Earnings call transcript Q2 2023

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Operator

Good afternoon, and thank you for standing by. Welcome to the Western Digital Fiscal Second Quarter 2023 Conference Call. Presently, all participants are in a listen-only mode. [Operator Instructions]. And as a reminder, this call is being recorded.

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

You may begin.

Peter Andrew

good Thank afternoon, and everyone. you,

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

no forward-looking everyone Before and cost portfolio, expectations, to current statements. does financial plans obligation and such, today's me results begin, demand business expectations include remind and performance, uncertainties. trends we discussion our as let reductions, We contains these risks assumptions market statements, and product based including for management's assume that update and and on

refer financial Please materially. for report Form XX-K cause risks to on and could differ information to SEC the on actual our most results that uncertainties recent filed more the with

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

I David the will call With turn to over now that, remarks. introductory for

David Goeckeler

Good second dynamic you results. $XXX The Peter. and at $X.X million. October. range quarter team diligently worked we the you, thank Digital of of and and loss of reported second provided the a delivered end operating within for call discuss We the revenue XXXX Western quarter afternoon, guidance Thank revenue market to our high billion in joining non-GAAP

Our non-GAAP loss per share was $X.XX.

judiciously environment deploy Our cash a optimize pricing ongoing expenses, efforts gross flash helped ACD larger-than-expected and us manage capital underutilization control capital and working amidst challenging that margins. to flow pressured

announcements I to details discuss cover the results, two we other today. we making of that wanted our quarter second are Before

Investment totaling million. Apollo Digital agreements Western preferred equity that investments into disclosed $XXX with we convertible Global Elliott Management and for entered Management First, has

continue am be the us partner strategic starting who to expertise, will will provide with critical investor will which business we pleased Reed our I review. welcome execute with our of behalf at strategy on and connection and to additional our Board Apollo, the a Reed, technology as a complete Board, agreement, leading In immediately. On strategic join Raymond, financial

access delayed million secured we XX, a to January term financing loan. on through of $XXX Second, draw

the we with these cost of outcome combined position strategic in our as financial financings to Digital continue to a review, lower of our When the in structurally Regardless business optionality financial our the is we invest solid and provide Western the goal review. and to innovation strategic structure, actions flexibility shareholder to create value. valuable is undertook long-term ensure

making any confidentiality and will about nature rumors. process, of comments on answering be the not ongoing the process review Given questions we market or the strategic

them. provide as updates have will we We

have worked enabled Over flash the which HDD for three past to team organizations, the stay ahead of our agility Digital bolster and the years, innovation market. we Western and continuously reinvigorate both to business

a for of Over we and $X.X billion long-standing paid the same period, arranged in tax settlement dispute. debt down

XXXX, fiscal capital Since supply. to post-pandemic taken the include: we actions to our have across response HDD the reduced the first, of to environment. moderate actions have beginning further additional in we and our reset year Flash expenditures business These

six from for projected capital declined XX% XXXX our result, a expenditure ago. months has As nearly cash fiscal

HDD. we Second, bid we January. starts Flash, Flash reduced supply both have decreased and across growth wafer XX% in by In

quarter, Asia, manufacturing certain XX%. In approximately facilities lines and our production production by media across capacity during consolidated fiscal we the drive in HDD, client lines first idled hard reducing

the manufacturing we quarter, environment. second footprint supply align fiscal demand the optimize enterprise continued new to with During our our to capacity

spending lower our headcount, the $XXX XXXX, discretionary expense have quarterly non-GAAP and driven by of since by close reduced Third, compensation. variable fiscal we year over operating million

we exit the successfully lastly, covenants existing fiscal targeting to million financial agreement. under We in quarterly amendment time reduce are operating an $XXX credit And our expense December, non-GAAP the executed by the level to to below year. we

as stabilized fiscal for both the during consumer-oriented demand have HDD. a products October. In channel discussed seasonal client, we uptick SSD Turning to demand HDD and both we market In across end quarter. Flash in and second experienced Consumer, for improved. Demand

is commercial spending However, which negatively client SSD affecting PCs by tightening and shipments. are now impacted budgets corporations, across being

experienced were ongoing undergoing customers updates, in In starting decline digestion nearline demand. shipments business a China now as we subdued with to cloud, our and turn HDD. I'll inventory

fiscal our and while the During second as improved. HDD for revenue digestion significantly declined inventory demand retail HDD quarter, intensified, cloud client

CMR qualifications to execute cloud major at multiple we as commenced product latest last completed We generation our successfully of quarter. and customers road and map OEM XX-terabyte continue hard our shipments on drives

this aggressively XX variants Qualifications We terabyte XX with growth SMR drives well. drive also our terabyte engine be are ramping its this going are this UltraSMR expect to along and forward. our quarter product CMR progressing of

drives customers remain over SMR the UltraSMR adopting as committed drives major complex to XX% that gain data TCO to CMR benefits worldwide. the offers capacity most multi-generation centers Our

our growth and XXXX. sequential through expect revenue as We continued move quarter third fiscal in calendar year margin and into we recovery

with portfolio, combined franchise seasonal bit routes and increased market forecast. broad sequentially, diverse our Turning leading to our shipments Flash. to Thanks strong exceeding XX% demand, to retail

continue share SanDisk, we support Professional brands, profitability our WD_BLACK market, and pricing SanDisk While and the to continued business. the to in premium to including pressure experience deliver strong

and record client Our to and average drive year-over-year this in exabyte product. per resulting shipments, shipment increase It the which gaming optimized exabyte marketplace. premium well sequentially achieved XX% WD_BLACK for SSD, continues XX% is capacity unit of be for received in a shipments

front, in the quarter. will On third crossover BiCSX the in technology of cost the our reach XX% quarter, December fiscal BiCSX represented revenue while flash

solutions broad our performance innovation benefits entered incorporates products, in leadership Western demonstrating with XD Our strong Digital's architecture. exciting to productization the and a has and NAND Kioxia architectural deliver of next-generation XD NAND groundbreaking NAND of node several leap partnership innovations to range XD phase. BiCSX a cost-effective BiCSX major in

drives, expect has modest drives. in we hard As the seasonal look fiscal offset quarter, a we cloud in line decline client in in and hard into third stabilized, and improvement near overall to consumer demand

entered flash, XX the by our customers ramp we the fiscal calendar enterprise a and for certain sharply We have led expect quarter third expect as reduced demand half of digestion SSD product In second the aggressive period. year, XX stronger improvements large be to drives. hard in this of cloud terabyte

reduction to impact shipments a Driven forecast decline the in bit demand fourth demand the customer In near quarter SSD client in quarter. addition, in lower SSDs, shipments in to and enterprise by we the fiscal commercial is growth anticipate the in term. to return PC client expected and third fiscal

restore flexible earlier, demand supply adjusting we mentioned in I in balance. flash duration As and our and starts Western lowered magnitude January, Digital wafer the to and remain

for demand environment. XXXX, As capital the investment year new response expect reduced to noted, lower calendar in we utilization and

range to be well the bit bit that growth flash Our with production for of initial be is estimate XX% demand in below growth demand. to low

an With who call for greater our second quarter. will me quarter over the that, let turn in and to provide results detail the third outlook Wissam, discuss

Wissam Jabre

and per year-over-year. you, and $X.XX. Thank share afternoon, was everyone. Non-GAAP David, was billion, Total for revenue XX% the good loss quarter XX% sequentially down $X.X

cloud markets, XX% end at $X.X our billion, and at sequentially Looking represented revenue down XX% year-over-year. of XX%

the down hard sold of to was total year-over-year also drives revenue customers were $X.X XX% XX% digestion. in declines billion, inventory sequentially in digestion videos an inventory due Sequentially, The our Client smart enterprise XX% and year-over-year. drives. partly sequentially, bit by XX increase decline by represented to primarily at capacity in exabytes, Flash offset and shipments Nearline down cloud were shipments. driven

also Flash which Flash drive hard Sequentially, client an to was by products, was increase shipments. applications. partly the in year-over-year offset decline for pricing well SSD as was across pressure decline pressure driven The lower shipments as our due by pricing in PC

and consumer XX% XX% up of revenue sequentially at represented year-over-year. down Finally, XX% $X.X billion,

driven seasonal by by drive uptick shipments. driven Sequentially, the pressure drives Flash. in a and retail was lower increase hard Flash and retail decline hard year-over-year shipments was pricing both in The

down XX% decreased on and shipments basis. revenue average X%. XX% and XX%, total down HDD and blended and now down year-over-year. on segment. a basis, a basis XX% average exabyte Turning to reported Flash $X.X drive per On total XX% HDD XX% XX% and sequentially shipments to We decreased Sequentially, increased a Sequentially, by was HDD ASPs year-over-year of price Flash price $X.X were sequentially hard unit per revenue $XX. decreased revenue X% billion, billion XX% year-over-year. like-for-like exabyte

Flash bit and shipments year-over-year. increased approximately XX% remained sequentially flat

my margin percentage stated results move we XX.X%, sequentially please second quarter points was comments costs be expenses, to As Gross fiscal percentage points note unless year-over-year. and XX.X that the non-GAAP X.X will to for otherwise. down and related

HDD year-over-year. Our points was gross percentage margin XX.X%, percentage points down X.X and sequentially X.X

sequential a and related underutilization decline year-over-year both basis, was On million. due to $XXX the of approximately charges

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

tax corporate $XXX with projected We a the was to million for $XX our Operating reduce quarterly $XX the are down and Taxes influenced year at rest including by for were quarter, the several million of loss are million. Taxes factors, million. benefit expenses $XXX operating our of sequentially. the profitability continuing costs structure.

quarter was statement share was and capital $X.XX. loss purchase the activity plant includes operating our was and of expenditure million, of flow Cash the outflow per million. an free our million. flow cash for and ventures cash flow to Flash property, joint was Earnings $XX which $XXX of on cash related equipment a $XXX second

at end of the Our gross debt the second quarter. at remained outstanding $X.X billion fiscal

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

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

seven credit second leverage the mentioned, amendment next executed an quarter, the the quarters. the temporarily agreement David As to during ratio we covenant for increased fiscal that

Our liquidity to strong. position be continues

our billion $X.X follows. equivalents by a for quarter, of of $X.X we of revolver announced Today, we billion. enhance At to capacity total of billion agreements position the cash $X.XX as further the multiple end cash had $X.X billion and and liquidity liquidity

term On January lenders the of draw the delayed amount million. with we loan closed agreement $XXX in XX, our

$XXX Digital an Investment for Global addition, as preferred convertible Management million. and entered Western David mentioned, agreement Management of Apollo Elliott with investment a In into

as Together, these on our through and liquidity downturn challenging provide review. actions manage execute and significantly flexibility financial and to optionality we strategic this increase access additional our ability

fiscal over discuss financial guidance I'll quarter, and associated to are impact third Before our I rightsize structure. taking the the outlook with go the we business for actions cost the

In HDD, quarter to shipments nearline to outpaces decrease shipments growth the in Flash, both consumer. in sequentially. we In ASP third modestly in and revenue as expect we expect fiscal decline increase

the resume quarter. to growth in bit expect fiscal We fourth

we $X.X year the reducing to to gross fiscal entering approximately capital of this billion year. $X.X our For billion our prior compared forecast XXXX, fiscal expenditures are

capital also in in are flash both cash BiCSX our of to and client delay the below ago. drivers our primary the forecast transition are of our months to manufacturing. The aiming and is expenditures levels $XXX drive hard We capacity lower investment million capital which reduce expenditure XX% reduced six about enterprise

six to compared have ago. We million months operating quarterly over reduced expenses by our $XXX

fiscal million. We this are These expenses will continue operating cycle advancing while allow actions enabling to innovative us forward. targeting to road below exit this $XXX with year product our map us going also weather quarterly to

I'll to guidance. now turn

For our range the guidance fiscal third as to billion revenue quarter, We follows: to billion. expect of be $X.X in $X.X the is non-GAAP

XX%, between underutilization Flash to a with reduction $XXX margin be and gross X% expect We XX% in and totaling driven by HDD in which wafer million, includes Flash charges starts.

and between million. We expected and other be million. million $XXX expect operating expenses to expenses are to approximately be $XX Interest $XXX

for tax third year. expenses $XXX and million for approximately million between to fiscal to $XXX $XX and the million expect quarter $XX We be million fiscal the

loss third quarter, XXX approximately $X.XX the in expect of per shares to million share assuming $X.XX outstanding. We

call the back now David. I turn over will to

David Goeckeler

Wissam. Thanks,

up of and HDD for opportunities reiterate I both open Flash for we wanted Before long-term storage. view questions, our the to

we for in efforts to Importantly, from and in leadership client diverse storage these architectural both With broad engine, go-to-market to data address value. to the HDD, and retail preparing enabled technologies confident regain have franchise deliver cost a cloud. our shareholder structure, to lower meaningful us we an are ability long-term enviable growth long-term to and our portfolio, our edge Flash remain

Okay. Peter, up Q&A. for let's open

Operator

will Instructions] first And our today [Operator from C.J. Evercore. come question Muse with

C.J. Muse

in competitiveness my much two of while perfect CapEx we're But things? think kind good both heard we've those down out from you leadership? And about significantly storm NAND as your BiCSX. at of balance you do requisite in how question. Obviously, Kioxia the kind a down here. Thank curious, BiCSX. longer you as slowing what I into can afternoon. set taking you the the maintaining maintaining Yes, time, cost how side, the as that same well for squeeze stage for technological for guess, recovery XX% of How and a do you you

David Goeckeler

C.J., to the thanks Good hear you. for question. from

feel talked mean yes, BiCSX balancing So and productization. things no that's really I the of think has we we the script There's We'll doubt. good reached about a about BiCSX, act. I in one R&D I all technological to think innovation during Siva will quarter BiCSX. been into on of there. -- an say that. do the do we'll There's have webinar enormous going about a more the amount is

feel BiCSX USB, road very map. where a ones. in holding a hand my from the I'm we we So, first are actually I'm about right one good technology here of

And portfolio, where BiCSX, about will ahead into and good as for so, making into shorter enough far mean, node we're won't we the BiCSX the of move BiCSX, we what BiCSX all in system then schedule very products. about choices be the it. I We'll It BiCSX a take into it will go putting well quite capital as feel to right which we'll frankly, be for production, need us. us move rest we serve or along. of is and

and to BiCSX then see balance when have back. enough all there that that come need capital accelerate, enough accelerate the BiCSX we we'll it we of and So, growth have

downs, I to far ramp ramping as year, that downs As far of mean, in are BiCSX. is We'll BiCSX we in cost start those BiCSX along second because as to and much. the very cost look, difficult are we half return to the not be the going

especially we'll with have but But level, not some, still underutilization fabs. the of to the

So, -- first our most cost gotten we'll we to BiCSX. especially come and mixed of ramp we them back have and those we're see as will of downs going the half BiCSX year, in the up of then all in,

C.J. Muse

for Wissam, through the you Very are Thank so much. off And that quarter is I thinking that can confirm how up, rolling follow If 'XX. underutilization $XXX could charges? just March you incremental million then helpful. about you calendar

Wissam Jabre

in quarter, Yes. we're March between C.J., $XXX so total. projecting the and million both -- the Flash HDD. That's for

We flash the expect those say, the X/X the the Flash -- HDD in to on and of be X/X in probably, I business. side would

into the how long we quarter, I roll the become with Flash But expect to fourth As we continue minimal. HDD depend on will underutilization.

it then The typically XX% first, be given the XX% let's XX the under think we starts, the the time, sort impact say, in to of way reduce days as to come of we would remaining wafer as in to approximately expect and -- following we is cycle quarter. the of or the we impact

underutilization of the actions so way to the to the would that impact from think for taken March it -- So, of XX% the is we've taken XX% far. quarter have -- the around we've

a how said, Now be, haven't a were the on. underutilization it we could this one-quarter and let's and so we'll yet around way continue evolves, as be depending long demand picture at My decided we inputs on that that, dynamic the to in market how say, to is very comments assuming, going manage event. look

Operator

come And from Please Aaron Rakers Wells will our with ahead. go question Fargo. next

Aaron Rakers

two I'll question. quick. my to as taking slip for real well in Thanks try here

that sounds just outlined, -- NAND of Flash it growth I like January. First range. you has bit starting still as context how I'm -- XX% how look the as production of early you in that the own XX% demand move all, on the as we bit had far is reduction much the bit changed 'XX, in what growth reduction, at of XX% plus your supply your wafer as you forward? in calendar curious your what's With starts somewhere think assumption

David Goeckeler

a is how it. me talk So all, let about the thinking very It of about we're situation. first kind of dynamic

seen cut I That's off some strong we a were demand our XX% bit of drops. bit growth. think why we delivered looking sequential just wafers quarter CQX, very come when earlier. at We didn't we've We've growth.

our it a SSD in at side of The digestion QX, enterprise. is client drop fiscal more we're look we issue. both When enterprise some seeing and

inventory up. to we get sure build make manage things don't our So, and we to

that's And cut quarter. in why we've the starts -- to decided so first wafer we're

do Again, I as as for into decision a now, a you the can we -- Wissam that's overall bit see we a to load the said, make Right best on demand literally make sure that's decision balanced and number our we can. looking -- one up year. how Wissam supply have keep growth every a do it's about the wafers week fab. we quarter

Wissam Jabre

Yes.

a looking perspective. -- probably supply in the the think say, I say, will would given single-digit I CapEx would I situation, at growth to this from it's from -- be lower we're in be the perspective, it the supply a

Aaron Rakers

That's drive want just business? thing? digestion to follow-up, a then the anything helpful. there visibility kind disk And isn't side, of hard sequential. quick share on you that's XX you Just as in maybe mean, And that's any a that down that, gives looking the at I confidence XX%, capacity shift, on competitively? XX% going transitory exabyte What

David Goeckeler

Yes.

last going long signaled big demand from when seen very variability was we in little customers across customers. these at this time, and the bit difference. think a the frankly, We there we've across in quarter. orders lowest the which make some industry revenue are be I to you're levels, knew Quite big a

So, if big restructured, couple some share shifts way for in you cloud last of LTAs came back quarters, another, either the way way or big the you're large orders customers, way one the quarter-over-quarter. go pretty were seeing different the

you look you it a basis, pretty at on a share. it on when basis, look XX-month sex But month at see consistent you

we're working stable, a swings for a period, gained going bit. we've multi-quarter out, share We over the here managing to think and big be you're pretty But actually seeing that's think is profitability. just way quarter-over-quarter. it's some I again, little pretty

good The this quarter. the drive really terabyte feel XX volume situation. significant competitive we So, about shipped

got SMR. ramp big customers We very year. expect We've committed that to to throughout the

And an XX% gain of across large position over number very UltraSMR a is qualification Our unique technology gives CMR. in a us additional that customers. of

'XX, stronger stronger we year we move through ramp like and feel ramp as we we year. calendar portfolio into throughout the So, as a

Aaron Rakers

David. you, Thank

Operator

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

Joe Moore

make you're you're underutilization going sort the all pulling the just to of play cost you sure just about of it some of bit will that Is what I I that's talk out mechanics underutilized? because like sounds charge. how cost represent that charge I -- and maybe mean exactly time, not of forward you. it. wanted running this Can but in you Or just higher are to quarter next? of and the understood Thank per that

Wissam Jabre

our underutilization Joe. underutilization I a necessarily peers. about have have the the Sure, accounting to some similar don't we talked for when I Yes. should of clarified that approach as

taken as us, are underutilization For charges period the a expense.

so, expensed is that's not the quarter. any basically within factory of being the And utilized portion

does flow and that the not if it the so, inventory And to helps. through back P&L,

Joe Moore

how Okay. of mean to It signals guess, goes that back beforehand of you kind pricing can that there time I does. it's to guys keep you are the like tell to about do for you when you full the utilization? is thinking will back Or stabilize? full. to to wait move and see something I fab

David Goeckeler

we So, Yes. of good going we're mean be. to and Well, volumes quarter. right? we about, are they're our what our demand the talked into talking fourth a very expect at to have we I always signals fiscal sense customers, to increase where as going

to and ramp and as we decision get what we fab. incremental that back understand So, the make to closer how like when that up an on looks we'll

Joe Moore

much. Great. Thank you very

Operator

with will from And UBS. our Tim go next question come Arcuri ahead. Please

Unidentified Analyst

questions. from couple Tim have for on of Jason is UBS. This a I

So, first on on segment. question your the my NAND is --

'XX. for believe NAND in bit Sorry year said if single-digit calendar but growth I you misunderstood, I

just are whether curious curious inventory weakness should just So, in potential Thank June which demand risk this we March you. driving I any Also, or quarter. expect for I markets NAND was year. end write-downs quarter was this

Wissam Jabre

Yes.

I high call would percentage I comments any on the make So, Jason, it, demand supply say, side. the was side. my necessarily growth. around let's single-digit digit, didn't single comment

'XX it'll XX% calendar calendar side, probably low in the demand 'XX. versus range in the be On

on part quarter question, every at et we related inventory. costs, process end As for second where demand various the Look, the as comfortable our the quarter end QX. ended at at to part cetera. your we which of the of hand the and look of versus signals with go through We And we're the is close. inventory calendar the of

Unidentified Analyst

your do question near potential risk order type is, Thank have Got additional on remains you you. apart comment cancellation And term? pay second weak fees your if any guys the in my you see Thank utilization it the with from also any agreements suppliers you. purchase or for charges, it. of

Wissam Jabre

these a in forecast we don't typically the business things we mean dynamic I and manage way.

there. So, don't I major expect anything

David Goeckeler

them normal quarter. to every our comment, going that Again, Yes. But of to time. close there got at made, And any process. Wissam's were course, of take remeasure prior to look a were adjustments be made and that it would at we part that's you if back it needed quarterly have

Operator

our with question Sankar will from next And and ahead. Cowen Please Krish go come Company.

Krish Sankar

nearline the quarter? To curious trends Hi, in one, thanks growth HDD of David, you for first about and a improve. this in And exabyte first I'm HDD think kind year mentioned could of And I in to taking nearline follow-up. the pricing March my think also overall. about the had for then question. how nearline 'XX June half calendar

David Goeckeler

would any I whole you're think to pretty has I I stronger underutilization, say cycle. is it this pressure you're first time pricing, which in it's the throughout pricing I Yes. more. seeing good pretty to on think bit clear I will a than at see look I little not the exabyte mean going think of mean, surprising, of as mean be half. the is kind environment been -- second seeing growth this we're bit I little a we half say

QX, I as this and calendar expect throughout we going year. back of the low we're mean very to in move now calendar ramp we off growth

charges expect low and said, digits year. we that as modest maybe we and As QX, throughout mid-single of QX, fiscal drop, improvement volume is, we're into our course, quarter-over-quarter calendar the anticipating the calendar see going comes underutilization the go we continue here margin we'll to back revenue growth,

levels. off So very of coming -- but we low are

plays big exabyte through digestion, through out. got below of we out again, know something inventory more think be we some But it. year We'll full got are around how it the will way as our in coming growth that. still calendar calendar quarter. probably customers that work We I the we -- got going XX%, see to

in China market been time a we for And situation signs getting there The I say has also quite are would now. of some a have dynamic could long subdued comes very an China. things the how back, of progresses. have We'll past as see But year, after on be new -- that impact will that better. we depending course. very well, that get how that

Krish Sankar

Got it. And Very a helpful. follow-up, that you of And just mentioned cloud as March, cloud kind also digestion. then for the in business stabilized. the inventory HDD you curious, mentioned

curious when So demand on you think And when or the own do then you. expect start NAND standpoint. from maybe this side or you things side, Thank even improving HDD standpoint to bottom? digestion a inventory your

David Goeckeler

I Yes. good bit XX% environment. dynamic is. given result. it's sequential difficult in a FQX the of strong quarter a a challenging think bit market growth we're question mean very growth, very That's Obviously, very how our I of off coming was a pricing

bits into pricing. see quarter, Going both our a drop fiscal in we and third

see volume on impact pretty is business. the into back And our up. the QX, current forecast we a going that's pick then fiscal significant So

So bit of that's see a the little little dynamics. how we bit a

keep we'll we're demand in we've what more agility balance. inventory so years tremendous kind in of The how a control, cycle. pricing of changes as our change manage things built everything over And amount we demand manage last supply balance to in our important one continue very dynamic that into under very several be week it. environment the supply to is And and the organization will And situation situation, organization come again, can doing I'm of this over happy the It about week. of literally to react. we very the we

Again, we're we the It's market with good Otherwise, we And market. that upturn portfolio about can positioned, that position with from a when result talked get ourselves talk to quarter. get very, inevitable along get the a best we're to get job I very Flash technology. is think more and doing prepare important of well than good technology and about we the that we moving. a we we'll react that balance more carried the that market feel in things and faster about BiCSX. I that just out from throughout the and difficult

the to was going where the product in impressed I also innovation about that. and be you're portfolio. about in think certainly I we're that's at

Operator

And go come Mohan our with America. Wamsi of next ahead. from Bank question will Please

Wamsi Mohan

confidence I cap in know price you're customers giving coming are seems the of If in inventory on follow there I levels, their to it underutilization that particularly could done? cloud down be the you. Thank fiscal just What's low charges will terms minimal digestion will HDDs be on and own the high up comment XQ. this your in broader off well like of but largely tick demand. also in some as you starting

go So, the I fiscal that color will in market underutilization in follow-up. you those you're away can share the on seeing HDDs you charges what any that's giving confidence by XQ. And have a

Wissam Jabre

the position to than the fourth a look our at inventory appears be quarter, better with peers. we answer, Well, our our start When let inventory exiting me Wamsi. in

we on what and the demand the the obviously, HDD over demand And is my really comment. so when consider time improvement the and in that's where utilization side, drove

to unfold. today, based what so, anticipate this we we things how And is on see

Wamsi Mohan

these And kind are you a doing Dave, negotiating of all of you're that your of lot noted doing things OpEx. And covenants, these, cutting converts. under prepared that your things remarks different the are Wissam. thanks in costs, of control, despite Ok, right, sort lowering you CapEx, all

helpful. strategic is about So Just you liquidity and your Or a materially? be maybe maybe of assumptions more your just or can view that can needed share would changed is as any just why you color optionality? -- talk changed materially on market the investment this incremental around this share

David Goeckeler

things. a number It's of Yes.

that the different all, is we the of depths give through blend first to of us a manage it have to So -- of kind look flexibility It's we at the downturn. important of debt and our financing, equity. watch We and make just package. it our equity EBITDA manage we all ratios to We've sure debt take as both all got debt to can't debt. one to

I These. And kind execution of of big facilitating strategic part of it. our it is part the that's A so review. of think

complicated very time the and X-Ks You'll sure see outcomes be they're move that are range process that, to that of to putting stage the a that we a not outcome. to position us These are and thought in are facilitate good to lot and on can of make set we through give a line execute of agreements a of that a as very ability way give well us that in optionality flexibility filed. the up but in these

our additional Board with Reed right Raymond their join Board. third our at to then brings an agreement capability a some will amended will the under letter our technology issues investor them they it sophisticated choice. And that thing to is join company. very when clear Elliott have

a lot of us to brings it as capability well. So,

So, we to phase the strong set execute next business a up about the in opportunity invest strategic position review. of innovation to the ourselves us as in people and very well to investing as it business, feel good about for our this, puts in continue do the

Operator

Our next Suisse. from Shannon ahead. question Please Credit Cross go with will come

Shannon Cross

And you're the Thank you to should want trying initially follow-up. follow-up very a insurance to should loan then that's -- policy? how that we I to additional question going you -- just just much. we I kind expense assume figure have then have And and draw I'm not interest question. and out have on a that down that. an last term of to an I the

Wissam Jabre

Shannon. Yes,

in to quarter. So, is the mind the have in keep one IRS thing settlement payment we be fourth still -- that's the to expected the

facility, make down that, liquidity also flexibility comes we way If draw to the on and a when pay. new from do won't the we based a decision so, efficient for on will that us perspective. investment And obviously, we additional don't because need to then optionality most time what's the gives our

Shannon Cross

you what curious, then you million Thanks. quarter at down at just I'm you. as look cost across are to Thank to a OpEx looking Okay. changes about get $XXX And your basis?

Wissam Jabre

Yes.

So, when we the the was at down also you we look ended where quarter. also December September quarter, versus which the versus down quarter, were previous

of million. be down So, million. $XXX until the from And in we $XXX other fiscal the year now, words, approximately $XXX million to we've taken guided beginning to

focusing We take all typical going on expenses. the exiting sorts or similar to continue discretionary through actions of reducing

we that long-term critical focusing continue basically in to invest the But R&D on and so maintaining our more importantly, technology investments drive growth. we're the

get so type of below far. by that the of of as And taken fourth So end the similar to quarter. that million actions $XXX the more a we've close us should and

Operator

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

Thomas O'Malley

all? taking for preferred question different come them convert. perspective and from non-GAAP Thank is companies just share even what how them moved dilution see from handle out handling My see and really you. my the the don't Thanks about Can into count. seen talk guys. around a you're money, dilution you're guidance Hi you'll given the expecting that on you I at sometimes We've shares of getting the question. equity where there

Wissam Jabre

for So, with latter anti-dilutive. quarter, Tom, the dilution convert as maybe I'll the start for the question. of including your the -- loss a would be this share we're guiding part preferred of

that's them so share you reflected And see why don't in count. the

them However, part fully a as us our to include we swing I to share profit, would of expect as diluted count.

impact. So, some limited they'll have dilution

Thomas O'Malley

[indiscernible] expecting of step-up some into December fourth you the saw side because you there. And the a in the quarter you peers the just higher? outperformed are will that thinking are on inflect can the just material on growth Helpful. you -- the just you with then it shipments Or bit quarter or recovery your

step a March down a obviously just that expecting it some how the kind extreme But in step Any given color Is about you're up? an giving on You're cadence. down of looking color talk March. with you're forecast at in step small there.

David Goeckeler

Yes.

a FQX things in and big to quarter the they'll of of get through be and a in we're seeing think that buying. enterprise digestion back through one go our is our think one customers I phase SSD I

get be for instead And -- a weak will should guy very then that this we'll is back guy -- far seasonally as the So volume. good as bad quarter consumers. a of to a that

So, we'll weaker. The bit see some little now step-up there. consumer commercial Client has side is a and stabilized. little a enterprise is is TBD

a market feel on don't I we OEMs things idiosyncratic much want big well. go the this go But engine. put to too perform think, our again, to So, with consumer the to things we get quarter and from players. We've to past to few last channel portfolio, web customers, well. quite that and qualification performed And big we'll about And I saw in it the talked back diverse about are it. to really market a a very to of few very we frankly, when seasonality see ability good diverse that kick engine have

Operator

question Citi. from Suva with Jim next Our ahead. will come go Please

David Goeckeler

Jim. Hi,

Jim Suva

the the a much, QX. Is of utilization David. worst to still say? in like the the or kind Thank upon to based March sounds it of with adjustments charges fair It so starts of equilibrium in million wafers goes. the in you are the worst NAND is you bottom do of That go and kind But some of of and you're kind and fair market mentioned that charge of I now, hitting March quarter. that the have the seeing kind quarter? digestion and $XXX kind for NAND to how know away to underutilization say of

Wissam Jabre

comment My for of to going side away Jim, thanks around business. So, related more was the the question. underutilization the HDD

side is situation. dynamic the say I flash On or on NAND it would side, the a

we signal see will continue as to the assess We demand coming.

the -- so, the well on that for only don't earlier -- that's make of one wanted And I was underutilization. we purposes. quarter have we that example described, that modeling sure to assumption I so gave

was the this we today. a we to a on take manage the given decision disappearing the be mostly taking this we our peers. and will weekly demand action around comment that an our side, on to picture if basis better is continue hard yes, change situation, where But to And -- of can our underutilization when we're can side. is as we the than said, the but we some QX, we And approach. NAND David drive was that's inventory related -- position need evolving also -- to exited inventory look,

Jim Suva

David for and Wissam Thanks, the you. details. Thank

Operator

your from And will Karl Paribas. Ackerman go Please next ahead. question come BNP with

Karl Ackerman

I March, to But indicated in reduce ramping BiCSX. out you capital in currently and also crossover and transition CapEx the BiCSX on BiCSX. ago, BiCSX approach I days from about change talk your of a BiCSX 'XX. production you. your draw second. to be reach XX and you're will -- infusion for revolver to was wanted the convertible your also stock Does NAND pushing fiscal you'd you're today, indicating with to cost for Thank wondering because I asked BiCS

should And so, volume when your reach crossover guess, business? BiCSX we expect I Thanks. specifically, NAND to should

David Goeckeler

of don't well that I guess, we're Yes. think to is that But think far would BiCSX kind along we're -- say saying along guidance, that. I is in call I what I issue to I production it's -- video, wish had said playing holding reached I and with. and like I I'm can show we in phase hands evolution technology BiCSX on -- the its you product my

about the investment and would manage doesn't sure our out to is situation What match we're get we can demand change dynamic. and yes, process. our this be But control of I our our we're to thinking to it situation. we say way trying very go supply do trying as We're through doesn't inventory make supply the

going looks of transition how And obviously, lot we're the on whole of question how on Again, what it of to that's being depends ways productized. transition. like down fab. fast BiCSX, BiCSX. down to slow in the slowing A we do this of all nodal when working how to and we're do the it's a long that through bit brings BiCSX that. you're dynamic. And And is one to stay It

we're I schedule. stage of is the seeing And one think of today it has here ahead productization things reached the

mix go other a into we'll shorter say about into straight every then BiCSX will and products It's won't to like node. go the we're products if clear will it what fab have more single we'll so, looks forward. product to to It needs be And going as we have that move it that go BiCSX.

Karl Ackerman

could you own discuss take you in I action HDDs to discussing to whether improvement an Thank If further your that. components? March, need inventory appreciate I of may rightsized are you. because you beginning in

Wissam Jabre

quick this, Karl, see need to The don't do to the answer that. we is

And project so, why this it. is don't we

are. manage We where we where as the comfortable basis. a dynamic of don't see of But do the today, continue I need to the were inventory to we quarter, stand on that. we the from on situation end And

Operator

Steven Fox Please Fox And our Advisors. come will with next question from ahead. go

Steven Bryant

Can question you question. I my taking up follow inventory And inventories. on ago question. want some that from there's Because here? you at the still your about the for and year a demand looking last days to XXX strategy expand to Thanks from days. they're XXX mentioned up just on I'm

better inventory better get understand generate write-down and some start I'm an back strategies taking ramping alignment flows? why So, sort to versus Thank you. HDDs other trying versus next in to inventories cash quarter of your

Wissam Jabre

movement we just HDD at ended, December did maybe in bit. HDD when be the just the inventory we side, quarter clarify me on a inventory reduce let the to So, the clear, quite look that

from the In Flash came increase fact, the side.

inventories. growth we at HDD reduction look those saw than That some were of we partly of I more Flash. reduction quarter-to-quarter the the by around at offset think when in company $XX the So, level, numbers, was side. the $XXX in in million And million was

on situation is we a don't We bad. inventory hard think do the basis. And drive so, to as monitor on continue will obviously the side we regular

We us very the would there continued also are hard continue for the and drive to the supply are, on on as side, about March obviously, the that allow we tightly underutilization million discipline part talked accelerates. to maintain until, quarter, growth of the side inventory which some underutilization that $XXX demand manage

comment not of what quarter, necessary, I this was And not words, underutilization about much the seeing that's necessarily clarifies. drive the quarter, as other my hard hope next in June charges.

Steven Bryant

you. definitely the helps of that appreciate No, I Yes. some Thank filling that. blanks.

Wissam Jabre

Thank you, Steven.

Operator

our will from Please with Sidney go come And Ho Bank. last question Deutsche ahead.

Sidney Ho

of A ones. couple quick

the hard revenue that there's Obviously, up margins modestly, drive case, NAND think And gross charges On assume if fiscal quarter, the zero in drive gross goes if below a goes involved. quarter-over-quarter go and gross mean hard down about does goes if underutilization onetime fair margin up. side, quarter. the for charge is it margin I that's could third that to

Wissam Jabre

slightly Flash margin gross improvement a there looking drive some gross expect to transition on of is the see utilization on or, the in to the related improved smaller the we're quarter-to-quarter. negative. supply QX say, high unfortunately, at the -- we be underutilization from the with this cut And Sidney, with hard fair the side, the margin way So, side, lesser to let's to anticipating charge underutilization XX% QX

so it up. that And sums

Sidney Ho

the is But maybe in in customers for level inventory hard curious would side. characterize here is and then this And you on just Flash. both and But already. sounds drive follow-up Great. hard the how flash shape. curious, have my decent channel covered quick It drive you more the the like

David Goeckeler

quarter. Yes. would the been I actually, has on say past client -- the good channel this it's pretty SSDs on --

think unusual don't anything I channel. there's the So, in particularly

spots the I been think has quarter. last one bright performance of -- actually was the channel

So, I don't think there. we see anything unusual too

Sidney Ho

you. Thank

David Goeckeler

throughout us Take Thank care. call. to joining you, look you to Sidney. the Hi, forward We quarter. on everyone. talking the Thanks for

Wissam Jabre

you. Thank

Operator

now Thank for presentation. has you The today's conference attending concluded.

You time. may at disconnect this your lines now

Western Digital (WDC) 31 Jan 232023 Q2 Earnings call transcript