have chain impact supply doubling perspective, success supply to chain their market customers with disruptions. quarter From demand Gaming successfully product another a SSD growth the through as OEM own of improved where for we client year-over-year. exabyte is PC

including and drives our which quality. WD_BLACK product, available Professional, SSD architecture. leverages and the one and position cutting-edge technology, BiCSX leading example An globally in in-house brands, cutting-edge the a fastest in marketplace have SanDisk of for the SNXXX SSD controller recognized DRAM-less This best our SanDisk We an this our is of product WD_BLACK, performance with innovation, market. is

the end company's and strength leadership innovative technology have tech to to our great both a reviews We is received our our excellent in to journalists, from develop solutions, testament enabling progress and BiCS unlock next-generation completed, customers which the ability qualifying potential markets for in BiCSX-based of of their and our PCs. BiCSX SSD enterprise we largely consumer were are products products. Qualifications client making great

future. products drive mix these expect into revenue We growth to improvements and the

previous from nearly the Flash represented BiCSX the of up XX% half quarter. in Lastly, revenue,

normalization end PC see this has end Flash in our starting for HDD and in increase propel data last solid continued growth on we strength to demand see Let offer XXXX. calendar growing the been expected and capital few PC client, build-outs cloud market. environment. the growth center me market. The for to demand years, year In observations is investment In the in now cloud, are X in a for products some we

remaining remains consumer, consumer-oriented driving we have the from devices XG expect phones are headset COVID-related flagship demand significantly demand pre-pandemic as Europe, VR/AR couple with events a the latest other see the PCs XX% We solid, as levels, to above to unit versus content mix In expect analysts SSD VR content doubling richer PCs. position NAND to with mobile, experiencing PC phones trend In prior years. strong enterprise in the and return-to-site short-term CAGR demand next towards emerging robust. we China. shift a and commercial in client at well remain for XG the we with smartphones. weakness generation U.S. geopolitical demand outside sales over of grow Industry a In lockdowns gaming tied and in applications, from

year calendar XXXX. confident stronger new number in we seasonally of good we are innovative a the as in overall of products. with are about a We However, year the half the business strength second calendar demand of feel entering the

macroeconomic factors to continuing are geopolitical and navigate We the mentioned I earlier.

term, gross over subside the both them near affecting to margin in we and expect are issues transitory these While time. revenue

the that front and work I have not spirit of are changed. of that profitability We confident growth the closing, employees to opportunities acknowledge In want and unrelenting hard our in us the China into employees to all goes our creating products. logistics their the work chain thank to challenges game-changing through in for particular, lockdowns. during our efforts and In I supply want

that to tax tax the Wissam, in years make resolve reached will fiscal IRS net tentative turning million quick I and call $XXX million. of matter, announcement With benefits, to XXXX be wanted Digital Western the have the covering a amount ultimate offsetting the range we Before $XXX to XXXX. to expect a long-running the through over a agreement

X undertaken previously last the the the work Western settlement greater detail the have rest future are years this upon financial building into flexibility a in Wissam that in to financial highlight which a discipline unforecasted in for strong year the of for instill more a and company. provide minute. foundation we does result go growth cash I team Digital in payment will will it and While fiscal XXXX,

the turn detailed for discuss provide fourth to call now over third quarter fiscal Wissam? quarter. who will results outlook our fiscal me Let a Wissam, and more the

Wissam Jabre

everyone. and good Thanks, David, afternoon,

our mentioned, expectations. third resilience better Despite discussed, reflected quarter fiscal than deliver incredibly the the results solid David performance. to overall the macro continually revised for environment business and were our ability that financial results our As dynamic of David our

In above billion, $X.XX early for a the down flexibility and in in marking March per down $X.XX success addition, debt revenue our provided up and range of stability. $X.XX, the X% revised share sequentially we in continued restructuring year-over-year. Total March. increased Non-GAAP was to the debt quarter, quarter guidance providing X% and paying earnings financial was $X.X we completed with lenders

strong pleased face the are the to delivered environment. results in challenging of We have such

end typical up XX% seasonality year-over-year lower a represented SSD and a X% X% to XX% and the and a by partially Turning nearline of due from XX-terabyte decline markets. down ramp total both in drove drive growth increase was revenues. sequential for billion, X% $X.X nearly year-over-year Flash Cloud decrease XX% to enterprise of basis, ago. by primarily XX% cloud, hard sequentially a our down drives. total Flash end Western and revenue. client capacity Within of market smart growth revenue position year On video at at client at billion, offset $X.X XX-terabyte offset revenue was was drives in hard and in This The year-over-year. point leadership The drive. hard sequentially mobile in represented Digital's

shipments. roughly sequentially represented Flash retail due The of was $X.X X% decrease products. Consumer evenly XX% primarily billion, Lastly, a Flash decline and basis, year-over-year year-over-year. sequential lower revenue between drive at to and hard split XX% down On the was

ASPs sequentially. basis, were Turning $X.X down reported up revenue Flash On and now and shipments sequentially blended X% to decreased of year-over-year. a segment. down X% like-for-like XX% were sequentially. We basis, bit XX% year-over-year. down a X% billion, increased revenue X% Flash sequentially by Flash On Flash ASPs

to X%, shipments $X.X drive of X% we exabyte fab hard up recognized X% and revenue was while contamination. exabyte drive XX%, the sequentially price respectively. bit by billion, year-over-year by per hard Hard Sequentially, and XX% average total the caused hard impact average a the majority per down X% hard drive by basis, quarter, On drive drive increased the and increased the total shipments increased price year-over-year. During $XXX. supply

contamination and comments basis third stated XX.X%, In approximately to XXX As we quarter, March charges non-GAAP results quarter excluded points million from related was expenses, points non-GAAP the and Gross up down costs to were $XX in otherwise. year-over-year, fab will expenses. COVID-related $XXX including margin unless move sequentially our for the total million be basis results. of XXX my

margin XX gross year-over-year. down basis XX.X%, XXX and was basis Flash sequentially Our points points up

guidance tightly expenses. and plant million quarter. $XXX expenditures, XX% related cash joint be included the property, free representing gross expenses quarter Earnings or and which million. Operating prior in was per $XX $XXX and flow up investing year-over-year. and basis below fiscal basis equipment, represented on hard XX.X%, a Hard $X.XX, $XXX Operating range our million, impact the income we to drive activity and was gross increase year-ago of was statement, million year-over-year. points XX% a third sequentially and points. a the capital as down cash flow XXX ventures and from of CapEx quarter margin our margin cash Cash cash of up purchase the managed XXX XXX Flash our in was million, $X.XX was Our Operating our drive current basis $XXX around include disciplined for from year the manufacturing decrease million. for to outflow were share approximately in flow gross COVID-related remain expect $XXX billion. of $X.X We points capacity

to We third CapEx of expect quarter, spending. repayment actively overall as we debt be around we a In made $X.X $XXX fiscal manage million. billion cash discretionary the our

at outstanding equivalents. quarter $X.XX with quarter. ended $X.XX billion billion the of gross the the debt We was end total and cash of fiscal cash Our

as end the resulting defined a $X compared at EBITDA the gross of of adjusted quarter, leverage in X.Xx our ratio a XX-month was billion, year credit X.Xx third to ago. trailing in agreement, Our

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

the Before to that settlement more I wanted some the IRS discussing provide David mentioned. on our details outlook, with

XXXX. disclosed regarding in company filings, years situation SEC with in long-running quarterly XXXX significant the our been taxes previously owed through As has the fiscal IRS a for

the agreement of assessment the see pricing dispute. a tax Western transfer in third our payments the situation. tentative the As Digital GAAP determined last will a settle been took in based in fiscal to to actual not we of on primarily have pay have yet. amount reached our you quarter, The the timing and to charge issues we latest In exact days, few statements, can

recouped certain expect offsetting half million currently of years. over in However, $XXX to some in will ultimate Please payment cash We million to the the note cash amount $XXX we the for range make to time range the out currently million first the be tax that XXXX. number. a of expected is net next in be accounting this million of benefits the expect fiscal to after that $XXX $XXX X

Finally, associated will with a the GAAP-only adjustment this make to in fourth settlement. we the quarter, reserve

to our additional in XX-Q, next businesses and will drive You file view for I'll details flash find fourth both we fiscal of plan the week. our which hard quarter. now provide

to As we by nearline driven call, we indicated expect to on our hard hard increase drive continue last earnings drives. growth revenue in

as also sequentially Flash increase improves. expect quarter fourth supply fiscal our We revenue in to the flash

fourth to be fourth XX% to expect the $X.XX now per earnings to be drive the growth as between XX% be and back expected we I'll be we fourth million; million; we interest For sequential guidance and $X.XX tax over margin our we $X.X expect is revenue approximately is XXX be quarter; million $XXX approximately million $X.X for quarter, and non-GAAP fully our range between are $XXX with billion $XX XX%; to hard fiscal both between in and expenses expected to rate and in to share diluted expect the quarter, follows: businesses; turn assuming outstanding. flash David. gross approximately billion the our to shares be in other expect revenue expenses operating of to call

David Goeckeler

Thanks, Wissam.

scale ahead, as generally be remain supply calendar and foundation earlier, the about business. discussed have we market is optimistic challenges for Despite business customer to year portfolio strong. to evident chain long-term we technology we the in our it factors the to markets necessary demand broad to end outlook right the our our meet across growth, evolving routes Looking that macroeconomic needs the and place right continues customer for

strategic last I'm we our positive planned the changes. in those witnessing Western significant of And to we have years, that set goals to greater Digital the excited focus, Over changes place of of a couple and strength. executed impacts execution position improve sharpen are and

you Day remind we an to to I look have want Before wrap all up I up, forward everyone, May seeing and I on Investor coming XX, there.

the Q&A. start Let's

Operator

Instructions]. [Operator

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

C.J. Muse

how the of on terms might quarter. implications your guess side the hear that kind your June media outlook. to both any And secondly, availability. on lockdown, that's shipments to I you're the I question issue, contamination relates bit then of HDD have thinking NAND quarter and in out China what ongoing impact of about your any beyond pushing impact whether to June the the would love kind

David Goeckeler

on we so in said, C.J., Hey, thanks first of issue contamination behind flash the side, for as Yes, the flash the the is all, question. us fab.

the to we We expect expect bit back, growth next quarter. we We won't -- but from where were quarter. be way accelerate all this we'll

the quarter. everybody able difficult now -- is I of being for as As quarter, that meet it's recovered for weeks. very general couple the to this facility far as shut would the market. have right the end what -- Penang that demand did as China, in and that for of demand say true think to a it's far statement, down situation a meet I last mostly as At we as we've in

and through kind some fairly well. that the margin in shortages to frankly, the we really navigate incremental all as navigated quite situation it we recovered. the team I of think fantastic component job there think -- were through were in China, I didn't the all, has There it expect. a we in we and able between did tough. the situation makes quite HDD But costs situation saw line So But well,

very, Wissam, and although the the anything in think But we to we're For into but the through, dealing with factored comfortable where be it the to in we'll dynamic. we're add? all the we with number's risks guide, coming yes, quarter, still able situations at. very is navigate China,

Wissam Jabre

David. much, Not

I it well. think covered you've

Operator

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

Aaron Rakers

embedding? the stick how kind expenses, thinking give it I'll within color us hard other as -- XX%. disk of into drive help think any variables to the well. margin. gross Just help X to segments. X disk margin I And drives, about XX% just guess you gross some you thinking relative this curious COVID-related margin was how variables. Maybe us guidance I next the still on of you flash to both you're those if appreciate kind about I are on the I much gross could unpack was can hard quarter,

David Goeckeler

it, start take I'll and So Wissam -- I'll add. on can

quarter, talked the on we drive point XXX about business, we last to that So impact were point XXX the expecting. basis basis

think in we we that quarter than I had took expected. a little this

Shenzhen. didn't about we cost some was talked that in just I of Some like expect,

I but forward, think basically flat the flash business, earlier, the we going balance -- We much hit In some see we I business, of it supply-demand see as pretty margin that we've Shenzhen. I acceleration Penang bottom. forward. situation. so -- And the said much pretty gross given think expect it in looking

So add to Wissam, to that? anything

Wissam Jabre

on maybe follow-on going the Yes little are third into with respect we've comments less COVID, to experienced question quarter. see to to David, the than a in fiscal or just Aaron's expected costs we what where bit be the next quarter COVID

Operator

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

Joe Moore

Just following guys does And production? right X and number split the that up issue. about on June quarters? across about you Is still exabyte that the the the lost number March talked kind how to contamination the think of

David Goeckeler

Joe, can of to it always think I situation to will mean we work kind take do numbers. the material material number. that's that what team an still don't be the But in the yes, they I with to will evolving out. had right the super see

to majority quarters, of So it took we the the quarter. work previous And X the good from. split in it place haven't a we but is up over

Joe Moore

situation, in terms just the Okay. for partner, have of but want assessing I venture joint don't And speak amount? proportionally industry the lost like would them, your same to

David Goeckeler

for sure. to we going facilities, them. not joint have speak for I'm manufacturing But Yes.

Operator

with come Patrick Our Ho from will next Stifel. question

Peter Andrew

we Why there? over and try get skip Patrick don't you to in. back are Patrick,

Operator

Okay.

Our will next go O'Malley question Tom to Barclays. with

Tom O'Malley

seeing You're the there that related to are other -- you pricing mix really business a as be really the of Anything Is well? seeing would more HDD strong entirely seeing in the underlying helpful good. in side. a trends nearline? parts Or any you're trend really towards

David Goeckeler

much Tom. I'll put it, a larger frame on

where we I could absorption always legs up happening, capacity of I a good implications Hard client and of think just in up in places cost dynamics in you're of the think I costs of that, the That's as a to too. ways, I pretty It there's it there available. And where you it, the what's and available. a fill putting about think drives seeing we're change pay as through incremental But and get that. could many seeing of era last from and rise and factories a -- lot not was and show world of decline see was just were you number enterprise of for We're have drives in cloud industry era. change. just the lot it. kind we're much the industry COVID

seeing year were kind You're come was last agreements that new a that we of in through. working something concept long-term much

whole the we're it causing that, and this the invest client view. to way our and to shift Now with enterprise customers of it's to anymore cloud, visibility technology to making from we a the this my lot and don't mainstream in about having shift capacity us and give big business. much have just thinks to more industry of becoming Essentially, in point to investments that's

our customers. with where That's it not to able all we're that's starts the bring for generation model of as for it the down did I driving case that I starts. TCO a our technology, was volume, TCO of Well, still up we're past, anymore. Every for our to think the strong the more think customers. that, side soak In reward it we capacity.

in Now has change. so have new volume, to to the we invest industry

a bringing can drive to to value move I do So a a that and lot environment. continue visibility, better that about seeing providing drive we're move TCO -- And more think we way and thinking pricing we value. equation you're more of TCO pricing the industry down in value-based the how

in costs working are mitigate through That's of and we a going the there's up, lot system picture. we're input of costs big that's right So well. and pricing the parts can And now that. then, course, of inflation happening if as

Tom O'Malley

in. another if And could sneak just I just one quick Helpful.

the you quarter, When you're are On obviously, the up. was flash saying disruptions obviously It you're implied cost quarter. the during looking lot looks like flat. margins had out side, gross relatively into a of the

quarter. see anything You pricing given moving maybe I sort get the Wissam, don't you of helpful move pricing situation, obviously, kind pieces. to specific, but the any given would impact versus here to tailwinds some on of But the the cost be should on the color industry. like know in

Wissam Jabre

Yes, of course. Yes, Tom.

of long-term really continue we quarter, headwind our did to XX% factors target anticipate that a So but do expect to in next expect few see reach The cost the in which reduction, -- that of it's is a by term a -- our quarters. impacted long we year-on-year. the we current of bit will couple

for 'XX we the target for in reduction. BiCSX still expect to at be just as Yokkaichi least start-up as technology, well we FabX. So going inflationary year-on-year ramp our to we're I meet saw, we as seeing well we continue do some as of like our with, to expect But as forward. of instance, everybody, pressure continue XX% to that started fiscal terms year And cost this

Operator

to question Arcuri go Timothy will Our next with UBS.

Unidentified Analyst

Tim. This Jason for is on

your please -- asking margins end on So, trajectory the year? any the that the the stronger through the of we'll provide -- in pricing HDD of benefit I'm we're half. environment color the first get because for you gross second half this likely could stronger on some of expecting

David Goeckeler

we actually the we're do lower we in about this last be quarter little quarter. same to gross much pretty expected We expected the margin a quarter, we expect is place, which next Yes. as -- saw we -- decline talked

in that the benefit. changing reasons: that Mix, some costs are And that expect be flat. we second a pricing to think Now number for half also bit will input we a of then and improve

we be So from next there. yes, expect we then improve low the and to to expect quarter

Operator

from Patrick Ho come with will question Stifel. next Our

Patrick Ho

Dave, of maybe color. a bit you before. if give could little apologize I

question, spending these signing some very long-term secondly, into the cloud center commentary regarding maybe the and the encouraging of data to And you of it this XX? over are customers? quickly of transitioning the terabytes? Is to year. customers? new the base Or how are from gave XX terms that transition your with a half customers customer because in do with second One, see along of XX You set agreements XX you're

David Goeckeler

Yes.

So bit unpack little Patrick. that let me and a thanks,

So I XX. customers -- as -- forward. XX will think, move mean earlier, same the -- it's the I largely I that driving said as from improves you you to keep the go as TCO equation

I a and and it's part TCO products I we've driven around So do. allow our this move about and of a the we things those around very -- get OptiNAND we our innovation every generation a talk they forward, they all layer that ePMR what mean innovation customers and are is SMR, time into here, now lot better equation.

So reasons moving to forward. keep there's

talk smooth that way, the On your that So and come continuing By players is other SMR. quite help back out bit LTAs technology That on LTAs bit. kind the little and to momentum future we've are We're a a spending spending. HDD SMR works more for of some the All don't SMR. the of is investing which drive the -- big moving now down the look, the in been question the a time. way path, we'll cloud about is the more. business, see towards that's little

strong was whole out. and the give big a drive I to a have fund to when need ago think X fuel need into or used more going -- I idea to to the with we better within investments heads give And media growth, the business just is with back to lot this the than clearly, the even to year the about continue quarter-to-quarter that. exabyte ago LTA and given investments customers the a quarter. -- our in think the came and visibility to quarters -- relationship we business, talked transacted visibility years make the we're I business if X I've past, in to X, to

good multi-quarter any big and so And have out those them. LTAs adopted. been customers we ups smoothing our And timeframes, we then very the on been on their strike that's to stick as builds far and side. And in downs with as

as our to as half of so, continue the the strong year. environment demand big in customers far second a half us the cloud environment, tell and And signal second

them to with -- transitioning through and be year. as we XX then starting with XX So we'll to driving the excited move about

Operator

will from question with come next Sankar Our Krish Cowen.

Unidentified Analyst

It’s Krish. [Eddie] for

For HDDs, the last when do XX over And market terabytes? crossover please the HDDs for you and you expect you XX in can if between slowdown us terabytes see tell did VIA the quarter?

David Goeckeler

crossover mean, is imagine the XXs of would of portfolio the will Yes. shipping. I into I the in XX the mean of be probably right second I half deep we're year. the now. XX% XX

So spot it's the sweet of the market.

through As we ramp move the year, we'll XX. start to

on it. the The back of thinking date, year we circle that's way a about all year. specific market, video smart -- market, next the surveillance soft but can end been year, towards the early So that's we're

China. So the lockdowns with we that continue in to see

and change right I the once think COVID that changes. ends, But not there. that demand is expect out that given situation, market going until situation to of snapback We some some there'll pushed now, the be that, COVID recovery

Unidentified Analyst

one squeeze in. Is surveillance accretive? can I margin if And

David Goeckeler

Is think Wissam, a it have know, -- we don't level. or margin. out I that, you I comment do Peter? on break that of don't

Wissam Jabre

that down we Yes. to Actually, detail. don't out of break level David,

Operator

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

Sidney Ho

is for don't to gross ones go calendar quarter-by-quarter, of full your margin full price you flash, you about are number growth up know maybe what actually for talked that expecting of Can little you -- year bit then year. about much Yokkaichi quarter. about Are kind maybe but a and want short talk you shipment you flash costs. the And And about talked I next a quantify thinking the How question A mix factor? side. bit for 'XX? the you couple start-up is for How on the increase? much follow-up is? Wissam

David Goeckeler

over put growth year. I down fund right a to handle so, fab going take be fully the The we'll our year. And look, there bit given fair bit come or it question. to gross then margin year -- be this our share make while the We're excursion, will Wissam to But growth plus. It now. a back out will the let up number this down not will next year we'll of bits. a

been a bit little you talk share. has And recent Wissam, long see time. about us gross in strategy with margin want to maintain including very a We for flash? Kioxia. doing do invest announcements you consistent that, fab Our to

Wissam Jabre

David. Of course,

than the business, of to for think question. and thanks the start-up very around KX the flash expansion they're greenfield I margin much part versus Sidney, the address start-up, that's So they're question a the maybe -- embedded Yokkaichi a The think not of talking in our fab about question significant lower respect your guidance. gross of the when the the of actually, we cost, part sort to here with To really we're brownfield flash expansion.

always actual course, Of it's or mix projected. any a whether in gross margin, plays part

I So the helps. XX%-plus earlier, expecting XXXX. in fiscal -- said year-on-year this but cost for as year I we're hope meet to reduction still that flash

Operator

question SIG. next will come Our with Hosseini from Mehdi

Mehdi Hosseini

exchange how rate about And to impact should think as FX the the gross on I follow-up of flash the a margin? just Yes. previous question,

Wissam Jabre

I'll Mehdi, maybe Then just the thanks, So the maybe about -- in I'll FX general. for talk question.

use we the term. there's So -- on -- in our shorter the it's more approach, which do we hedge longer approach hedging term versus is layered a coverage means much

also way XX the incurred really over the impact the it delivery of And so for smoothens within given will lead not product. manufacturing of to the out and the quarter typically P&L to think impact of cycle any approximately as And cost FX later, XXX days until time time. times that

goods and what basically is than cost goods of sold, in What the short -- in -- terms on quarter numbers. less quarter all the at seeing will And least the past what expecting of of of the what sort this currency not that be anticipating costs about talks of not term portion. fiscal impactful Not we impact X% flash of the we're maybe we're for to saw sold. only fourth -- we're saw that in -- fluctuations, on the our so actually, in whatever we all

Mehdi Hosseini

a answer a more FX not Is I Can clarification? question? like Okay.

David Goeckeler

So Mehdi. far,

Mehdi Hosseini

to the LTAs about growth Just confident back 'XX? sound year to think David, in and How 'XX the half. second cloud exabyte should versus demand going calendar we into that given prospect you sustain nearline is your

David Goeckeler

let more Exabyte have keep fiscal the If pie in up I coming exabytes back look years and with I quick. -- a have look, calendar go Mehdi, it growth cloud. I in year to to if in consistent it in on look me and I the put years, we number. looking get up but pretty calendar 'XX, at I you it XX% you been growth in this a mean, follow real can tend -- -- I 'XX can over at in I'd versus back number. a -- look -- to at -- That's

Mehdi Hosseini

Day. meeting to look Okay. at And I the you forward Analyst

David Goeckeler

I to look forward to it. be going fun. It's

Operator

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

Nik Todorov

pricing SMR SMR can and on think kind bit Maybe what you some this unpack on more should on workloads are initially? looking cloud you and quite margins, deploy guys we mix, can impact Maybe on about about talked the to call. of the touch David, a HDD. you how

David Goeckeler

this working workloads defer we and quarter, SMR we detail I until there. big expected the I little cloud our think on see the Investor of a Day. titans I'll well, I the picture, last we're said think I -- We'll Well, towards year. shipments into significant that had go big end we know X But look, more

another us the another one one Within about come quarter, had we to SMR. and adopting

well. very that about big talk or me more. in next been we've that XX% they get weeks And or -- couple time a I to numbers, multiple of -- an be for can investing capacity think that technology can think that long added gains being you're this So talking that are as a given that extra through very we'll I SMR, with size and idea week this big in clear it's especially of and terabytes you how that It's the drives now achieved the again, changes. attractive, are, the the

SMR the or the return have lot work it -- conviction to do if if is it do can is me Now, we're requires of in avoid to the me centers, the good And that going this, our fact growth they're of look, that that industry. side, not they And because pull work. data the you this and host invest big tells players saying, in, into are enough. next coming nobody the software gives to on going the is on thing to in some leg we're a wants this software this

to is conversation continue us that we're TCO, I to but a TCO can LTAs to the us to just TCO that, getting into leverage what to doing, can create exactly -- what products, we'll drive predictability. for that more and to means it portfolio, another innovation, innovation exactly like And to that using But a customers. Day the we industry drive cost that's I about way we get generation pricing. said, drive it's to drive a our through equation that's the back of the get better going. when continue value. talk value-based fact opportunity of allows a better better of And can again, that part And then where are So down with about our margin about on storage, gives that every and we create do Investor

Operator

Arete from Research. Kim question next come will Nam with Our

Nam Kim

great. Any SSD just your should Do be about such your or How their of build? enterprise have think negatively DIY limited a we hyperscaler to you moving SSD some expect enterprise color would impact into impact? own business

David Goeckeler

our projects. of think DIY various I customers have

fab, I the that's provide, not wants their here those enterprise I NAND well anybody are enterprise us XXX% doing then NAND, so the well you customers, don't fine. our into all, provides everybody buying even both. quite opportunity numbers because providing SSDs and But diversity in as And play full be first chain. like DIY part -- think the franchises, to in They But for big way gives large if their to to know opportunity both DIY I It going SSDs also just enterprise with even footprint. anybody of whichever said, still providing that that's is of frankly, us does supply SSD. play or so getting their projects. of

SSDs customers extraordinarily to important think to and and data are it's the technology, enterprise very It's how a modern of technology. biggest involved center. of future we're very So customers be our qualified with cloud I a the important with biggest happy the at reflection

Operator

will Suva Our from come next with Jim question Citigroup.

Jim Suva

critically, all it's Thank being that. before said, you. see And I you Digital? Western you your is Or doesn't it look insurance? does thing month. through forward to is of most to the in working you Have that, seeing make up the something us, next you cost in that, some happen doing? of borne future or by or such solely of With make supplier of great that put issue remunerate that course, And that contamination kind to what are behind pricing kind for for that, sure of type But all again?

David Goeckeler

again. when to give very, The maybe obviously catch are, down to if putting I'll issues things sure job details Yes, it behind fully and it a does it the input bones has some we place if them. proactively. the so very we doesn't provide But in happen Or then what in the -- have happen make fantastic again done make we causing of we of can more is look, issue sure root screens us. team other it to putting place and --

partner far we'll that, there's fully by think the that add those, that. as I we'll are get at and if will far recoup to anything passed Once the we ability anything, costs to of happen as see look and us As there. as split and Anything mean, Wissam? look to our I any JV

Wissam Jabre

I it well. David, I think you've -- covered no, think

Operator

Thank you.

will Fox from Fox. come with Our next Steven question

Steven Fox

pricing. I the bit hard just more about was wondering little could a if you talk disk drive

differently mentioned, you sort maybe currently the impacted and whether of in times where in maybe you about of it extended year, were about bit little like-for-like by And a rest talk quarter. putting it's up bits X% you how more lead terms year the different approaching But maybe you've you're ago. you're a as of pricing the being segments. the were ASPs your So for can by the than talked the

David Goeckeler

starts same with I like we're think, I pricing on repeat thing. Again, said, the value. -- I want working to

value, have and on to working But input we're the deliver We and impacted. we're all defray clearly innovating -- to of costs the logistics constantly to some has deliver to pricing costs see more value.

your and that's we're don't about these model. to whole that. more a pricing providing with move we're we And So our it do on generation know, perspective? having if Wissam, say from of about I is that conversations with the customers than drives across lot next to what anything don't value-based how then about going portfolio. I know value a the value there's

Wissam Jabre

on David. No, this, not

Operator

from Christian Our Craig-Hallum. Schwab come will next question with

Christian Schwab

a question margins. drive have just I on disk gross quick

any drive we Given and a the pricing, positive year? can't decreased mix impacts [XX%] business input reason and disk China shutdown COVID why of at calendar costs the if exiting value [increases] plus operating growth there end, have is be

David Goeckeler

said you the number. broke when I'm up sorry, you

Christian Schwab

any you with wouldn't -- plus reason there at XX% exiting the calendar you margins again? Is be could gross year

David Goeckeler

numbers But business those out. if broke the we be XX%, I now, think about of I just he remarks. Wissam? all details, I had took cost you we'd in it so I mean, I right Yes. his got mean, Wissam, think right, he's COVID the think

Wissam Jabre

Yes.

around the quarter David. -- mean about COVID the by we true, COVID lockdowns. very talked in impacted, points have related I basis costs. to of the We've that's slightly did So XXX course,

to about pressures do better in the from say see be cost I wouldn't be calendar want of it would margins supply your margins continue with some the second are half 'XX. We that here short -- expect term I to QX. disruptions. year mean, going to the where But we talk inflationary the The to necessarily to question, chain in

David Goeckeler

a flowing of this and pandemic, not this that going additional point, somewhat, was I've to a I about get I that when a just think and value-based a to but on, paying masking a completely, capacity. to costs happens, It and mean, build supplier growth to lot again, economic of that the we equation for and we're OptiNAND the commit of be going logistics now, we're lot of fees now is we additional media the get still your where get I state, just stop for many major and Yes. in what more and not as for pricing can we'll talked costs quarter. which it's to your business, past lot, just point, us quarters customers, starts HDD really the to I bring from product to of and to lot change would increased valuable heads a number, world really innovation, things gets more the which comes on that some a -- general a a input expedite market, business. certain look, although I is that's back changes, new think We've think the costs the and about our is of thing you that to -- this hit steady And out focused input bring that a mean logistics there's better it costs And SMR, capital talked to still have on been invest costs market we've on value thing. will to your a we're growth business. kind build been can that And as there's you ecosystem. world things just better is to you able going because It think on the I in as unwind to reasonable, focused market innovate ePMR fundamental And the a it is structural need the think is proposition product key components makes which customer? will into major the and like unburden smooth more crux that really

the we we of if get we because can pandemic, out and cost of the business. get think feel going both very those -- about I So we'll good the

Operator

Benchmark Company. Our next Miller from question will come Mark with

Mark Miller

how into? going? you versus expect of terms in mix, in wondering And you of that in more mobile? progressing is mix, segment the where ship NAND do just that's I'm increasingly terms you shipments Are the other mobile seeing

David Goeckeler

dynamics to of couple a There's this.

we've mix mobile BiCSX. the -- the had gotten market. client of past higher past in talked We -- couple a about of I BiCSX and remarks, we the think SSD qualifications shift market, -- prepared our as in ramping in higher over towards quarters, consumer it looking our were the we

lot then that a And on of to see an qualify BiCSX. year, right on The because then We on see that of BiCSX mix happens as And those acceleration this going work hard we BiCSX. SSDs we there's So enterprise our BiCSX. throughout market on now. into meet you'll well an have demand on acceleration is reality as of SSD. it's enterprise can't into

and plug provide about we this enterprise as mix -- This SSD a will one to change, of to you'll year, tailwind on as the that well in see Day a see get mix of accelerate XXth. see So into which put the you'll business. the more half through the you BiCSX, the we'll Investor little talk to more second all at bit

Operator

come Cassidy with from will question next Rosenblatt Our Kevin Securities.

Kevin Cassidy

wondered forward looking brownfield more details I give -- and like the as that numbers ramp. better And little that understand little means? if on production. us could or, only you start Yes, you've FabX mentioned a just May What us? to what's XX,XXX it May a month XX can any give Is what can wafers just you -- off I a with you X.

David Goeckeler

clarify So first of brownfield. let all, me the

was KX KX was making level point a I think was a expenses will there of and the the KX that because brownfield. at Wissam what not be is KX greenfield

well. in expenses a as about some So have roll which -- may situation information the ramping launch with brownfield there out. Yokkaichi, Wissam how YX, obviously same the

we'll say the our getting we'll start on ramping know, have start As of the anything that. I and to don't but more think, add? newer wafer nodes, all we there Wissam, when to that in how about I that, scale, far as tools

Wissam Jabre

as versus But my -- a bit as of not -- aren't just clarify that KX. greenfield to we've just They gross clarify headwind the course, the they're high thanks, it's highlight brownfield very weren't to to in significant. the to really The -- margin. really Yes. maybe seen of a comment exactly on was costs

Operator

back Goeckeler no over to further for I'm now showing call time. any this remarks. Thank would closing at like I you. David to queue the Speakers, questions in turn Mr. the

David Goeckeler

you everyone. Thanks, We joining right. us. All appreciate

forward the then. out XXth, some -- then been on XX, X looking As time. on have X which Day, the we've look new XX, And May product forward seeing coming have we'll hopefully, said May exciting of for some times, technology We'll to you see a -- and we'll XXth quite on couple pointed May new for some launches. we we've was our out as Investor to

everyone. So we see Thanks, will you there.

Operator

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

You disconnect. now may

Western Digital (WDC) 28 Apr 222022 Q3 Earnings call transcript