WDC - Earnings call transcript Q3 2024 | Western Digital Corporation

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Operator

Good afternoon, everyone, and thank you for standing by. Welcome to Western Digital's Third Quarter Fiscal 2024 Conference Call. [Operator Instructions] As a reminder, this event is being recorded.

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

begin. may You

T. Peter Andrew

good and Thank afternoon, you, everyone.

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

We Flash Before upon Form assume and remind forward-looking does information Please the with product market results. we everyone differ obligation that our for and to include most and statements. uncertainties. financial trends for on and performance, portfolio, our filings these and no today's ongoing me refer our begin, These our uncertainties to and discussion include materially forward-looking recent that separation update future risks from statements more other management's and and risks SEC the expectations, financial XX-K could based assumptions expectations. businesses, our current the as results such, our HDD expectations to cause plan report on let statements contains and actual of business

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

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

David Goeckeler

Good third the for and everyone, to discuss XXXX call our Peter. thanks you, quarter Thank year afternoon, fiscal of joining performance.

excellent non-GAAP $X.XX, delivered all which in gross Digital of non-GAAP results revenue per billion with of share Western expectations. margin the and of $X.X quarter earnings of XX.X% exceeded

and per across This continue us industry-leading unlocking and structural Our in is both cycles. generate broad strategy strategy earnings our constrained changes to even supply of to made improving a dampening products higher of to true a have of end our environment. us profitability developing of portfolio earnings enables coupled business potential we share diversified range through-cycle markets, with a allowing businesses

Flash particular, the to to further continues achieving technology opportunities. enhancing In to evolve, more HDD to allowed has us for commitment uptick the our as AI end run adoption take In and drive becoming and across our efficiency innovation is edge increased expansion agility the and demand and operational greater our businesses our addition, of efficiently across landscape Flash highlighting storage AI core, in data markets. opportunities is and the for apparent growth in HDD providing value the increasingly at both The margin Western Digital. long-term and and will demand drive solutions incredible

new of themselves. We of unlocking shareholder profitability team long-term and of innings the present company, potential drive these expansion to are our this the in opportunities and focused full early margin on demand improving business remains our as value the

dive I we status briefly and of the I environment, HDD Flash ongoing drive team's into separation I efforts to as demand the Before proud further achieving want comment of possible, completion on am the businesses. remain as of our our on year. on as the of we'll towards second calendar focused the separation separation continue soon progress We appropriate. provide to and as of half the in the further updates the

experienced in XX% pleased line. ago, major on success end the returned product I to we revenue In year growth. end Moving a our market am year-over-year to markets of industry-leading HDD highlighting growth during that to our revenue the quarter, report cloud, of all in from commentary. incredible

our in by an solutions, in a our for increased long-awaited with client, demand we a year coupled revenue signaling market. increase from experience began ASPs. in flash-based addition, ago for bit growth recovery an In driven increase solutions, demand In to flash-based end XX% this was

HDD brand. the decline revenue in SanDisk bit from premium In offset year Higher the with consumer, pricing better a continued more highlighting we power demand. experienced than XX% a sales, of combined consumer growth flash environment ago, the

updates, business I'll starting turn with to flash. now

take drive advantage our us has of higher in growth the into approach, to most carefully to improved our markets optimizing portfolio strength environment. the disciplined commitment continuing capital revenue spending enabled of bit and inventory. to pricing product significantly shipments the our quarter sequential while Our combined profitability managing the profitable This reflects with end strategically

by flash significant is front, yet initiating market innovation the production mass market's BiCSX leadership. transition technology achieved leveraging to calendar technology. milestone milestone to This spearhead client in our year of the SSD, On QLC-based These to and XXXX. advancements another our demonstrating commitment we a significant the way continued pave QLC-based solutions

our on track. progress is with BiCSX Additionally,

offerings the technology strengthening our to of is be the forefront warrant, market, prospects. position will conditions ready innovative as competitive and at While productized this market our growth our further remain bolstering

to an our demand in we SSD earlier, third quarter, experience As for solutions. increase enterprise in the began noted

SSDs seeing we are downturn. before the that We demand returning qualified NVMe for

We providing for AI-related products these to applications, of in higher in the are capacities experiencing the expect also we second dramatically significant year. which half interest ship in

also newest addition, In our we BiCSX-based are PCI Gen X, enterprise sampling high-performance SSD.

a qualification product in and We significant at hyperscaler the the are preparing for is enterprise market. generating interest

of half calendar ramp the We to expect year. the second in

improved fixed put The by HDD. demand reflecting most the innovative, bring the as exabyte we high-performance to to profitability in high, on nearline nearline place particular, strategy quarter to pricing reached driven market. increase was revenue higher successful revenue a sequential In focused high-capacity Turning per optimizing and drives and sold. we

which in the performance. are have right at right We our products reflected the structure, cost financial

drives our with drives, portion shipments. shipments of exabyte to continue quickly SMR XX-terabyte and quarter. XX% exabyte approximately customers UltraSMR to enterprise cloud becoming XX-terabyte of capacity a represented SMR-based in Our nearline significant the our transition

capacity OptiNAND industry's proven TCO of commercialize has in our deliver to with scale customers to produced can winning Our costs. of and enables drives, transition portfolio which be UltraSMR at strategy strategy HAMR, technologies controlled leading to be advance the and us all to the and highest ePMR, to

in deliver which in nearline product time for UltraSMR technology strategy, a engine We enabling Digital advancements margin drives at that is are upcoming with combines as all HDDs confident when another gross our emerging the to AI is Western growth best-in-class industry.

the and a to lean for business. product demand, the meet time, we shortages, leveraging operating already technology our of at the in tightness with demands new toward portfolio right our move supply improvement customers introduced cost environment, a by demand we structure the right HDD characterized proven As while supply and are profitability with market continued our to also higher we've

Although TCO we innovation higher the remain are have we the to of driving value improvements and profitability, focused incredible on amount to margins we continue actions improved taking customers. appropriately to our deliver

to are Digital cases. the turn SSDs, well the Wissam, expect some growth I SSD increasing those wanted demand and throughout at growth Before over AI-related calendar which outlook. the returning I are strength, and to support enterprise our demand it is on we to to Within in use enterprise year. within encouraged opportunities portfolio is perspectives by addition workloads positioned Flash, edge, driving Western for market this our share

quarter anticipate bits most we the end and flat to markets increases on ahead, to into supply to be high-value amidst fiscal look by the environment. remain to revenue Looking fourth flash the the primary focus growth tightening allocating driver, ASP bit shipments our led

crucial While by capital and profitability success the cost-efficient the profitability pricing map, in and initiatives on through we're strategic of XXXX in offering see and our focus pricing capital discipline disciplined the only continued us most pleased and and into spending see maintaining into improving for well calendar position road direction, capital capital year bits trends back the XXXX reinvesting to to innovation Overall, demand. our continued industry. moving further, improves acknowledge sustained positive once a we importance it's in business

capacity unit of of with implemented combined In years we've improved are our HDD, restructuring portfolio in the products, and greater efforts success leading visibility. enterprise recent the yielding economics

pricing as HDD by pricing nearline are we innovation are cloud demand a our growth demand our of business. in better and continued we better We're aligning expansion driven them, to As supporting margin the is mirror higher integrating anticipate supply-constrained into products environment. recovering, long-term about we now in the optimistic

for the the implemented, rewards expansion. we of the efficiencies look innovation reap business will operational opportunities are we've the to we conditions when reinvest and As for in that ripe

a We every on discipline. decision will capital approach with allocation focus

now turn me financial the over discuss our to Let third Wissam, who results. will quarter call

Wissam Jabre

Thank and afternoon, everyone. you, good

return expectations. was XX% and the results Following the up per $X.X free generation and delivered and revenue which share flow for quarter to cash on Non-GAAP Digital Western earnings sequentially $X.XX. year-over-year. David's billion, Total exceeded was great profitability XX% in quarter, comments,

markets, primarily XX% end shipments pricing and with to year-over-year. up attributed up Nearline was Flash Looking of exabytes unit per cloud sequentially revenue up revenue bit nearline billion, of growth XX% shipments improved and $X.X were XX% at at sequentially represented nearline and higher The year-over-year. XXX sequentially. total both XX%

a $X.X increase ASPs was the more Client decreased. year-over-year. driven represented at shipments. of and flash HDD flash than revenue in flash both XX% bit ASP by decline and billion, XX% shipments, and up growth total the bit offset increase in HDD Year-over-year, flash X% revenue sequentially in Sequentially, while

HDD and growth and flash shipments with billion, $X.X a the up of similar both Consumer year-over-year and down were approximately flash was Sequentially, On in XX% represented at ASP. in X% sequentially down by driven and XX% year-over-year. increase rates total seasonality. line basis, bit at revenue

to for fiscal revenue X% profitability. proactively now basis. XX% placement like-for-like from XXXX as business higher revenue ASP. shipments revenue bits increased XX% billion, third focused as Turning quarter. our flash from last by up Flash blended maximize sequentially and on quarter fiscal $X.X on the third quarter XX% Bit grew was both to Flash segment ASP bit decreased we of and

revenue Compared up fiscal quarter exabyte XX% $X.X XX% was third increased were unit the and XX%, while XX% grew respectively. revenue XX%, increased HDD per and of unit up as average quarter, and last from shipments total average HDD per XX% shipments $XXX. exabyte XXXX, billion, price to to price

was on points at Please results points above Flash gross in well to the to expected no higher percentage otherwise. year-over-year. be and my due XX.X note, better to percentage our percentage XX.X and related stated underutilization Moving sequentially percentage guidance range. unless improved margin continued gross and margin pricing, points charges was quarter. sequentially comments lower Gross will underutilization Gross and margin XX.X%, points reduction, charges. XX.X than cost the margin non-GAAP There XX.X%, up were focus year-on-year XX.X expenses.

includes margin of team's margin gross of underutilization X.X This and target XX.X%, margin headwind. with underscores previously, including percentage higher our $XX achieved profitability charges. points X.X gross X this was HDD was percentage-point percentage HDD and revenue. year-over-year. points on as the or long-term gross range, within cost focus This million level charges up underutilization reduction is sequentially

associated underutilization million. income the higher in improved $XXX Operating reflecting sequentially fiscal per for the share compensation up $XX with increase driven included the charges quarter, quarter $XX quarter earnings sequential third mainly Fiscal million, better-than-expected the was results. for The of by year. variable was financial X% expenses outlook Tax Operating XX% expenses $XXX year-over-year. $X.XX. million, million were was HDD and financial which was

flow was free Operating statement Cash represented to $XX the inflow equipment million cash flash include million. was million. ventures activity purchase of property, cash cash which plant and flow related $XX expenditures, a cash on $XX and of flow capital joint the and

from inventory. offset in with inventory increase $X.X prior quarter inventory at to days was HDD Third the increasing A an flat in XXX flash inventory quarter X billion, decline days days. of

Gross of including revolver and was billion. billion outstanding billion, of the debt cash $X.X and fiscal was total billion, $X.X Cash third liquidity $X.X equivalents were quarter. at the end capacity $X.X

For our the fiscal quarter, is guidance as follows. non-GAAP fourth

to and billion revenue profitability. anticipate flat to optimizing and Flash, expect HDD HDD, we at revenue project of be sequential we continued in expect and $X.X billion to be In We bit aimed the will cloud. our with placement is SMR as both product we bits range our continue $X.X industry-leading up portfolio Flash. in momentum ASP In the maximize growth

between be to XX% and expected is XX%. margin Gross

be to expenses million. mainly other and $XXX coupled $XXX with to strengthen. be Interest the investments, compensation continued related has the We financial operating million higher as expect approximately certain are increase variable expenses project-driven with to outlook between to $XXX million expected and

financial income and fiscal expect expense $XX and as $XX fourth the for XXXX $XXX tax million million improved. $XXX fiscal million year be We quarter to to million between the for outlook

to share financial business, and based and our approximately or be million spending we in $X.XX, the our profitability. shares minus per plus controlling has XXX earnings outlook The will outstanding. $X.XX, expect disciplined improving capital strengthened, executing We on remain

turn now to over will call I David. back the

David Goeckeler

Wissam. Thanks,

open we'll industry-leading of across portfolio with up performance end a Let questions. diversified the I'm me pleased in markets. developing wrap broad range for then and up, team's of a products

around we disciplined and innovation industry demand the and in our changes Coupled we will to capital on made efficiency focused supply cycles. driving As greater structural profitability dynamics businesses, our to spending our confident business through-cycle to with business. have remain and continue drive are ability improve, we and across dampen our

growth. drive As uniquely opportunities to promising leadership new we as capitalize the on lie ahead, solution and in storage move the continues prospects to positioned growth forward, we AI solidifying that industry, remain particularly position our

start let's Q&A. Peter, the Okay.

Operator

Instructions] [Operator first C.J. Fitzgerald. Our question today Muse from Cantor from comes

Christopher Muse

margins take HDD guess XX%. gross spectacular. I the of first on if you're question And north the underutilization out we are the side,

here think demand and will competitor 'XX from about progression 'XX? your So being for strategy cloud tightness, ongoing pricing you of by the part the into curious think in that business a do as main and How extraordinarily the rational. ongoing growth and led through you are remainder look you where I calendar of your think

David Goeckeler

the question. HDD business, at. the we're for -- really with happy is thanks C.J., the Yes, portfolio we're where

I that think bringing market. more customers. capacity best points advantage starts, able that, market deliver to to bringing that's of where the that And share we're in products highest when we it great to our do TCO we're can and for TCO the

the customers. is where strategy been that's with some quite the really with think time, I we're happy it's and resonating and for portfolio really

side we cost control that the making sure really of side But it. the of other is

sure cost we margin recovery -- that product focused well, that lowest returning the really really lows HDD expansion. we're of spending we a understand. get in off the and So got bring we've coming we on to demand And of the then course, we the environment cyclical as as leads all making

forward, in bit about prepared the remarks. little we a going But talked

market. continue bring expect We to to to products great

to the we demand And in expect capacity we've balance of downturn. of our drive We TCO customers. environment supply an continue We've have restructuring our for where -- now significant We during into see to see supply-demand into in giving what business and their emerge customers We set capacity we you our would that's looks do better demand better like taken think what we environment. going forward. market. the alignment. us what as to needs tightness expect as leading more market the visibility ordering we're this

about optimistic this to we're continue business being higher. So able drive to profitability of

Christopher Muse

I'm highest on high-teens you side, given actual be prioritization curious, still as of is different your I And revenue bit just about last a helpful. in kind quick here follow-up, of not areas And think we a the NAND, should of Very And bits. Or a NAND number that play? but guided growth. about thinking talking profitable production, number?

David Goeckeler

I our just make for You time to period, mean your what -- question. understand for sure

Christopher Muse

My for calendar 'XX. apologies,

David Goeckeler

about the -- we production. mid call of X% 'XX, Calendar the -- to bits yes, mid- see We see like Oh, teens still to supply look, high in it, we for in demand market. the see

see So we undersupplied an still market.

digits. little we quarter. as our we bit forecast had For us, We supply this throughout right into next were think the bits best about down going where more year a that, double we them flat we can maybe down We can get optimize profitability. quarter kind the of

Operator

comes from Joe Stanley. Morgan next Our question Moore from

Joseph Moore

the on Congratulations results.

we're improvement pricing? HDD that seems given for of of NAND in improvement. seeing of as of good sort the margin see in like terms In the expansion lot the well. gross are looking that X margin certainly What X only better the points pricing, would gross It a that. pretty is outlook, points than offsets seems like-for-like you absolute

Wissam Jabre

of today businesses. we for in we terms Look, comprehends of in outlook. Yes, improvement our with in the thanks view have question. a margins guide balanced information what of both the the Joe, see

the but flash the anticipate mentioned, So great also side, in on that side, that move to higher technology discipline here. improvement on we And gross of we still cost on deliver, pricing bit products. will the pricing margin obviously, David focus help the from a and as continue the HDD we the

So all guide. of these are comprehended our in

Joseph Moore

purposes. currently need those is seems year happen points these in talk about then drives you follow-up, sort serve, density capacity talk of calendar it then you Like AI can some what out? second for bit? And talk sides of has the you a Can that to like little sort a SSDs Great. to get generally, talked of you as you business. half and about don't on it Can both AI having effects guys' is positive that of the new you your higher about

David Goeckeler

Yes.

businesses. clearly, about focus. them going the in say seeing don't increase the so we're just think it's I which coming we yet, the SSD demand we're of what it's enterprise some impact demand but return, one quarter. it's as results seeing both just is in outlined, So last And you would to much AI where I saw into

But to We we quarter. as increase this second expect look in half. really, some the

we customers to qualified much kind have SSDs and the points, just We the XX coming of They downturn. in points. and them terabyte built us capacity wanting before bigger capacity want XX

a taking going product that. same just and it's through increasing on capacity So the and qualification it

we're So process customers. that in with

We more good that very being and kind bit qualification as getting in stack, based product. plays the product also the we're qualification, by little that getting training We're the very seeing different performance good It's PCIe X we is compute BiCSX, the hyperscaler, and focused, we're qualified new introduced demand AI a market a on feedback Gen starting which high SSD of of role in samples. on rid our of enterprise that's well.

the like lot we go building infrastructure amount we're people of set very of for are second half, So that a up portfolio as the up into show well large model and for feel seeing we training. demand

Operator

next Rakers Our Wells comes from question Fargo. from Aaron

Aaron Rakers

X well. got I've as Yes.

peaked gross want The a first just go couple regard of if shifts. business. at back like years, David, kind with to of question, of to you I margin XXX look exabytes the [indiscernible] the dynamics back like capacity right, to XXX, you

out back being to you or have the to capacity? even to at and constrained, footprint target you've we hear add gross do today? come XX% laid XX% -- about that you is margin the that As kind capacity above assume in of And you it your would fair where industry model end where the high characterize of see to

David Goeckeler

talked quite about we're been a thinking industry oversupplied this is about I've going Yes. transition an that for this that's I XX I bit. is been I this this it. how a think has And mean -- with client-to-cloud mean, that's years. on

was we least, a when to significant say that saw remove capacity time to the balance. better change think downturn to and I in get supply demand the we just in demand decided

what kind we're do what into to investments So that is. play I that's we I can dynamics model We start as in and need just visibility emerging -- see out to we more business market to market, into Aaron. the future we and get this the making mean capacity. expand as get think confidence to if have of

would I We're starting that it's focus, We're that that. we we're kind better yet, see visibility. think happen. that to and getting participate dynamics. about then do just and more bring as to But I starting at And there getting get of to all of say. TCO comes in capacity continues, bringing to getting into market. advantages We're not into would we're we're confidence, what we line seeing to starting I -- as more the market. We're think we is, the the more the guess, more how we're the

Aaron Rakers

That's follow-up, And just SSD enterprise topic. the quick Yes. a on helpful. as then

you just back talked to I kind it X Can what was there. cloud getting It just OEMs in X breadth that say think market, about, sounds the downturn, you like prior talk the optimizing displacement the you're expecting? want with drive. of or into I the you're to had had about of you NVMe designed

that breadth enterprise SSD base how the do about customer space? So in think of we the

David Goeckeler

we're the big of it's nearline been the customers when this to very SSD -- consumer this some side we've now out seeing when is something now digestion come coming see up time. for I one market is quite what I And to to we're seeing period. it. you market we're And we for, to going back come is has PC waiting to got back, enterprise to digestion a Like waiting every were was that's those mean And phase. that. we're long what Yes, the starting through from see. on gone think HDD the

kind they We're start products get dynamics same the ordering of model capacity ramp -- enterprise SSDs demand those impact phase market. training, seeing And orders very to a couple they we're and use then points that that we're digestion of seeing for the back. in as that the ends had getting see AI different on seeing we're to we now starting market. that we're So come for in qualified,

things positioned well those we're So We portfolio is both think markets. seeing for happen. of the those

through it. about the rest and We expect of that to we're year, excited the play out

Operator

Our Wamsi from Bank from next Mohan question America. comes of

Wamsi Mohan

competitor. continued maybe side, relative 'XX. also the thinking calendar a How HDD the you here growth 'XX quarter-on-quarter the perhaps to quarter in in On calendar very had you nearest basis, quarter-on-quarter both versus terms exabyte growth outsized exabyte but of trajectory are your about

David Goeckeler

we hesitate the because that demand. been that We're resonating we time. earlier, in growth with this exabytes long increase it we customers. far ever very with we expect well customers. in long to believe is be look, -- say technology XX% about Yes. map it's we're think we're of UltraSMR our ePMR up was where exabyte seeing quarter a our SMR, has half the I last talked said a return big We of SMR-based. road I around seeing with largest back sequential exabytes sequential And we've I go to Obviously, seen picture, very really could -- having and very time in as this mean, over in as Nearly is biggest the was as around time. built starts and But was a resonate 'XX strongly very strongly products to seen. for business -- shipped set it really had what FY we've I

still see So the that into expected that year, growth and like sequential coming fiscal we that. fiscal we the we year quarter, throughout said, year, to calendar last we extended the

sequential we year. calendar this forward going growth still throughout So exabyte see

Wamsi Mohan

much certain to revenue your levels as conditions But side, HDD and think follow-up, side? of are higher at is know than the past when sort cycle, capacity for cycles. said I you commented margin ripe on reinvesting this lower on And gross gross you a margin on I on Okay. right, question Aaron's ranges. reinvesting, earlier,

margins higher So it peak at capability though, much long-term established drive range. as least to your feels than the clearly,

higher maybe be So that? reinvest? Why why which XX% XX%, you the XX% at level than or should be wouldn't it

David Goeckeler

meet Well, is But we I that's -- what right? not looking the we're thinking when for the even can a went look the we a we years, marketing. great planned think demand, to hard thinking what drive at balanced cloud. ability of greater which growth our needs to customers to set and position the that lot of is of much for to haven't understand And really profitability. in question market point, really that your work this about come emerging over holistic for right I healthier want about back Again, the reinvest. now. business that's with to that on a is think -- couple supply bogey I We that, that would the of in We're products a getting last and delivering everybody the

where to able good to just I it. to drive but a increased if starting about of set as victory that bottom of getting in profitability we point, the all, line getting your I couple range declaring we like we're the of to to It's said, feel So business years the feel very drive at need we're we're back to the to, be back just in ago. like we not that

product. we while the think cost build Look, our a tremendous to we Like better to do have And it delivering that I to have controlling architecture products bring to great got your continue starts customers. TCO. to with

that We work and expansion. margin We focused lowest on sides this stay drive us the pricing, TCO have cost to have both got allows best equation. then drives the which of to to

why whole working across I working demand we -- return, believe -- getting we're the strategy to -- point, well. we up. But some saw margins on saw think is we pop just And saw this. quite that's we're the the that started when saw your And we So can equation. we we

Operator

question next from Ackerman BNP from Our Paribas. comes Karl

Karl Ackerman

AI I'm enterprise could rather in to provide the thoughts because And XX- your you that that SSDs. SSD on enterprise mobile market the your you transition address XX-terabyte SSDs for applications I to prioritize to to units? the discuss inference concentrated BiCSX appear QLC to demand address appears supporting as these question, opportunity guess than and be curious high-capacity decision

David Goeckeler

Karl. Thanks, Yes.

market our we when profitability, going So to feel right But to we is there, said the to where node, the is right is we'll to about time good do second invest it's That's is bring right haven't when really go really That's really productizing we the see shape. future. and exactly, thing BiCSX in supply-demand that go. third. we the one going or technology there in great got products the to in characteristics outlined or first that are technology which haven't it

in So still our that's future.

this we're BiCSX. transition As starting far now as to is your point to on QLC, --

about enterprise as we the And didn't you -- here talk a extremely talked SSD a it couple so client we well, but client well received. is has about The -- number based, which first, I'll outstanding. SSD -- of of been products that our are SSD, performance BiCSX

really job SSD. an have They've team. high-performance amazing really, controller We internal of done our own building QLC a client

of the market. and that lead expect that lead in the part transition We that to market

we're gives which be then right? us well, our into capacity, enterprise SSDs more drive BiCSX, So we lever BiCSX to And that will better as performance. bringing have

we so good well feel very customers' And to that received. are been about They're now is very, and they've in starting up. the hands, products show transition starting and

Operator

comes Our Evercore. next from question Amit from Daryanani

Amit Daryanani

guess. have I questions as well, I X

those potentially a Seagate's First you of if or as some on you qualifications on uplift of that the challenges that market the qualifications side, share think think nearline sustain back having, HAMR side, kind wondering, potentially saw and some you do does flow could bigger in on the HDD done. of given get market I'm that

you love you're seeing I'd understand not? to if share are think sustainable or gains So the

year? would talking then ramping to into are maybe the think growth back about in June. side, of up love get perspective. calendar some about as up Flash flat you half folks And But back I do on half, bit qualifications these of know just being bit the you how growth the this I ramp your in

David Goeckeler

Yes.

the question, planned advance. the first on pretty with customers far So is in our business

So a at customers reality and be resonating happen adopting would something with clearly, customers bring we TCO. big have a those would where that are and at can and very drive best-in-class much significant rate. a got great they're our And The there they share intra-quarter situation And products, shift. we've wouldn't deliver them scale. is

best So That's continue to customers. confident We we in we'll do. We're map sustainable? TCO to -- the on products continue market. HDD, it our bring great very is our to to plan bring road like solutions what and to

we we'll growth growth, bit see year. the calendar of QX, a in expect into pickup second half do growth the in flat the bit bit On but

Operator

Harlan next Sur Our from comes JPMorgan. from question

Harlan Sur

Nice the quarterly job on execution.

question Another SSD. enterprise on

have right, profitability. So with how are guys on really on you allocating a you bits, strong focus smart been flash

that you accretive eSSD half, the reallocate profile given of team portfolio, sort kind term? enterprise share and portfolio type bits longer profitability Just previously a is in towards targeting second expected of shares your more the more mid- like percentage is of business to to enterprise? single-digit peaked SSD range of to overall as of be in sort in high competitive the what So the flash

David Goeckeler

related. your are Harlan, Okay. questions very Thanks,

March relatively the but growing saw It's it's in still SSD still honestly, it's quarter. quite well. a in small we -- So quite pickup numbers, enterprise

other the So We'll strategy looks options those much decide we into the portfolio half, we'll wouldn't supply second it see put to versus we have, that do a of how get to have pricing supplied wasn't products. it's we bits then those view. when like, if -- what we and thing right from point

our And which have portfolio you're optionality. a really getting of of strategy, lot is into core to

us. business very then enterprise into SSD, And what how which We environment a based is happens return. quarter. do during And on got the SSD, across our across allocate quarter, a for then an the going optionality get across gaming, big And see supply things better we consumer, lot quarter. the to now have throughout where we're importantly, we client best what the in right of across across mobile, now clearly, obviously,

into the what business. results we through in get March more that having the mix So to as you saw go the we quarter, that's profitability, more agility and and of find quarter, and happened opportunity the

profitability, to we a that supply. any it distort, want share So tends We to where to our I the do want or particular because don't what to market. is for really want most in we maximize share number get anything call like maximize not return maximize

Harlan Sur

How mid-teens down are more technology? maybe guess, on new cost you're And timing the calling sort BiCSX. I And yet, importantly, preproduction you it have but for that. I know type still then array with any on question had yields can technology? percentage time. appreciate some I bonded this the in out the team drive annualized quite a to not of like early

David Goeckeler

Yes.

development from what we about architecture the -- is industry So of confident going it. the needed, mean, yields very want about it's to Again, supply NAND advancement feel technology. say or about It's I'll when to very conversation transition the we perspective in and CBA very, the we major And this and we're profitability larger very, the any to an CapEx We until that get. the any in going good the be see when market well. has about it. we're I a gone is We it. dynamics very disciplined architecture. good gets the need into can a it we putting productize to through market very of the feel about

we BiCSX. feel question. was a second of There very about part the So good

Harlan Sur

downs. On the cost

David Goeckeler

Oh, cost downs.

Wissam Jabre

Yes. Yes, maybe I'll take that, Harlan.

we're downs. cost still mid-teens anticipating On percentage down, cost year-on-year the the

change no there's So there.

Operator

Carlos comes Colorado question UBS. next Our from from

Carlos Vazquez Colorado

I about is So first -- have the nearline. one

a You are going outperforming by lot. your competition

I to over sustained? in this? So this you the think expect time? have do can underlying for to this what we opinion be are do And have follow-up. normalize your a reasons And And

David Goeckeler

-- is really driven Products This can ePMR, customers and the are we OptiNAND, performance. architecture great We that the -- on business at they're leads product, in the straightforward. It's UltraSMR, of pretty them the best HDD built right? scale performance market. TCO to that's what are committed They produce products. by it's the SMR. the Yes, to deliver

Carlos Vazquez Colorado

you Okay. AI's And the is, that SSD follow-up sales. mentioned are revenues of

the traditionally driving is applications a is transferred point the changing one that or on SSD HDD if that scenario? being perfect have is some where to cannibalization other. from AI You see classic of that that AI applications, those vantage -- to Is question is to now

David Goeckeler

where on It's the be and store that how that to pipeline, big any the going data, well data. storage AI life We role do as a and the It's in those because of just data sets, HDD. Clearly AI cycle the to all HDD are all do big plays going all be stored if ingest all raw economics access that you not of HDD. will, cannibalization. data you as the phase, part whole of the see lakes is you of

these to and all around those and of going all have SSDs. training cases are use new you other inference, be Now

what's about stored So going exciting data, And is obviously, then HDD. which to you it's models really so that's opposed the growth once as trained, out models are be on And to this. more going turn get to the about substitution.

you got cycle virtuous this So going.

kind cases lifts that AI, training a substitution of the not very built, being high for. being rising tide demand It's it's developed capacity whole driving all around seeing Clearly, lot new like that SSDs a literally these use boats. enterprise So are there's infrastructures that's game. what's we're storage-based of

helps. that hopefully, So

Operator

next comes Our Sankar TD Krish question from Cowen. from

Sreekrishnan Sankarnarayanan

I have of them. X

Flash First on Dave. one for

qualifying You BiCSX kind follow-up. your need have a bigger to going And spoke understanding of then the really and the I'm Do node enterprise My sub target. BiCSX you BiCSX? curious more is with one. of hyperscaler BiCSX it I kind was to BiCSX, a get just share a SSD or about to it. achieve can like was you market be

David Goeckeler

say portfolio we're take stub is whole BiCSX. when to it's we BiCSX You're not to right. going the node,

that we're the about. portfolio, we you're the products to choosing BiCSX. clearly, of things kind So have we're talking and require QLC the and taking which big And products a take

in our being about good plan need the to feel we we nodal supply Fab markets. able these in what So

Sreekrishnan Sankarnarayanan

like R&D per in the or disc your an said think about terabytes on us on a while map to X few drive get you Got XX I kind years that obviously even then, up the status just with the it. XX, it plus? curious your you Got the to ramp it. road past think we HAMR competitor a technology, them update I'm of of took to of like HAMR give And and a terabytes how Dave, in to side, technology. fall. the trying you ePMR [indiscernible], Can terabytes hard can XX get

David Goeckeler

work best HAMR extremely HAMR well. that been to HAMR, way We So have that scenes, today, the up all quite with and capacity takes where terabytes. because you terabyte the the And XX all economics doing working or we offer in and increase it XX the a we get to per for say issues terabytes portfolio get we've to in right? have unit, to the in get XX the where is complicated sentence. a X what some kind in understand do on the put on out increase and flip the all it you product economics the will market cancel We of essentially time. costs That's lot -- understand to we're the qualified. Clearly, can margin, one unit TCO over the a we to per can behind platter with

development time of at with very we've focused product. right the cost on The that is terabytes. product going right is XX And But the lot for the on right a time. got portfolio right our at HAMR

we're know in another well. doing, plans long of have in comfortable about we've and are, But and frankly, as a We frankly, we they're lot portfolio to this with don't quite throughout at that that's our need a extremely which quite We, exactly what confidence do we're have customers it our have HAMR what for talked because well, and process. public time. where selling our development. And

Operator

And our next Barclays. question from O' Tom Malley comes from

Thomas O'Malley

side to going on OpEx. I'm real one do quick the CFO on

$XXX you've well, the investments there any So that been $XXX we if next going out? revenue big the couple kind to are around see projects. of the You've color think investment over lower the Or should step you of that? stick seen should to reset that as step about the running quarters? that June base what about million OpEx increasing kind that obviously, a move and and just from down in for you're past to is million after but on year, that talking quarter, special up back How for some progressing? of Is

Wissam Jabre

Yes. Sure, Tom.

let don't see saying first that So by OpEx start way the increasing we revenue. think OpEx me is than we faster of

we're that OpEx So than we're increase is has almost and by focused comes some comp variable this it driven outlook financial discipline still to discipline. improved much quarter, The XX-XX the increase. expecting When very anticipated. cost faster on as

there's So a bit increase of there.

next is it's investments that R&D direct purposes, But of fiscal 'XX. numbers have -- of and about a project-specific reasonable sight too know of some we line that quarters, for type also for would couple QX of there's correlation mentioned, I revenue. I that use range the guided for we've you as sort the range. the we a to year say also, modeling can talk to early for same But now.

Thomas O'Malley

gross looking out much model margins. for look June us have remains, know And come in margins, when you cost 'XX, of Helpful. the to you're let at a And you HDD in of any couple need you if quarter? step-up you're significant pretty Are the all I'm that year, guidance I looking the your underutilization planning June with for how of can at expecting? what of like it a if to gross for seems at the kind

Wissam Jabre

see, -- recent less we we about most and for we had this bit less becoming significant. for numbers little So -- But a and talked are those. as the can QX, disclosed, you

really And talk still little the call. there's not this so to for bit, significant but June for about us quarter, on a it's very

Operator

Our from comes from next question Mizuho. Rakesh Jay

Vijay Rakesh

David and Wissam.

of the either some cost to if you Just there, you does competitive look gig NAND you on a out side. how mentioned, quick Dave, BiCSX some compare profitability, the per as -- of at Flash the the or in the die look size terms question when versus of at peers?

Wissam Jabre

X/X bits less looking at the product. expect to and BiCSX goes I offline. product it's question complicated and into it's die the produce Look, it's detail a that's years, many been in leadership we CapEx able We your It's the into a mean leads density, hole obviously favorable. think market. we memory we thing can in the the than extremely So it complicated to -- I it of tons kinds industry producing size, of We appreciate NAND last all that issue. market. have we work, Again, continue compares average, very think very do multifaceted back for go that question. a

very we product, of kind about bonding. feel its of very, this magic good the about Again, is the like of you one wafer when So build, performance.

You from can and NAND kind separately stack the the of build CMOS is CMOS pristine. then the

So are fast. really interfaces really, the

a got leads to of there's will that when of So that that And and all market level good really, architecture that we've conditions product, about support it. investment. feel ready lots really we good about go market-leading things to the

Operator

from Mehdi Our SIG. comes question from Hosseini next

Mehdi Hosseini

have I been the of just a Most I investors. asked. help good many longer-term think question, it and will have But David, questions Yes.

'XX, mix prices cost say, and your were then help Let's the I'm how higher-value and Flash execution on be to product you're down I'm would higher just your first But margins? pricing. we evolve higher not trying from to go you for us into Can sideways how and understand ask mix gauge they how could wondering manifest here? down on of the both on margins would and And XX% in focusing eSSD products. you cost just that

Wissam Jabre

-- start Then take answer, I'll first at a the Mehdi. me let Yes. with stab

So flush XX%. be target targeting cycle still changed. between to through look, margin model hasn't business the We're be to XX%, for gross our to XX%

as been through portfolio, side, ranges to cost we as this get on the about focus obviously, -- go today, downs. from the the achieve on way type cycle cost talking to still of ways is bit which what we well margins terms similar as still anticipate means, call. a that of in the And we these product We placement some on have to we margin. gross where so are we've And that

Mehdi Hosseini

reasonable. That's Okay.

on And focusing now move years? XX% this of Is something how the target the question. the HDD. is next Let second just or evolving couple like ask, there you always on see XX% to update shipment Is or I any exabyte to more? less me over

David Goeckeler

we're still in a XX%. of the we're to that around clearly We're XX% recovery That's back through-cycle number. here, maybe -- cyclical camp, -- not getting in to kind XX%

you we earlier, value AI store data more Those want early about are add turn models to inside talked the going see think more much I data. it's of kind little more how I going a We to of question the data on up, still to does train definitely that. to tell. your -- models. the is see to out question as think I And

the So I'm that not bias we how position line. yet much changes of that the higher. it is to slope in think exactly a call

can tailwind feel to dial we HDD got that's to we've focused go good our we going But that deployed demand. we gets it's several over the something we're the more and storage that forward So models and in close so adopted broadly deployed what next to here quarters, that AI on and stay expect -- as very stay as be impact on business we will that customers secular get these to that emerge.

Operator

comes question from Advisors. next Steven Fox Our Fox from

Steven Fox

quick ones me. for Two

cash chain your was large HDD need how to talked to again, option maybe versus EBITDA think you how wondering a all, do side, sort I flow or next at flows little First of look the on of you competitors give about I -- cash over wondering tracks that? us what that And going positive of or was bit since supply quarters? secondly, net the then support of if forward. help income on to turned the could sort having few

David Goeckeler

the to we've close them throughout we're our stayed -- say chain. as about entire and the suppliers planning stay I'll stay going supply something we business very forward. just Look, very downturn to close

can based we suppliers and and of are Irving always close very, in Tan, our support lot is there, who supply them. to operations, think he personally leads So Singapore, very a we stay our chain

us. stayed for we've we've our getting entire chain close that's this -- have things as downturn. are situation So supply a been throughout and of now better, supported good And very all

You want cash to talk flow? about the

Wissam Jabre

take Yes, let that. me

free to cash flow focused in And as positive the and QX. revenue So the to yes, completely and on flow generation. we're flow, Obviously, business on continues the profitability returned thanks. cash recover, we cash

here. that we to So should from improve expect

Operator

Capital. Ananda from Our next Loop comes question from Baruah

Ananda Baruah

Mehdi's off me. for David, one Just part really, of I think, the piggybacking question.

you on and demand financing, really impact And the to HDD coming all some opinion time question a growth both TAM your TBD rate of TAM TAM new the sure And is from the wanted Flash, business, spirit near-term TBD question. looks off make TBD whatever just just like? on get I current impact to of the it but that the of to So of that's normalized the also over there. we the on the really sides see and AI is and

David Goeckeler

it. think a that's say fair I way to

the focus believe, to both call to up I not we're besides, -- point, coming it it's business, as it's ready your going show into TAMs. what to it's to a tailwind the to we sides of does to it's on both TAM, but where think

training that maybe on clearly, to obviously, up see very seeing across actually are landscape. And business, I that So we're easier those cases products specific coming the mean, that's substantially. the whole in the half. seeing NAND there's kind model a little on second for you're technology use bit demand of

get we And on process that's data sit those going going to for to out as to plus HDD. is it is all feed to models that trained, going see going turn the they're XX% data be that stored HDDs. obviously, once of on HDD, that's And

bit rate a put setup, to it early it a very growth the very, good markets. number we to staying the but these a or on close still size. what TAM see in little to our So we're does of customers It's actually

Operator

question Gerra Tristan from from next our And comes Baird.

Tristan Gerra

have opposed a to U.S. business? is look follow-up hyperscalers manufacturing with SSDs is in for general how at on quick relation more as do A And it partnership kind how AI? this, purpose you critical to which of to

David Goeckeler

well, You the manufacturing mean manufactured of Japan. is in -- U.S. SSD, the or NAND which NAND itself our

see about as the -- don't feel our we So way. by that really we manufacturing footprint, good

largest is we cost this but underlying us the But our So impairs is which puts at market. all low the a market, the in view, big way a able haven't seen we all scale and the lowest serve set us gives about haven't capital supplier us entire call as product ability in. invest done anything in -- of great because bids, JV, we're in that up to footprint to great -- position we is is a perspective on road Kioxia, part and haven't -- a to for point tandem great be we that map, the with manufacturing that JV, talked the efficiency so and that the of from position of

with suppliers as We're they're very the theirs far hyperscalers. on big ours. partnership to customers of as close look, stay both of the hyperscalers, like, of Obviously, And we big sides business.

the use very very, we're they interfaces the ways, them enterprise to different are just built their are there's So different -- their there's staying in and not SSD every of enterprise data products built. one to slightly uses SSD. do Everybody close market, cases, centers want close what how and especially different architecture

to we -- make So we stay the build sure to we're to right what the we what them close for product markets want serve.

Operator

any for remarks. closing conclude David we'll session. to like I'd floor time, this turn at back question-and-answer And to over today's the

David Goeckeler

We appreciate Thanks the look questions, everyone. of Thanks, and again. right. to All talking to the quarter. all we everybody forward throughout

Operator

This thank call. concludes We conference joining. you for today's

now may lines. You disconnect your

Western Digital (WDC) 25 Apr 242024 Q3 Earnings call transcript