WDC - Western Digital Corporation

Operator: Good day, and welcome to the Western Digital First Quarter Fiscal 2026 Earnings Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Ambrish Srivastava, VP of Investor Relations. Thank you, and over to you. Ambrish Srivastava: Thank you, and good afternoon, everyone. Joining me today are Irving Tan, Western Digital's Chief Executive Officer; and Kris Sennesael, Western Digital's Chief Financial Officer. Before we begin, please note that today's discussion will contain forward-looking statements based on management's current assumptions and expectations which are subject to various risks and uncertainties. These forward-looking statements include expectations for our product portfolio, our business plans and performance, ongoing market trends and our future financial results. We assume no obligation to update these statements. Please refer to our most recent annual report on Form 10-K and our other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations. In our prepared remarks, our comments will be related to non-GAAP results on the continuing operations basis, unless stated otherwise. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the Investor Relations section of our website at investor.wdc.com. Lastly, I want to note that when we refer to we, us, our, or similar terms, we are referring only to Western Digital as a company and not speaking on behalf of the industry. With that, I will now turn the call over to Irving for introductory remarks. Irving? Tiang Yew Tan: Thanks, Ambrish. Good afternoon, everyone, and thank you for joining us today. Across industries, adoption of AI is expanding, fueling innovation, reshaping business models and ushering in a new wave of digital transformation marked by higher productivity and richer user experiences. As agentic AI begins to scale at several industries and multimodal LLM become the norm, we are seeing a steady acceleration of AI use cases and applications, driving robust ongoing demand for the data infrastructure that enables this growth. AI is not only a consumer of data, but a prolific creator of data as well, both synthetic and real world. It is reshaping how data is being generated, scaled, stored and monetized. Data is the fuel that powers AI and it is HDDs that provide the most reliable, scalable and cost-effective data storage solution, playing a vital role in storing the ever-increasing zettabytes of data created by the AI-driven economy. To cite an example of how AI is transforming various industries, one of the world's leading medical institutions is using an AI workflow that analyzes over 7 billion images derived from 14 million deidentified patient records. This process enables predictive analysis, improves the speed and accuracy of diagnostics to deliver enhanced patient outcomes. Such applications are generating massive volumes of new data that is being stored. At Western Digital, we are also leveraging AI internally to enhance productivity and accelerate innovation across our organization. For example, in engineering, AI is helping to modernize our firmware, enabling us to deliver new features quickly to our customers and in a more cost-effective manner. In our factories, we are seeing productivity gains of up to 10% in select AI use cases. AI tools are improving yield, detecting defect patterns through intelligent diagnostics and optimizing our test processes. In parallel, they are also being used to up-level our technician capabilities, enabling them to perform higher skilled tasks, accelerating issue diagnostics and troubleshooting. Across corporate functions, AI is streamlining workflows, making the organization more efficient every day. The rapid adoption of AI and data-driven workloads at hyperscalers is driving robust demand for our products and solutions. To fulfill the demand of more exabytes of storage, our customers are increasingly transitioning to higher capacity drives. Shipments of our latest ePMR products offering up to 26 terabytes CMR and 32-terabyte UltraSMR capacities continue to grow at an impressive pace, surpassing 2.2 million units in the September quarter. Our ability to reliably scale our ePMR technology and transition customers to higher capacity drives is one of several ways we support the growing demand for exabytes. We are also investing in head wafer and media technology and capacity to drive areal density higher. In addition, we're increasing our manufacturing throughput by leveraging automation, AI tools and enhancing our test capabilities. We recently inaugurated our system integration and test lab, 25,600 square foot state-of-the-art facility in Rochester, Minnesota, to enable rapid adoption of our next-generation high-capacity drives. This lab provides dedicated test capabilities that mirror our hyperscale customers' production environments, enabling collaborative integrated product development with our customers, accelerating qualification cycles. Thereby ultimately shortening time to market for our products and time to value for our customers. The AI-driven growth in data storage is accelerating demand for higher capacity drives, which comes with greater manufacturing complexity and longer production lead times. As a result, our customers are providing greater visibility into their long-term needs, which in turn strengthens our partnership and helps us to support their future growth requirements. Our top 7 customers have now provided purchase orders extending throughout the first half of calendar year 2026. And 5 of them have provided purchase orders covering all of calendar year 2026. I'm also pleased to share that 1 of our largest hyperscale customers has signed an agreement covering all of calendar year 2027. These commitments underscore both essential role of our products in the AI data economy and our customers' strong confidence in our product road map, including the transition to HAMR technology. We are making rapid progress in our HAMR development and are on track to start HAMR qualification for 1 hyperscale customer in the first half of calendar year 2026. And to expand the qualification process to up to 3 hyperscale customers through calendar year 2026. The key focus of our qualification efforts is to ensure the highest level of reliability, quality and scalable performance so that once qualification is complete, our customers have strong confidence in our HAMR products and can rapidly deploy them at scale. This positions us well for the ramp-up of volume production in the first half of calendar year 2027. In parallel, we will begin qualification of our next-generation ePMR drives in the first quarter of calendar year 2026, building on our industry-leading ePMR technology, a trusted, scalable and proven solution that our customers are very familiar with and that has been used reliably in their data centers. Together, our ePMR and HAMR technologies will enable high-capacity drives that meet the growing demand for exabytes from cloud and AI workloads. Our platforms business is also sharing in the upward momentum, driven by overall growth of on-prem and cloud storage, including AI and social media applications. We will continue to invest in this business as more opportunities unfold and continue to scale up. Innovation lies at the heart of what we do. We continue to expand our proven ePMR road map even further while bringing new technologies, including HAMR to market. In parallel, our engineering teams are focused on improving data, throughput speed and bandwidth of our drives as well as power efficiency. Major progress is being made on all fronts. And we will keep all stakeholders, including customers and investors updated on any new developments. Let me now turn to our quarterly results and capital allocation updates. For the fiscal first quarter, Western Digital delivered revenue of $2.8 billion, non-GAAP gross margin of 43.9% and non-GAAP earnings per share of $1.78. Free cash flow for the quarter was $599 million. This quarter, yet again underscores our business' strong free cash flow generation. We remain confident in the long-term strength of the business and our balance sheet. As a result, this quarter, we significantly increased our share repurchases, and I'm pleased to announce that we will increase our dividend per share by 25% to $0.125 per share. Kris will discuss our capital allocation in more detail later. Looking ahead, we're excited about the opportunities AI continues to unlock for our business even as we navigate macroeconomic uncertainties. For the fiscal second quarter of 2026, we expect continued revenue growth driven by data center demand and improved profitability led by the adoption of higher capacity drives. Let me now turn the call over to Kris, who will discuss our fiscal first quarter results and the outlook for the second fiscal quarter in more detail. Kris Sennesael: Thank you, Irving, and good afternoon, everyone. As a strategically focused hard disk drive company, Western Digital plays a critical role in enabling the data-driven AI economy. The company is executing well, fulfilling customers' rapidly growing exabyte demand while delivering strong financial performance. During the first quarter of fiscal 2026, revenue was $2.8 billion, up 27% year-over-year, driven by strong demand for our nearline drives. Earnings per share was $1.78. Both revenue and EPS were above the high end of the guidance range. We delivered 204 exabytes to our customers, up 23% year-over-year. This includes 2.2 million drives of our latest generation ePMR with capacity points up to 26 terabytes CMR and 32 terabyte UltraSMR. Cloud represented 89% of total revenue at $2.5 billion, up 31% year-over-year, driven by strong demand for our higher capacity nearline product portfolio. Client represented 5% of total revenue at $146 million, up 5% year-over-year. Consumer represented 6% of revenue at $162 million, down 1% year-over-year. Gross margin for the fiscal first quarter was 43.9%. Gross margin improved 660 basis points year-over-year and 260 basis points sequentially. The improved gross margin performance reflects continuous mix shift towards higher capacity drives and tight cost control in our manufacturing sites and throughout the supply chain. Operating expenses were $381 million, slightly exceeding our guidance range driven by higher variable compensation on stronger-than-expected results. Operating income was $856 million, translating into an operating margin of 30.4%. Interest and other expenses were $44 million, and taking into account an effective tax rate of 17% and a diluted share count of 369 million shares, EPS was $1.78. Turning to the balance sheet. At the end of our fiscal first quarter, cash and cash equivalents were $2 billion, and total liquidity was $3.3 billion, including the undrawn revolver capacity. Debt outstanding was $4.7 billion, translating into a net debt position of $2.7 billion and a net leverage EBITDA ratio of just below 1 turn. Operating cash flow for the fiscal first quarter was $672 million, and capital expenditures were $73 million, resulting in strong free cash flow generation of $599 million for the quarter despite the fact that we made our final repatriation tax payment during the quarter of $331 million. During the quarter, we increased our share repurchases to approximately 6.4 million shares of common stock for a total of $553 million and made $39 million of dividend payments. Since the launch of our capital return program in the fourth quarter of fiscal 2025, we have returned a total of $785 million to our shareholders by way of share repurchases and dividend payments. Also, today we announced that our Board has approved a quarterly cash dividend of $0.125 per share of the company's common stock, payable on December 18, 2025, to shareholders of record as of December 4, 2025. This marks a 25% increase over the dividend announced in April and speaks to the long-term confidence we have in our business. I will now turn to the outlook for the second quarter of fiscal 2026. This outlook includes our current estimate of all anticipated or known tariff-related impacts on our business in this period. We anticipate revenue to be $2.9 billion, plus/minus $100 million. At midpoint, this reflects a growth of approximately 20% year-over-year. Gross margin is expected to be between 44% and 45%. We expect operating expenses to decrease on a sequential basis to a range of $365 million to $375 million. Interest and other expenses are anticipated to be approximately $50 million. The tax rate is expected to be approximately 17%. As a result, we expect diluted earnings per share to be $1.88 plus/minus $0.15 based on a non-GAAP diluted share count of approximately 375 million shares. In closing, this was another strong quarter for Western Digital with results exceeding expectations. The guidance for next quarter reflects continued tailwinds in our business as we remain focused on strong free cash flow generation and demonstrating our commitment to creating long-term value for our shareholders. With that, I will now turn the call back to Irving. Tiang Yew Tan: Thanks, Kris. Our leading technology road map, combined with our scalable, reliable and strong product portfolio is highly recognized by our customers. This is demonstrated by the longer duration agreements we've signed with our major customers. Western Digital's consistent execution, combined with powerful AI-driven tailwinds, position us to deliver strong results and robust cash flow over the long term. As data creation continues to accelerate, our innovation and operational and fiscal discipline enables us to capture these opportunities efficiently and drive sustained shareholder value. With that, let's now begin the Q&A. Ambrish? Ambrish Srivastava: Thanks, Irving. Operator, you can now open the line to questions, please. To ensure that we hear from as many analysts as possible, please ask one question at a time. After we respond, we will give you an opportunity to ask one follow-up question. Operator? Operator: [Operator Instructions] We have the first question from the line of C.J. Muse from Cantor Fitzgerald. Christopher Muse: Storage demand is off the charts. And part of the great narrative for the HDD industry is an oligopoly acting very rational with supply. On the other hand, we're seeing SSD adoption rise for certain AI workloads given the tight overall storage supply. So my question, how do you plan to meet rising customer demand while keeping supply/demand in balance? Tiang Yew Tan: C.J., thank you for the question. I hope all is well. Our focus is really to -- on a couple of things. One, ensuring that we continue to quickly and reliably deliver increasing higher capacity drives. A good example is the current PMR product that we have that's -- where we shipped over 2.2 million units last quarter that equates to roughly about 70 exabytes of data in total. And that product is expected to ship well north of 3 million units this quarter. So it's a real demonstration of our ability to deliver exabytes to customers at scale. The second thing is that, as we've highlighted in the past, our unique innovation around UltraSMR. This quarter, our UltraSMR and CMR mix is roughly 50-50. As you recall, UltraSMR gives us a 20% capacity uplift over CMR and a 10% capacity uplift over standard SMR. Those capabilities, plus the fact that we'll be launching our next-generation ePMR drive very soon. It starts qualification in Q1 of calendar '26, and we anticipate it will go into ramp in the second half of calendar year '26, will give customers an ability to take advantage of higher capacity drives. Second, we've been working very closely with customers to mix them up in terms of capacity points as well. So if you go back a year, the average capacity for our top 7 hyperscale customers has increased 21% year-on-year. So that's a very strong testimony to how capacity points in our drives have scaled up. We also continue to invest into areal density technology improvements and capacity as well as we stated from the very onset of us spinning out as the stand-alone hard drive company. Those investments will continue to be able to deliver greater areal density improvements without the need for any additional unit capacity. We're also looking at increasing our manufacturing throughput by leveraging more automation, AI tools that we highlighted in the script and also enhancing our test capabilities. This increase in productivity of our existing footprint will enable us to deliver more exabytes to our customers as well. And last but not least, as we highlighted in the script as well, the investments that we've made into our [ test ] labs to accelerate qualification is a key part of our ability to bring higher capacity drives faster to customers and therefore, fulfill the need for exabytes as well. And maybe just let me end my comments by being very clear about one statement, we are not adding any unit capacity to our portfolio right now. Ambrish Srivastava: C.J., do you have a follow-up? Christopher Muse: Yes, Ambrish. I guess on gross margins, great, 660 bps uplift year-on-year. But obviously, we're always looking forward. So how should we think about incremental gross margins from here? Is there a framework that we should use? Kris Sennesael: Yes, C.J. So I'm really pleased with the gross margin in Q1, delivering 43.9% gross margin, which, as you pointed out, was up 660 basis points year-over-year and 260 basis points on a sequential basis. Even when you look at the incremental gross margin in the quarter on a sequential basis was approximately 75%. As you've seen in the prepared remarks, we've also guided for Q2 fiscal '26 with further gross margin improvement in the range of 44% to 45%. So that gives you to 44.5% at the midpoint, which gives you on or about 65% of incremental gross margin on a sequential basis. Looking forward, obviously, as a company, we're going to continue to focus on further gross margin improvements. And I'm comfortable to have incremental gross margins on a sequential basis of approximately 50%, and that will drive some further gross margin improvement. Operator: We have the next question from the line of Aaron Rakers from Wells Fargo. Aaron Rakers: I think in the prepared remarks, you alluded to even further extending out UltraSMR. It's good to hear kind of a reaffirmation of the HAMR road map. But I'm curious if you could unpack that a little bit more if there's further room above and beyond the 36 terabytes that you see for UltraSMR, is there a 12-platter stack? I know one of your smaller competitors recently made some announcements around that. I'm just curious of how far before we can get to HAMR if there's further potential upward expansion on average capacities? Tiang Yew Tan: Yes, Aaron. So as we've highlighted in the prepared remarks, we've pulled in the qualification process of our next-generation ePMR product to the first quarter of calendar year 2026. Initially, in our road map, it was in the first half of calendar year 2026. In the current road map, the capacity points are scheduled to be at 28 terabytes CMR and 36 terabytes UltraSMR, but I'll say we have very innovative and creative engineers. So they will obviously continue to push the capacity points, and we'll see where we get to by time we actually get to production ramp and qualification completeness. On HAMR, as you mentioned, we also pulled forward the qualification process by half year. As we've highlighted in our road map in the past, the plan was to start HAMR qualification in the second half of calendar year 2026. We've now pulled that in into the first half of calendar year 2026 with one customer and we look to expand that to up to 3 customers by the end of the calendar year. And that's really a testimony to the comments I've made last quarter, where I said I was very pleased with the progress that we've been making in terms of areal density improvements, in terms of our capability to build a highly scalable product. Our focus now is ensuring that we are able to deliver products with the right reliability and right yields that are similar in sort of capacity and capability to our ePMR portfolio, which is what our customers expect of us. Ambrish Srivastava: Do you have a follow-up? Aaron Rakers: Yes, I do. I guess thinking about kind of sticking with C.J.'s comments, we're always kind of looking forward. Historically, there's been some attributes of seasonality to think about into the March quarter, but it sounds to me like you're pretty much stocked out from a capacity perspective through calendar '26. So curious if you have any thoughts on how we should maybe think about seasonality or whether or not that even applies for the March quarter at this point? Tiang Yew Tan: Yes. I mean, C.J. -- we guide 1 quarter at a time, but I would say the business has structurally changed. Close to 90% -- 89% of our business is data center right now. So there isn't really any seasonality associated to it. It's really driven by the deployment schedule of our large hyperscale customers. If there's any seasonality, it really applies to the 10% to 15% of our business that we have in the channel and our client and consumer portfolio. But I think your comment is a fair one. There really isn't, by and large, any material seasonality to our business going forward. Operator: We have the next question from the line of Erik Woodring from Morgan Stanley. Erik Woodring: Irving, your February Analyst Day feels like it was in a completely different time in the market, even though it was only 8 months ago. At the time, you talked about kind of 16% to 23% exabyte growth and something like 7% annual price per terabyte deflation. It's probably safe to say that the market has inflected since then. And just -- so I'd love to just get your updated thoughts on how we should be, maybe thinking about the growth of these 2 metrics over the next few years. Just any update you could share? Tiang Yew Tan: Yes. Thanks for the question, Erik. I think we gave a base case of 15 exabyte -- 15% CAGR exabyte growth with an AI uplift case of 23%. We're definitely seeing exabyte growth trend more towards that 23% growth rate, especially as we get into these longer-term agreements. In fact, firm POs, we have pretty much throughout all of calendar year '26, and we have agreements now for '27 and discussions with customers for durations even longer than that. We are clearly seeing demand trending more towards that 23% range. And then on the cost side, I think, the sort of mid- to high single-digit cost down is probably still a safe assumption. Ambrish Srivastava: Do you have a follow-up, Erik? Erik Woodring: Super. I do. Irving, I'd just also love to get your perspective on how short do you think demand is relative -- or excuse me, supply is relative to demand today? And just based on kind of your new product introduction time line, when do you think that supply can maybe more materially expand such that your EV growth really reflects more so demand than supply? Tiang Yew Tan: Yes. Thanks for the question, Erik. Look, I think calendar year 2026, the supply-demand balance is going to be -- continue to be very supply constrained with the ramp-up of the new capabilities. Both on the ePMR portoflio and HAMR, we expect to see more exabytes probably coming on stream in the second half of calendar year '27. Operator: We have the next question from the line of Amit D. from Evercore. Amit Daryanani: I guess maybe to start with, Irving, it sounds like you're pulling in, at least the start of the HAMR qualification a bit earlier than expected. Can you just talk about how long does it normally take for a product to go from qualification to deployment and do you see HAMR being roughly in line to that? Or could it be done quicker? Tiang Yew Tan: Yes. Thanks for the question, Amit. Yes, we are pulling in our HAMR qualification by half year, as I mentioned, from the second half of 2016 into the first half of '26. If we use our ePMR portfolio as a proxy, we typically are able to go from start of qualification to completion and ramp in roughly 2 to 3 quarters. That's the sort of target that we're working to. And that's why we talked about the ramp in the first half of calendar year '27 for our HAMR products. But again, I reiterate our focus is really on ensuring that we not only qualify a product and can ramp it, but we're delivering a reliable product to our customers as well. The last thing we want to do is qualify product, ramp it up, and then we have production level challenges with our customers. So that's what our focus is on. But in the meantime, we serve our next generation of ePMR that we are starting qualification in calendar Q1 of '26. That we anticipate to qualify in 2 quarters and ramp very quickly thereafter as per the current generation of ePMR that we've delivered as well. Ambrish Srivastava: Do you have a follow-up, Amit. Amit Daryanani: I do .You folks talked about leveraging AI internally. Can you just talk about what sort of productivity savings you think Western Digital can realize as you deploy AI internally? And does that sort of imply that as revenues keep growing, even as you keep OpEx flat in the $370 million, $375 million range. I'd love to just understand what does AI implementation internally mean? What does that mean from a productivity or savings basis for the company? Tiang Yew Tan: Yes. Thanks for the question. We have a series of AI initiatives that spread across the enterprise, as we've highlighted in the prepared remarks as well. We are clearly seeing a benefit in our manufacturing operations with -- for AI use cases where we're seeing 10% productivity gain. It's really resulting in faster -- better yields and faster throughput of our products. We've also started to use AI in helping us rewrite some of our firmware. We are seeing gains in the space of about 20% productivity gains there. So -- but it's still early days. I think there's quite a -- still fair amount of experimentation and exploration, but we see tremendous opportunity in the sort of early use cases that we've been able to apply AI into the enterprise has yielded very positive results. Operator: We have the next question from the line of Wamsi Mohan from Bank of America. Joseph Leeman: This is Joseph Leeman on for Wamsi. How should we be thinking about the mix of a $2.2 million ePMR drive you shipped in the quarter? I'm not sure if I heard correctly, I think you said it was about 70 exabytes. So that's about 31 terabytes per drive. Does the mix change from quarter-to-quarter? Or is that just going to trend higher, especially once the next qualification comes through? Tiang Yew Tan: Yes. So your numbers are right. So it was 2.2 million units sold and delivered, roughly 70 exabytes. This quarter, we are planning to ship over 3 million units. We don't anticipate the mix to really change that much. So it's pretty much, pretty consistent based on the customer profile that we have. Ambrish Srivastava: Did you have a follow-up? Joseph Leeman: No follow-up. Operator: We have the next question from the line of Karl Ackerman from BNP Paribas. Karl Ackerman: I was hoping you could discuss the breadth and stickiness of the announced price increase you disseminated in September. In particular, since much of your volume is on long-term agreements, are ASP improvements only to volume that is not on LTAs? So could you talk about that, that would be helpful. Tiang Yew Tan: Yes. The letter that we sent out, Karl was predominantly to our channel customers. So it really affects predominantly our client and consumer portfolio and probably the lower end of our nearline capacity drives. And that was -- that's really roughly only about 10% to 15% of our business. For all our hyperscale customers that are on some POs, LTAs, those are discrete commercial arrangements that we have with them that were not affected by that letter. Ambrish Srivastava: A follow-up for you, Karl. Karl Ackerman: Excuse me, yes, if I may. I was -- it seems you have several months remaining to divest the remaining stake of SanDisk without incurring a tax penalty. Having said that, that investment in SanDisk is proving quite prescient. So could you perhaps update your thoughts on whether you intend to divest remaining stake and/or if you do -- and if you do, what your cash usage plans would be, whether to pay down debt, invest in head and media, buybacks, et cetera. Kris Sennesael: Yes. So during Q1 of fiscal '26, we did not monetize the remaining stake in SanDisk. And so we still have 7.5 million shares. It is our intention to monetize that stake prior to the expiration of the 1-year anniversary of the separation, which is February 21. Last time when we did the monetization, we did a debt for equity exchange and we haven't made up our mind how we are going to do it, but it could potentially be a similar transaction like we did the first time. Operator: We have the next question from the line of Tom O'Malley from Barclays. Thomas O'Malley: I wanted to go into the long-term agreements. Irving, during the pandemic, we've been conditioned with kind of the DRAM and NAND suppliers to think about long-term agreements to something that is really good while things are moving up and to the right and kind of get torn up when things correct. Could you talk about the hooks that are in these agreements? Are these take-or-pay? How are they structured so that you feel confident around your ability to get value for the length of agreements that you're signing? Tiang Yew Tan: Sure. As I highlighted for 5 of our hyperscale customers, we actually have firm POs. So these are not LTAs. These are firm POs that have been placed on us. And for 1 of our largest hyperscale customers, we have an agreement for all of calendar year '27 with quite significant amount of commercial teeth in them. So it's quite a different environment where I would say we are moving to a world where we have firm purchase orders. And even with longer-term agreements, there are appropriate commercial terms in there to protect ourselves in the case of any adjustments in their forecast. Ambrish Srivastava: Do you have a follow-up, Tom? Thomas O'Malley: Yes. I've been asking this question throughout earnings here. We heard from Lam about their impact to AI spend. I asked Seagate just on what they think on $100 billion of AI spend you would see from a benefit to their business. They kind of talked about a high single-digit percentage of CapEx traditionally has gone there. Do you guys have any different view or would you be more nuanced in the way you looked at that? Kris Sennesael: Yes, I would say it's a bit more nuanced. We do track it. There's not a direct correlation to it. Obviously, the big spend in AI goes to GPUs and HBMs and power. But we've seen the percentage of CapEx on HDDs go from probably low single digits to trending more towards the 4% to 5% range. Operator: We have the next question from the line of Harlan Sur from JPMorgan. Harlan Sur: Congratulations on the strong execution. This year, it looks like nearline exabyte growth is trending more towards that sort of 35% range for the full year. You drove 36% year-over-year growth in June, 30% growth during the September quarter. You've got an order book that extends out over the next, call it, 12 months, which is reflective, like you said, of your customers' exabyte demand profiles. Does the forward exabyte demand profile really suggest the normalization back to a 23% demand CAGR as you talked about, Irving, or is that more of a supply constraint-driven profile and demand is really trending above that range. My point is that given all this AI infrastructure investment in compute, networking, memory and storage, a 23% bit demand CAGR may not be too conservative, but wanted to get your views. Tiang Yew Tan: Yes, it's a good question. I would say it's still an evolving environment where the CAGRs continue to increase. As I mentioned, if you go back just less than 12 months ago, we thought mid-teens was the right number. We're now seeing trending to the 23% range. With potential as we fast forward to the '27, '28 time frame to increase even more, but that's something we're working through customers to ensure that we continue to drive areal density improvements to be able to support the CAGR growth that they're expecting going forward. So it's something we're working very closely with them. I think the big difference is that in the environment that we're facing, we're getting much deeper insight into our customers' forward-looking exabyte requirements, a much closer partnership in terms of how they want to more rapidly adopt a higher capacity drives to be able to support their data storage requirements going forward. Ambrish Srivastava: You have a follow-up, Harlan? Harlan Sur: Yes, just a quick follow-up. So on the UltraSMR mix shift, good to see the team at a 50-50 mix. I don't think you guys answered this question, but given the order book, POs, LTAs, what is the mix trend on UltraSMR into 2026? And is this mix shift towards UltraSMR a rather important part of the driver of the stronger incremental gross margin flow through? Tiang Yew Tan: Yes. We said we will see the mix of UltraSMR continue to increase over time, both as existing customers who have qualified UltraSMR, increased their UltraSMR footprint and we have another 2 customers that are going through UltraSMR qualification, as we speak right now. So we anticipate the take-up of UltraSMR to be an increasing part of our portfolio and continue to grow going forward. Kris Sennesael: Yes. And Harlan, just in general, the transition to higher capacity drives typically translate into a better gross margin profile. Ambrish Srivastava: And if I may add, Harlan, if I may add, this is Ambrish. Remember, UltraSMR is also translatable to our HAMR. So that's something to keep in mind as well. Operator: We have the next question from the line of Asiya Merchant from Citigroup. Asiya Merchant: Great results here. If I can, just trying to unpack pretty strong beat relative to the guide. Given that you guys are in these long-term agreements and there is capacity constraints, just if you could help me unpack what drove the upside? Was it some pricing that came through? Was there some extra drive that you were able to push through. I don't know if it was a mix shift. If you could just help me unpack that, that would be great. Kris Sennesael: Yes. So as it relates to the upside in revenue was mostly driven by great execution by our manufacturing operations organization, pushing really hard on the supply side and improving yields, improving throughput and that created some upside on the supply side for us from a revenue point of view. Also on the gross margin side, we had some upside there, mostly driven by a strong price environment where we have seen some modest low single-digits ASP per terabyte increases on a sequential and a year-over-year basis. In addition to that, as I just indicated, the shift to higher capacity drives is definitely benefiting the gross margin profile. And our customers, they want more exabytes, and they know they can get more exabytes as they move faster to higher capacity drives. And so that was definitely beneficial. And in addition to that, again, the operations team is executing strong on driving down cost internally as well throughout the supply chain and a combination of all of that provided some upside in the Q1 financial results. Ambrish Srivastava: Do you have a follow-up, Asiya? Asiya Merchant: Sure. And how should I think about then, given you guys have been running very well on your productivity initiatives, how should we think about that cost decline, especially given you have some calls that are ramping up faster than expected. How should we think about the cost declines here in the outer quarters. Kris Sennesael: Yes. Again, the team continues to execute really well. Again, a combination of moving to higher capacity drives, which results in a lower cost per terabyte, but then also really working on productivity, yield improvements, test time reductions and driving operational efficiencies throughout the whole supply chain. And so a combination of all of that is delivering the mid- to high single digits cost per terabyte reductions that we've indicated at the Analyst Day and that you have seen being executed in the last couple of quarters. Operator: We have the next question from the line of Steven Fox from Fox Advisors. Steven Fox: If I adjust your free cash flow for the tax payment, it's $930 million against the non-GAAP net income of $655 million. I'm assuming there's something unusually positive in that number. And I'm trying just to right size how we should think about free cash flows relative to net income going forward because that's just a tremendous performance in 1 quarter. Kris Sennesael: Yes. So very pleased with the very strong free cash flow of $599 million. This is the second quarter in a row where the free cash flow margin is well above 20%. So great execution there. As it relates to Q1 of fiscal '26, we had a major reduction in our working capital. So in part driven by a reduction in our DSOs as the billings linearity during the quarter is very strong. Days of inventory was slightly up, but also the days payable went up. And so great execution there by the team. Unfortunately, as you know, once you've obtained some major reductions in working capital, it's hard to repeat that each and every quarter. It's our goal to maintain it at this level, but you will not see the incremental benefit that we saw in Q1 of fiscal '26. Anyhow, I think going forward, I feel comfortable with a free cash flow margin in the plus 20% range. Ambrish Srivastava: Do you have a follow-up, Steve? Steven Fox: Yes. Just real quick on the prior question. So it's maybe a chicken and egg question, but you said the customers are recognizing the need to mix up to get the exabytes they need. So is it the fact that they're pushing harder on you that you're then pushing harder on your development team to get these higher mix products out? Is that sort of the dynamic that's going on? Tiang Yew Tan: I think it's a win-win scenario, Steve, that sort of both organizations are working very closely. Customers obviously want higher capacity drives to fulfill the exabyte demand. It's also beneficial for them from a TCO standpoint. Don't forget when you have high capacity drives, rack densities are much higher, and therefore, TCO is much better as well. And from our standpoint, it's a great way for us to better support the demand that our customers have on us and for us to be able to support the strong growth trajectory that we are seeing both in cloud and in AI going forward. Ambrish Srivastava: Thank you, Steve. Operator, can we have the last question, please? Operator: We have the last question from the line of Krish Sankar from TD Cowen. Hadi Orabi: Strong quarter. This is Eddy for Krish. I do have a long-term question regarding the shortages. It seems like you and your main peer are very disciplined about adding capacity, which, of course, makes sense from a financial standpoint. But I do wonder how you balance that discipline on one hand with the risk of pushing customers more towards SSDs because they have no other choice. Which in turn results in more NAND capacity in the industry, which lowers NAND prices longer term. So it's a tricky situation, and it would be great to know how your company is planning on navigating this? Tiang Yew Tan: Yes. Thanks for the question. It's something we look closely at as well. I think the good news is that AI, as we highlighted, is a prolific generator of data, and therefore, more data is getting stored as the value of data increases. So all boats are rising. The demand for NAND bits, hard drive bits and even tape bits are increasing as a result. And there are specific use case that makes sense for them to use SSDs. But fundamentally, if you look at data center architectures and the tiering between SSDs, HDDs and tape that is unlikely to change over time, right? And we anticipate that HDDs will continue to remain roughly about 80% of the bits that start within the data center. And it's also important to recognize there are some -- there are inherent TCO benefits of HDDs as there are reliability challenges in terms of the number of rights that QLC can handle as well. So given all that dynamics, we don't anticipate seeing any major change there. There may be quarter-to-quarter variations because of supply-demand dynamics. But sort of the 80% of exabytes being stored on HDD, we anticipate will be the case going forward as well. Ambrish Srivastava: Do you have a follow-up, Eddy? Hadi Orabi: Yes, sure. Thank you, Irving. Your main peer did purchase Intevac earlier this year, which sells equipment that are needed for HAMR. And you guys sounded pretty positive about the qualification. I do wonder if you have fully navigated the risk from the Intevac purchase or it's something that's still in progress today. Tiang Yew Tan: Yes. We have fully mitigated the risks related to Intevac. As we highlighted when the acquisition first happened by our peer, all our HAMR development is actually being done on a separate system called ANELVA that's provided to us by Canon. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to the management for any closing remarks. Tiang Yew Tan: Thank you all again for joining us today and for your interest in Western Digital. At Western Digital, we continue to make good progress executing on our strategy. We look forward to sharing more with you on some of the exciting new innovations that we've been working on and the steps that we are taking to create long-term shareholder value. Let me close by giving a shout out to all our employees, our Western Digital drivers and our ecosystem partners who show up every day, making a difference for our customers, shareholders and each other. Thank you all very much, and have a wonderful day ahead. Operator: Thank you. The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: Good afternoon, and thank you for standing by. Welcome to Western Digital's Fourth Quarter Fiscal 2025 Conference Call. [Operator Instructions] As a reminder, this call is being recorded. Now, I will turn the call over to Mr. Ambrish Srivastava, Vice President, Investor Relations. You may begin. Ambrish Srivastava: Thank you, and good afternoon, everyone. Joining me today are Irving Tan, Western Digital's Chief Executive Officer; and Kris Sennesael, Western Digital's Chief Financial Officer. Before we begin, please note that today's discussion will contain forward-looking statements based on management's current assumptions and expectations, which are subject to various risks and uncertainties. These forward-looking statements include expectations for our product portfolio, our business plans and performance, ongoing market trends and our future financial results. We assume no obligation to update these statements. Please refer to our most recent annual report on Form 10-K and our other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations. In our prepared remarks, our comments will be related to non-GAAP results on a continuing operations basis, unless stated otherwise. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the Investor Relations section of our website at investor.wdc.com. Lastly, I want to note that when we refer to we, us, our, or similar terms, we are referring only to Western Digital as a company and not speaking on behalf of the industry. With that, I will now turn the call over to Irving for introductory remarks. Irving? Tiang Yew Tan: Thanks, Ambrish. Good afternoon, everyone, and thank you for joining us today. Let me first begin by welcoming and introducing Kris Sennesael, our new Chief Financial Officer. Kris brings extensive experience and a strong track record as a public company CFO. His leadership will be instrumental as we sharpen our focus on operational execution, accelerate our capital return program and continue to create value for our shareholders. We are excited to have Kris on board. Let me now walk you through our business update. AI is ushering in the new era of data growth by fundamentally transforming how data is created, collected, processed and stored and more importantly, value. Looking beyond large language models, which have been a key driver of storage needs, the emergence of Agentic AI at scale in multiple industries is creating an increasing need to store unstructured data. Agents customized with the main specific knowledge will create a significant amount of distinct use cases, and generate data at an unprecedented pace. To set a few examples; applications leveraging Agentic AI range from business tools like enterprise chatbots and court development assistance, all the way to agents assisting in engineering, design and development. Within our own engineering organization, we are already realizing tangible benefits of Agentic AI to help accelerate our product development cycles. These trends are still in their early stages but are expanding rapidly across industries globally. As data becomes more valuable and central to AI-driven innovation, the need to store and retain it at scale grows in parallel. And no storage technology matches the cost efficiency and reliability of HDDs, which remain the foundation of the world's data infrastructure, delivering unmatched value for mass storage in an AI-driven future. Against this backdrop, demand for our products continues to strengthen. We remain disciplined in managing capacity and are addressing long-term market demand through high-quality, reliable and larger capacity products. Shipments of our latest generation ePMR drives with capacity up to 26 terabytes CMR and 32 terabyte UltraSMR more than doubled quarter-over-quarter, exceeding 1.7 million units in the June quarter. This marks one of the shortest qualification and ramp cycles in our history. The reliability, scalability and TCO value of our ePMR and UltraSMR technologies that delivers the fastest time to value for our customers is core to our continued success in the data center market. We aim to extend ePMR's strong track record of high yield, reliability and a scalable performance into our next generation of HAMR drives. The feedback from tests at 2 of our hyperscale customers continues to be encouraging. I am pleased to note that we are ahead of our internal milestones with steady progress in aero density improvement and continue to focus on increasing long-term reliability and manufacturing yield of our HAMR products. Next, we will transition from testing to qualification stage with these customers. Staying well on track for a ramp in the first half of calendar year 2027. Meanwhile, our next generation of ePMR drives will complete qualification in the first half of calendar year 2026. These drives will continue to deliver strong TCO along with the hallmark reliability and predictability, paving the way for a smooth and economically sound transition to HAMR. In addition, the rapid rise of AI is also accelerating our platforms business. Our platform's technology enables us to deliver dense systems that extract the full performance and capacity of our drive. This business is building traction with infrastructure providers and is well positioned to support the growing number of native AI companies that don't have their own storage infrastructure teams. Let me now turn to our quarterly results and capital allocation updates. For the fiscal fourth quarter, Western Digital delivered revenue of $2.6 billion, non-GAAP gross margin of 41.3% and non-GAAP earnings per share of $1.66. Free cash flow for the quarter was $675 million. During the June quarter, we lowered our debt by $2.6 billion via a combination of using cash on hand and a debt-for- equity exchange of a portion of our state incentives. As a result, we have strengthened our balance sheet and achieved a net leverage target range of 1 to 1.5x. We communicated at our Investor Day in February in less than 2 quarters. Keeping with our commitment to returning cash to shareholders, we initiated a quarterly cash dividend program and the Board authorized a $2 billion share repurchase program. In our fiscal fourth quarter, we purchased nearly $150 million worth of shares. Looking ahead, while the broader environment continues to be marked with uncertainty related to tariffs, we are seeing strong demand for our products driven by AI and related tailwinds in our business. Our visibility into our customers' plans continue to improve and we currently have firm POs or LTAs with all of our top 5 hyperscale customers covering our entire fiscal year 2026. This close collaboration with our customers enables us to plan more effectively and address their growing needs for storage. For the fiscal first quarter of 2026, we expect continued revenue growth driven by data center demand and improved profitability led by adoption of our high-capacity drives. Let me now turn the call over to Kris, who will discuss our fiscal fourth quarter results and Q1 fiscal year '26 guidance in more detail. Kris Sennesael: Thank you, Irving, and good afternoon, everyone. I'm honored to be joining you today for my first earnings call as the Chief Financial Officer of Western Digital. Over the past several weeks, I had the opportunity to perform a deep dive into our business and met with many of our valued employees across the company. I also had several meaningful engagements with customers, suppliers and partners and the investor community. It's been a tremendously energizing experience, providing great insight into our strategic, financial and operational priorities. It's clear to me that Western Digital is now operating as a strategically focused hard disk drive company. The company is leveraging its technology leadership position, operational excellence and deep customer engagements to provide innovative solutions to meet the evolving needs of its customers. This provides a strong foundation for growth, profitability and cash flow generation that creates long- term shareholder value. During the fourth quarter of fiscal 2025, Western Digital delivered very strong financial results. Revenue was $2.6 billion, up 30% year-over-year, and earnings per share was $1.66. Revenue and EPS were above the high end of the guidance range. We delivered 190 exabytes to our customers, up 32% year-over-year driven by strong nearline shipments and the ramp of our 26 terabytes CMR and 32- terabyte UltraSMR drives. Cloud represented 90% of total revenue at $2.3 billion, up 36% year-over-year, driven by strong demand for our higher capacity in nearline product portfolio. Client represented 5% of total revenue at $140 million, up 2% year-over-year. And consumer also represented 5% of revenue at $136 million, down 12% year-over-year. Gross margin for the fiscal fourth quarter was 41.3%. Gross margin improved 610 basis points year-over-year on a continuing operating basis, and was above our guidance range. The improved gross margin performance reflects continued mix shift towards higher capacity drives and tight cost control in our manufacturing sites and throughout the supply chain. Operating expenses were $345 million, slightly above guidance due to higher variable compensation on stronger-than-expected results. Operating income was $732 million, translating into an operating margin of 28.1%. Interest and other expenses were $52 million, a substantial reduction from the prior quarter due to the repayment of $2.6 billion of debt during the quarter. Taking into account an effective tax rate of 9.3% and a diluted share count of 362 million shares, EPS was $1.66, up 22% sequentially. Turning to the balance sheet. At the end of our fiscal fourth quarter, cash and cash equivalents were $2.1 billion, and the total liquidity was $3.4 billion, including the undrawn revolver capacity. During the quarter, we exchanged approximately 21 million shares of SanDisk for debt. As a result, our Term Loan A reduced by $800 million, and we still own 7.5 million shares of SanDisk. In addition, we redeemed $1.8 billion of the senior unsecured notes, resulting in gross debt outstanding of $4.7 billion at the end of fiscal 2025. We strengthened our balance sheet and achieved our target net leverage ratio of 1 to 1.5x as outlined at our Investor Day. Operating cash flow for the fiscal fourth quarter was $746 million, and capital expenditures were $71 million, resulting in strong free cash flow generation of $675 million for the quarter. Backed by strong cash flow generation, a robust balance sheet and confidence in the fundamentals of our business, the Board authorized up to $2 billion of share repurchases. During the quarter, we repurchased approximately 2.8 million shares for a total of $149 million. In addition, as announced during the last earnings call, the Board initiated a cash dividend of $0.10 per share resulting in $36 million of dividend payments during the quarter. The Board also declared a quarterly cash dividend of $0.10 per share of the company's common stock payable on September 18, 2025, to shareholders of record as of September 4, 2025. I will now turn to the outlook for the first quarter of fiscal 2026. This guidance includes our current estimate of all anticipated or known tariff-related impacts on our business in this period. We anticipate revenue to be $2.7 billion, plus/minus $100 million. At the midpoint, this reflects a growth of approximately 22% year-over-year. Gross margin is expected to be between 41% and 42%. We expect operating expenses to increase on a sequential basis to a range of $370 million to $380 million, including an additional week of expenses as Q1 will be a 14-week quarter. Interest and other expenses are anticipated to be approximately $50 million. The tax rate is expected to be between 16% and 19%. As a result, we expect EPS to be $1.54 plus/minus $0.15 based on a non-GAAP diluted share count of approximately 363 million shares. In closing, Western Digital is well positioned to succeed in the AI-driven data economy. We remain committed to meeting our customers' growing storage needs while using our cash flow generation and strong balance sheet to deliver long-term value for our shareholders. With that, I will now turn the call back to Irving. Tiang Yew Tan: Thank you, Kris. Western Digital's strong results and positive outlook this quarter reflects the ongoing successful execution of our strategy and the continued trust our customers place in the performance reliability and TCO advantages of our products. This combination of customer trust, strategic focus and disciplined execution is driving our strong financial results. With that, let's now begin with the Q&A. Over to you, Ambrish. Ambrish Srivastava: Thanks, Irving. Operator, you can now open the line to questions, please. To ensure that we hear from as many analysts as possible, please ask 1 question at a time. After we respond, we will give you an opportunity to ask 1 follow-up question. Operator? Operator: [Operator Instructions] The first question comes from Erik Woodring with Morgan Stanley. Erik William Richard Woodring: And congrats on the results tonight. Kris, I wanted to kind of better understand the gross margin guidance for the September quarter. You're calling for, I believe, 20 basis points of sequential gross margin expansion at the midpoint. Can you maybe just help us unpack maybe why we're seeing that sequential gross margin expansion slow into the September quarter, if there are any one-timers or headwinds that are unusual in the quarter to call out? And I'll just ask the follow-up because it's related, which is beyond September, I realize you have a 38% gross margin in your 3-year financial model. As we progress through this up cycle though, how should we be thinking about the incremental margins in this business and maybe help us stream the dream of what's possible during this up cycle? Kris Sennesael: Yes. Thanks, Erik, for the question. And so first of all, I'm very pleased with the progress that we are making with our gross margin. As you probably recall, at the February Investor Day, we had -- we announced a business model with a 38% gross margin. And so last quarter, even before I joined the company, I was very pleased to see that the company, for the first time had gross margins with a 4 handle in the 40% range in last quarter in Q4 of fiscal '25. I'm very pleased with the fact that we delivered 41.3% gross margin. So really good progress for many quarters in a row. As you know, in gross margins, there's multiple elements that go into it. There is pricing, the risk mix, the risk cost. And in each of those fronts, I think the company is executing really well. Pricing is very stable environment. The mix is shifting in the right direction to higher capacity drives that is accretive to gross margins and the operational team is executing really well, driving down cost reductions in the factories as well throughout the supply chain. And so I do believe there is further gross margin progression. We guided now Q1 of fiscal '26 to 41% to 42%. I'm confident that the team will execute well and continue to focus on further gross margin improvements over time. Operator: [Operator Instructions] The next question comes from Aaron Rakers with Wells Fargo. Aaron Christopher Rakers: I do have 2 and I'll wait to ask a follow-up. I guess the first question, Kris, congrats on the results as well. But you've taken the debt down, you're well within your targeted range of 1 to 1.5 on a leverage ratio basis, strong free cash flow generation, you've got $2.1 billion of cash on the balance sheet. I'm curious as you start to think about share repurchase activity going forward, how should we as investors think about that? Or how do you think about excess cash generation or the right level of cash on the balance sheet that you'll operate the business at or rather the capacity for even stepping further on share repurchase going forward? Kris Sennesael: Yes, Aaron, that's a great question. And here again, I'm really pleased with what I've seen in the company as well in terms of capital, capital structure and capital allocation. And just to summarize it as well, there is very strong free cash flow. Just last quarter, the first quarter as the stand-alone hardest drive company, we generated $675 million of free cash flow which was a 26% free cash flow margin. Now not each and every quarter will be as strong as last quarter, but the business model is really a strong free cash flow business model. In addition to that, the company has done a great job at strengthening the balance sheet at the time of the separation as well as last quarter where we retired $2.6 billion of debt now getting to a net debt of $2.6 billion, which is on or about onetime LTM EBITDA. So really good job there. And so there's no hesitation from the Board, to the management team to continue to return cash back to the shareholders through a combination of our dividend program and the share repurchase program. The dividend program, we started with $0.10 per quarter. I think there is room to grow that dividend over time. We're going to be very thoughtful about that, but there was also no hesitation to switch on the buyback. The day it got approved. You saw we did $150 million. I think over time, as the cash flow generation continues to grow, we can do more, and there will be no hesitation to execute the share repurchase program. Ambrish Srivastava: Do you have a follow-up, Erik? Aaron, sorry. Aaron Christopher Rakers: Yes, I do, Ambrish. One of the metrics that you guys have historically given and helps kind of bridge the hard disk drive versus the non-hard disk drive business was the ASP. I didn't see that in tonight's release. So I'm curious if that's something that you could talk to? Or I guess, maybe put another way, how do we think about the non-HDD revenue in this most recent quarter? Tiang Yew Tan: Yes. Aaron, thanks for the question. This is Irving. Obviously, ASP per terabyte is obviously a function of mix by and large. But I would say for last quarter, ASP per terabyte was down low single digits. Operator: The next question comes from Wamsi Mohan with Bank of America. Wamsi Mohan: And congrats on your solid results as well. Could you maybe help us think a little bit longer term here? When you look at sort of the revenue contribution, 90% coming from cloud, does it really mean that the seasonality in the business is going to be materially different? And what I'm particularly wondering is, should we be thinking that you're just going to see sequential growth as demand is kind of strong, still all indications of cloud CapEx remained very strong that you could grow through even typically a seasonal weaker quarter like the March quarter? And I have a follow-up. Tiang Yew Tan: Yes. Thanks, Wamsi, for the question. Look, I think you sort of got it well in the sense that we are structurally quite a different business today than we were in the past. As you highlighted, 90% of our business is in the data center. A large portion of that business is driven by a few set of key hyperscale customers that we have. They have multiyear CapEx programs to really invest in their data storage assets, both to support the ongoing growth in the cloud and to also support the additional tailwind that they see coming from the AI revolution as well. So that, plus the fact that we also now have moved to a 52-week lead time program with them. And as we've highlighted, we have POs all LTAs for all 5 of our top customers spending the entire fiscal year '26 and for 2 out of 5 of them, all the way to the middle of fiscal year '27, we don't think that the seasonality of the past applies anymore. It's really driven by the cloud CapEx spend of the big hyperscalers in terms of their new data center deployments, the refresh cycles as well. Having said that, we do recognize that we are in a cyclical business. At some point, those cycles, there will be periods of digestion, as we highlighted in our Q3 results as well, but we pretty much have a really good handle on how the business is slowing over a 12-, 18-month time frame. But if I summarize it, you got it pretty right. The traditional seasonality of the past doesn't really apply to this business a lot more. It's really driven by the programs that our hyperscale customers have in terms of new data centers coming online in their refresh cycles. Wamsi Mohan: Okay. That's super helpful, Irving. And as my follow-up, Kris, I just wanted to go back to the incremental margin question that Erik asked around, and you answered with the moving pieces being price, mix and cost. So if we think about the sequential improvement in this June quarter of 120 bps, what would you say was the biggest driver between those 3 elements. And as we look forward, where do you see the most opportunity? I would think that the pricing is what it's going to be. It's pretty stable. It's kind of not maybe a huge incremental driver. So should we think that mix is really the biggest kind of contributor on a go-forward basis as you mix up these UltraSMR drives? Or should I be thinking about it differently? Kris Sennesael: No. You have it right. Mix is the most important item that we, as a company, focus on. That's why we continue to invest in our technology and product road maps and really focusing on higher capacity drives. That is something that our customers are asking us for. That's something we are working and collaborating with our customers on, and it's a win-win situation. For us, higher capacity drives typically translates into higher gross margin. And the company is executing really well on that. Tiang Yew Tan: Maybe Wamsi, this is Irving. I'll just add on to what Kris said. So I echo exactly what I said it's really driven very much by mix. And you would have seen that our latest generation of ePMR drives a 26-terabyte CMR and 32-terabyte UltraSMR, the number of units that we shipped doubled in the second quarter, up from just over 800,000 units in last quarter to over 1.7 million units this quarter. That's a clear recognition of our customers seeing the TCO value that it delivers, the strong reliability that it delivers to -- and quality that they are comfortable and used to from our ePMR drives. And as I've highlighted in the past as well, these drives are not only at the leading edge of capacity points, where the ability of our operations teams deliver very high yields is also adding to the profitability of that business. And we look forward to introducing our next-generation ePMR drives in the not-too-distant future. So I think there will be continued room to continue to deliver value, innovation TCO benefit that we can benefit from and drive further margin expansion. Operator: Our next question comes from Karl Ackerman with BNP Paribas. Karl Ackerman: So one of the main ways you have driven higher margins is from the adoption of UltraSMR, and I was hoping if you could discuss the adoption curve and willingness of hyperscalers to grow their hard drive base exclusively on UltraSMR. I guess, is there a certain workload -- are there certain workloads where UltraSMR is disadvantaged that would prevent you from attaining perhaps 100% of your fleet on UltraSMR? Tiang Yew Tan: Karl, thanks for the question. Well, we have, in the past, had 2 key customers on UltraSMR. We've just completed the qualification of a third hyperscale customer out of our top 5 on UltraSMR and just starting to ramp UltraSMR in the second half of the calendar year. We now have a fourth customer in the process of qualifying UltraSMR as well. And again, to reiterate, it's very important to note that UltraSMR is a technology that will be extensible into HAMR as well. As we transition into our HAMR products in the not-too-distant future, we will be able to deliver that on the UltraSMR platforms as well to enable our customers to take advantage of the incremental capacity points within that. Specifically, your question around workloads. It really depends on the application. So even in the existing customer environments that do use UltraSMR today, there are some specific legacy workloads that they buy lower capacity drives, 18, 20 terabyte drives. But what we are seeing is that for any new workloads that they are bringing to the market, it's all on the highest capacity points that they can adopt, which is typically on UltraSMR. Ambrish Srivastava: Do you have a follow-up, Karl? Karl Ackerman: I do, if I may. So you and your peer have seen the strongest visibility in terms of order rates and really the longest time ever. That clearly speaks to the demand requests from hyperscale customers. Clearly, they would love to have you add capacity given the longer lead times and the sophistication of these customers, how do you balance the visibility with those customers as well as the demand request for those customers as you plan your capacity playing and they could plan their hyperscale build-outs for the next 2 years? Tiang Yew Tan: Yes. It's a great question. So on the demand signal, I think the first step was really to educate our customers on the long lead times as the products become much more sophisticated as we move to higher capacity drives. We have highlighted and they're aware that really the long lead times are driven by the hit wafers that we have to produce that take roughly 9 months to produce a head wafer and then a 3 months to convert them into headstack. So 1 year lead time on that component alone, and that's been instrumental in driving us to that 12-month LTE visibility. We are now also having conversations with them, as I've highlighted with 2 of them, we now have 18 months visibility. So that really is a key in terms of that partnership to get greater visibility to support their growth requirements. That's giving us a lot of insight into how we need to accelerate our aerial density improvements in our products. That also is a function of why you saw the very rapid take-up of our latest generation of ePMR drives. I think we will see something very similar in our next generation of ePMR drives out very soon as well. But again, the focus is on really delivering increased aerial density to our customers, through technologies like UltraSMR, OptiNAND. And if there's any investment that we do need to make into capacity, it's really on the head and media side of our business to support aerial density improvement. Operator: Our next question comes from Asiya Merchant with Citigroup. Asiya Merchant: I think in the last call, there was some discussion on tariffs and some potential for enterprise slowdown. Just curious if you have anything to suggest there any updates there? And how do we make sure -- how do we -- how are you making sure that some of this demand is not just related to tariff pull forward? Tiang Yew Tan: Yes. Thanks, Asiya, for the question. I guess there are 2 parts to the question. First, on the enterprise demand. We called it out as a risk with the potential concern that the impact of tariffs might have. We haven't seen that materialize. So obviously, the tariffs, some of the reciprocal tariffs got pushed out as well. So we haven't seen that yet. But again, as I highlighted, some of the potential softness in enterprise, which didn't materialize, we would pick up in the cloud anyway because enterprises will move from CapEx to consumption-based models. So we sort of netted off regardless, but we haven't seen any of that risk materialize. To your second question about tariffs, it's a very fluid and dynamic situation. But we don't see any double ordering based on the analysis that we've done. We look at in quarter linearity trends and they're very similar to what we've seen historically. We compare that against the 12-month lead times that our customers have given us either through firm POs or through LTAs and they're pretty much matching those same projections to the T. And last but not least, we're in a very, very tight supply environment. So our ability to deliver upside within a quarter is also very limited. For those reasons and the fact that we do monitor our customer inventory levels the best we can. We don't see any pull forwards as a result of tariffs as of now. Ambrish Srivastava: Thank you for your 2 questions, Asiya. We go to the next caller please. Operator: The next question comes from Tom O'Malley with Barclays. Thomas James O'Malley: I just wanted to make sure I heard this correctly. You guys said ASPs in the June quarter were down low single digits. Is that correct? Tiang Yew Tan: So Tom, so ASPs per drive continue to go up as we move to higher capacity drives but ASP per terabyte was slightly down, but mostly driven by mix because the price environment is very stable. Thomas James O'Malley: Got it. That makes sense. And then, I guess, as a follow-up, if you look at the market today. I think that your competitor had talked about an exabyte target where after that certain target, I think they said around 160 exabytes, they would need to see growth really exclusively from technology transitions. I asked you last quarter, but in terms of where you guys stand, is there any mark that you would call out as that kind of waterfall? Is there a spot that you would say from this point forward, we only need technology transitions to move forward just in your ability to capacity kind of constrain the market? Anything you have there? Tiang Yew Tan: Yes. Tom, I would say that if you look at the last quarter, we delivered 190 exabytes, and that's really a result of the latest generation of ePMR drives that we've delivered. So our ability to not only produce higher capacity drives, vulnerability to produce them at scale with high yields, I think, has really differentiated us. And so we look -- we are laser-focused on continuing to ensure we have high yields of our components, our drives and continuing to deliver products to our customers at scale. So as a result of that, we don't have to make any incremental investments into capacity. Operator: Our next question comes from Amit Daryanani with Evercore. Amit Jawaharlaz Daryanani: I guess maybe to start with, I was hoping you folks would spend a bit of time on talking about how does the extra week flow through your P&L and on the revenue and OpEx side? And what's the right OpEx run rate to think about beyond that extra week? Tiang Yew Tan: Yes. On the revenue side, our customers, they think in quarterly buckets in line with their long-term forecasts and LTAs, and POs that they have placed. So we don't really see much on the revenue side. There might be a little bit of a benefit in the consumer retail side of the business. But as you know, that's relatively small for Western Digital. On the OpEx side, however, it is an extra week. It's, I would say, it's on or about $15 million, $1-5 million of incremental spend that happens in Q1 of fiscal '26. Obviously, looking ahead to Q2, Q3, Q4, that comes out of it as those quarters are normal 13-week quarters. Ambrish Srivastava: Do you have a follow-up, Amit? Amit Jawaharlaz Daryanani: I do. Irving, you initially having spoken a good bit about Agentic AI deployment and how that could drive demand for HDDs. If I think about your Analyst Day, you talked about like 20% exabyte growth, mid- to high single-digit revenue growth for the company. As you start to see AI getting deployed, I'm wondering how do you think those numbers can move higher? And if there is way to quantify what kind of tailwind this would provide for your business longer term? Tiang Yew Tan: Yes. Thanks, Amit, for the question. Yes, if you recall what we presented at Investor Day was a base model that 15 exabyte growth. That was primarily driven by the sort of secular growth in the cloud, and we highlighted the potential upside of that 15 exabyte CAGR growth to 23% as a result of an AI uplift. We are starting to see some of that uplift materialize. So it's still early days, but we think that the exabyte growth is more between the 15% to 23% range rather than the base number that we've highlighted. In that model that we presented at Investor Day, we also had a 7% ASP decline. As Kris highlighted, we're seeing a much lower ASP decline in the low single digits as well. So as we see exabyte growth trend more to that level and ASP is in the low single digits. There's definitely opportunity for revenue growth from a CAGR perspective to go from the sort of mid- to high single-digit range that we have highlighted at Investor Day to trend more towards the mid-teens. And if you take that mid-teens revenue growth with the OpEx levels that we've highlighted, we will probably be at an OpEx level of 10% of OpEx to revenue. So hopefully, that gives you a sense of bridging what we shared at Investor Day and the changing outlook that we see in the business as a result of the AI tailwinds that we're beginning to highlight. Operator: Our next question comes from Ananda Baruah with Loop Capital. Ananda Prosad Baruah: 2 if I could, I'll do one and then one. Could you -- Irving, could you remind us of the aerial density road map from here until HAMR? And where do you think HAMR -- where do you think you come out aerial density-wise, let's say you sort of execute to the first half 2020 -- calendar year 2027 road map. Where do you think your aerial density lies there? So the road map up to that point and then where do you think you come out of that with HAMR? Tiang Yew Tan: Sure. No problem. Also, our current ePMR product that we've brought into the marketplace is a 26-terabyte CMR, 32-terabyte UltraSMR. We have highlighted in our road map, but we look to start qualification for our next generation of ePMR, which will be our final generation of ePMR in the first half of calendar year 2016. That will be a 28-terabyte CMR, 36-terabyte UltraSMR. And then we will start qualification of HAMR in the second half of calendar year '27 with ramp in the first half of '27 -- calendar year '27. That will be at the 38 terabytes CMR, 44 terabyte UltraSMR. As we've highlighted in the past, we feel the 4 terabyte per platter or if you assume a 10-disk drive, 40 terabyte drive, 4 terabytes per platter is sort of where we see things as of now, the economic crossover where it makes economic sense to transition to HAMR. Ambrish Srivastava: Do you have a follow-up, Ananda? Ananda Prosad Baruah: I do, Ambrish. And really more of a clarification. You guys mentioned the Platforms business and opportunity to sell dense systems into native by AI companies, don't have their own infrastructure. Are those the neo cloud? Is that what you're talking about? And then how many of those -- like -- and if yes, like what's a useful way to think about which of that cadre may not have their own infrastructure change? I'd imagine some of the larger ones do. So just in a useful context would be helpful. Tiang Yew Tan: Sure. Thanks for the question. I'll give you some insight. We actually do have really 1 large cloud provider that's buying platforms from us today that's being deployed at scale. We also have quite a significant number of Storage as a Service providers that are leveraging our platforms business as well to deliver those services to customers. And as you've highlighted, a lot of the neo clouds, their primary focus is really on driving compute capabilities, supporting their customers with their LLM development and then really looking at how they can either leverage the cloud. Or our platform like systems to really support their storage requirements going forward. So we think there's a lot of legs to this business. Obviously, it's early days. and very similar to what we saw in the cloud, it starts with compute and then eventually it will come down to storage as we saw even in AI in the mainstream cloud where it was GPUs first, HBMs, DRAMs and then eventually, we are seeing that flow through to storage. We think that sort of trend will play itself out in the neo cloud as well and be very beneficial for our platforms business. Operator: And our last questioner today will come from Mark Miller with the Benchmark Company. Mark S. Miller: I'm just wondering, could you actually quantify the hard drive ASPs in the quarter? Ambrish Srivastava: Sorry, what's the question? Mark S. Miller: What were your hard drive ASPs in the June quarter? Ambrish Srivastava: You mean unit? Mark S. Miller: The average selling price -- yes, for hard drives. Ambrish Srivastava: Yes. So we -- as you see the disclosures. This is Ambrish. We have stopped providing ASP per unit because as Irving highlighted earlier, that what's more important for our business is EP. And so just to give you a context of why we changed and what we are providing now. Kris, do you want to add to that? Kris Sennesael: Yes. And I think we provided the units. And so I think it's -- you can easily do the math, and you will see, I think, a substantial sequential as well as year-over-year growth in our revenue per drive that we have. But again, it's -- a lot of it depends on the mix of our overall revenue, and so for me, that number is somewhat meaningful. Yes, it's trending upwards, again, mostly driven by the move to higher capacity drives, something that we work with our customers on. Mark S. Miller: And just finally, DSOs for the quarter ? Kris Sennesael: DSO? I don't have it on top of my head, but we did -- as a company, we did a really good job at managing our working capital. I'm very comfortable with the level of inventory that we have right now, which is on or about $ 1.3 billion that translate into days of inventory of 76 days. And then the DSOs came down, I believe, 6 days on a sequential basis and is now at 52 days. So again, really, as you know, DSOs is mostly driven by the billing finality within the quarter. And as Irving indicated that before, that continues to be very strong as well. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Irving Tan for any closing remarks. Tiang Yew Tan: Thank you all again for joining us today and your interest in Western Digital. As our results and guidance show we continue to make good progress executing on our strategy, and we look forward to sharing more on the exciting innovations we have in the pipeline and actions we are taking towards creating long-term shareholder value in future calls. Let me close by giving a call out to all our WD drivers who show up every day, making a difference for our customers, shareholders, ecosystem partners and each other. Thank you all very much, and have a great day ahead. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.

Operator: Good afternoon, and thank you for standing by. Welcome to Western Digital's Third Quarter Fiscal 2025 Conference Call. Presently, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. [Operator instructions] As a reminder, this call is being recorded. Now, I will turn the call over to Mr. Ambrish Srivastava, Vice-President and Investor Relations. You may begin. Ambrish Srivastava: Thank you, and good afternoon, everyone. Joining me today are Irving Tan, Chief Executive Officer; and Don Bennett, Interim Chief Financial Officer. Before we begin, please note that today's discussion will contains forward-looking statements, based on management's current assumptions and expectations, which are subject to various risks and uncertainties. These forward-looking statements include expectations for our product portfolio, our business plans and performance, ongoing market trends and our future financial results. We assume no obligations to update these statements. Please refer to our most recent financial report on Form 10-K and other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations. We will also make references to non-GAAP financial measures today. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the Investor Relations section of our website at investor.wdc.com. With that, I will now turn the call over to Irving Tan for introductory remarks. Irving Tan: Thanks, Ambrish. Good morning, everyone, and thank you for joining us today. I'm honored to be speaking with you for the first time as the CEO of Western Digital. It is a privilege to lead this exceptional organization, and I want to start by recognizing the outstanding work of our employees across the company, who managed the complex separation process over the last several months, while also continuing to drive the strong performance we are reporting today. Throughout that time, they remain deeply connected to our customers, continued pushing the boundaries of leading edge innovation and sustained, a strong focus on operational excellence. This combination of customer focus, innovation and execution positions us well for the opportunities ahead. In the past month, we've also welcomed our new Chief Product Officer, Ahmed Shihab. Having held leadership positions at two large hyperscalers, Ahmed is a seasoned expert in cloud storage needs and requirements, making him the right person to lead our product strategy and engineering teams as we continue to drive innovation and deliver solutions that meet the evolving demands of our data-driven world. We are excited to have Ahmed join Western Digital as its customer centric perspective and deep industry knowledge, particularly with data centers, will be invaluable to us going forward. Let me now provide you with a few updates on our business. Since stepping into this role, I've been spending a great deal of time with our customers, employees and the investment community. What's clear to me is that, Western Digital has an incredibly strong foundation, a resilient business model and incredible potential to benefit from the demand in the age of AI. Even in a world marked by geopolitical uncertainty and shifting trade dynamics, one thing remains constant, the exponential growth of data. From enterprise workloads to the explosion of AI-generated content, such as the millions of images and viral videos generated through AI, data generation is accelerating at an unprecedented pace. When it comes to storing data at scale, no technology rivals the cost efficiency and the reliability of HDDs. We continue to serve as the backbone of the world's data infrastructure, delivering unmatched value for mass storage needs. As we deliver our critical HDD technology to our customers, we are focused on continued innovation to provide the highest capacity drives with improved performance, energy efficiency and lowest total cost of ownership. Our industry-leading 11 disk drives, with capacities of up to 26 terabyte CMR and 32 terabyte Ultra SMR, are now ramping rapidly with over 800,000 units shipped in the March quarter. We are also on track to ship well over 1 million units in the June. The swift qualification and adoption cycle is a hallmark of our technology road map, demonstrating reliability, ease of implementation and scalability with fastest time to value for our customers. On HAMR, we remain on track with respect to our milestones and road map that we communicated at our Investor Day in February. We are working closely on HAMR with two hyperscale customers and continue to receive encouraging ongoing feedback on our drives. Let me now turn to our quarterly results. For the third fiscal quarter, Western Digital delivered revenue of $2.3 billion, non-GAAP gross margin of 40.1% and non-GAAP earnings per share of $1.36. Free cash flow for the quarter was $436 million. At our Investor Day, we outlined the three pillars of our shareholder-friendly capital allocation approach. They are: to reinvest in the business, reduce debt, and return cash to our shareholders. On April 14th, we redeemed $1.8 billion of our 2026 senior notes, thus further strengthening our balance sheet. I'm also pleased to announce that, we are initiating a quarterly dividend of 0.1 per share in our fiscal Q4. These actions are underpinned by our strong belief in the strength and durability of our business. Don will cover this in greater detail in his remarks. Now turning to our outlook. First, I want to acknowledge the current environment, which remains highly uncertain and volatile, driven in a large part by tariffs and global trade tensions. At Western Digital, we are addressing these challenges on two fronts. In the near-term, we've established cross functional teams to minimize disruption and mitigate the impact of tariffs on our customers and operations. At the same time, we're taking a strategic view, evaluating the longer-term implications of supply chain shifts, to ensure we stay agile, resilient and are well-positioned for the future. Though the broader environment has some uncertainty, demand from our hyper-scale customers remains robust in a tight supply environment. We're thankful to our customers, who increasingly recognize the complexity of the HDD supply chain and are partnering with us to provide visibility into their future needs. This collaboration enables us to plan more effectively. And we now have long-term agreements to extend through the first half of calendar year 2026, with two of our largest customers. However, there are areas, such as in the enterprise and in certain parts of our distribution and retail business, where there could be more uncertainty with respect to demand, driven largely by the current tariff environment. Taking these factors into account and looking ahead into the fiscal fourth quarter, we expect sequential revenue growth, driven by sustained strength in data center demand. We continue to work closely with our customers to align with their long-term requirements, while delivering the best possible total cost of ownership. Let me now turn the call over to Don, who will discuss our fiscal third quarter results and fiscal fourth quarter guidance in more detail. Don Bennett: Thank you, Irving, and good morning, everyone. In the fiscal third quarter, Western Digital delivered strong financial results and successfully completed the planned separation of the company's Flash business on February 21st. As such, the historical results for the Flash business segment are reported as discontinued operations and excluded from these results, unless otherwise noted in my comments. Total revenue for the quarter was $2.3 billion, down 5% sequentially and up 31% year-over-year. Non-GAAP earnings per share was $1.36, driven by gross margin of 40.1%, disciplined cost management and tax benefits. Total ex-white shipments were down 6% sequentially, driven by lower near-line shipments related to deployment plans of our customers. Average price per unit increased 4% sequentially to $179. Looking at end markets. Cloud represented 87% of total revenue at $2.0 billion, down 4% sequentially and up 38% year-over-year. On a sequential basis, the decline was due to a 6% reduction in near-line bit shipments to 145 exabytes, while pricing per unit in cloud was up 5%. On a year-over-year basis, both revenue and bit shipments grew at 38% and 32% respectively, driven by the strength of our product portfolio. Client represented 6% of total revenue at $137 million, down 2% on both a sequential and year-over-year basis. Compared to last quarter and last year, revenue was down due to lower unit shipments. Consumer represented 7% of revenue at $150 million, down 13% sequentially and 4% year-over-year. The sequential decline in consumer was primarily due to lower unit shipments, while year-over-year the decrease was largely due to pricing. Moving to the rest of the income statement, please note, my comments will be related to non-GAAP results on a continuing operations basis, unless stated otherwise. Gross margin for the fiscal third quarter was 40.1%. Sequentially, gross margin improved 1.7 percentage points, ahead of our guidance of 50 basis points improvement. Operating expenses were down sequentially to $324 million. Our results demonstrate continued focus on cost discipline, as we concluded our business separation process. Operating income was $596 million, up 85 basis points sequentially, driven by higher gross margin and lower operating expenses, partially offset by lower revenue. Operating margin was 26%, up 1.5 percentage points sequentially and up 17.3 percentage points on a year-over-year basis. Income tax expense was $12 million and the effective tax rate for the fiscal third quarter was 2%. The decline in the company's effective tax rate from guidance is a result of the recognition of one-time deferred tax benefits, in conjunction with the separation of the Flash business. Turning to the balance sheet. At the end of our fiscal third quarter, cash and cash equivalents were $3.5 billion and total liquidity was $4.7 billion including undrawn revolver capacity. Gross debt outstanding was $7.4 billion at the end of the fiscal third quarter. Inventory was $1.3 billion, representing 86 days of inventory, up $63 million sequentially and down $174 million on a year-over-year basis. Our net leverage ratio at the end of the fiscal third quarter was 1.7x. Please note, after the close of the March quarter, we've successfully redeemed $1.8 billion of our 2026 senior notes using cash on hand. The redemption reflects our commitment to strengthening the balance sheet and achieving our target net leverage ratio of 1.0x to 1.5x, as outlined at our Investor Day. Operating cash flow for the fiscal third quarter was $508 million and cash capital expenditures represented a cash outflow of $72 million, resulting in free cash flow generation of $436 million for the quarter. Please note that, this is on a consolidated basis for the quarter. As Irving highlighted in his opening remarks, we are pleased to announce that we're initiating a quarterly dividend of $0.1 per share, reflecting the strength of our balance sheet and confidence in the long-term, cash-generating ability of our business. This decision underscores our commitment to delivering value to our shareholders. I'll now turn to the fiscal fourth quarter non-GAAP guidance. This guidance includes our current estimate of all anticipated or known tariff related impacts on our business in this period. We anticipate revenue to be $2.45 billion plus or minus $150 million. Gross margin is expected to be between 40% and 41%. We expect operating expenses to increase slightly on a sequential basis to a range of $330 million to $340 million. The increase is due to variable compensation reflecting improvement in the underlying business, hiring to fill critical open positions resulting from the business separation and increased investments in research and development. Interest and other expenses are anticipated to be approximately $70 million. The decrease on a subsequent basis reflects our lower debt levels, following the notes redemption previously discussed. The tax rate is expected to be between 8% and 10%. We expect EPS to be $1.45 plus or minus $0.20, based on approximately 360 million shares outstanding. Additionally, for modeling purposes, we would like to highlight that, fiscal year 2026 will be a 53 week year for us. As a result, our first fiscal quarter in FY '26 will have fourteen weeks. In addition, we expect the tax rate for FY '26 to be between 16% and 18%. In closing, Western Digital is well positioned to navigate the current dynamic environment. We remain focused on creating value for our stakeholders and investing in our future to capture the significant growth and data ahead, while maintaining a healthy supply and demand environment. With that, I'll now turn the call back to Irving. Irving Tan: Thanks, Don. Western Digital's results this quarter and guidance reflect the ongoing structural transformation of our business, with continued progress towards a business that delivers sustained profitability. We continue to maintain strong conviction in the business, and are confident that we will weather this uncertainty and come out even stronger. With that, let's now begin the Q&A. Ambrish Srivastava: Thank you, Irving. Operator, you can now open the line to questions, please. To ensure that we hear from as many analysts as possible, please ask one question at a time. After we respond, we will give you an opportunity to ask one follow-up question. Operator? Operator: Thank you. Our first question comes from Erik Woodring with Morgan Stanley. Please go ahead. Erik Woodring: Good morning guys. Thanks for taking my questions and congrats on the nice quarter at the gate. Instead of asking a demand question, I wanted to actually ask about capital allocation. And so, Irving, you have a dividend yield of about 1% soon to be lower than that, given how your stock is trading in the pre-market. That's about $100 million of annual cash outflow. Can you maybe just help us understand how we should be thinking about both dividend growth going forward, given it seems like you have some capacity there, but then also maybe how you're thinking about potential share buybacks? And I know your intent is to de-lever with the ScanDisk stake, but just help us understand on the cash return side to equity holders, how we could be thinking about the cadence of both dividend growth and buybacks? Thanks so much. Irving Tan: Yes, Erik. Thanks for the question and I appreciate it. As we laid out in our Investor Day, our goal is to get our net leverage down to the 1.15x range. And once we're there, we intend to return 100% of our excess cash to our shareholders and that will be in the form of both potential -- both dividend and share buybacks. As we also indicated at Investor Day, which we have honored and committed to today. We're starting off with a relatively small dividend to begin with. And then as we progress, we'll look to increase that and complement that with buybacks as well. So stay tuned for that. Erik Woodring: Okay. Okay. Irving Tan: And did you have a follow-up? Erik Woodring: Yes. Just a quick follow-up was, Irving, what I hear from you is kind of more visibility because of some of these LTAs. And I'm just curious, with customers now giving you some indications into the first half of calendar '26, does that mean, you have enough visibility to expect revenue margins and EPS sequential growth through calendar '25, or is it too early to make that call? Thanks so much guys. Good luck. Irving Tan: Yes, Erik, thanks. I think the shift to LTAs has given us greater visibility. And as I highlighted in my opening comments, we now have two hyper-scale customers that have given us LTAs up to the first half of calendar year 2026. And that's really helped us plan our supply chain appropriately along with the CapEx investments that we need to make and give us a lot more confidence in the business. And so, as I've highlighted in the past, I think especially when it comes to the hyper-scale business, we see demand continuing to be strong and robust throughout the calendar year '25 and now as I've mentioned into the middle of calendar year '26 as well. Operator: Thank you. The next question comes from Aaron Rakers with Wells Fargo. Please go ahead. Aaron Rakers: Yes. Thanks for taking the question. Also congrats on the first quarter out of the gate. In the comments around the guidance you guys alluded to into the fiscal fourth quarter, you did point out that, it reflected all known or anticipated tariff impacts. I'm curious, if you could unpack that a little bit. I believe the majority, if not all of your manufacturing footprints in Thailand. So just curious how you're thinking about, how your best assessment of what these tariff impacts might be or any indications that you've seen with customers at this point? Irving Tan: Hi, Aaron. Thanks for the question and good to hear from you again. In Q4, we don't anticipate any direct tariff impacts in relation to its translation into pricing or cost to customers. But where -- as we've highlighted in our prepared statements, we do see some potential demand uncertainty in the enterprise distribution and retail segments of the business, just due to the unpredictability and volatility. And you would have heard a lot of comments in the marketplace around enterprises and consumers sort of pausing or holding back on making purchases as well. So factoring all that in, that's the guide that we gave. But again, the growth that we've guided to is really driven primarily by the strength that we continue to see in the data centers, specifically in our hyper-scale business. Don Bennett : And Aaron, I'll just add that, in Irving's prepared remarks, we talked about establishing cross-functional teams to minimize disruption and mitigation to both our customers as well as our internal operations. Additionally, we're taking a strategic view on looking at multiple alternatives, depending on what the tariff situation looks like tomorrow or in mid May or June, whenever the next round of tariff guidance comes out on our products. As you know, we're part of the semiconductor group and we currently have 0% tariff on our products. Ambrish Srivastava: Aaron, did you have a follow-up? Aaron Rakers: Yes, I do. Thanks, Ambrish. So when I think about the gross margin, right, 40.1%, I think at the Analyst Day, you talked about 38% plus is kind of being the longer-term model. When I look at the guidance into this next quarter, if my math is right, it looks like the incremental margin that you're alluding to is like north of 45%. So I guess my question is, is there anything structurally in the business or kind of the path forward that keeps us from thinking that gross margin could trend into that mid-40%, if not higher range over time? Don Bennett : Yes. I think, Aaron, at Investor Day, we provided a guide or a model on gross margin that was a floor of 38% and that's over a five year period. As you know, there are market vagaries and ups and downs along the way. So, 38% was the floor. We obviously were able to deliver very strong gross margins this quarter. We crossed a 40% threshold. And that's really driven by the value the customers see in the technology, that we are providing them as well as very strong operational discipline, and also pricing discipline that we've experienced within the market. So as we continue to deliver total cost of ownership value to our customers, innovation capability, whilst maintaining their operational discipline within the customers within our operations, sorry, we see gross margins continuing to remain strong. Ambrish Srivastava: Thank you, Aaron. Operator: Thank you. The next question comes from Karl Ackerman with BNP Paribas. Please go ahead. Karl Ackerman: Yes. Thank you, gentlemen. For my first question, I know you have focused on technology transitions to drive hexabyte demand from here. However, what are the hurdles for you to add manufacturing capacity? Is it driven by certain visibility you have on LTAs or other things we should consider? Thank you. Irving Tan: Yes. Thanks for the question, Karl. A lot of our exabyte growth has really been driven by aerial density improvement and technology improvement. As we've highlighted, our Ultra SMR technology, which is unique to us, gives us a 20% capacity uplift over the standard recording media. So our ability to deliver incremental exabytes without having to put in CapEx in terms of more production units has been one of the big differentiators that we've been able to create. And so, that's an area that we continue to invest in our R&D function to continue to drive greater aero density performance. We've recently just launched our 26 and 32 terabytes industry-leading platforms and will bring out in the next few months our 28 and 36 terabyte platforms as well. So those increases through aero density will continue to enable us to deliver exabyte growth without having to invest in CapEx for additional unit growth. Ambrish Srivastava: Do you have a follow-up, Karl? Karl Ackerman: I do, Ambrish, please. Thanks for that, Irving. I wanted to follow-up on the comments you made with regard to LTAs. It sounds like demand for hyper-scale is quite good and has strong visibility into the first half of 2026. However, I was hoping you could provide a bit more color on the growth curve of private cloud and SMB customers. I'm curious whether you have seen perhaps any pull forward in counter Q2 ahead of tariffs? And secondarily, how you think about the demand dynamic for those customers in the second half? Thank you. Irving Tan: Yes. Thank you. We definitely do see opportunities, especially in sovereign clouds and private clouds going forward. Even in the age of AI, where the primary beneficiaries have been the large hyperscalers, we also see growth sort of at the edge happening. So, that's an opportunity that we look to pursue going forward, as well as a growth driver. We haven't seen any pull forwards. The linearity that we saw within Q3 was very consistent with the linearity that we've seen in the past. And then, also, as we look at sequential quote on quarter growth very consistent with what we've seen in the past. So no real change in terms of pull-ins both last quarter and what we see happening this quarter as well. Ambrish Srivastava: Thank you, Karl. Operator: Thank you. The next question comes from C.J. Muse with Cantor Fitzgerald. Please go ahead. C.J. Muse: Yes, good morning. Thank you for taking the question. I guess to follow-up on the prior question, I was hoping you could speak a bit about supply and what kind of exabyte growth you can get just from delivering higher capacity drives. And I guess, what is the timeframe, where you would potentially consider adding more capacity? Irving Tan: Thanks for the question, C.J. Look, we feel confident right now with the forecast that we have and outlook that we see in terms of exabyte growth. We are able to deliver that through, again, the technology and innovation we're delivering that provides us that capacity uplift without putting in any capacity. If there was any need to put in any capacity, it would probably be more on the hidden media side of the house, but we don't anticipate any capacity investments in those areas for the near term. Don Bennett: And C.J, I'll just add that in this uncertain environment, we're very tightly managing our capital expenditures and we continue to manage the business to the low end of our guidance range of 4% to 6%. Ambrish Srivastava: Do you have a follow-up, C.J.? C.J. Muse: I do, Ambrish. Thank you. I guess, could you speak to gross margins? Obviously, great results and guide. Curious, in terms of the drivers from here, is there still kind of a fixed cost benefit that would arise, or is it really all about higher capacity drives delivering higher ASPs? Is that the main driver, or are there other factors that we should consider? Thanks so much. Irving Tan: Yes. C.J., you hit it right. It's really about the product technology that we're delivering to our customers. We continue to add TCO benefit to them, and we're participating in that value, that we're bringing to the customers. We're tightly matching supply and demand. So we're not going to see great impact from increased production over time, because we're very tight in our supply allocation. So it's really about delivering value to our customers through technology and continue to drive leading edge products at scale. Ambrish Srivastava: Thank you, C.J. Operator: Thank you. The next question comes from Wamsi Mohan with Bank of America. Please go ahead. Wamsi Mohan: Yes, thank you so much. Nice results here. Irving, if I heard right in, you noted the potential for some enterprise slowdown driven by tariffs. I was curious, have you seen anything in your order patterns to suggest that or is this sort of more anticipatory in terms of what could happen, if a tariff regime became more onerous? Irving Tan: Yes. Thanks for the question, Wamsi. It's more the latter, right? We haven't seen any slowdown just yet. But obviously, there is demand uncertainty because of the tariffs. And obviously, we've heard a lot of news coming out of enterprises and earnings over the last few days, around customers being a bit more cautious in terms of spending and capital investments as well. So given that, we've just factored that into the guide. But nothing towards for the time being. Sorry, we've just widened the range in terms of our guide for Q4. Ambrish Srivastava: Do you have a follow-up, Wamsi? Wamsi Mohan: Yes. Thanks, Ambrish. Maybe for Don, as you look into the September where you're calling out the 14 weeks, any parameters you can help us think through in terms of revenue and OpEx into that quarter, please? Thank you. Don Bennett: Yes. So we guide one quarter at a time, but the reason I mentioned a fourteen week is because obviously we'll have 14 weeks of expenses. Typically our customers order on a quarterly basis. So the revenue will be it'll follow typical seasonal patterns. But at this point, we're not guiding revenue for that quarter. Ambrish Srivastava: Thank you, Wamsi. Operator: Thank you. And your next question comes from Asiya Merchant with Citigroup. Please go ahead. Asiya Merchant: Great. Thank you for the question and great quarter, by the way. Just, there seems to be some concern like just around hyperscalers. I know your competitor talked about demand being very strong there as well and good visibility. Just anything on why you don't think this could be double ordering? Anything, as it relates to the pricing negotiations that would limit the impact if indeed there was any double ordering? Thank you. Irving Tan: Yes. Thanks for the question, Asiya. We definitely don't see any double ordering at this time as I think one of the key things is we are in a very tight supply demand environment. So even if there were double orders, I think, we would be challenged to fulfill them, right now. And I think more importantly the demand profile that we're seeing given the LTA visibility that we have all the way to middle of 2026 is -- we're seeing order patterns very much follow the LTA demand. So there's nothing really abnormal. As Don mentioned, it follows very much both seasonality quarter-to-quarter and linearity within quarter as well. So we don't see any double ordering. If anything on pricing, obviously, as we transition to new platforms that always gives us an ability to deliver better TCO value to our customers and an opportunity for us to deliver greater pricing upside as well. Ambrish Srivastava: Asiya, did you have a follow-up? Asiya Merchant: Yes, sure. Thank you very much. On gross margins, it was better-than-expected in the current quarter that you reported. Why can't gross margins do similar incremental step-up? You are seeing better revenues in the June quarter. And then, as you think about the remainder of the calendar or the fiscal '26, should we continue to expect margin expansion from these levels? Thank you. Irving Tan: Yes. Thanks for the question. I think the strong gross margins that we have delivered and also guided to is a reflection of the value that we bring to our customers, particularly through the technology enhancements that really gives them both better TCO, but also very fast time to value. And that's what we continue to focus on. And, if we are able to continue to deliver that innovation, continue to deliver that total cost of ownership benefit and giving them fast time to value, we don't see any reason why gross margin could not expand going forward as well. So that's our focus. We don't worry too much about the gross margin, but continue to focus on delivering value to our customers and the gross margin will flow from that. Ambrish Srivastava: Thank you, Asiya. Operator: The next question comes from Amit Daryanani with Evercore. Please go ahead. Amit Daryanani: Thanks a lot. I guess maybe just to start it on the tariff dynamic, I realize you don't have much impact on tariff right now. But, as you're signing these LTAs into calendar '26, can you talk about, if you sort of have tariff escalators embedded in them to ensure you can pass through the cost of these to your customers? Would that be a different set of discussions to be had once you know what the tariff scenario looks like? Irving Tan: Yes. Thanks for the question. We are obviously working very closely with our customers. As we all know, I think the situation is evolving on a daily basis and extremely fluid. So, it's hard for us to really speculate what the outcome would be. Right now, as I mentioned in my prepared remarks and Don emphasized as well, we have teams that are working for company closely and for our customers to understand how we can mitigate impacts of tariffs and also any supply disruptions in the near-term. And then in the long-term, we're also evaluating with them in what their supply chain shifts may be so that we can also align to that. So we're also prepared both from a agility resiliency and long-term readiness perspective to be able to work for our customers as they shift their supply chains to be able to best support them as well. Ambrish Srivastava: Amit, did you have a follow-up? Amit Daryanani: I do. Thanks, Ambrish. And then maybe just on the HAMR side, I think you folks mentioned you're working with two cloud customers at this point on HAMR. Just any sense on when you expect these qualifications to happen? And as you work towards them, should we think of some sort of upside bias to your R&D or OpEx investments through that process? Thank you. Irving Tan: Thanks for the question. I think we've laid it out very clearly at Investor Day. We are looking to start qualification in the second half of calendar year 2026 and then ramping up production at scale in the first half of calendar year 2027. We have engineering samples with two large hyperscalers already today. We're in close contact with them on the performance of those drives. We're getting regular feedback from them. I would say, so far, the performance has been meeting the milestones that we both laid out. And on a quarterly basis, based on the feedback that we receive from them, we are delivering the next generation of enhancements on those drives. So I'll say, we're comfortable with where we are. We're on track with that road map that we laid out. At the same time, we're also preparing to introduce our new 28 terabyte and 36 terabyte EPMR platforms as well. So our whole focus is on ensuring that, we really de-risk transitions for our customers continue to deliver very scalable, predictable, reliable capacity points that gives them the fastest time to value. Ambrish Srivastava: Thank you, Amit. Operator: The next question comes from Thomas O'Malley with Barclays. Please go ahead. Thomas O'Malley: Hi, guys. Thanks for taking my questions. I just wanted to focus in a little bit on the LTA. So, we had this period in memory on the NAND and DRAM side through the pandemic, where in the end, LTAs were pretty much torn up and were largely hyperscalers advantage over supplier. So, like, could you talk about like what benefit you get from these LTAs? Is this take-or-pay agreements? Are these in writing where you get some sort of compensation if your customers aren't going to take these, or is this just like a framework that you have with your customers that says, we will supply this much over this period of time? Could you just maybe dive into those a little bit? Because historically, they really haven't meant much. Irving Tan: Yes. Thanks for the question, Tom. First of all, we don't disclose the terms of the commercial contracts that we have. But, I think it's important to note, there's some quite significant structural changes that have happened within our business, I would say, across the entire hard drive industry, over the last year, where a lot of the excess capacity and existing inventory within the supply chain has been removed from the system to really reset the entire supply base, to where we think the right demand profile is going forward. The LTAs play a very critical role to ensure that, we have that right supply demand balance. And given the criticality that hard drives plays to the business of our hyper-scale customers, I think as I've mentioned in my opening comments as well, they've been working very closely with us to ensure, that sort of supply-demand imbalance that we saw during COVID and for post-COVID as well doesn't reoccur. And I think we're in a good place where the LTAs really give us good visibility. We're seeing pretty much demand stick to those LTAs that we've outlined with them with. The LTAs have moved from pretty much three to six months, now the 9 to 12 months as well. So that's giving us a lot more visibility to plan our supply chain very closely for our customers as well. Ambrish Srivastava: Do you have a follow-up, Tom? Thomas O'Malley: Yes. I just want to dive into the differences between the unit and pricing in the guide. So, like, you had a pretty consistent track over the last couple of years of increased pricing. Is there any different type of dynamic we should think about? I know you guys don't guide by more than one quarter out, but looking into the June units versus pricing, any commentary you have that get you to that guide? Don Bennett: Sure, Tom. Yes, we've had, as Irving mentioned, a structural change in our business. So the majority of our business today is in data centers, or at the edge. And so, we've seen this continued progression of ASP. Currently, we announced we're at $179, which is up 23% year-over-year on an aggregate weighted average basis. So, as that mix continues to move to cloud, we should see sustained increases in ASP. Obviously, it'll move around quarter-to-quarter, depending on what our client and consumer mix is, because that typically is a lower capacity drive overall. So, it's impacted by segment mix, customer mix, as well as we continue to drive TCO value to our customers. So we see price per unit stable or up in most cases as we deliver further technology into those accounts. Ambrish Srivastava: Thank you, Tom. Operator: The next question comes from Steven Fox with Fox Advisors. Please go ahead. Steven Fox: Hi, good morning. Thanks for taking my question. I guess, first one, I just was curious if you could sort of give yourself a grade on the free cash flow for the quarter. It seemed pretty good to me at 78% of net income. And how we can think about sort of what you're measuring yourselves against in future quarters for free cash flow? And then, I have a follow-up. Thanks. Don Bennett: Yes. Thanks for the question. So, free cash flow, we don't guide cash flow on a quarterly basis, because there's a lot of moving parts in cash flow. As you mentioned, we did have very strong both operating and free cash flow. We are driving the business to operating profit, and to free cash flow generation, so that we can execute on our capital allocation priorities. And Irving laid those out in the script, but I'll just repeat them. One is to reinvest in the business, so deliver leading-edge technology at scale to our customers. The second thing is to de-lever our balance sheet and you've seen us do that with taking out $1.8 billion of our 2026 notes. So we're now down below $4 billion of net debt on the balance sheet. And lastly is returning capital to our shareholders. We've started that with the initiation of the dividend and there'll be more to come on that in the future. Ambrish Srivastava: Do you have a follow-up, Steve? Steven Fox: Yes. I was just curious when we think about non-enterprise and non-cloud markets, how you're managing those against all the demand you're seeing? Do you feel, like, you're deemphasizing those or figuring out a way to maybe more efficiently manage them? I'm just curious what we think about those markets over the next year? Thanks. Irving Tan: Yes. We're definitely not de-emphasizing them. They're still a material part of our business. The supply chains for cloud and non-cloud business are really quite discrete and separate and we sort of manage them independently. If anything, we are looking at opportunities, to see whether we can sort of drive incremental growth in those areas. Ambrish Srivastava: Thank you, Steve. Operator: Thank you. The next question comes from Mark Miller with Benchmark Company. Please go ahead. Mark Miller: Congratulations on your first report for the spin out. I'm just curious, can you tell us how many shares you currently hold with ScanDisk? And have your plans changed because of the relatively low price of ScanDisk about what you're going to do with the shares? Irving Tan: Yes, we own 19.9% of ScanDisk. That's the retained stake that we have. And, as we've communicated in Investor Day, we will look to disposition those shares, ideally, over a 12 month period starting in February, as part of our deleveraging strategy going forward. Mark Miller: Thank you. Operator: Thank you. The next question comes from Harlan Sur with JPMorgan. Please go ahead. Harlan Sur: Good morning. Thanks for taking my question and great job on the quarterly execution. Back in February, the team outlined a three year near-line exabyte growth CAGR of around 20%, 25%, which is what some of the third-party research firms are kind of forecasting Irving, with the strong cloud data center CapEx spending trend that you talked about this year. Given your fairly good visibility, does your forward demand profile also suggest a low 20% exabyte growth profile in this calendar year or better? Irving Tan: I think you're in the ballpark. Ambrish Srivastava: Harlan, this is Ambrish. Remember, we had given a three to five year forecast? Harlan Sur: Right. Ambrish Srivastava: Did you have a follow-up, Harlan? Harlan Sur: Yes. I know Irving had given a three to five year forecast, but that sort of 23% kind of aligns with some of what the third-party research guys are kind of forecasting for this calendar year, but appreciate the answer there. Also back in February, Irving, you did articulate about a 40%, like current mix of your near-line capacity was Ultra SMR based. As you look at your order book and shipment plans, where do you expect that mix to be either second half of this year or exiting this calendar year? And you're driving obviously strong TCO benefits, you're driving strong pricing power. But on a like-for-like basis capacity wise, which carries the higher gross margin profile? Is it your CMR or Ultra SMR based drives? Irving Tan: I think we look to deliver value across the portfolio. So I think we see a pricing leverage across both our CMR and Ultra SMR platforms. Obviously, our Ultra SMR platforms give us better ESPs per drive, because of the additional capacity we deliver from it. It also helps us with CapEx, as I've highlighted earlier, because of the technology benefit we have without having to put CapEx into it. In terms of mix in any given quarter, it's probably around 40% to 45% ratio. So, it depends on -- because these are large hyperscalers and they have different deployment time frames and different hyperscalers use different technologies. So it can fluctuate from quarter to quarter, but somewhere between 40% to 45% in any given quarter is what we see. Ambrish Srivastava: Thank you, Harlan. Operator: Thank you. The next question comes from Ananda Baruah with Loop Capital. Please go ahead. Ananda Baruah: Yes. Hi, guys. Thanks for taking the question and congrats on getting out the gate here as NewCo. I guess, yes, Ambrish, two if I could. I guess the first one is really an architectural question. So, as like assuming Seagate continues to progress with HAMR and you guys continue to progress over the next, call it, 24 months with your legacy tech, kind of pre-getting to HAMR volume just as for the Analyst Day. Does that create new any new architectural realities inside the data center with what can be mixed and matched or how folks begin thinking about storage system stacks? Would love any context there, if there's anything. And then I have a quick follow-up. Thanks, Ambrish. Irving Tan: Yes. Look, I think there will be some architectural adjustments accordingly. Obviously, at the highest level, the interplay between what's on Flash, what's on hard drives and what's on tape will continue to be there. As we've highlighted in Investor Day, hard drives again will be the predominant storage media with over 80% of bits stored on hard drives. We don't anticipate that changing whether that's EPMR or HAMR, going forward. There are some rack level changes that will be required for the deployment of HAMR. So, you're not going to be able to mix and match the drives that easily. Similar to Ultra SMR, there are some whole site software changes that are required as well. But, these are very sophisticated customers. Their data center architects are very familiar with what's needed to be done. And again, the success that we've had and the continued growth that we see in our Ultra SMR portfolio is a great example of people really embracing the technology and really making and investing in the architectural changes, within both their data center environment and their software stack, to be able to take advantage of that benefit and we see that going forward. Ambrish Srivastava: You have a follow-up on that? Ananda Baruah: Yes, thanks. Maybe this is for Don. I guess the March gross margin, am I correct, in recalling that March gross margin was actually originally anticipated to be impacted by product transition, yield dynamics, normal stuff? And, if that did in fact occur, does that actually mean that the normal the structural margin is actually set up higher than what you guys reported? Don Bennett: I think we guided at 50 basis point improvement. We actually saw better yields and utilization. The ramp of our new product technology was faster-than-expected, as we announced in our press release. So we shipped over 800,000 units of our new 11 disc platform. That's being produced at very high quality, reliability and yields in our factory today. So that was one of the things that improved gross margin above guide. Ambrish Srivastava: Thank you, Anand. Operator: The next question comes from Mehdi Hosseini with SIG. Please go ahead. Mehdi Hosseini: Yes. Thanks for taking my question. Your main competitor recently announced their intention to acquire Intevac. And I want to learn more how you're thinking about procuring the key components for HAMR technology, especially as you engage with two hyperscalers that you highlighted in the prepared remarks. And I have a follow-up. Irving Tan: Yes. First and foremost, I think the Intevac acquisition by our peer doesn't have any impact on us, because we have obviously two sputtering systems that we use. So, we have resiliency within our technology supply chains, as well. We're obviously looking out for opportunities in which we can continue to capture even more value and accrete even more value to our products through potential acquisitions and vertical integration. So we continue to keep a lookout for them. In many cases, in terms of tool providers, we actually do feel and our philosophy is that, they actually benefit from actually servicing multiple customers, because that's how they can innovate better as well, but that's generally our rule of thumb. But, we're constantly looking at opportunities to see how we can continue to vertically integrate and capture more value within our portfolio. Ambrish Srivastava: Do you have a follow-up Mehdi? Mehdi Hosseini: Yes, sir. And a follow-up has to do with the CFO search, especially since you're executing well right out of the gate and committing to dividend, cash dividend? And to what extent, what's the update on the CFO search? And how should we think about the execution and search for the CFO? Irving Tan: Yes. Thanks for the question. First and foremost, I really must thank Don for agreeing and stepping into the interim CFO role. He has done a great job, as you can hear from the results, as well. The search is progressing very well and we'll communicate in due course once we have a CFO identified. Ambrish Srivastava: Thank you, Mehdi. Operator: Thank you. The next question comes from Tim Arcuri with UBS. Please go ahead. Tim Arcuri: Thanks a lot. Drive units were down from 13.5 million down to like 12.1 million in March. So is 13.5 million is that kind of like should we think about that as the high watermark for the number of drives you could produce in a quarter? Irving Tan: I wouldn't use that as a watermark. I think it really depends on mix. It also depends on the various capacities that we are delivering. As Don mentioned, the teams continue to do a great job on really pushing the boundaries of yield and output that we can within the supply environment that we have. So, again, it fluctuates really based on yield and the mix of products that we have. Don Bennett: And I'll just add there's segment mix client and consumer was down for the quarter as we ramp into seasonal periods with Prime Day and back-to-school and Christmas. We may see some of that volume come back in the client consumer space as well, and we have capacity there to expand. Ambrish Srivastava: Did you have a follow-up, Tim? Tim Arcuri: I do, yes. Just back on this question about these LTAs. I mean, these same large customers have similar deals for memory and they routinely overstate what they need. So, why would they not be doing that with you as well? So, I mean, I certainly understand that, demand is good. But, for this stuff that is booking out to next year, why would they not if they need two drives, why would they not tell you that they need three? And if they didn't take the drive, are you going to enforce a cancellation policy on that? Thanks. Irving Tan: Yes. Look, I think we've got into a good healthy relationship with our customers. They have understood that, in order for a hard drive industry to be healthy for us to continue to be able to be profitable and invest in innovation that they benefit from a TCO advantage. It's in both our best interest to provide as best as possible the demand outlook, given the long lead times, especially when it comes to near-line drives. So that's something we've clearly gotten visibility. And in fact, for the two LTAs that we have into the first half of calendar 2026, we actually have some POs associated with them as well. I guess the question is, do we put in a clause around take-or-pay? To be frank, we're not a fan of that because all you're doing is creating problems down the road. And so, we'd rather work with our customers to smooth out demand and make sure we continue to work with them to have the right and appropriate supply-demand balance to sustain a profitable business that we can continue to invest in innovation for them going forward. Ambrish Srivastava: Thank you, Tim. Operator: The next question comes from Vijay Rakesh from Mizuho. Please go ahead. Vijay Rakesh: Yes. Hi, just a quick question on the HAMR side. When you look at the two hyper-scale customers you mentioned, is that -- are you still looking at ramping those like in calendar '26, like second half twenty six, I think, as you mentioned on the Analyst Day event? Irving Tan: Yes. So as per the road map we've communicated, which has been shared with our customers for quite a while, at Analyst Day was when we made it more public to the general population, but that road map has been done in partnership for customers for quite a while. Just to reiterate what we shared, we're looking to start qualifications in the second half of calendar year of 2026, with high volume production ramp in the first half of calendar year 2027. Vijay Rakesh: Got it. And then on the tariff side, just a quick clarification. When you look at shipping into China, is that going from your Malaysia facilities or do you ship hard drives into China? And likewise, in The U.S., how much of that is you have production here versus coming in from Malaysia, et cetera? If you can give us a little bit of color around that. Thanks. Irving Tan: Yes. We have production facilities throughout Asia. So, none of our products that we ship into The U.S. is coming from China. Most of it's coming in from Southeast Asia. Products going to China are not subject to any tariffs. As of April 11th, products that we ship into The U.S. are also not subject to any tariffs. Obviously, that situation is evolving and fluid, so we stay very close to it. Ambrish Srivastava: Thank you, Vijay. Operator: Thank you. The last question comes from Krish Shankar from Citi Cowen. Please go ahead. Unidentified Analyst: Hi, guys. This is Eddie for Kirsh. How should the investors think about the impact from rare earth export control from China? I think, historically, you guys were able to recycle some of these metals, but at some point, it did impact your margins. I just wonder, if down the road, it's an area investors should be thinking about. Irving Tan: Yes. Thanks for the question, and it's a good one. We over the last few years have really been on a supply chain resiliency program, where we have been able to develop alternate sources of supply for both rare earth and precious minerals as well. So, we don't anticipate there being any material impact as a result of some of those controls. Ambrish Srivastava: Did you have a follow-up? Unidentified Analyst: Sure. Thanks, Irving. And as you guys ramp the 11 disc platform, how should we think about the margin impact? Because my understanding is as you add discs, it may reduce the gross margin equation, or do you think it's at a point where it's mature enough where margins would be unaffected by that ramp? Thank you. Don Bennett: Yes. So the margin accretion is included in our guidance. So we factor the ramp of the new technology into guidance. Irving Tan: Yes. Maybe just to add on to Don's comment. We were already ahead of our ramp plans in Q3. As I mentioned in my prepared remarks, we shipped over 800,000 units of that new 11 disc platform. We'll be shipping well over 1 million units in Q4. We are seeing very high yields and productivity coming out of those platforms. So I guess to your question, they're actually margin accretive as opposed to being dilutive. Unidentified Analyst: Thank you. Operator: Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Irving Tan, Chief Executive Officer, for any closing remarks. Irving Tan: Thank you all very much for joining us today, and it's very exciting to have our first quarter out as a standalone HDD company. As you can see from the results in the guide, we're executing well on our strategy that we've laid out at Investor Day, really being focused on our customers, driving leading-edge innovation, being extremely disciplined on operational excellence and having rigorous financial discipline and a very capital-friendly return policy, this quarter and the guide that we have shared, I think, truly reflects that. We thank you for your ongoing interest in WDC, and I look forward to catching up with all of you in due course. Operator: This concludes today's conference call. Thank you for joining us. You may now disconnect.

Operator: Good afternoon, and thank you for standing by. Welcome to Western Digital's second quarter fiscal 2025 conference call. Presently, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. [Operator instructions] As a reminder, this call is being recorded. Now, I will turn the call over to Mr. Peter Andrew, Vice-President, Financial Planning and Analysis, and Investor Relations. You may begin sir. Peter Andrew: Thank you, and good afternoon, everyone. Joining me today are David Goeckeler, Chief Executive Officer; and Wissam Jabre, Chief Financial Officer. Before we begin, let me remind everyone that today's discussion contains forward-looking statements based on management's current assumptions and expectations and, as such, does include risks and uncertainties. These forward-looking statements include expectations for our product portfolio, our business plans and performance, the separation of our Flash and HDD businesses, ongoing market trends, and our future financial results. We assume no obligation to update these statements. Please refer to our most recent financial report on Form 10-K and our other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations. We will also make references to non-GAAP financial measures today. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the Investor Relations section of our website. With that, I will now turn the call over to David for introductory remarks. David Goeckeler: Thanks, Peter. Good afternoon, everyone, and thank you for joining the call to discuss our second quarter fiscal year 2025 performance. As many of you know the completion of our separation later in the fiscal third quarter, I will become the CEO of SanDisk. As a result, this will be my last earnings call as the CEO of Western Digital. Before we dive into our second quarter results, I want to express my gratitude to our employees, customers, partners and shareholders for their unwavering support throughout my tenure. It’s been an honor and a privilege to serve as the CEO of Western Digital and I’m immensely proud of what we’ve accomplished together to position both of our franchisees for long-term success as standalone companies. Now onto the results. For the second fiscal quarter Western Digital delivered revenue of $4.3 billion, non-GAAP gross margin of 35.9% and non-GAAP earnings per share of $1.77. Our commitment to enduring quality and reliability driven by our industry leading innovation and diversified portfolio has enabled us to navigate the current market's dynamics effectively. While our HDD business is experiencing robust growth, particularly in high capacity enterprise drives, our Flash segment faces temporary headwinds due to pricing pressure. Despite these challenges, we are strategically well positioned to capitalize on growing long-term storage demand from the AI data cycle. Our HDD business continues to perform well, propelled by our cutting edge Ultra SMR technology. This innovation allows us to push the boundaries of storage capacity while maintaining the gold standard in reliability, quality and performance. The market has responded to our products enthusiastically, driving our HDD revenues to a 12 quarter high with a record non-GAAP gross margin. We're seeing increasing adoption of our newer and higher density drives, underscoring their ability to meet the evolving demands of the storage market. I'm pleased to report that we're in the final stages of our plan to separate our Flash and HDD businesses and expect this to be completed on schedule. During the second fiscal quarter, we achieved two crucial milestones completing our Form-10 filing and finalizing key financing activities necessary for the separation. Thanks to the meticulous planning and dedication of our teams, we're ready to operate as independent entities. We invite you to join us for our upcoming Investor days on February 11th for SanDisk and February 12th for Western Digital, where our respective management teams will share their strategic visions and demonstrate how each business will drive shareholder value as standalone entities. We anticipate that within a few weeks after the Investor Days, Western Digital and SanDisk shares will begin trading as independent companies. Turning to our business units. In Flash, revenue was stable and in line with expectations. Strength in client and consumer resulted in better than expected bit shipments. However, increased pricing pressure due to short term oversupply from increased utilization rates throughout calendar year 2024 coupled with customers working down inventory offset our bit shipment results. Cloud pricing was a positive given continued AI driven demand. Taken together, the result was sequential decline in profitability. In fiscal year 2024, consumer experienced growth across revenue units and gross margins as the end market benefited from a market recovery. While revenue and units grew sequentially in the fiscal second quarter of 2025 gross margin declined due to pricing pressure caused by oversupply in the broader NAND market. Despite this recent softening, our external SSD drive shipments grew 50% sequentially. Our efforts in bolstering consumer preference, expanding partnerships and launching our new creator series at CES all provide SanDisk with the right foundation to drive organic demand and margin expansion. Now turning to the Flash outlook, we believe that we are currently in a mid-cycle pause. In the fiscal third quarter, we expect bit shipments to be down with stronger demand in data center and mobile more than offset by lower bit shipments in PC OEM and consumer. Given the stronger than anticipated pricing headwinds, we are proactively managing production levels to respond to ongoing inventory adjustments and evolving demand dynamics across our end markets. By optimizing utilization and total capacity with a key focus on delivering premium nodes, we aim to accelerate stabilizing profitability in this dynamic market. In this new era of NAND, with lower utilization and less intense CapEx environment relative to historical periods, we are seeing supply growth appropriately responding to the current short term headwinds affecting demand and we expect to see a recovery as we move through calendar year 2025. Specifically, we expect client inventory digestion to continue into the first half of calendar year 2025 with normalization in the second half paving the way for recovery that will enable the AI driven PC ramp in the Windows refresh cycle to gain momentum. In data center, we project Cloud CapEx to continue to grow in calendar year 2025 and we continue to make good progress qualifying our cloud products with customers to capture our fair share of this market. Lastly, our consumer business continues to perform well and while we expect seasonal weakness in bit shipments, our premium brands are providing ASP support to the overall portfolio. We look forward to discussing our views on the Flash business at the SanDisk Investor Day on February 11th. The team and I will discuss why we believe that our markets are strong and growing, how rapid adoption of AI is creating new opportunities, what differentiates SanDisk and how the Flash industry is evolving. We are very excited and believe you will be as well. Our HDD business delivered another quarter of strong performance with data center revenue hitting an all-time high. This achievement underscores the strength of our near line storage solutions and how well positioned we are to benefit from ongoing market tailwinds. The HDD business also achieved record gross margins as customers continued to increase the adoption of our higher capacity drives and we shared in the TCO benefit provided by our innovative products. We are operating in an environment where demand for our product exceeds supply. To proactively manage this, we continually work with our customers to get visibility into their future needs. In these tight conditions, we might see volatility in shipments from quarter to quarter, but over the longer-term we continue to progress toward a state of predictable business operations and sustainable profitable growth. Turning to the HDD outlook. In the fiscal third quarter, we anticipate continued momentum in data center to drive strong demand across our nearline portfolio. As I mentioned, our supply is now very tight which is helping us get better visibility into long-term customer demand and enabling better planning for product deliveries in the coming quarters. Our customers increasingly appreciate the complexity of the HDD supply chain and the need for us to better anticipate future demand. As we continue to broaden adoption of our UltraSMR portfolio at our largest customers and complete the qualification and ramp of our newest drives, we anticipate profitability will continue to improve in the coming quarters. The HDD business positive structural transformation continues to gain momentum. We remain focused on operational excellence, efficient cost structure and a strong commitment to maintaining a balanced supply demand dynamic. We are well positioned to continue delivering the most profitable and innovative product portfolio while establishing long-term industry leadership through our earnings potential. During the upcoming WD Investor Day on February 12, Irving and his team will provide a detailed overview of HDD's strategic roadmap. I want to take a moment to acknowledge the CFO transition announcement that we made two weeks ago. After nearly three years with us Wissam will be moving on to another opportunity. Wissam has been an outstanding partner and leader at Western Digital, helping us successfully navigate the company through the ups and downs of our end markets and build a strong financial profile at both HDD and Flash. On behalf of the Board and everyone at Western Digital, I want to thank Wissam for his many contributions, including seeing us through the separation, and wish him the best of luck in his next role. Let me now turn the call over to Wissam who will discuss our fiscal second quarter results. Wissam Jabre: Thank you David, and good afternoon everyone. In the fiscal second quarter, Western Digital delivered results generally within the guidance ranges we gave in October in the face of a challenging pricing environment in Flash. Total revenue for the quarter was $4.3 billion, up 5% sequentially and 41% year-over-year. Non-GAAP earnings per share was $1.77. Looking at end markets, Cloud represented 55% of total revenue at $2.3 billion, up 6% sequentially and more than doubling year-over-year. On a sequential basis, the growth was due to an increase in nearline HDD shipments, while Flash was down. On a year-over-year basis both HDD and Flash revenue grew. Client represented 27% of total revenue at $1.2 billion, down 3% sequentially and up 4% year-over-year. Compared to last quarter, Flash revenue declined as bid shipment growth was offset by pricing pressure while HDD revenue was flat. Year-over-year an increase in Flash revenue was primarily due to higher ASPs as bid shipments declined and was partially offset by lower HDD revenue. Consumer represented 18% of revenue at $0.8 billion, up 14% sequentially and down 8% year-over-year. Sequentially, both Flash and HDD bid shipments grew and drove revenue growth while pricing was a headwind. Year-over-year the decrease was due to lower shipments in Flash and HDD and pricing in Flash. Turning now to revenue by business unit. In the fiscal second quarter, Flash revenue was $1.9 billion flat from last quarter and up 13% year-over-year. Sequentially, Flash ASPs decreased 13% on a like-for-like basis and 10% on a blended basis. Bit shipments were up 9% from the previous quarter and down 2% compared to last year. HDD revenue was $2.4 billion, up 9% sequentially and 76% year-over-year. The strength of our nearline portfolio delivered exabyte growth of 7% on a sequential basis and 93% versus a year ago. Average price per unit increased 5% sequentially to $172. Nearline bid shipments were at a record level of 154 exabytes. Moving to the rest of the income statement, please note my comments will be related to non-GAAP results unless stated otherwise. Gross margin for the fiscal second quarter was 35.9% which was below our guidance range. Sequentially, gross margin was down 2.6 percentage points and up 20.4 percentage points from a year ago. Flash gross margin was 32.5%, down 6.4 percentage points sequentially due to pricing pressure late in the quarter. Flash gross margin was up 24.6 percentage points from a year ago. In HDD, strong demand for nearline drives resulted in gross margin improvement of half a percentage point on a sequential basis to 38.6% and 13.8 percentage points from a year ago. Operating expenses were down sequentially at $674 million including the synergy expenses of $17 million. Lower than expected operating expenses were due to the synergy costs being lower than expectations while progress towards executing the SanDisk spin remains on track. In addition, variable compensation was lower than expectations aligned with business performance. Our results demonstrate continued focus on cost discipline while making progress towards the completion of the business separation. Operating income was $864 million, down 2% sequentially driven by lower gross margin, partially offset by lower operating expenses. Operating margin was 20.2%, down approximately 140 basis points sequentially but favorable compared to operating losses posted last year. Income tax expense was $105 million and the effective tax rate was 14%. Earnings per share was $1.77. Operating cash flow for the fiscal second quarter was $403 million and free cash flow generation was $335 million. Cash capital expenditures, which include the purchase of property, plant and equipment, and activity related to flash joint ventures on the cash flow statement represented a cash outflow of $68 million. Fiscal second quarter inventory was largely flat at 3.4 billion, with days of inventory declining by 9 days to 112 days. A decrease in HDD inventory was offset by an increase in flash inventory. Gross Debt outstanding was $7.4 billion at the end of fiscal second quarter. Cash and cash equivalents were $2.3 billion and total liquidity was $4.5 billion, including undrawn revolver capacity. During the fiscal second quarter we successfully arranged financing for the upcoming separation of our business, which is a key milestone in the progress towards the spin of SanDisk. I'll now turn to the fiscal third quarter non-GAAP guidance for Western Digital on a combined basis. We anticipate overall revenue to be in the range of $3.75 billion to $3.95 billion. Gross margin is expected to be between 31.5% and 33.5%. We expect operating expenses to increase slightly to a range of $700 million to $720 million including the synergy costs of $25 million to $40 million as we finalize the separation of our businesses. Interest and other expenses are anticipated to be approximately $100 million. The tax rate is expected to be between 14% and 16%. We expect EPS of $0.90 to $1.20 based on approximately 358 million shares outstanding. We are looking forward to both of our Western Digital and SanDisk Investor Days in just a couple of weeks to discuss each business in more specific detail. For now, I provide directional perspective on expectations from each business in the fiscal third quarter. For Flash we expect revenue to decline sequentially in the mid-teens percentage and gross margin to decrease due to lower blended ASPs, higher cost per bit and underutilization charges of $20 million to $30 million as we manage our supply. Flash bits are expected to decline sequentially by mid-single digit percentage. We also expect underutilization charges to continue in the June quarter. For HDD we expect revenue to decrease sequentially by mid-to-high single digit percentage on lower volume. While gross margin is expected to improve by approximately 50 basis points as average price per unit continues to trend higher. We are focused on executing the final stages of the spin and navigating current market dynamics while continuing to deliver robust financial performance. I would like to close by saying that it has been a tremendous honor to partner with David and the fantastic team at Western Digital. I'm extremely proud of the team's accomplishments over the past three years. There is no doubt in my mind that both the HDD and Flash businesses are strong and resilient and both will continue to provide industry leading products to the marketplace while unlocking significant shareholder value for the respective shareholders. With that, I'll now turn the call back over to David. David Goeckeler: Thanks Wissam. Our results this quarter reflect our efforts to actively manage near term cyclicality across our end, knowing we have a solid foundation for future success that is underscored by our industry leading product roadmap. As we complete the separation, I am extremely confident in our respective team's ability to drive shareholder value in both the HDD and Flash businesses. Both companies will continue to be driven by the structural long-term tailwinds of the AI data cycle and our ability to consistently offer our customers the most compelling and innovative storage solutions. Before we move to the Q&A session, I'd like to highlight that we will also be joined today by Irving Tan, who will step into the role of CEO at Western Digital, and Luis Visoso, who will assume the position of CFO at SanDisk. Peter, let's start the Q&A. Operator: Thank you. [Operator Instructions] And ladies and gentlemen, we will now begin the question and answer portion of today's call. One moment please for the first question and today's first question comes from C.J. Muse at Cantor Fitzgerald. Please go ahead. C.J. Muse: Yes, good afternoon. Thank you for taking the question. I guess first question on the HDD side, you talked about a sequential decline for the March quarter. Curious, is that a function of simply lower client and consumer units, or are you also seeing a pause in cloud? And within that construct, can you speak a bit more about your prepared remarks related to expectations for volatility, Q-on-Q and HDD? Trying to better understand what's really driving that underlying change. David Goeckeler: Hey C.J., thanks for the question. I'm going to let Irving take that one. Irving Tan: Thanks, David. Hi C.J. look, I think we've seen over five quarters of very strong positive growth in revenue and the outlook for the business remains healthy. There will be quarter-on-quarter variations as we support customers with the timing of their deployments and also balancing the supply demand tightness that we have. So that's really what's driving the slight decline in Q3. C.J. Muse: Great, very helpful. And I guess Dave, a question for you two part. First, what gives you the confidence that this is just a mid-cycle pause and then within the spin of the NAND asset, are there any other sort of technical regulatory things that we should be thinking about that are necessary to get that done in the next four weeks? Thank you very much. David Goeckeler: On the spin, you'll see more about that literally the next couple days. We feel really good about that being on track. Wissam can go through some of the dates here in a minute. Look, on the NAND we’re still seeing, bits were up 9% this quarter. They're going to be down just mid-single digits next quarter. We're still seeing good volume. We think some of the demand that we expected to materialize in PC and smartphone has moved to the right a couple of quarters. I don't think that's any secret. We, the industry probably overproduced a little bit too much. We don't see a big drop in the volume. We see still good, good discussions with our customers. It's just the market's oversupplied right now. So we saw some pricing headwinds especially as we move through the quarter which we talked about. Going forward, we expect pricing headwinds next quarter but we expect them to be lower than we saw this quarter. So we feel like this is a pause but we're also going to take, action. As we talked in the past, this new era of NAND, we're going to be much more responsive to the demand signals we see in the market and adjust our production. So we're going to go ahead and do that and take a little bit of supply out of the market as we move through 2025 and we think that will support pricing stabilization coming back faster. So feel good about where the overall business is. We've had a number of quarters of an upcycle now. Really quite unusual when you look going back, we have a chart here that goes all the way back to 07 and the sequential price changes in the market. And it's very, very unusual. It's not unprecedented to see this many quarters of up in a row without some down. So, the thing here now is just to stabilize the market and we'll do that through the supply side and then we'll get back to what we think is a strong market as we move through 2025 and into 2026. Irving Tan: And C.J. just to follow on David's comments around the spin and the timing, the record date for the distribution will be February 12th and the date of the distribution will be on or about February 21st. And then the shares of SanDisk would be trading in the active markets shortly after. C.J. Muse: Thanks a lot. David Goeckeler: Thanks, C.J. C.J. Muse: You're welcome. Operator: Thank you. Our next question comes from Aaron Rakers at Wells Fargo. Please go ahead. Aaron Rakers: Yes, thanks for taking the question. Good afternoon as well. I guess thinking about the NAND gross margins, I'm wondering if you can unpack if I think about the 20 to 30 million that you talked about as being underutilization charges in the current quarter. If I look back the last time that you took capacity out, that looks like that's around 10% or 15% of the underutilization charges you took a year or so ago. Is that how I think about how much capacity out you're taking? I think the other way of asking it is, I look at some of your competitors and the news is that they're taking -- or so percent of their bit supply out. Is that a fair assessment of what you guys are doing? David Goeckeler: Yes, we're not going to go into exactly how much we're taking out. That's a dynamic decision we make week-over-week, month after month as we look at the business. I think unpacking the gross margin is an important discussion as we go into next quarter. I think one thing for all of you guys to recognize, we're going to see a quarter of cost increases. We managed to that 15% cost decline. We talked about the new era NAND that maybe be more about 12% as we go forward over the next several years. But we had a very good start to the year in cost downs and now we're going to see Q3 were actually up low single digits. So that's a big impact on gross margin. You add underutilization charges on that and then some ASP headwinds as well. Like I said, as we sit here today, we see the ASP headwinds to be moderating versus what we saw this quarter and then bits down mid-single digits. So that kind of gives you unpacking a little bit the gross margin number going forward. Aaron Rakers: Yes, that's very helpful. And just to kind of build on that, is there any way to frame how we should think about the underutilization impact into the fiscal fourth quarter? And just to be clear, is there any risk of inventory charges taken based on the current market dynamics? Thank you David Goeckeler: I think you can probably think about Q4. They'll come up just. They'll come up a little bit from where we were in what we expect in Q3. Maybe think about it, maybe 60, 40 kind of split or 40, 60 kind of split. Wissam Jabre: Yes. And on the inventory, Aaron, look, it all depends on what pricing does. And so -- but as of the end of Q2, our inventory is appropriately stated. Aaron Rakers: Okay, thank you. Wissam Jabre: You're welcome. Operator: Thank you. And our next question today comes from Wamsi Mohan with Bank of America. Please go ahead. Wamsi Mohan: Yes, thank you so much. Dave or Irving. Can you talk about just at a high level where we are in the HDD cycle overall, I think, Dave, you said in your prepared remarks a few times that demand is exceeding supply. Like the calendar Q1 guide is to be down sequentially slightly. So can you help us unpack if that is just seasonality, is there something beyond that? And how should we think about pricing as we think about 20, 25 and maybe the maximum amount of exabytes that you can ship, given that supply is so tight at the current time. And I will quick follow up. David Goeckeler: I'm going to let Irving Talk about 2025. I have enormous confidence in this business and enormous confidence in Irving driving it forward and the entire team. Going into the next quarter, you're going to see some revenue, revenue down a little bit on volume. Look, it's been quite a run. I mean, it's, we got to manage the supply chain, all the components. We do have much more visibility to where our customers are going. It's just order flow. We continue, we're going to continue to see margin improving going into next quarter. So structurally, I think the business is just in a fantastic place, we're getting more visibility, we have increasing profitability and we've got a lot of tailwinds from AI. More demand than supply. But let me let Irving talk about how he sees 2025 playing out. Irving Tan: Yes, thanks, David. As I mentioned briefly, we see the outlook for 2025 still being relatively robust going forward. And as David mentioned, there will be some slight variations quarter-on-quarter, but the outlook for the rest of the year is relatively robust. In terms of pricing, as Wissam alluded to as well, we're looking at pricing to remain stable to slightly up for Q3. And in terms of exabytes, it's really a function of mix. And as we look forward to qualifying our new 32 terabyte drives, that gives us more capacity to provide into the market from an exabyte perspective as well. Wamsi Mohan: Okay, great. Thank you so much. David Goeckeler: Thanks. Wamsi Mohan: As a follow up, can I just ask quickly, on the NAND side, I think you used the word temporary weakness? And I'm just wondering, as you think about some of the actions that you're taking from a supply standpoint, what kind of assumptions are you making around demand recovery, whether it be on PC side or smartphone side, into maybe the second half of the year and is that the timeframe when you're thinking that the market gets tight again? Thank you. David Goeckeler: Yes, I mean, we think as we move through 2025, we're going to see, by the time we get done with 2025, we'll see PC units up, we'll see smartphone units up. Data center continues to remain strong. So we, the demand side, we see that mid-teens demand for the calendar year, we see the market slightly under supplied to that, quite frankly, you didn't ask the question. But we see a bigger step up in demand in 2026. But let's, let's stay with 2025 for now. So, so as I said earlier, we still see good volume in the business. Discussions with customers are very good. We're just in a spot right now where some of that demand we thought was going to come in the PC and smartphone market around this time has been pushed out a little bit. And so we're going to make some adjustments in our supply to support pricing and we think we'll be good as we move throughout 2025. We're very, very optimistic on where we're at from when we again we go back and we look at overall wafer spending in this market. We think that the market is set up in a very strong position. As I said earlier, we've had a very good run of price increases, almost unprecedented. When you go back over the last decade, it's not surprising we'd see some kind of pause like this and we'll. I think what's different this time is we're going to adjust supply much more quickly than we have in the past to respond to this and accelerate bringing the market back to a more of an equilibrium, to an undersupplied position. Wamsi Mohan: Thank you so much. David Goeckeler: Thanks Wamsi. Operator: Thank you. And our next question comes from Tim Archeri with UBS. Please go ahead. Unidentified Analyst: Hey guys, this is Ari and on for Tim. Thanks for taking my question. It is one thing when you and Seagate had excess capacity, but it seems like you really can't ship much if any more than the 13.5 million drives you're shipping and now passing above this 10 year trend line. I would think that maybe there's more urgency from the customers on getting in orders for BTO. So any change in behavior and I will follow up after. David Goeckeler: Yes, we haven't seen any change. Thanks for the question. We haven't seen any change in behavior. As you're aware, one of the things we've pivoted to is really moving to BTO. That's giving us a lot more visibility on a 52-week time horizon so that we can better plan with our customers and ensure we have the right supply demand balance and that's really ensuring that there's not buildup of inventory within our customer environments. Unidentified Analyst: And then on the -- my follow up on the NAND side, the NAND cycle just got started and we turned capacity back on. Now we're going through another correction on the consumer side. And so what would you do once this is a standalone business? Are you still going to care at all about market share or will you do more like what you did on the HDD and manage to driving margins higher with less regard per share? Thank you. David Goeckeler: Yes, that's a question for our investor day on the 11th and we're going to talk about that in quite a bit of detail. So we'll have a lot to say about that here in another week and a half. But I think the way we're managing the business now is what you're going to see more of going forward. We were very clear, we put out a pretty big webcast on the new era of NAND about how we thought about this business, how it's changed in the 3D era, how we our belief and how it needs to be managed. And I think you're seeing that play out in real time here this quarter. And we'll talk about that in more detail here in a couple weeks and we'll hope to see you in New York. Unidentified Analyst: Awesome. Thank you, guys. David Goeckeler: Thank you. Appreciate it. Operator: Thank you. [Operator Instructions] Today's next question comes from Joe Moore at Morgan Stanley. Please go ahead. Joe Moore: Great, thank you. I wonder if you could give us an update on Enterprise solid state drives. I know there's been some choppiness in that segment. Are you still tracking your targets and just how are you, how are you doing there? David Goeckeler: Hey, Joe. Yes, we're doing fine there. We're still tracking the targets. There is some -- there. I think I said during the quarter we're in for a couple choppy quarters and I think that's what we're seeing. That was a highlight last quarter, certainly from supporting pricing. We still feel good about our 15% plus 15% to 20% of mix as we're sitting here at the halfway point through the year. This is another thing we're going to have a lot to talk about our investor day about kind of what our roadmap looks like in Enterprise SSD. But we're still seeing strong demand there, Joe. Joe Moore: Great, that's helpful. Thank you. And then just more of a procedural question, but is there a time where you'll give guidance for the two businesses separately? Does that happen at the analyst days at the spin and form 10 just or just how should I think about that? David Goeckeler: Yes, we'll talk more about that at the investor days. I think with Wissam’s prepared remarks, he gave you enough guidance there that you can kind of get a very good idea of what the numbers are going to be. But we'll reinforce that here in another 10 days. Joe Moore: Okay, thank you very much. David Goeckeler: Thanks, Joe. Operator: Thank you. And our next question today comes from Thomas O'Malley of Barclays. Please go ahead. Thomas O'Malley: Hey, thanks for taking my question. I just wanted to ask about CapEx. You're starting a new calendar year here and I'm sure you'll give us a broader update at the analyst day. But given the reduction in utilization and just a broader pause, you're saying kind of a mid-cycle pause in the business. Any update on how you're thinking about spend on the Flash side? You've talked about technology transitions. It sounds like the SSD business is going through a couple of lumpy quarters just with all of those factors in. Any additional color on how you think about spending on the NAND side of the business, particularly? Thank you. Wissam Jabre: Yes. Hey Tom, thanks for the question. So look, there's no change in the approach on CapEx. As we've said all along, we want to stay, remain disciplined in how we deploy the cash and capital for the company. Obviously, probably the next thing over time will be just at some point ramping the next node, but from an overall perspective, there's no real change on the thinking. I'm pretty sure as we get to investor day, David and Luis will have much more to add on that as well. Thomas O'Malley: Yes, helpful. And then pivoting to the HDD side. So Seagate has given us some framework for where they think their capacity kind of hits a wall on the HDD side that's about 160 exabytes on a quarterly basis. You guys have kind of gotten, I believe in this last quarter to around 175 exabytes. Could you help us understand where you guys start running into a wall in terms of capacity? You've talked about some capacity drawdown potentially into the March quarter. But is there a similar framework that you guys go by? Just historically the market has been a little bit different than you guys being ahead in terms of the number of exabyte chips. So any kind of help with where you run into a wallet, you continue to grow there. Thank you. Wissam Jabre: Yes, I don't think we're going to make any comment on that. We are quite focused on ensuring we get the right, we have the supply, demand, balance and continuing to be very prudent and disciplined in our capital expenditure. Operator: Thank you. [Indiscernible] comes from Karl Ackerman with BNP Paribas. Please go ahead. Karl Ackerman: Yes, thank you gentlemen. The last quarter you launched the 32 terabyte SMR and 26 terabyte CMR with 11 disks. And I think you noted you would complete qualifications in coming quarters. I think you have that beginning to ship at two hyperscalers now and perhaps a third one is in the process of qualifying. So I was hoping you could discuss the order rates and visibility you see for these high capacity drives as we think about the sustainability and growth of the HDD business throughout 2025. Thank you. Irving Tan: Hi, this is Irving. Thanks for the question. As mentioned, we see the outlook for nearline continuing to be healthy as you've alluded to. We expect the qualification for new 32 terabyte SMR and 24 terabytes CMR to be completed sometime in CQ1 of the calendar year. And I would say our customers are very excited about those drives and will provide you more visibility as we move forward. Karl Ackerman: Thank you. Irving Tan: Thanks Karl. Operator: Thank you. And our next question today comes from Asiya Merchant with Citigroup. Please go ahead. Asiya Merchant: Yes, thank you very much. One question we get. I understand the seasonality here in March and I understand a couple of quarter where there is some variability. But any visibility into the inventory levels here and then just at the hyperscalers how you guys are thinking about it and then just the supply chain on the HDD side. How are you thinking about the supply chain being able to meet the rising demand that you guys are thinking about? Thank you. Wissam Jabre: Yes, thanks for the question. Look, when we talk about Q3 and what we guided is very much necessarily indicate lower visibility or higher visibility. We think we have good visibility of what the inventory is doing in our customers and where the orders look for the next few quarters. It's just a matter of timing of orders. And so this is how sort of probably the best way to think of it. There isn't very much more than that going on at least as we see from where our customer’s inventories and orders look like. In terms of the supply chain. Look, we are operating in a tighter supply chain on the hard drive side. We've said that for the last couple of quarters. I think we have a great operations team that continues to be able to manage to deliver to our customers as many products as we can and we will continue to operate as such in the next few quarters. The fact that we moved to build to orders with many of our customers gives us great visibility or greater visibility than before and so that also helps in the ability to continue to deliver the products when required, when needed. Asiya Merchant: Thank you. Wissam Jabre: Thank you. You're welcome. Thank you. Operator: Thank you. And our next question comes from Vijay Rakesh with Mizuno. Please go ahead. Vijay Rakesh: Yes, hi. Just to follow up on the hard disk drive side, good numbers there. But I think as you move this capacity to create two terabyte disks, I think we were going up to 11. Do you see the need to kind of push on the areal density side too as your fear is moving on the hammer side? Any thoughts there and then a follow up. David Goeckeler: Yes, thanks for the question. We always focus on improving aerial density and performance. That's something we also get a major lift from our Ultra SMR capability and we think that's a huge competitive advantage. And obviously Ultra SMR capability will be extensible even as we transition from our ePMR portfolio eventually to our [Indiscernible] portfolio as well. Vijay Rakesh: Got it. And then on the NAND side, I know you talked about gaining more CapEx guidance at the analyst day. Any thoughts on how you see the pricing margin kind of trend to the year? I know probably haven't talked about that in the past. David Goeckeler: Yes, we don't talk too much about that. I mean I think what, I think I said I see going into next quarter, I see. We see some ASP headwinds but those moderating in intensity from what we saw this quarter. So that's, that's a good sign as we sit here today. And this is why we're taking the supply actions we're taking is to support pricing, to get, we're seeing some headwinds here. We still have some, we still have a lot of confidence in demand as we move throughout the year. But we'll make some, some adjustments here to make sure that we bring the market back into balance and an slightly undersupplied spot as quickly as possible to support pricing and margins in the business. Vijay Rakesh: Got it. Thank you. Operator: Thank you. And our next question today comes from Ananda Baruah. I'm sorry, with Loop Capital. Please go ahead. Ananda Baruah: Yes, thanks guys for taking the question. I'll just keep it to one, but David would love to get your or any of your view on sort of Flash, the role of Flash in hyperscale storage. The area that's been sort of overwhelmingly represented by Neil and Jack. There's a pretty, it's a pretty big flash vendor, systems vendor that made it pretty public announcement in December about having a hyperscale win. And that's been a big topic of conversation over the last few months here in both businesses. So we'd just love to get your view on dynamics in that market. That's it for me, thanks. David Goeckeler: All right. Yes, my position's been pretty stable here for quite some time. This is use case driven. There's always going to be use cases that use Flash. There's always going to be use cases that use hard drives. That mix has been relatively stable. Maybe it changes a little bit simply because Flash is growing faster and you tend to see newer use cases come for Flash. I think AI model training is a good one. That's very Flash driven type use case. However, once you start generating all that data, it's going to go back onto hard drives. And the hard drives have a very robust roadmap as Irving talked about. Very strong focus on aerial density. Continue to drive cost downs there. Tremendous innovations. The arbitrage on the cost there is going to stay the same for quite some time. But Flash is going to grow a little faster. Hard drives are going to grow. As they say, two things can be true. They're both true and we feel very strong about both of them. As far as hard drives in the cloud, I'll note that we just shipped nearly 161exabytes in a quarter into the cloud. So this is a very big at scale business. There's always going to be use cases where again, there's always going to be use cases in the hyperscale that come up that can be satisfied with Flash. We're very big fans of that. Right. We're very bullish on Flash as well. It doesn't mean it's at the expense of hard drives. It's just that's how we see the market. We've called that way for years and we continue to see that dynamic playing out. It's good for both businesses. I mean, look, take it up a level. We've got all this AI demand. There's been a lot of conversation about AI in the last several days. As a matter of fact, some major innovations in accelerating the adoption of AI. It's an area where there's an incredible amount of investment going which leads to amazing innovations. And as this market continues to accelerate, that's going to be great for both of these businesses. It's going to accelerate the creation of data. It increases the value of data to train more models, which increases the amount of data that gets stored. So this is going to drive hard drives dramatically as inference moves to the edge. Remember, we talk a lot about enterprise SSDs. It's a very important, very big market. But NAND is predominantly an edge business. And as inference moves to the edge, it's going to drive an enormous amount of NAND consumption there as well, both in unit growth capacity per unit. So we're very, very bullish on the storage market and we've seen some great dynamics here over the last year and we think this is going to continue for quite some time. Ananda Baruah: Thank you for all of that. Really appreciate it. David Goeckeler: Thank you. Operator: Thank you. And our final question today is from Mark Miller at the Benchmark Company. Please go ahead. Mark Miller: Thank you for the question. I just was wondering, are you seeing across the board supply reductions by your NAND competitors and if so, any estimate on how much they're reducing? David Goeckeler: I don't, I think, we don't, we don't really talk about what our competitors are doing. We're going to focus on talking about our business. I mean, we've been very clear about what we've been doing. We see this little pause in the market. We were very, very open about how we're going to manage the business going forward in this new era of NAND. We talked a lot about that, just about how the -- how expensive the nodal transitions are and how we have to be very disciplined on cap backs and we have to be very disciplined about how we supply the market, given just how big the market is now and how much productivity comes out of these nodal transitions. So that's the way we're managing the business. We continue to see good demand throughout this year. We continue to see a balanced, undersupplied market and we're going to take some actions just to make sure that's the case across our portfolio based on what we're seeing. Mark Miller: Thank you. David Goeckeler: Thank you. Operator: Thank you. This concludes the question-and-answer session. I'd like to turn it back over to the management team for closing remarks. David Goeckeler: Thank you everybody for joining us. We look forward to seeing all of you in New York here in a couple weeks and talking about these two businesses we feel very good about. We've executed this separation over the last year, and we're right here on the doorstep of launching these as two separate companies. And we look forward to talking to all of you about that in great detail here in just another 10, 11 days. So we look forward to seeing you then. Thanks for joining us today. Operator: Thank you, everyone. This concludes today's conference call. We thank you all for joining. You may now disclose your lines and have a wonderful day.

Operator: Good afternoon and thank you for standing by. Welcome to Western Digital's Fiscal First Quarter 2025 Conference Call. Presently, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded. Now I will turn the call over to Mr. Peter Andrew, Vice President, Financial Planning and Analysis and Investor Relations. You may begin. Peter Andrew: Thank you and good afternoon everyone. Joining me today are David Goeckeler, Chief Executive Officer; and Wissam Jabre, Chief Financial Officer. Before we begin, let me remind everyone that today's discussion contains forward-looking statements based on management's current assumptions and expectations and as such, does include risks and uncertainties. These forward-looking statements include expectations for our product portfolio, our business plans and performance, the separation of our Flash and HDD businesses, ongoing market trends and our future financial results. We assume no obligation to update these statements. Please refer to our most recent financial report on Form 10-K and our other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations. We will also make references to non-GAAP financial measures today. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the Investor Relations section of our website. With that, I will now turn the call over to David for introductory remarks. David Goeckeler: Thanks, Peter. Good afternoon, everyone, and thank you for joining the call to discuss our first quarter fiscal year 2025 performance. Western Digital delivered revenue of $4.1 billion. Non-GAAP gross margin of 38.5% and non-GAAP earnings per share of $1.78. Our dedication to lasting quality and reliability through our industry-leading innovation and diversified portfolio have allowed us to proactively mix bits into the most profitable end markets, resulting in sequential revenue growth and margin improvement across both Flash and HDD. These growth opportunities are bolstered by the AI Data Cycle, substantially increasing the long-term need for storage across both our Flash and HDD markets. In Flash, the proactive measures we took during the downturn along with our disciplined capital investment strategy have significantly enhanced Western Digital's business agility and structural margin potential. Combined with our flexibility and bit allocation and continued progress in bringing highly compelling enterprise SSDs to market, we mitigated headwinds in certain core end markets, achieving sequential and year-over-year revenue growth and improving Flash gross margin beyond our through-cycle target. In HDD, the strength of our portfolio lies in our UltraSMR technology, which empowers us to deliver the industry's highest capacity hard drives while ensuring unmatched reliability, quality and performance. Western Digital has achieved record HDD gross margin and the highest revenue levels in 11 quarters, driven by the growing adoption of our UltraSMR drives to meet the demand for scalable and cost effective storage solutions. This technology is a key driver of our continued gross margin improvement with wide adoption of two cloud customers and a third expected to ramp shortly. We anticipate UltraSMR will continue to grow across the US and beyond, solidifying our leadership in the market over time. Now, I would like to provide an update on our business separation plans. We are on track with the separation of our Flash and HDD businesses. At the start of the fiscal second quarter, we completed our soft-spin phase. Through meticulous planning and project management, this massive initiative has been executed exceptionally well and the businesses have hit the ground running, thanks to the dedicated efforts of numerous teams over the past year. In the fiscal second quarter, we continue to execute our soft-spin stage and are working diligently on the critical work streams needed as we make significant progress on the regulatory filings required in connection with the spin. Financing activities are anticipated to start soon, which will set the stage for us to execute the separation, which we expect will occur once we close the second quarter. I'll now turn to business updates. Starting with Flash, revenue reached its highest level in nine quarters. Sequentially, revenue growth was driven by continued recovery in data center fueled by strong demand for our enterprise SSD applications, which grew 76% sequentially, reaching the highest revenue level since fiscal fourth quarter of 2022. The cloud tailwind in the quarter was offset by ongoing weakness in consumer and in client with PC OEMs working down inventory and pushing out the refresh purchase cycle. On the technology front, we made significant progress with several hyperscaler and storage OEM qualifications including developments with PCI Gen 5 data center enterprise SSD and our 30 and 60 terabyte high capacity offerings. In addition, we continue to enhance our premium SanDisk brand by delivering on our leadership blueprint and core devices roadmap, expanding our platform capabilities with product partnerships developing robustly. I'll now turn to our Flash outlook. As we look ahead to the fiscal second quarter, we expect the continued ramp of our new enterprise SSD offerings to supplement seasonal strength in our consumer end market. Within client, we expect PC OEM demand to stabilize while gaming declines as we have successfully met the demand for the holiday season. We anticipate a recovery in our consumer and client end markets as we move through calendar year 2025. Furthermore, we are seeing high demand for enterprise SSD product offering and anticipate it to serve as the primary driver for revenue growth for the full fiscal year, with qualifications doubling since the start of the fiscal fourth quarter 2024. We now expect our enterprise SSD mix to comprise over 15% of our overall portfolio bit shipments in fiscal year 2025 growing at a pace significantly faster than previously anticipated. Our overall view of the Flash market remains positive as we maintain supply and demand balance by remaining committed to disciplined capital spending and improving profitability through a proactive bit allocation across our most high value end markets increasing our exposure to enterprise SSDs. Turning to HDD, in the fiscal first quarter, we achieved record revenue in data center, reflecting the strength of our nearline portfolio and our ongoing efforts to capitalize on market tailwinds. We are operating in an environment where demand for our products exceeds supply. To address this, we are working with our customers to improve our visibility into their future needs with our largest customers on a two to six quarter agreement cycle, aligning seamlessly with our proactive supply management strategy that supports predictable business operations and sustainable profitable growth. This long-term visibility allows us to not only better serve our customers, but also mitigate volatility while structurally improving our through-cycle profitability. On the technology front, we see increasing adoption of our UltraSMR technology showcasing strong confidence in our products' capabilities and benefits. In the fiscal second quarter, we launched our 32 terabyte UltraSMR and 26 terabyte CMR drives, marking the world's first commercially available hard drives with 11 disks. Developed with our time tested and reliable ePMR and UltraSMR technologies, we expect these products to complete customer qualifications and ramp in the coming quarters, delivering a compelling TCO to our customers and improving portfolio profitability. Turning to the HDD outlook, as we head into the fiscal second quarter, we anticipate continued momentum in data center to drive growth across our nearline portfolio. Adoption of our UltraSMR product line is expanding, particularly among cloud customers. The HD business continues to undergo a positive structural transformation. Our thoughtful approach to commercializing our product line, especially our UltraSMR technologies has enabled us to drive record revenue in the midst of AI's emergence as another pivotal growth driver for the industry. And with improved visibility into future demand, a focus on operational excellence, efficient cost structure and a strong commitment to maintaining a balanced supply demand dynamic, we are well positioned to continue delivering the most profitable and innovative product portfolio while establishing long-term industry leadership through our earnings potential. Let me now turn the call over to Wissam, who will discuss our fiscal first quarter results. Wissam Jabre: Thank you, David, and good afternoon, everyone. In the fiscal first quarter, Western Digital delivered great results with gross margin and earnings per share above the midpoint of the guidance range. Total revenue for the quarter was $4.1 billion up 9% sequentially and 49% year-over-year. Non-GAAP earnings per share was $1.78. Looking at end markets, cloud represented 54% of total revenue at $2.2 billion, up 17% sequentially and more than doubling year-over-year. On a sequential and year-over-year basis, the increases were driven by higher nearline shipments in HDD and enterprise SSD bit shipments to datacenter customers. Client represented 29% of total revenue at $1.2 billion flat sequentially, and up 5% year-over-year. Compared to last quarter, Flash bit shipment growth in gaming and mobile was offset by a decline in PC OEM, while HDD revenue was flat. Year-over-year, an increase in Flash revenue was primarily due to higher ASPs as bit shipments declined and was partially offset by lower HDD revenue. Consumer represented 17% of revenue at $0.7 billion flat sequentially and down 7% year-over-year. Sequentially, a slight growth in HDD offset a decline in Flash, driven by softer consumer demand. Year-over-year, the decrease was due to lower Flash and HDD bit shipments, partially offset by improved pricing in both Flash and HDD. Turning now to revenue by segment. In the fiscal first quarter, Flash revenue was $1.9 billion, up 7% from last quarter and 21% year-over-year. Continued recovery in data center drove strong demand for enterprise SSD products. Sequentially, Flash ASPs increased 4% on a like for like basis and decreased 6% on a blended basis. Bit shipments were up 14% from the previous quarter and down 12% compared to last year. HDD revenue was $2.2 billion up 10% sequentially and 85% year-over-year. Sequentially, strong performance in the nearline portfolio led to a 14% increase in HDD exabyte shipments. On a year-over-year basis, total HDD exabyte shipments increased 107% and average price per unit increased 46% to $164. Nearline bit shipments were at a record level of 141 exabytes, up 12% from the previous quarter, and 157% compared to the fiscal first quarter of 2024. Moving to the rest of the income statement, please note my comments will be related to non-GAAP results unless stated otherwise. Gross margin for the fiscal first quarter was 38.5%, which was at the higher end of the guidance range. Gross margin increased 220 basis points sequentially due to improved mix, better pricing and continued focus on cost reduction. Flash gross margin was 38.9%, up 240 basis points sequentially driven by a higher mix of enterprise SSD bits, improvement in like-for-like pricing and continued cost reduction. In HDD, strong demand for nearline drives as well as efficient manufacturing operations and cost structure have driven continued margin expansion, resulting in gross margin of 38.1%, up 200 basis points sequentially. We have structurally changed the way we operate our businesses. Combined with our strong product portfolio, this has enabled us to generate gross margins above our long-term target ranges in both Flash and HDD. Operating expenses were down sequentially to $691 million including the synergies of $8 million. These results demonstrate continued focus on cost discipline, while making progress on the execution of the business separation plans. Operating income was $884 million, up 33% sequentially driven by better gross margins and disciplined spending. Operating margin was 21.6%, up 390 basis points sequentially, which is the highest in five years and was previously achieved at a higher revenue level. Income tax expense was $124 million and effective tax rate was 16.1%. Earnings per share was $1.78. Operating cash flow for the fiscal first quarter was $34 million and free cash flow was an outflow of $14 million. Operating and free cash flows included payments of $418 million for the company's repatriation tax installment along with IRS settlement payments. Cash capital expenditures, which include the purchase of property, plant and equipment and activity related to Flash joint ventures on the cash flow statement, represented a cash outflow of $48 million. Fiscal first quarter inventory increased sequentially to $3.4 billion with days of inventory declining by 5 days to 121 days. A decrease in HDD inventory was more than offset by an increase in Flash inventory. Gross debt outstanding was $7.5 billion at the end of the fiscal first quarter. Cash and cash equivalents were 1.7 billion and total liquidity was $3.9 billion including undrawn revolver capacity of $2.2 billion. After the close of fiscal first quarter, we completed the previously announced sale of 80% of equity interest in SanDisk Semiconductor Shanghai to JCET, thereby forming a joint venture between SanDisk China and JCET. Proceeds from the sale will be reflected in the fiscal second quarter's cash flow. I'll now turn to the fiscal second quarter non-GAAP guidance. We anticipate both Flash and HDD revenue to grow on a sequential basis. In Flash, we expect the ramp of enterprise SSD products and seasonality of consumer demand to drive bit shipment increases in the mid-single-digit percentage points. In HDD, we expect continued growth momentum in the nearline product portfolio. We anticipate revenue to be in the range of $4.2 billion to $4.4 billion. Gross margin is expected to be between 37% and 39%. We expect operating expenses to increase slightly to a range of $695 million to $715 million including the synergy costs of $25 million to $35 million as we continue to make progress executing on the business separation plans. Interest and other expenses are anticipated to be approximately $110 million. Tax rate is expected to be between 15% and 17%. We expect EPS of $1.75 to $2.05 based on approximately 357 million shares outstanding. As shown in our guidance, we remain committed to executing our business, driving higher profitability and cost discipline, while making great progress towards the completion of our business separation plans. I'll now turn the call back over to David. David Goeckeler: Thanks, Wissam. Let me wrap up and then we'll open up for questions. Our results this quarter are a testament to our efforts to optimize our business for the long-term and execute on our strategic initiatives. We are confident in our product roadmap across both our Flash and HDD businesses and are excited by the significant opportunities ahead that each present, especially with the continued proliferation of the AI Data Cycle. As we continue to work towards the completion of our business separation plans, we are confident in our ability to drive long-term shareholder value and deliver the most compelling and innovative products to our customers. Let's begin the Q&A. Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer portion of today's call. [Operator Instructions] And our first question today comes from C.J. Muse with Cantor Fitzgerald. Please go ahead. C.J. Muse: Yes, good afternoon. Thank you for taking the question. I guess first question, you raised your enterprise SSD as part of the mix to 15%, which I think is a pretty important inflection. So I was hoping you could speak to the qualifications that you've seen and in particular would love to hear more around the recently announced qualification with NVIDIA's GB200, NVL72 rack system. If there's any way to kind of quantify how to think about the ramp and magnitude of incremental dollars to your business would be great. David Goeckeler: Hey, C.J., thanks for the question. Yeah, we feel really good about where the portfolio is. We've talked I think for a quarter or so now about this, our compute focused PCIe Gen 5 product that's what was qualified by NVIDIA in their reference architecture that allows us to go to all the folks that are building those products for customers and be in a good position to have those conversations as we drive that product more broadly in the market. We also have a very deep engagement with one, well, a couple of large hyperscalers on that product as well. So to your point, we've got more confidence in the growth of the portfolio. It's a very good demand environment. That's I don't think that's new news for enterprise SSDs and it's nice to have the portfolio where we can play into that. And as you said we expect our mix of bits when we add it all up the end of fiscal year last quarter when we were having this conversation we thought it would be around 10%. Now we're more in the 15% to 20% range. So demand keeps going up, the number of qualifications we've doubled in the last quarter. So the traction with the portfolio is good. It all aligns well with the AI Data Cycle we put out there both for the compute focused SSDs and then the high capacity data lake focused SSDs 30 and 60 terabytes. And again the traditional products that we were selling to the hyperscalers are also doing well also. So just I think that portfolio is something we've been working on for quite some time. As you know we got qualified before the downturn. We came out of it with a better portfolio. I think we really did a good job, teams did a great job throughout the downturn of staying focused on building those products and building a stronger portfolio and now we're seeing the results of that. C.J. Muse: Very helpful. Thank you. And I guess as a quick follow-up, you talked around the ongoing transformation of the HDD industry and now two to six quarters of customer visibility. Would love to hear kind of how perhaps pricing negotiation is evolving and within that construct do you have visibility today for pricing beyond one quarter in the DRiV business? Thank you. David Goeckeler: Sure. I think as you said we've gotten to the point where I think we have a better supply demand balance in this industry for the first time. Well, let's just talk about our business and our business for a very, very long time based on the actions we took coming out of the downturn. That matched against a fantastic portfolio that continues to get traction. We talked a lot about it in the script. UltraSMR technology is really getting very good traction with customers that have adopted it -- adopt it at quite a bit of scale. I mean once you go through the work to implement that technology you get that additional 10% of capacity on every drive you deploy. So it gives customers a very good reason to keep deploying those drives and we just had the third hyperscaler and get the official qualification very recently and we expect them to ramp pretty quickly now over the next several quarters. So both of those things allow us to get more visibility into the business, more visibility, more predictability is always great on a business where you're vertically integrated. And it does give us also I've said it for many years now, pricing is all about TCO, it's about delivering a better product. We deliver a better product that drives the TCO down for our customers. We get to participate in that equation and monetize that R&D that we developed. And we just launched a 26 terabyte CMR, 32 terabyte UltraSMR drive. So we expect that to ramp as we go through 2025 and as we do that that will bring better pricing and margin dynamics to the business. C.J. Muse: Thanks so much. David Goeckeler: Thanks, C.J. Operator: Thank you. And our next question today comes from Joe Moore of Morgan Stanley. Please go ahead. Joe Moore: Great. Thank you. I just want to make sure I understand the steps towards separating the companies. You talked about having kind of prepared the soft-spin. So you're going to report you'll have two separate sets of numbers for the December quarter. And assuming that goes well, you'll be able to file the Form-10 at some point during the March quarter. Is that the plan and kind of what are the anything that could cause that to come later? David Goeckeler: Yes, let me walk through that, Joe, because it's a little different than you described. So we're in the soft-spin stage, which means we're still running the company as Western Digital, right. There's one company, but behind the scenes we've separated all the systems into basically two stacks of systems. So for example, if customers want to send us orders now, they have to send us two different orders for HDDs and Flash because they go into two different sets of systems. They have a different vendor ID for those, all of those kinds of issues. Our own teams as they go through the process to build those products, ship those products are logging into different systems to manage the flow of that business through the enterprise. Now so what we're doing is we're running Western Digital, we're doing this behind the scenes. That's called the soft spin. We're actually essentially doing both. And what we'll do is we will execute in this mode for a full quarter because we want to go through a full quarter of all the financial things we do on a monthly and quarterly basis to give ourselves confidence that both of those systems work great and then we'll go do the spin. So what we expect to do now is, we will execute the business in this form for the full second quarter. We will close the December quarter as Western Digital. We only issue one set of numbers for Western Digital. We only did one guide for Western Digital this time. But behind the scenes we're doing all that work to build confidence we could do it as two separate companies. Sometime in the next, I would say, a couple of months, we'll make -- we'll flip the Form 10 to public. We're going through the final phases of that with appropriate authorities. Once we get that done, we'll make it public so we can start financing activities for both businesses to basically get all the financing in place so that we -- once we close the books and we get confidence in that, then we could then move on with the actual distribution. So that's the way it will work. So cut through all that, we got a lot of work to do. It's on track. You should think about this happening around the time we would do an earnings call for the December quarter. Joe Moore: Great. Thank you so much for that. And I guess I get a lot of questions from more event-driven types of investors about the resolve to do this in the wake of things that are happening with our JV partner and things like that. So just maybe if you could just kind of state how focused you are on getting this done, any impediments? Any chance that this doesn't happen from out of your discretion? David Goeckeler: We're very focused on getting this done, Joe. As you know, we went through a thorough strategic review that we announced the outcome of October 30th of last year and we started down this path. We knew it was a big thing to do. But we're not -- the results of the strategic review is this is the right answer for our shareholders. We're not trying to time the cycle or anything else. So we plan to move forward with this when we're ready. And it's all about building confidence in the ability to execute two independent companies, and that's what we're driving to. I can't predict everything that will happen in the future, but that's -- from our perspective, we're driving to get this done as expeditiously as we can. Joe Moore: Great. Thank you very much. David Goeckeler: Thanks, Joe. Operator: Thank you. Our next question comes from Karl Ackerman of BNP Paribas. Please go ahead. Karl Ackerman: Yes. Thank you. I have two, if I may. First off, how much room do you have in your existing facilities to expand capacity of heads and media for hard disk drives? I asked because you just reported record exabytes and hard drives, it was about 180. And as you address that question, you spoke of a third hyperscaler that is qualified SMR, Dave, and you will ramp in the coming quarters. Is that for your 32 TB offering or is that just a broad statement? Thank you. David Goeckeler: I think as a general without getting into specifics on any particular costs, I think, in general, most customers want to go with the most dense drive they can once they start deploying. So we expect that customers will move to the 32 terabyte drive pretty quickly. Again, I think this is, the product strategy, I think is really playing out well here. These drives can be qualified very quickly. Customers understand the technology. It's been in their environment for quite some time. So I'm talking about the base ePMR technology and the base architecture we have in these drives and now we can move capacity up quickly. So in general, customers want to deploy the densest drive possible. So we expect the 32s once they get through qualifications, we'll start being deployed, let's say, as we move through '25. On your first question on capacity for heads and media, I mean, we don't really talk about what our capacity is. We sized our infrastructure for a number of units that we think is going to satisfy the market and then we're going to increase exabytes by continuing to drive innovation and more density per unit. You're seeing that happen in real time as we just launched a new drive. And we've got the capacity all the way through heads and media and test capacity and assembly to support that level of capacity. And that was really a big move in the downturn to get it right. And so that we can get our -- make sure we keep our costs under control. And then, Karl, the real focus is to get more visibility from our customers and what their plans are and planning so that we can make sure we've got that capacity aligned with what demand is and try and dampen some of the volatility of the typical we typically talk, or maybe not anymore, hopefully not any more talk about big ingestion cycles, then big digestion cycles. We want a more predictable business in that. So we want to -- that -- the key to that is visibility into customer demand. Karl Ackerman: Very clear. Thanks. David Goeckeler: Thanks, Karl. Operator: And our next question today comes from Aaron Rakers with Wells Fargo. Please go ahead. Aaron Rakers: Yes. Thanks for taking the questions. I'll stick to two as well. I guess the first question is going back to kind of operating the two entities separately now starting in this October period. Can you just remind us again of how we should think about dissynergies? What maybe factored into your December quarter guide as clearly you're carrying two company cost structures? And then as kind of a follow-up to Karl's question, you are shipping nearline capacity 25% above your prior peak levels, if my math is close to being right. How much does it -- how quickly can you bring on new capacity? And is there any way to frame like I could appreciate technology and aerial density expansion is a key driver. But do you see a situation where you will be constrained over the foreseeable next couple of quarters or just I'd love to dig a little bit deeper into Karl's question there? Wissam Jabre: So let me start with the first part of the question, Aaron. I think your question was on dissynergies. So in the first quarter that we announced, we had approximately $8 million of dissynergies in the operating expenses. And the guide there is 25% to 35% roughly, sorry, this is -- I take that back. There is $25 million to $35 million, not percent of OpEx assumed in the OpEx in the current guide. In other words, the 705 midpoint of OpEx includes approximately, let's say, midpoint $30 million. Basically, as we said last time, dissynergies are assumed to be roughly split 50-50 between the two operating businesses. And so this is what's in the guide. In terms of where we would be at the steady state, I would say, at this point, it hasn't changed from what we discussed last quarter. And the steady state anticipate to be roughly in the, let's say, $40 million range divided equally by each of the businesses. So that's how we should think of it beyond this quarter. But for this quarter, it's around $30 million plus or minus $5 million. Maybe for the second part of your question, I don't know, David. Maybe I'll start making some comments and I'll ask David to chime in. With respect to the manufacturing capacity, our focus in the hard drive business, as we've said all along, is really on driving profitability and maintaining that supply-demand balance for our business. And so as we -- from where we stand now we think we have -- with the good visibility that we're getting from our customers and the implementation of build-to-order. We think we're in a good place from a capacity or from a manufacturing capacity perspective and we don't see the need for us to expand our manufacturing capacity footprint. I don't know, David, if you had a few things to add. David Goeckeler: I think that's right, Aaron. I mean, look, I mean at least the way I think about this capacity if you look at the units we've shipped in the last two or three quarters, it's all converged pretty closely. So there's not a lot of variability in that number. It goes up and down some like less than a million units. But for an industry that shipped hundreds and hundreds of millions of units, not that long ago, that's a pretty tight window. I think the way we're thinking about this is what's demand going to be a year from now? It takes a year to build a hard drive once we start a wafer, no matter what our wafer capacity is for heads. Once we start a wafer, it's going to be a year before that shows up in a hard drive. So what we really are working to understand is what demand is going to be a year from now and how our customers are thinking about that and that's something new for them, right? And we're working through that process with them. And everything is going in the right direction. We talked about we have between two and six quarters of visibility, as we continue to get more visibility and develop conviction about what demand is going to look like over the next year plus then we'll start looking at the capacity question and if it's different than what we planned, we'll think about capacity at that point. But we -- there's still more work to do to understand what capacity is going to look like in that kind of timeframe before we start adding that cost back into the system. We don't want to, I talked about in the script, better through-cycle dynamics. We don't want underutilization charges. We want more predictable flow of business and our supply chain wants that too. So that's just a little bit on how I'm thinking about it. Aaron Rakers: Very helpful. Thank you, guys. David Goeckeler: Thanks. Wissam Jabre: Thank you. Operator: Thank you. [Operator Instructions] Our next question today comes from Timothy Arcuri with UBS. Please go ahead. Timothy Arcuri: Thanks a lot. Can you just talk about bookings on the HDD side? I mean they see pricing going higher. They see you and Seagate talking about not adding capacity. So why would they not just place shadow orders to make sure they get what they need a year from now? I mean that's often how it works in memory. I certainly understand that the cycle times here are much, much longer. But can you talk about that? And sort of what is this two to six quarter agreement cycle mean? Are these take-or-pay so that they can't just place shadow orders that they'd be on the hook to take the stuff when you build it? Can you talk about all that? Thanks. David Goeckeler: Yes. Tim, I would say, the industry is evolving, right? This is something new. I mean this is an industry that wasn't that long ago while the business transacted every quarter. So we're asking customers more visibility understanding what their demand is. They haven't particularly thought about this franchise that way and getting that much visibility into it. So and they're big relationships, especially with the big hyperscalers like very, very big relationships. Nobody wants to yank each other around unnecessarily. So I think it's in all of our best interest to have as much visibility as possible so that we can supply the market. We don't want to short the market, but we also don't want to basically build capacity that we don't have visibility into how it's going to be used. So at this point, it's not a take-or-pay. It's just about getting visibility into kind of how they're thinking about their infrastructure and what their demand is going to be. So we know how much supply we're going to have the ability to produce from a unit perspective that we get that aligned with their demand. And I would say we're working through that process right now. And I mean, clearly, the more visibility people our customers and partners can give us then we can allocate that future supply to them. And it's just kind of the process we're going through right now. So it's -- we're kind of walking into this and changing the industry, we think, in a very positive way for everybody involved. Operator: Thank you. And our next question today comes from Wamsi Mohan with Bank of America. Please go ahead. Wamsi Mohan: Yes. Thank you so much. Your guidance suggests a slight tick down in gross margins at the midpoint sequentially. Can you just help us think through the drivers of that? And you obviously launched your 11 platter mass capacity drive too. How should we think of margins of that scale higher as you go through the course of fiscal '25? Thank you. David Goeckeler: Yes. So you got it right, Wamsi, that as we introduce new products, we have the opportunity to drive margin higher. We just launched a new product. It will just start qualification, so it's not going to start deployment for another couple of quarters. So in the HDD business, we're going to see margins basically flat Q-to-Q. Flash, we'll see a little bit down driven by some the cost in the next quarter are a little bit up from what they usually would be probably what you guys model on a 15% down year-over-year. We're going to get a quarter. We have a little cost increase just given the way the expenses are flowing. So I think that should help you understand the way the margins are going to work. Operator: Thank you. And our next question today comes from Harlan Sur with JPMorgan. Please go ahead. Harlan Sur: Hey, good afternoon. Thanks for taking my question. So on enterprise SSD, it's taken a while, but now there's clarity on the really strong tie in, right, to these AI and accelerated compute clusters. I think you gave us your view on bit mix. But I think according to my calculations, I think June quarter, I think, enterprise SSD was about 7%, 8% of your total Flash revs. It looks like in the September quarter, it stepped up to about 12%, 13% of your Flash revenues. Is that about right? And then on some of the recent specs on your high-capacity 64 terabyte, 128-terabyte platforms targeted for AI. Looks like the team has really set up their competitiveness here. Like what have been the biggest drivers of that better performance? Is it controller technology? Is it firmware? Is it reliability quality metrics? Like any color here would be great. Thank you. Wissam Jabre: Yes. Let me start with the first part of the question, Harlan. With respect to where we are from an enterprise SSD as a mix, we're basically with in the Q1, we've exceeded a little bit the 15% of that mix. And as David mentioned in his comments a bit earlier that we would expect for the year, the mix of enterprise SSD as a percent of total for the Flash business to be between 15% and 20%. David Goeckeler: So, Harlan, on the competitive part, I mean, you kind of -- you got it, right? I mean it's about getting the controller technology right. And we -- as I said during the downturn, we stayed very focused on that. We've got the right controllers built. We've always had great underlying NAND technology. The BiCS road map is something we've talked about a lot. And we feel good about that now. And going forward, we still got all the BiCS8 in front of us and that 2 terabit die. That helps build higher-density enterprise SSDs as well because the lower number of die to get the density. We're not quite there yet, but we have that in our future. So it's about getting it all of it aligned. And we stayed very focused over the last two, three years since I got here. This was a big focus of, again, going back to how we structured the company into kind of a business unit model, bringing in a general manager that can stay very focused on what should be built, stay on top of all the programs and make sure we deliver the right products that drive the make the highest ROI investments and then make sure those products. Those projects deliver the right products to market. And I think we feel good about where we're at. We're hitting this AI Data Cycle with the right -- it's the right time for the portfolio to emerge. We still got some more work to do, but we feel good about where we're at and the trajectory. Operator: Thank you. And our next question today comes from Krish Sankar with TD Cowen. Please go ahead. Krish Sankar: Yeah. Hi, thanks for taking my question. And Dave thanks for the color. When I look at December quarter, you said Flash revenue should grow, while bit shipment should be up mid-single-digits. So what does it mean for ASPs? The reason I'm asking is that while eSSD is strong, you keep hearing the non- eSSD data points are not good. So that's why I'm wondering how to think about ASP. And if I may extrapolate, how do you think about March quarter for both Flash and Hard Drives, given there is some seasonality aspect for both those segments in March? Thank you. David Goeckeler: Yes. Chris, so you got, I mean, again I think you've got it in the way you framed your question. The Flash market is a big market. There's a lot of submarkets inside of it. The PC market is some inventory there and those customers restocked and have not replenished inventory. They're just building to demand at this point, same with smartphone, the consumer business has just been a little bit soft. So you've got kind of that dynamic. And then on the other side of it, you've got very, very strong enterprise SSD. Now we expect, as we go through '25, we expect those smartphone and PC markets to recover as we go throughout the year and be stronger. We can talk about that in more detail. But I think that's a well-understood topic. And we expect enterprise SSD to stay very strong. But when you look at it on a sequential basis, you're looking at basically flat blended pricing and a little bit of cost headwind which is where you get a little bit of sequential decline in margins. Going it's a little early to talk about the March quarter. But again you got it right on seasonality there. There might be some seasonality hit. I would expect some seasonality headwinds going into the March quarter. But we'll have more to say about that as we move through the quarter and especially get to this time next quarter. Operator: Thank you. And our next question today comes from Amit Daryanani with Evercore. Please go ahead. Amit Daryanani: Thanks for taking my question. I guess, David, if I just go back to this 100, the exabyte shipment of 163 on the HDD side. How do you get confidence that this is not sitting in inventory versus actually getting deployed by your customers? Is there any metrics in the UC internally that gives you confidence that this is actually getting used up and not piling up as inventory potentially. Anything on that front would be really helpful to understand. And then Wissam, you just touch on your CapEx expectations for HDD and the Flash business for the rest of the year, that would be helpful. Thank you. David Goeckeler: Yes. We don't see a lot of inventory at the big players, right? We're coming off of -- we're still like in a cyclical recovery from the very deep downturn we're coming out of. And we're very, very close to these customers, given the size of the relationship. So we don't think that there is inventory -- excessive inventory being built here or double ordering or any of that happening. We think everybody is just trying to figure out what their future demand is so we can make sure we do the best we can to meet it and they give us the best -- the highest integrity signal possible on what that demand is. Wissam Jabre: And with respect to the CapEx, Amit, what we started doing last quarter is, we're talking about CapEx for the quarter. So for this quarter, I expect our gross CapEx to be more or less in line with the last few quarters, the average over the last few quarters. So there's no real inflection. Operator: Thank you. And our next question today comes from Thomas O'Malley with Barclays. Please go ahead. Thomas O'Malley: Hey, Dave, Wissam. Thanks for taking the question. I just wanted to ask for you to help quantify the benefit on the eSSD side versus the traditional NAND portfolio. Obviously, you're saying that grows from 15% today to 15% to 20%. So nice tailwind throughout the year. But just on a like-for-like basis, could you just try to help describe what that tailwind means? Obviously, you're not going to give an exact pricing away, but just give us a flavor for how beneficial that is for the business. Thank you. David Goeckeler: Yes. It's accretive to the portfolio. Let's put it that way. And that's a good starting point. You probably knew that. It tends to be one of the better if not the best price markets in the Flash business. So it provides a nice tailwind to the portfolio. Operator: Thank you. And our next question today comes from Srini Pajjuri with Raymond James. Please go ahead. Srini Pajjuri: Yes. Thank you. David just to follow-up to the previous question. I'm looking at your Flash ASPs being down 6% on a blended basis. But on a like-for-like basis, it's only down 4%. So it seems somewhat counterintuitive because your eSSD mix is growing, but the blended ASP is actually worse than like-for-like. So just trying to understand those dynamics as to why that's the case. And as I guess eSSD grows, how should we think about the blended ASP going forward? Thank you. David Goeckeler: Yes. So I think it's even a little different than what you said. I think you said down 4% on like-for-like. Like-for-like was up for blended, it was down 6%. So it's all mix related. I think we said going into this quarter, we were mixing more into mobile. Clearly, as we mix in more enterprise SSD that helps, but that's an emerging story and an ascendant story for us. And so that's why you see that dynamic there. Operator: Thank you. And our next question today comes from Asiya Merchant with Loop Capital. I apologize. Our next question comes from Ananda Baruah with Loop Capital. Sorry about that. Please go ahead. Ananda Baruah: I appreciate it. Thanks for taking the question. David Goeckeler: Hey, Ananda. Ananda Baruah: Hey, Dave. Yes, I was just -- could you -- actually what I wanted to ask is can you refresh our memory on what your conventional technology aerial density road map looks like kind of up until HAMR. I know you've talked about HAMR loosely kind of like next few years. But how should we think about the conventional tech aerial density road map up until then? That would be helpful. Thanks a lot. David Goeckeler: Well, that's a very interesting area to explore. One thing is as it changes over time as you keep getting better. And I think a good example of that is we just introduced an 11 platter drive, I think for a long time, people thought 10 was probably the limit given the form factor, but advances in material science and things like that allow us to build thinner platters. And we can put in 11th in and there you go, you get 10% more just by doing that. So it's always an evolving story. But we clearly see the ability to drive our current platform, the 40 terabytes to make that bridge from 30 to 40. We're driving through that now. And that's where we expect HAMR to be introduced to carry the portfolio from there. So we've still got a generation or so here to go. We just announced one generation that just came into the market this quarter. Customers are excited about it. They're have it in their labs. They're trying to get it qualified. They want to get it deployed. I'm not going to announce a new product here right now, but you can assume there's going to be another generation after that. So we've got quite a bit of runway here on the portfolio. And those drives are drives that customers really understand, they're in their infrastructure now. They're -- it's a straightforward qualification process. They understand the performance, they understand the reliability, the quality of those drives. So really feel good about the technology decisions we've made to kind of fuel this market and now we have kind of these AI tailwinds behind it. And I think the portfolio is just extraordinarily well positioned to continue to drive growth in the business and continue to drive increased profitability. Operator: Thank you. And our next question today comes from Asiya Merchant with Citigroup. Please go ahead. Asiya Merchant: Great. Thank you for taking the call taking the question. So just in terms of HDDs, I understand that the strength here, continued strength here in the December quarter, we typically see some seasonality on the Flash side in the March quarter, just given the strength you're seeing on the HDD side, should we expect some seasonality here in the March quarter on the HDD side as well both in terms of bit shipments and then also on the ASP side. Thank you. David Goeckeler: Yes. I mean it's a little early for March, but I don't think that's a bad assumption to make at this point from where we are to see that on the HDD side as well. Operator: Thank you. And our next question today comes from Steven Fox with Fox Advisors. Please go ahead. Steven Fox: Hi, good afternoon. I was just wondering if you could provide a little bit more color into the manufacturing efficiencies you think you get on a regular basis out of the HDD business. I would imagine there's debottlenecking still going on. And also as mix changes, it helps the utilization on the heads and platters. So I don't know if there's any Rule of Thumb we can think about or just maybe a little more color on that would be helpful. Thank you. Wissam Jabre: I mean the way to think of it is we typically have obviously many programs in terms of cost reductions, which would drive manufacturing efficiency as well as things like improving yields, et cetera, at various parts of the supply of our manufacturing sort of process. The typical, I mean, I don't know if there's a typical, but the way to think of it is we will still be getting in the cost improvements and the probably mid to high single-digit percentage on an annual basis. That will be probably a fair assumption. But of course it varies of course with respect to how we move from one capacity point to another as well. So it's not like a linear thing. Operator: Thank you. And our next question today comes from Vijay Rakesh with Mizuho. Please go ahead. Vijay Rakesh: Thanks. Just a quick question on the UltraSMR 32-terabyte. Are you -- with the 11 disks, are we able to still make it accretive on the margin side to your current portfolio? And also on the Flash side, just wondering what the CapEx looks like for next year. This year, I think, you had like a 0.8 fairly low cash outlay on the CapEx side, but just wondering how it looks next year. Thanks. David Goeckeler: Yes, I mean the 32-terabyte UltraSMR drive is a perfect example of us delivering a drive to our customers. It drives our TCO down. So as we drive their TCO down, it will drive our profitability up. And so we're very anxious to get that drive deployed just like our customers are and we expect that will provide some profitability tailwinds to the business. Wissam Jabre: Yes. And with respect to the Flash CapEx, as I mentioned earlier, we're not providing sort of a longer-term view in terms of quantitatively, but what I would say is we're continuing to be focused on the profitability of the business. And so our focus is really to drive cost down. But when you look at CapEx, last fiscal year, our CapEx was very, very low. So we'd expect it to be a little bit higher from there. Operator: Thank you. And our final question today comes from Matt Bryson with Wedbush. Please go ahead. Matthew Bryson: Thanks for taking my question. What I was wondering is your hard drive pricing was relatively stable quarter-over-quarter. I would have thought with the greater shipments into the cloud as well as the mix up towards high capacity drives, you would have seen a little bit of a benefit there. And then just one more point. I know you've talked about there being production constraints. One of the things that I've heard as being a constraining factor is test, paradigm telling us that they're not seeing any test orders. Should we take that as a sign that the hard drive industry is adding in a more rational fashion than in the past? Thank you. David Goeckeler: Yes. I mean, look, on the second part of the question, I think we've just been pretty clear. We've kind of set our manufacturing capacity for a certain number of units. We think that unit times what our product road map is going to satisfy the exabyte growth in the industry and we're good with where we're at. And again if we get strong enough signals from our customers, that four to six quarter time frame, then we'll -- we can start talking about what that means for our production capacity, but we got a ways to go before we get something like that. On pricing, we did see a little bit of like-for-like pricing increase, very low-single-digits this quarter. It was a good quarter for margin improvement again in HDD, 38.1%, another record. I think we've added over 15 points of margin in the last four quarters. So it's been a good run. We'll take a little breather here maybe for a quarter. And then as new products get deployed, we'll see more tailwinds behind that. So we just feel like this business is in a great spot. And quite frankly that's because our technology is in a spot and it's really being adopted strongly by our customers. They're very much voting with their dollars behind the architecture that we're driving. And then during the downturn, the teams just did an awesome job of really getting our costs in the right spot to support this business and get supply-demand balance. So we feel good about the business and we look forward to driving it forward over the next several years. Operator: Thank you. That concludes the question-and-answer session. I'd like to turn the conference back over to the management team for any final remarks. David Goeckeler: All right, everyone. Thanks for joining today. I really appreciate the interest in the business and all the great questions and we look forward to talking to you throughout the quarter. Take care. Operator: Thank you. This concludes today's conference call. We thank you all for joining. You may now disconnect your lines and have a wonderful day.

Operator: Good afternoon and thank you for standing by. Welcome to Western Digital's Fourth Quarter and Fiscal 2024 Conference Call. Presently, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, today's call is being recorded. I'd now like to turn the conference over to Mr. Peter Andrew, Vice President, Financial Planning and Analysis and Investor Relations. You may begin. Peter Andrew: Thank you and good afternoon everyone. Joining me today are David Goeckeler, Chief Executive Officer; and Wissam Jabre, Chief Financial Officer. Before we begin, let me remind everyone that today's discussion contains forward-looking statements based upon management's current assumptions and expectations and as such, does include risks and uncertainties. These forward-looking statements include expectations for our product portfolio, our business plans and performance, the separation of our Flash and HDD businesses, ongoing market trends and our future financial results. We assume no obligation to update these statements. Please refer to our most recent financial report on Form 10-K and our other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations. We will also make references to non-GAAP financial measures today. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the Investor Relations section of our website. With that, I'll now turn the call over to David for introductory remarks. David Goeckeler: Thanks, Peter. Good afternoon, everyone and thank you for joining the call to discuss our fourth quarter and fiscal year 2024 performance. Western Digital delivered strong results with fiscal fourth quarter revenue of $3.8 billion, non-GAAP gross margin of 36.3% and non-GAAP earnings per share of $1.44. For the fiscal year 2024, revenue totaled $13 billion. We have maintained our strategic focus on aligning our portfolio of industry-leading products with growth opportunities across a broad range of end markets to mitigate volatility while structurally improving our through-cycle profitability for both Flash and HDD. Before we discuss our performance, I want to provide our views on where the storage market is heading and how we are well positioned to capitalize on these growth opportunities. Our diverse portfolio, coupled with the structural changes we have made to strengthen our operations, is enabling us to benefit from the broad recovery we are beginning to see across our end markets. In addition, the AI Data Cycle is increasing the need for storage and creating new demand drivers across both Flash and HDD. These AI systems process and analyze existing data, generate new data and require substantial storage for training, operating in a continuous cycle of increasing data consumption, processing and generation. As AI technologies advance, data storage systems must deliver the capacity and performance necessary to support the computational demands of large sophisticated models while managing vast volumes of data. Given this landscape, we expect Flash to benefit from both AI training and inference while HDD is poised to benefit at both the input and output stages of these AI models. To address the growing performance, power and capacity requirements, we have developed our Flash and HDD product road maps to meet our end customer storage needs across the entire AI Data Cycle. We introduced the industry-leading high-performance PCIe Gen 5 SSD to support AI training and inference. A high-capacity 64 terabyte SSD for optimizing the build-out of rapid AI data lakes in the world's highest capacity ePMR UltraSMR 32-terabyte hard drive for cost effective and deep content storage at scale. These new offerings demonstrate our continued commitment to innovation and market leadership. As we enter fiscal year 2025, we are well positioned to capture the long-term growth opportunities in data storage and believe the AI Data Cycle will be a significant incremental growth driver for the storage industry. Before I dive further into business updates, I want to update you on our separation plans. I am pleased with the progress our team has made as we continue to drive to completing the work required to separate the company at the end of the calendar year. As part of the ongoing preparation for the separation, we anticipate beginning to incur separation dis-synergy costs in the second half of the calendar year. Wissam will briefly discuss the anticipated impact of these costs. I'll now turn to business updates. Starting with Flash, the growth in revenue was driven by the recovery in cloud and a shift of our client mix to gaming and mobile, partially offset by a decline in consumer. Our focus on driving higher through-cycle profitability is reflected in our results as we proactively mix bits across our end markets. Our innovative offerings remain at the forefront of the market, reinforcing our competitive position and bolstering our growth prospects. For example, our new QLC-based client SSDs which grew 50% on a sequential exabyte basis, offer significantly better performance than our previous generation TLC products. Combining this high-performance node with our in-house controller development, enable us to provide a portfolio of client SSDs that deliver unmatched performance and value. We believe these products will lead the industry's transition to QLC flash. During our New Era of NAND webinar last month, we introduced the world's highest capacity BiCS8 2-terabyte QLC memory die, specifically designed to meet growing data center and AI storage needs. Built on a chip bonded to array architecture, BiCS8 reinforces Western Digital and Kioxia's leadership in cost and capital efficiency as well as superior I/O performance by integrating wafer bonding in advanced 3D manufacturing to establish a ground-breaking foundation for future scalability of 3D NAND. In addition, our 64 terabyte enterprise SSD is now being sampled with plans for volume shipment later this calendar year. Furthermore, our PCIe Gen 5 based enterprise SSD delivers best-in-class read performance as well as power efficiency. We are seeing significant interest in this product which is currently qualifying at a hyperscaler with ramp expected in the second half of this calendar year. We'll talk more about our Flash road map at the upcoming Flash Memory Summit in early August. Turning to the Flash outlook. Throughout the fourth quarter, our product mix was dynamic as we proactively mix bits between our end markets in response to the softness we are seeing in the more transactional markets such as consumer and channel. Our success in identifying the most profitable approach to allocating bits is reflected in the growth of both our revenue and gross margin. As we look into the first quarter, in addition to the mix environment we saw in the fourth quarter, we expect the continued ramp of our new enterprise SSD offerings and seasonal strength in mobile to drive mid- to high-teens bit growth on a sequential basis. For the full fiscal year 2025, we expect enterprise SSDs to represent a double-digit percent share in our portfolio mix. The new era of NAND is driving a period of change and we are going to remain disciplined in managing our capital spending. The layers focus race is behind us. The emphasis is now shifting towards strategically timing the economic introduction of new longer-lasting nodes. Innovation now means enhancing power efficiency, performance and capacity within these nodes, while capital decisions increasingly prioritize opportunities for margin expansion and revenue growth. Turning to HDD; revenue growth was driven by strength in nearline demand and improved pricing. By leveraging our SMR leadership and lean cost structure, we have surpassed our target gross margin range, underscoring our ongoing commitment to improve future profitability. The HDD business has undergone a remarkable transformation in recent quarters, marked by strategic initiatives aimed at introducing the most innovative, high-capacity products to market. We have increased our profitability meaningfully by restructuring our manufacturing footprint and optimizing our cost structure to drive operational efficiency. All while qualifying and ramping our SMR technology. We continue to structurally change the way we are operating our HDD business. With better visibility into future demand, operational excellence and a commitment to sustaining supply-demand balance, we are poised to continue our trajectory of bringing highly innovative products to market while increasing profitability into the future. On the technology front, we ship samples of our 32-terabyte UltraSMR/ePMR nearline hard drives to select customers. These drives feature advanced triple-stage actuators and OptiNAND technology which are designed for seamless qualification, integration and deployment in hyperscale cloud and enterprise data centers while maintaining exceptional reliability. With this in mind, we are well positioned to deliver the industry's highest capacity hard drives and the best TCO. Turning to the HDD outlook. As we look to the fiscal first quarter, we expect further growth driven by greater demand and more favorable pricing. Our cloud customers continue to transition to SMR and we anticipate a third major cloud vendor to begin the ramp of adopting SMR in the fiscal first quarter. Our leading products and lean cost structure have supported ongoing profitability improvements in our HDD business. We remain focused on driving higher margins to reflect the significant innovation and TCO improvements we deliver to our customers. Our strategic approach to commercializing ePMR, OptiNAND and UltraSMR technologies has proven to be the winning strategy, enabling us to surpass our gross margin target for HDDs in the midst of AI's emergence as another pivotal growth driver for the industry. Let me now turn the call over to Wissam, who will discuss our fiscal fourth quarter results. Wissam Jabre: Thanks, David. And good afternoon, everyone. In the fiscal fourth quarter, Western Digital delivered great results with gross margin and earnings per share exceeding the high end of the guidance range. Total revenue for the quarter was $3.8 billion, up 9% sequentially and 41% year-over-year. Non-GAAP earnings per share was $1.44. Looking at end markets, Cloud represented 50% of total revenue at $1.9 billion. The sequential growth of 21% is attributed to higher nearline shipments and pricing in HDD, coupled with increased bit shipments and pricing in enterprise SSD. The 89% year-over-year increase was due to higher shipments and price per unit in nearline HDDs along with higher enterprise SSD bit shipments. Nearline bit shipments were at a record level of 125 exabytes, up 16% from the previous quarter and 113% compared to fiscal fourth quarter of 2023. Client represented 32% of total revenue at $1.2 billion. The sequential increase of 3% was due to the increase in flash ASPs, offsetting a decline in flash bit shipments while HDD revenue decreased slightly. The 16% year-over-year growth was driven by higher flash ASPs. Consumer represented 18% of total revenue at $0.7 billion. Sequentially, the 7% decrease was due to lower flash and HDD bit shipments, partially offset by higher ASPs in both flash and HDD. The 5% year-over-year increase was driven by improved flash ASPs and bit shipments. For fiscal year 2024, revenue was $13 billion, up 6% from fiscal year 2023. Non-GAAP gross margin increased 7.1 percentage points to 22.8% and non-GAAP operating margin increased 8.7 percentage points to 3.9%. Non-GAAP loss per share was $0.20. Looking at end markets for fiscal year 2024, Cloud revenue increased 2% year-over-year due to higher demand for capacity enterprise HDDs and improved pricing. For the year, client and consumer revenue grew by 7% and 9%, respectively, due to higher flash bit shipments. Turning now to revenue by segment. In the fiscal fourth quarter, Flash revenue was $1.8 billion, up 3% sequentially and 28% year-over-year. Compared to last year -- last quarter, Flash ASPs were up 14% on a blended basis and 11% on a like-for-like basis. Bit shipments decreased 7% sequentially and 3% compared to last year as we proactively mixed Flash bits to maximize profitability. HDD revenue was $2 billion, up 14% from last quarter as exabyte shipments increased 12% and average price per unit increased 12% to $163. Compared to the fiscal fourth quarter of 2023, HDD revenue grew 55%, while total exabyte shipments and average price per unit were up 72% and 64%, respectively. Moving to the rest of the income statement. Please note, my comments will be related to non-GAAP results unless stated otherwise. Our focus on improving through-cycle profitability in both Flash and HDD has shown great progress. In the fiscal fourth quarter, total gross margin reached 36.3% well above the guidance range. Gross margin improved by 7 percentage points sequentially and 32.4 percentage points year-on-year due to better pricing and cost reduction as well as higher volume. Within Flash, by proactively allocating bits between end markets and executing on our cost reduction initiatives, we have improved gross margin for 4 consecutive quarters. Flash gross margin was 36.5%, up 9.1 percentage points compared to last quarter and 48.4 percentage points year-over-year. In HDD, by offering a leading product portfolio and running efficient manufacturing operations focused on cost discipline, we continue to make progress in improving profitability. We delivered a gross margin of 36.1%, exceeding the long-term target range, up 5 percentage points sequentially and 15.4 percentage points compared to fiscal fourth quarter of 2023. Operating expenses were $700 million for the quarter, above our guided range, primarily due to higher variable compensation associated with better-than-expected profitability. Operating income was $666 million, tax expense was $17 million, earnings per share was $1.44. Operating cash flow was $366 million and free cash flow was $282 million. Cash capital expenditures which include the purchase of property, plant and equipment and activity related to Flash joint ventures on the cash flow statement represented a cash outflow of $84 million. For fiscal year 2024, cash capital expenditures were $244 million or 1.9% of revenue, excluding the proceeds from the sale leaseback of our Milpitas facility. Year-over-year, this represented a 69% decline. Fourth quarter inventory was up from the prior quarter at $3.3 billion. With days of inventory increasing from 119 days to 126 days. A decline in HDD inventory was more than offset by an increase in Flash inventory. Gross debt outstanding was $7.5 billion at the end of the fiscal fourth quarter. Cash and cash equivalents were $1.9 billion and total liquidity was $4.1 billion including undrawn revolver capacity of $2.2 billion. During the quarter, we paid down the remaining $300 million of the delayed draw term loan. I'll now turn to the fiscal first quarter non-GAAP guidance. We anticipate both Flash and HDD revenue and gross margin to improve on a sequential basis as we continue to drive improvements in profitability across our businesses. We anticipate revenue to be in the range of $4 billion to $4.2 billion. Gross margin is expected to be between 37% and 39%. We expect operating expenses to increase slightly to a range of $695 million to $715 million. A decrease in variable compensation will be offset by the synergy costs as we continue to make progress executing on the separation plans. Included in this range are dis-synergy costs of $15 million to $25 million. We expect the synergy costs in the fiscal second quarter to be between $35 million and $45 million. Interest and expenses are anticipated to be approximately $110 million. Tax rate is expected to be between 15% and 17%. We expect earnings per share of $1.55 to $1.85 based on approximately 360 million shares outstanding. As shown in our guidance, we remain committed to driving higher profitability while maintaining focus on cost and capital discipline. I'll now turn the call back over to David. David Goeckeler: Thanks, Wissam. Today's results and guidance underscore Western Digital's strong execution with promising growth opportunities ahead. We delivered solid results as we doubled down on our strategic initiatives and product road map, capitalizing on robust growth prospects for both Flash and HDD. The emergence of the AI Data Cycle marks an incredibly exciting transformation in our industry, driving fundamental shifts across our end markets. Looking ahead to fiscal year '25 we are well positioned to leverage our leadership positions to spearhead innovative technologies and deliver unparalleled value for our customers. Peter, let's begin the Q&A. Operator: [Operator Instructions] And today's first question comes from C.J. Muse with Cantor Fitzgerald. C.J. Muse: I guess I would like to focus my question around HDD gross margins, truly impressive outlook in the actual results. I was hoping you could speak to your contracted supply today, your pricing visibility into the second half of the calendar year and whether that extends into calendar '25. And as part of that, how we should think about the progression of HDD gross margins as we go into September, December and beyond. David Goeckeler: Yes. Sure. Thanks, C.J. So yes, we were very happy with where the HDD business is at. We've -- we spent a long time focused on getting our manufacturing footprint in the right spot and a lot of cost optimization there now that the volume ramps back, it puts us in a strong position plus the products, right? The continued strong adoption of UltraSMR, those drives are great for us. They're great for our customers. They're leading capacity points. So when you put it all together, we were able to deliver past our gross margin target in that business. Some of the historians around here tell me it's like the best gross margin ever. And the good news, as you said, is it's going higher. So we got good supply-demand balance that's giving us good visibility throughout the rest of the calendar year, we're -- we pretty much know where every drive is going to go. At this point, we made, I think, a really significant transition this past quarter and that we moved up our request to our customers to give us visibility 52 weeks ahead, so a 52-week lead time on HDDs. Now the reason that's so important is the cycle time underneath to build an HDD is about 50 weeks. So we've been working very hard to drive the technology, drive our manufacturing but also change the business practices of this business to give us the visibility that allows us to really align our investment with our customer demand. Our customers have responded well to that request and we now have visibility for the entire fiscal year from a number of our biggest customers. Others are still -- we're still working through it with them. But to wrap it all up, we're -- we're very happy with where the margins are. We continue to see margins going higher in this business as we continue to innovate. If we continue to innovate, deliver better TCO to our customers, we're going to continue to drive margins higher and we've got a very robust road map to do that. And we're now getting the visibility in place to -- in the business practices to make sure we can keep supply and demand balance going far into the future. So hopefully, that addresses your question. Operator: And our next question today comes from Joe Moore at Morgan Stanley. Joe Moore: I wanted to ask about NAND and this kind of -- you have weaker volume in Q2 but good pricing. And we're seeing that everywhere that the volumes are sort of disappointing but the pricing has still been good. And usually, you sort of think about needing good demand for pricing to go up. So can you just talk about that dynamic? And what do you think happens over the back half of the year with supply and demand for NAND. David Goeckeler: As you know, Joe, it's a very dynamic market. So we're still seeing -- in the negotiated markets, we're still seeing good pricing increases, especially enterprise SSD and that's something we're very excited about. We see -- we saw really good sequential growth in enterprise SSD and we're expecting very good sequential growth in the next quarter. Some of the more transactional markets where you have more players involved and frankly, some players that don't produce their own raw NAND, pricing is a little more dynamic and demand in general in consumer is a little bit weak. So in those markets, we see a little more demand headwind, a little more -- not quite as aggressive as pricing moves but in the negotiated markets, we still see good pricing. And then, you put mix all on top of that to come up with a quarter-by-quarter number where you got quite a bit of variability. But as we go through the back half of the year, we continue to see strong demand in Enterprise SSD. We see the PC market really kind of maybe a little bit of an inventory rebalancing here going on in the next quarter but we see that improving as we go throughout the year. I think that's a normal process given a couple of really strong quarters here in the first part of the recovery of NAND pricing. So we still see demand outstripping supply through the second half of the year. And quite frankly, our modeling shows throughout next calendar year as well. Operator: And our next question today comes from Tim Arcuri with UBS. Grant Joslin: This is Grant Joslin on for Tim Arcuri. I was hoping you could talk a little bit about how you view the balance sheet and how you want to prioritize the free cash flow generated between now and the separation? And any updated thoughts on the appropriate leverage for each of the 2 segments? Wissam Jabre: Yes, sure. As I noted in the prepared remarks, in Q4, we paid down the remaining $300 million of the delayed draw term loan. And so as we generate cash, our focus is to continue to strengthen the balance sheet. The -- with respect to the second part of the question related to question related to the capital structure. Obviously, we're making good progress as we prepare for the separation, we will be as -- we get closer to the time of the separation, will be hosting Capital Market Days or Investor Days to discuss that in more detail. But as we've always said, our aim is to create 2 world-class companies that are competitive in their own spaces. And so their cap structures would be reflecting their -- the profile from a profitability, cash generation and market dynamics as well. Operator: And our next question today comes from Aaron Rakers with Wells Fargo. Aaron Rakers: Yes. One clarification I just want to throw out there. Is the dis-synergy costs all in operating expenses? Or is there anything in COGS? And then from a question perspective. When I look at the NAND business and I think you guys talked about in the prepared remarks of growing kind of mid- to high teens sequentially on a capacity ship basis this next quarter. I guess where my math leads me is to think that your underlying assumption would be maybe more of a flattish ASP trend in the September quarter. I guess my question is, is that kind of how you're thinking about that? And if so, why would we think that pricing would be flattish? Is there a mix dynamic, something that we should consider in that? David Goeckeler: I'll take the second part of the question. Kind of remember the first part now. Wissam Jabre: Let me take the first part related to the dis-synergy costs. The question was whether they were split -- they were all in operating expenses or there's anything in COGS. So Aaron, the numbers that I quoted, the $15 million to $25 million are all in operating expenses. There will be some dis-synergy costs in the COGS but they're really not material. And so that's why we didn't call them out. And they're reflected also in our guidance for Q1. David Goeckeler: Yes. And Aaron, on the NAND pricing, I think you kind of answered your question as you went through there, just to confirm it. There's a huge mix dynamic. So we've got -- like everybody else, we're seeing some weakness in the consumer. And so that's -- consumer is 1/3 of our Flash portfolio. So that's a big business and that has very we've always talked about higher than average through-cycle margins. So that's a bit of a headwind. And then we -- it's a seasonally strong quarter for mobile. So that's -- there's a big mix dynamic there as well. So that -- but you're thinking about it the right way. Operator: And our next question today comes from Karl Ackerman with BNP Paribas. Karl Ackerman: One clarification question and a question, if I may. For my clarification question, is the PCIe Gen 5 Enterprise SSD at a hyperscaler separate or in addition to your sampling of 64 terabyte SSDs in the second half of this calendar year? I guess as you address that question, could you speak to the breadth of customer design wins you have on enterprise SSDs which are indicative of your growing share of SSD relative to your overall portfolio mix. David Goeckeler: Yes. They are 2 separate products targeted to different parts of the AI Data Cycle. So the compute product that you mentioned, what we call a compute product because it's designed to feed data into GPUs and keep the pipeline full. So very high performance, very high-performance NAND. That product is a qualification in a hyperscaler and we're getting a lot of interest in that product across the AI ecosystem of anybody that's building an AI training infrastructure because we believe that product is the best read performance and really good power efficiency and that's what everybody is looking for in that market. The 64 terabyte drive is a separate product that's targeted at building these high-performance data lakes for AI training and we're looking at that across the kind of same sort of customers. Anybody that's building an AI training infrastructure is looking for those kind of products. And that's in addition to the products we had qualified enterprise SSD, we had qualified 2 or 3 of the hyperscalers before the downturn and those products are picking back up now as well. So we have a much -- we were -- we were happy with the portfolio and now we keep adding to it. And those products are really well targeted to where the demand is in enterprise SSD which is a lot of pull on people building AI training infrastructure. Operator: Our next question today comes from Krish Sankar with TD Cowen. Unidentified Analyst: This is Eddy [ph] for Krish. Two-part question, if I may. On nearline HDD congrats on great progress there. This is the second quarter of above 50% market share for you guys versus historically your share being in the low 40s. I wonder if you think this has anything to do with your main peer transitioning from PMR to HAMR? Or do you think this is more tied to specific customer exposure? And also, I wonder if you think you'd have that capacity within fiscal '25, given that your exabyte shipments are at all-time high. David Goeckeler: We know -- we think that the share in our products is because they are great products, right? We're delivering the highest TCO products. We've had this road map for a long time. None of our customers are surprised by our road map. They know about our road map, quite frankly, years in advance and we work with them very closely. So we believe we're providing the highest capacity -- well, we are providing the highest capacity drives at scale. They're easily qualified. The architecture is well known to our customers. and they deliver absolutely the best TCO. And if you're building a data center architecture at the scale our customers do, TCO is incredibly important. And now we've delivered a 32-terabyte drive. First time anybody has crossed the 30 terabyte at scale, that's sampling really great TCO. And then the UltraSMR side of it, these drives can deliver 20% more capacity with UltraSMR versus a typical SMR drive which is 10% more capacity that's great for our customers. They get more capacity per unit. It's great for us because we get 20% more capacity or the incremental 10% without adding any COGS to the system, so that's margin accretive. That's very nice. And we're seeing now the third hyperscaler starting to adopt our UltraSMR technology starting in the second half of the year. So we just feel really good where the portfolio is. We think this portfolio has been in development for decades to get to this point. These were decisions that were made a long time ago given the lead times in this business. And so we believe we're -- customers are just responding to great products. And the TCO increases in the supply-demand balance allow us to also work on the pricing side of it as well. So as far as capacity, look, I mentioned it earlier, we got to this 52-week lead time that was really important because now we're starting to get forecast from our customers a year out. It gives us the ability to plan for capacity. So as we get -- as those forecasts come in and we roll them up and we work with our customers and we look at that, what that picture looks like, then we'll be in a position to address this issue of do we add capacity. But we don't want -- we're not going to add capacity for a 2-quarter increase in volume. We think this is much more sustained than that. As I talked about, AI is going to be a big driver -- the AI Data Cycle will be a big driver for HDDs as well. We see sustained demand into the future. But we want to see the commitments from our customers and them to give us that visibility and we now have that in place. And as we get the whole market, all of our customers looking at that over the next quarter or so, we'll have a better I think a better way to answer that question of do we plan to add capacity. But for right now, we're happy with where our capacity is. and what we're able to ship and mix keeps going up and we're able to ship more exabytes per quarter based on mix. Operator: Our next question today comes from Amit Daryanani with Evercore. Amit Daryanani: I guess maybe just focusing on the HDD side again. I think the fear everyone is going to have is, are you sitting at close to peak performance at this point, both from how much exabyte you are shipping versus the last week which I think within 10 exabytes of that? And where the gross margins are. So maybe if you can just focus on gross margins up. Can you just talk about what is the right way to think about HDD gross margins assuming exabytes keep growing and your conviction that pricing can remain favorable on the HDD side or through the back of this year and potentially into '25? David Goeckeler: Yes. I think the whole key to that question is to continue to innovate. It's just as simple as that. If we continue to innovate and build a better product and deliver a better TCO to our customers, we're able to continue to participate in the value of that R&D that we're spending. We just announced a new drive that's 32 terabytes which is 13% more capacity than next biggest drive on the market which is our 28-terabyte drive. So as long as we continue to do that, we go to our customers and they get a better value proposition and we're able to participate in that. And as long as we continue to drive the road map forward and I have a tremendous amount of conviction that's the case, we're going to do that. We will continue to drive margins higher in this business. Amit Daryanani: Maybe just help me clarify this. Is the performance on the HDD side, more a reflection of your peer has not had HAMR come out yet. And once that comes out, perhaps market share and gross margins normalize, I guess, the feel would be, is this all durable? Or does it go away from a margin perspective once Seagate has HAMR in volume production with the hyperscalers. David Goeckeler: No. Like I said, I don't think it has -- it has to do of continuing to deliver greater TCO. The underlying technology that you're delivering on the product I don't think matters that much, right? It's like customers want more density in the same slot and we're able to deliver that. We have a road map to deliver that. Other people in the industry have a road map to deliver that and we're going to continue to drive TCO down. We get better visibility into ordering. I've talked a lot about, I think, hard drives have been an industry that's been persistently oversupplied given the client to cloud transition. We're past all of that now. And I think we're seeing what the dynamics of the industry are like when we get the supply-demand balance right. We get our manufacturing footprint the way we want it. We deliver world-class leading products that provide enormous amounts of value to our customers. And we're -- that drives margin higher because it's a great value proposition for our customers. It's a good deal for them. It's a good deal for us. And I think that is incredibly durable. Operator: And our next question comes from Vijay Rakesh with Mizuho. Vijay Rakesh: Just -- I mean, obviously, very solid execution on the gross margin side, I think, is the highest in 5 years. But as you look at the road map forward, can you level set where you think hard disk drive and NAND margins could get to? Because I think in the past, obviously, NAND margins have gone like 45%, 50%. And I think we see hard disk drive margins at 38%, 39%. Could you help us like how to walk to the margin ARPU going out? David Goeckeler: I think in the -- look, so next quarter, margins in both business are going up which is what we want. And I think as long as we continue -- in the NAND business, we -- again, we have to continue to innovate and bring great products to market and I think our portfolio is as strong as it's ever been. And we've always -- we've been strong for a long time in consumer. I mean that's been a stalwart of the business for a very, very long time. We have a very strong client portfolio. We have a very strong gaming portfolio. We've always been good in mobile and now we have enterprise SSD, where we're building out the portfolio right at the time where the AI Data Cycle is really driving a significant amount of demand. So I think from a technology perspective and where the portfolio is positioned, we're in very, very good shape. At that point, we look at long-term supply-demand balance of the business. We all know it's a cyclical business. You have to add CapEx in very large increments to bring on capacity, nodal transitions give you more capacity. We talked about this in our new era of NAND. I think this idea that the layer race and let's just put bigger and bigger nodes on the market and count on elasticity to soak up all the bits. Like I think that era of NAND is in the past, the era of NAND in the future is more strategic introduction of new nodes that add capacity, more innovation within the node on performance, power, capacity and so that, I think, is something that says the way we're going to manage our business is different than it has been in the past. And then, we look at just the overall supply-demand balance. And there's been not a lot of CapEx spending in NAND coming out of the downturn. And so we see a good supply-demand balance. So we expect to see continued positive momentum in the portfolio. On HDD, this is a business that is, like I said in the prepared remarks, we think it's gone through a remarkable transformation over the last year, really. We're starting to see the -- we're starting to see the results of this transformation that's been going on, quite frankly, for a long time. One is about getting through this client to cloud transition. Industry has been in that position for 15 years probably. So we're kind of through that now. Client is just a much, much smaller percent of the portfolio. Even if you look back to the past peak of our business, client was a much bigger percent just 3, 4, 5 years ago than it is today. So it's a cloud business now. We continue to deliver really strong TCO gains with our technology road map. And I think the business has a long road map on continuing to be able to drive better TCO for our customers. And then on the demand side, you've got -- again, you've got AI now the AI Data Cycle where HDD is going to be a big part of that on the input side, all of this data is stored on HDDs. And on the output side, people producing a lot more content to be stored on HDD. So we see a good demand environment, good business practices of getting the right visibility into how we should add capacity, so we don't end up in an oversupplied market. So I think the HDD business has structurally changed. I see the margins going higher and going higher in a structural way that will be maintained at a higher point. It's not a value proposition question. The value is really there. And like I said, we continue to drive TCO lower. We're going to continue to drive margins higher. Operator: And our next question today comes from Wamsi Mohan with Bank of America. Wamsi Mohan: I was wondering maybe you could square your comments a little bit on proactively mixing bits across end markets in a quarter where your bit shipment declined below what you had originally expected. But at the same time, you also had inventory build in the quarter. And as a clarification from a prior question, could you just help us think through in the September quarter, what is the like-for-like ASP trajectory for NAND as well. David Goeckeler: Okay. So first of all, the mix, I think, the first one was the mix question. So was the question in the quarter? Wissam Jabre: Yes, in the fourth quarter, it's how do we proactively -- how we proactively mix the bits to generate better profitability. David Goeckeler: When bits were declining. Okay. So yes. I mean, look, I mean, I guess, in a big picture, we're always just looking at every market that we're in and what demand is on a week-over-week basis and what our customers are telling us and we're trying to put the bits to where we're going to get the highest return. We saw some headwinds in consumer. So we mixed into other parts of client business. And we also saw really good growth in enterprise SSD. I think we saw 60% sequential growth in enterprise SSD. So that provided a floor on kind of how we think about the mix side of it. And the second part of the question? Wissam Jabre: Yes, the -- so on the -- maybe on the comments on the inventory, Wamsi, it's not unusual for exiting the June quarter for us to have inventory builds as we get prepared for the second half that tends to be more consumer oriented and sort of there's more shipments that typically take place. And so we're comfortable with that. Yes. So on the like-for-like for the September quarter, we're expecting the ASPs in NAND to be slightly up in the sort of low single-digit percentage range. Operator: And our next question today comes from -- excuse me, Toshiya Hari with Goldman Sachs. Toshiya Hari: I had one quick clarification and one question. On the clarification, the dis-synergies, we saw the $35 million to $45 million you guided to for the December quarter, is it fair to assume that's kind of a steady state for the combined business going forward post separation? Or do those costs go away? Or do those costs potentially go up beyond separation. That's my clarification question. And then my question for Dave on the NAND side, -- are your fabs fully loaded at this point? I know at the trough of the cycle, you had cut pretty significantly along with your peers. But where are utilization rates today? And how should we think about fiscal '25 CapEx? Wissam Jabre: Yes. Let me -- thanks, Toshiya. Let me take the first part of the question. So with respect to the synergies costs that I discussed for the December quarter, they range in and you noted $35 million to $45 million. This is -- it's fair to assume that this is where steady state will be until the separation and going forward. David Goeckeler: And then on the NAND -- the fabs are -- we're running at full utilization. We don't have underutilization costs on NAND at this point. And then the third part of the question. Wissam Jabre: On the CapEx. David Goeckeler: FY '25 CapEx. Wissam Jabre: Yes. So on the CapEx side, look, we're -- what I'm -- what I think, we will share is where we see CapEx in this current quarter. And the -- from a cash CapEx perspective, for this quarter, I expect it to be more or less in line with the fiscal fourth quarter which was around 2% of revenue. And our thoughts on CapEx with respect to basically future investments haven't changed, we'd like to continue to focus on the profitability of the business. And at this point in time, that's really our main focus. Operator: The next question comes from Steven Fox at Fox Research. Steven Fox: I was just wondering how -- given experience in prior cycles on the HDD side and you mentioned the 52-week lead times, how do you sort of protect yourself against customers being overzealous with orders and then maybe disappointing you down the road? What are you doing to make sure customers live up to their promises. David Goeckeler: I mean, these are very big relationships with very big customers. So we're very close to them on a day-to-day basis. So that is clearly something we look for. But I think there's a lot of relationship value here as well. So we'll be on the lookout for that. But we expect our customers to be fairly rational about this whole process. I mean, look, we're in an area of HDD where almost everybody that we talk to would like to have more HDDs right now. So I think everybody is understanding that giving us more visibility will allow us to set our manufacturing infrastructure in a way where we can satisfy the market without ending up in the situation we are in, in the down cycle where we were having to really, really cut costs and quite frankly, move a lot of people off the payroll which is an unpleasant exercise. So we'll stay very close to our customers. And we have also have a lot of information on kind of ordering patterns and all that kind of stuff. So we'll keep an eye out for that. Operator: [Operator Instructions] Our next question today comes from Asiya Merchant with Citigroup. Asiya Merchant: Great If I may, just if you can talk a little bit about the industry structure that has changed and maybe how it reflects in your cost declines across both your Flash and HDD business. how we should think about that going forward, given that you see a favorable pricing environment and if you can balance that with maybe improved cost decline for both NAND and HDD. David Goeckeler: Yes. So on the HDD side, there's been a couple of things that are -- have been contributing to better margins getting here. One is just we reset the manufacturing base and we've been coming off a very low number. So as we produce more and we get to full utilization, we get better cost per unit out of that. So that's been a good tailwind. But we're -- as I talked about, we're at the point where we know where all the drives over the next couple of quarters are going. And then the other part of it is as you said, technology-driven cost improvements, continuing to innovate, deliver better TCO, better cost dynamics. And we continue to drive down the cost per terabyte on the HDD business. It's going down like high single digits a year or something like that. On NAND, of course, we continue to drive cost down in the 15% range for this year, we're still good with that number. So that's a big part of the storage industry, has continued to drive the cost down through technology innovation and we feel very good about where we are in the R&D teams we have that can continue to do that. Operator: Thank you. This concludes our question-and-answer session. I'd like to turn the conference back over to David Goeckeler for closing remarks. David Goeckeler: All right. Thanks, everyone. You appreciate your time today. We look forward to talking to everybody throughout the quarter. We're very happy with where the business is and where we're driving, we think the portfolio is in a great shape and things are going in the right direction. We look forward to talking to you about it more as we move throughout the quarter. Thanks for your time today. Operator: Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful evening.

Operator: Good afternoon, everyone, and thank you for standing by. Welcome to Western Digital's Third Quarter Fiscal 2024 Conference Call. Presently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [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. You may begin. Peter Andrew: Thank you, and good afternoon, everyone. Joining me today are David Goeckeler, Chief Executive Officer; and Wissam Jabre, Chief Financial Officer. Before we begin, let me remind everyone that today's discussion contains forward-looking statements based upon management's current assumptions and expectations, and as such, does include risks and uncertainties. These forward-looking statements include expectations for our product portfolio, our business plan and performance, the separation of our flash and HDD businesses, ongoing market trends and our future financial results. We assume no obligation to update these statements. Please refer to our most recent financial report on Form 10-K and our other filings with the SEC for more information on the risks and uncertainties and that could cause actual results to differ materially from expectations. We will also make references to non-GAAP financial measures today. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the Investor Relations section of our website. With that, I'll now turn the call over to David. David Goeckeler: Thank you, Peter. Good afternoon everyone and thanks for joining the call to discuss our third quarter of fiscal year 2024 performance. Western Digital delivered excellent results in the quarter with revenue of $3.5 billion, non-GAAP gross margin of 29.3% and non-GAAP earnings per share of $0.63, all of which exceeded expectations. Our strategy of developing a diversified portfolio of industry-leading products across a broad range of end markets, coupled with structural changes we have made to both of our businesses, is unlocking our true earnings potential and allowing us to continue improving through-cycle profitability and dampening business cycles. This strategy enables us to generate higher earnings per share even in a constrained supply environment. In addition, our commitment to achieving operational efficiency and enhancing our agility has allowed us to run our flash and HDD businesses more efficiently and further drive innovation to take advantage of new opportunities. In particular, as the technology landscape continues to evolve, the demand for AI solutions is becoming increasingly apparent across our end markets. The uptick in AI adoption is highlighting the incredible value of data and will drive increased storage demand across both HDD and flash at the edge and in the core, providing greater long-term growth and margin expansion opportunities for Western Digital. We are in the early innings of unlocking the full potential of this company, and our team remains focused on improving the profitability of our business to drive long-term margin expansion and shareholder value as these new demand opportunities present themselves. Before I dive further into the demand environment, I want to briefly comment on the status of the separation of our flash and HDD businesses. I am proud of the team's ongoing efforts as we drive towards completion of the separation in the second half of the calendar year. We remain focused on achieving the separation as soon as possible, and we'll continue to provide further updates on our progress as appropriate. Moving on to end market commentary. I am pleased to report that during the quarter, revenue in all of our major end markets returned to year-over-year growth. In cloud, we experienced 29% growth in revenue from a year ago, highlighting the incredible success of our industry-leading HDD product line. In addition, we began to experience an increase in demand for our flash-based solutions, signaling a long-awaited recovery in this end market. In client, 20% revenue growth from a year ago was driven by increased bit demand for our flash-based solutions, coupled with an increase in ASPs. In consumer, we experienced 17% revenue growth from a year ago, highlighting the power of the SanDisk premium brand. Higher flash bit sales, combined with a better pricing environment more than offset the continued decline in consumer HDD demand. I'll now turn to business updates, starting with flash. Our sequential revenue growth in the quarter reflects the continuing commitment to disciplined capital spending and carefully optimizing bit shipments into our most profitable end markets to take advantage of the improved pricing environment. This approach, combined with the strength of our product portfolio has enabled us to drive significantly higher profitability while strategically managing our inventory. On the technology front, we achieved a significant milestone by initiating mass production of our QLC-based client SSD, leveraging BiCS 6 technology. This is yet another significant milestone demonstrating our continued commitment to innovation and market leadership. These advancements pave the way to spearhead the market's transition to QLC-based flash solutions in calendar year 2024. Additionally, our progress with BiCS 8 is on track. While this technology is ready to be productized as market conditions warrant, our innovative offerings will remain at the forefront of the market, further strengthening our competitive position and bolstering our growth prospects. As noted earlier, in the third quarter, we began to experience an increase in demand for our enterprise SSD solutions. We are seeing demand returning for NVMe SSDs that we qualified before the downturn. We are also experiencing significant interest in providing these products in dramatically higher capacities for AI-related applications which we expect to ship in the second half of the year. In addition, we are also sampling our newest high-performance PCIe Gen 5, BiCS 6-based enterprise SSD. We are preparing for qualification at a hyperscaler and the product is generating significant interest in the enterprise market. We expect to ramp in the second half of the calendar year. Turning to HDD. The sequential revenue increase was driven by improved nearline demand and higher pricing as we focused on optimizing profitability per exabyte sold. In particular, nearline revenue reached a fixed quarter high, reflecting the successful strategy we put in place to bring the most innovative, high-capacity and high-performance drives to market. We have the right products at the right cost structure, which are reflected in our financial performance. Our cloud customers continue to transition to SMR with our 26-terabyte and 28-terabyte UltraSMR drives, quickly becoming a significant portion of our capacity enterprise exabyte shipments. SMR-based drives represented approximately 50% of nearline exabyte shipments in the quarter. Our portfolio strategy to commercialize ePMR, OptiNAND and UltraSMR technologies in advance of our transition to HAMR, has proven to be the winning strategy and enables us to deliver to customers the industry's highest capacity and leading TCO drives, all of which can be produced at scale with controlled costs. We are confident that our product strategy, which combines UltraSMR technology with upcoming advancements in nearline drives is enabling Western Digital to deliver best-in-class gross margin in HDDs all at a time when AI is emerging as another growth engine for the industry. As we move toward a new supply and demand environment, characterized by higher demand, supply tightness and product shortages, we are leveraging our proven technology we've already introduced to the market to meet the demands of our customers with the right portfolio at the right time, while also operating with a lean cost structure for continued profitability improvement in our HDD business. Although the actions we are taking have improved profitability, we remain focused on driving higher margins to appropriately value the incredible amount of innovation and TCO improvements we continue to deliver to our customers. Before I turn it over to Wissam, I wanted to share some perspectives on our outlook. Within Flash, in addition to growth opportunities at the edge, which is Western Digital strength, we are encouraged by the returning demand within the enterprise SSD market and expect growth throughout this calendar year. AI-related workloads are driving increasing demand for enterprise SSDs, and our portfolio is well positioned to support those use cases. Looking ahead, we anticipate bit shipments to remain flat into the fiscal fourth quarter and look to Flash ASP increases to be the primary revenue growth driver led by our focus on allocating bits to the most high-value end markets amidst the tightening supply environment. While we're pleased to see pricing trends moving in a positive direction, it's crucial to acknowledge the importance of maintaining capital discipline and only reinvesting capital back into the business once profitability improves further, and we see sustained demand. Overall, our continued focus on improving profitability through our innovation road map, disciplined capital spending and strategic pricing initiatives position us well for continued success in calendar year 2024 and into 2025 by offering the most capital and cost-efficient bits in the industry. In HDD, the success of our portfolio of leading capacity enterprise products, combined with the restructuring efforts we've implemented in recent years are yielding improved unit economics and greater visibility. As cloud demand is recovering, we anticipate continued growth driven by higher nearline demand and better pricing as we are now in a supply-constrained environment. We're optimistic about aligning the pricing of our products to better mirror the innovation we are integrating into them, supporting long-term margin expansion in our HDD business. As we reap the rewards of the innovation and operational efficiencies that we've implemented, we will look for opportunities to reinvest in the business when the conditions are ripe for expansion. We will approach every capital allocation decision with a focus on discipline. Let me now turn the call over to Wissam, who will discuss our financial third quarter results. Wissam Jabre: Thank you, and good afternoon, everyone. Following on David's comments, Western Digital return to profitability and free cash flow generation and delivered great results in the quarter, which exceeded expectations. Total revenue for the quarter was $3.5 billion, up 40% sequentially and 23% year-over-year. Non-GAAP earnings per share was $0.63. Looking at end markets, cloud represented 45% of total revenue at $1.6 billion, up 45% sequentially and 29% year-over-year. The growth was primarily attributed to higher nearline shipments and improved nearline per unit pricing with Flash revenue up both sequentially and year-over-year. Nearline bit shipments of 108 exabytes were up 60% sequentially. Client represented 34% of total revenue at $1.2 billion, up 5% sequentially and 20% year-over-year. Sequentially, the increase in Flash ASP more than offset a decline in Flash bit shipments, while HDD revenue decreased. Year-over-year, the increase was driven by growth in both Flash and HDD ASPs and Flash bit shipments. Consumer represented 21% of total revenue at $0.7 billion, down 13% sequentially and up 7% year-over-year. Sequentially, both Flash and HDD were down at approximately similar rates and in line with seasonality. On a year-over-year basis, the increase was driven by growth in flash bit shipments and ASP. Turning now to revenue by business segment for the fiscal third quarter. Flash revenue was $1.7 billion, up 2% sequentially as ASP increased 18% on both blended and like-for-like basis. Bit shipments decreased 15% from last quarter as we proactively focused our flash bit placement to maximize profitability. Flash revenue grew 30% from fiscal third quarter of 2023 on higher bits and ASP. HDD revenue was $1.8 billion, up 28% from last quarter, as exabyte shipments increased 41% and average price per unit increased 19% to $145. Compared to the fiscal third quarter of 2023, HDD revenue grew 17%, while total exabyte shipments and average price per unit were up 25% and 33%, respectively. Moving to gross margin and expenses. Please note, my comments will be related to non-GAAP results unless stated otherwise. Gross margin was 29.3%, well above the guidance range. Gross margin improved 13.8 percentage points sequentially and 18.7 percentage points year-on-year due to better pricing, our continued focus on cost reduction, and lower underutilization charges. Flash gross margin was higher than expected at 27.4%, up 19.5 percentage points sequentially and 32.4 points year-over-year. There were no underutilization charges in the quarter. HDD gross margin was 31.1%, up 6.3 percentage points sequentially and 6.8 percentage points year-over-year. This includes underutilization charges of $17 million or 1 percentage point headwind. HDD gross margin is within our long-term target range, including underutilization charges. This underscores the team's focus on cost reduction and profitability as previously, this level of gross margin was achieved with higher revenue. Operating expenses were $632 million for the quarter, up 13% sequentially and 5% year-over-year. The sequential increase was mainly driven by higher variable compensation associated with better-than-expected financial results. Operating income was $380 million, which included HDD underutilization charges of 17 million. Tax expenses in the quarter was $51 million, reflecting the improved financial outlook for the fiscal year. Fiscal third quarter earnings per share was $0.63. Operating cash flow was $58 million, and free cash flow was 91 million. Cash capital expenditures, which include the purchase of property, plant and equipment and activity related to flash joint ventures on the cash flow statement represented a cash inflow of $33 million. Third quarter inventory was flat from the prior quarter at 3.2 billion, with days of inventory increasing 4 days to 119 days. A decline in HDD inventory offset an increase in Flash inventory. Gross debt outstanding was $7.8 billion at the end of the fiscal third quarter. Cash and cash equivalents were $1.9 billion, and total liquidity was $4.1 billion, including revolver capacity of $2.2 billion. For the fiscal fourth quarter, our non-GAAP guidance is as follows. We expect revenue to be in the range of $3.6 billion to $3.8 billion and project sequential revenue growth in both HDD and Flash. In HDD, we expect continued momentum with our industry-leading SMR product portfolio aimed at the cloud. In flash, we anticipate bits will be flat and ASP is up as we continue optimizing our bit placement to maximize profitability. Gross margin is expected to be between 32% and 34%. We expect operating expenses to be between $670 million and $690 million with the increase mainly related to certain project-driven investments, coupled with higher variable compensation as the financial outlook has continued to strengthen. Interest and other expenses are expected to be approximately $105 million. We expect income tax expense to be between $30 million and $40 million for the fiscal fourth quarter and $130 million to $140 million for fiscal year 2024 as the financial outlook improved. We expect earnings per share to be $1.05, plus or minus $0.15, based on approximately 342 million shares outstanding. The financial outlook has strengthened, and we will remain disciplined in executing the business, controlling our capital spending and improving our profitability. I will now turn the call back over to David. David Goeckeler: Thanks, Wissam. Let me wrap up, and then we'll open up for questions. I'm pleased with the team's performance in developing a diversified portfolio of industry-leading products across a broad range of end markets. As industry supply and demand dynamics continue to improve, we will remain disciplined around our capital spending and focused on driving innovation and efficiency across our business. Coupled with the structural changes we have made to our businesses, we are confident in our ability to drive greater through-cycle profitability and dampen business cycles. As we move forward, we remain uniquely positioned to capitalize on the promising growth prospects that lie ahead, solidifying our leadership position in the industry, particularly as AI continues to drive new storage solution opportunities and growth. Okay. Peter, let's start the Q&A. Operator: [Operator Instructions]. Our first question today comes from C.J. Muse from Cantor Fitzgerald. Please go ahead with your question. C.J. Muse: Yes. Good afternoon. Thank you for taking the question. I guess first question on the HDD side, the gross margins are spectacular and if we take out the underutilization you're north of 32%. So, curious from here as you think about on-going tightness, on-going growth in demand led by the cloud and a pricing strategy where I think you and your main competitor are being extraordinarily rational. How do you think the progression for that part of your business will look through the remainder of calendar '24 and into '25? David Goeckeler: Hi, C.J., thanks for the question. Yes, we're -- the HDD business, we're really happy with where the portfolio is at. I think that's where it starts, bringing great products to market that deliver the highest capacity points and the best TCO for our customers and when we're able to do that, we can share in more of that TCO advantage we're bringing to market. I think that's been the strategy for quite some time, and we're really happy with where the portfolio is and it's really resonating with customers. But the other side of that is making sure we really control the cost side of it, so we're really focused on making sure we bring the lowest cost product as well and that leads to the margin expansion. And then we -- of course, we've got a returning demand environment as we get the cyclical recovery in HDD spending coming off of the lows that we all really understand. Going forward, we talked about a little bit in the prepared remarks. We expect to continue to bring great products to market. We expect to continue to drive better TCO for our customers and we're in an environment now where we have supply/demand balance and we've -- significant restructuring of our business during the downturn. We've taken capacity -- we've set our capacity of what we think the market needs as we emerge into this demand environment. We do see better supply/demand alignment. We see tightness in the market, that's leading to what you would expect as customers giving us more visibility into what their ordering looks like going forward. So we're optimistic about being able to continue to drive profitability of this business higher. C.J. Muse: Very helpful. And as a quick follow-up, on the NAND side, I think you guided last kind of high-teens bit growth and I'm just curious, is that still a number in play or given your prioritization of highest profitable areas of NAND, should we be thinking about a different number? And you're not talking about production, but actual revenue bits? David Goeckeler: You mean for our -- for what time period, just to make sure I understand your question? C.J. Muse: My apologies, for calendar '24. David Goeckeler: Calendar '24, look, we see -- yes, we still see demand in the mid to -- call it, the mid- to high teens for the market. We see supply like about 8% of bits in production. So we still see an undersupplied market. For us, we had bits down this quarter, we forecast them down double digits. We were right about that, maybe a little bit more flat going into next quarter as we kind of optimize our supply throughout the year where we can think we can get the best profitability. C.J. Muse: Thank you. David Goeckeler: Thank you C.J. Operator: Our next question comes from Joe Moore from Morgan Stanley. Please go ahead with your question. Joe Moore: Great, thank you and congratulations on the results. In terms of the outlook, looking for 4 points of gross margin improvement, it seems like the like-for-like pricing, certainly in NAND is a lot better than that. HDD seems pretty good as well. What are the offsets that you only would see sort of 4 points of gross margin expansion given the improvement that we're seeing in absolute pricing? Wissam Jabre: Hey Joe, thanks for the question. Look, our guide comprehends a balanced view of what we have in terms of information today with the outlook; yes, we see improvement in margins in both of the businesses. So on the flash side, we still anticipate improvement in pricing that will help gross margin move a bit higher from here. And on the HDD side, as David mentioned, we continue to focus on the obviously, the great technology that we deliver, but also the cost discipline and pricing of the products. So, all of these are comprehended in our guide. Joe Moore: Great and then as a follow-up, you sort of talked about these higher density SSDs in the second half of the calendar year for AI purposes. Can you talk about what has to happen to sort of get those drives out? Like is it you need new capacity points that you don't currently serve and then can you talk generally, it seems like AI is having some positive effects on both sides of your guys' business. Can you talk about that a little bit? David Goeckeler: Yes. So what I would say about the AI demand as it's coming into focus. I don't think it's so much in the results just yet, but we're seeing where it's going to impact both businesses. And clearly, one of them you just outlined, which is we're seeing enterprise SSD demand return, we saw some increase in the last quarter. We expect some increase in this quarter. But really, as we look to the second half, we have customers coming to us wanting the kind of SSDs we built and qualified before the downturn. They just want them in much bigger capacity points, 30 and 60 terabyte capacity points. So it's the same product just taking it and increasing capacity and going through a qualification on that so we're in that process with customers. We also introduced a new SSD that's more compute focused, which is PCIe Gen 5 product based on BiCS 6, very high performance that plays a little bit different role in the AI training stack and we're getting very good feedback on that product. It's being qualified by our starting qualification, we samples. We're kind of getting rid of the qualification of the hyperscaler and we're seeing good demand in the enterprise market as well. So we feel like the portfolio set up well as we go into the second half, and we're seeing a lot of demand show up for people that are very building large amount of infrastructure for model training. Joe Moore: Thank you. David Goeckeler: Thanks, Joe. Operator: Our next question comes from Aaron Rakers from Wells Fargo. Please go ahead with your question. Aaron Rakers: Yes, thanks for taking the question. I've got two as well. The first question, I just want to go back to kind of like the gross margin dynamics with regard to the hardware business. David, if you look back a couple of years, right, you peaked at like 150, 155 exabytes of capacity shifts. As we hear about the industry being constrained, where do you -- where would you characterize your capacity footprint today? And is it fair to assume that you have to see gross margin at or even above the high end of the 31% to 34% target model that you've laid out to kind of come back in and add capacity? David Goeckeler: Yes. That's how we're thinking about it. This is a -- I've talked about this quite a bit and this is an industry that I think has been oversupplied with this client-to-cloud transition, it's been going on for 15 years. I think the downturn was in time when we saw a significant change in demand to say the least that we just decided to remove capacity to get supply and demand better balance. So as we -- we're just emerging into that market, Aaron. I mean I think as we start to see this market play out and dynamics get to the kind of business model and get more visibility into what the future is. We can have confidence in making investments if that's what we need to do to expand capacity I think as all of that comes into focus, and it's starting to happen. We're starting to see that. We're getting more visibility. We're getting to participate more in the TCO advantages that we're bringing to the market. We're seeing better dynamics and as that continues -- and we get more confidence, we're not there yet, then we would think about how do we bring more capacity into the market? But we're just at the -- we're kind of getting to the starting line is, I guess, what I would say. Aaron Rakers: Yes that's helpful. And then as a quick follow-up, just on the enterprise SSD topic. I think prior to the downturn you had talked about, I want to say it was 2 or 3 cloud OEMs that you had designed in with the NVMe drive, can you just talk about the breadth of what you're expecting? It just sounds like you're kind of getting back into the market, optimizing displacement there. So how do we think about the breadth of the customer base in that enterprise SSD space? David Goeckeler: Yes, you got -- I mean it's the -- what we're seeing now is when the market is coming back we're seeing those customers now come back up to a very long digestion period. And this is something we've been waiting for quite some time. Like every market from consumer to PC to near line on the HDD side has gone through this big digestion phase. And I think enterprise SSD was the one we were waiting to see when we're going to come out of that. And that's what we're starting to see. So we're seeing a couple of dynamics in that market. We're seeing those enterprise SSDs that we had qualified, the very same products now we're getting orders for as that digestion phase ends and they get -- they start to ramp ordering back. And then we're seeing the kind of AI impact on different capacity points, different use for model training we're starting to see that demand come in the market. So we're seeing both of those things happen. We think the portfolio is well positioned for those markets. We expect that to play out through the rest of the year and we're excited about it. Aaron Rakers: Thank you. David Goeckeler: Thanks. Operator: Our next question comes from Wamsi Mohan from Bank of America. Please go ahead with your question. Wamsi Mohan: Yes. Thank you so much. On the HDD side, you had a very outsized exabyte quarter-on-quarter growth in the quarter relative to your nearest competitor. How are you thinking about the continued trajectory here in terms of exabyte growth perhaps both quarter-on-quarter basis, but also maybe calendar '24 versus calendar '23. David Goeckeler: Yes. We're seeing -- I mean, big picture we're seeing a return in demand. Obviously, I think it was the largest sequential exabyte growth we've seen in a very long time. I hesitate to say ever because this is -- business has been around a very long time. But to go back as far as we could look, it was the biggest sequential increase we had seen. And it's -- as I said earlier that starts with having products that really resonate with our customers. We really believe very strongly in the technology road map we've built around ePMR and UltraSMR and is resonating very strongly with customers. Nearly 50% of exabytes shipped this quarter was SMR and we're set up well for what we talked about last time where we expect over half of our exabytes in FY '25 to be SMR-based. So like we said, coming into the fiscal year that we expected sequential growth throughout the fiscal year last quarter we extended that to the calendar year and we still see that. So we still see sequential exabyte growth going forward throughout this calendar year. Wamsi Mohan: Okay. Thanks for that. And as a follow-up, on sort of reinvesting on capacity side, on the HDD side. I think you said when conditions are ripe for reinvesting, and I know to Aaron's question earlier you commented on certain gross margin ranges, but this cycle, your gross margin is much higher at lower revenue levels than past cycles. So clearly it feels as though at least you have the capability to drive peak margins much higher than your established long-term range. So why should 33 be maybe the level at which you reinvest? Why wouldn't it be 34, 35 or higher than that? David Goeckeler: Well, we haven't really set a bogey for that. We want to look at the holistic marketing. Again, that -- I understand this question everybody is looking for when we would reinvest, but that's really not what we're even thinking about right now. We're thinking about getting a market that's balanced on supply and demand, delivering great products to our customers that can meet the needs of the growth of the cloud. And I think that to your point, I think the business is emerging what we planned for and a lot of hard work that went in over the last couple of years which is to come back in a much healthier position with the ability to drive greater profitability. So we're just getting back to the bottom of the range that we set a couple of years ago. It's not as if we're declaring victory in that at all to your point, like I said, I feel like we're just getting back to the starting line of where we need to drive the business to, but we feel very good about to be able to drive increased profitability in it. Look, it starts with delivering great products to your customers like we have to continue to bring better TCO. And I think we have got a tremendous architecture to do that while controlling our cost to build the product. We have to work stay focused on both sides of this equation. We got to have the lowest cost and then the best TCO that allows us to drive pricing which drives margin expansion. So we're working across that whole equation. And I think the strategy is working quite well. And that's why we saw -- when we saw some -- we saw the demand return, we saw the margins pop up. But to your point, we believe we can -- we're just getting started on this. Wamsi Mohan: Thank you so much. Operator: Our next question comes from Karl Ackerman from BNP Paribas. Please go ahead with your question. Karl Ackerman: I'm curious your thoughts on the decision to prioritize the transition to BiCS 8 for the mobile market rather than SSDs because AI demand appears concentrated in high-capacity enterprise SSDs. And I guess as you address that question, could you discuss your opportunity to provide QLC enterprise SSD to address these inference applications that appear to be supporting 30 and 60-terabyte units. David Goeckeler: Yes. Thanks, Karl. So haven't really said where BiCS 8 is going to go. That's in our future. That's one thing we feel really good about is the technology is there and we'll bring it to market when we see it's the right time to do that when we got the right profitability, the right supply-demand characteristics to invest in prioritizing that node, the technology is in great shape. But we haven't really outlined exactly which products are going to go there first or second or third. So that's still in our future. As far as your point on QLC, this is -- we're now starting to transition to BiCS 6. And so we talked about a couple -- a number of products here that are BiCS 6 based which first the client SSD, you didn't -- I'll talk about enterprise SSD as well, but we our client SSD has been extremely well received. The performance of it is outstanding. We have our own internal controller team. They've done an amazing job of building a really, really high-performance QLC client SSD. We expect that to lead the market and lead that transition in that part of the market and then we're bringing BiCS 6 into our enterprise SSDs as well. So that will be lever we have to drive BiCS 6 which gives us more capacity, better performance and so we feel good about that transition is now starting and the products are starting to show up. They're in customers' hands, and they've been very, very well received. Karl Ackerman: Thank you. David Goeckeler: Thanks, Karl. Operator: Our next question comes from Amit Daryanani from Evercore. Please go ahead with your question. Q – Amit Daryanani: Thanks a lot. Good afternoon. I have two questions as well, I guess. First on the HDD side, I'm wondering, do you think given some of the challenges on Hammer qualifications that Seagate's having, if you potentially saw a bigger uplift in market on the near line side and you think that market share could potentially sustain or does some of that kind of flow back as those qualifications get done. So I'd love to understand if the share gains you think you're seeing are sustainable or not. And then on the flash side I would like to just maybe get your perspective. I know you folks are talking about bit growth being flat in June. But as some of these qualifications ramp up in the back half how do you think about bit growth ramping up into the back half of this calendar year? David Goeckeler: Yes. So on the first question, the business with our customers is planned pretty far in advance. So there wouldn't be a situation where something would happen intra-quarter and that would drive a big share shift. The reality is we've got great products, and they're very much resonating with our customers and we can deliver them at scale. And they have bring best-in-class TCO and clearly customers are adopting those at a significant rate. So -- like is it sustainable? We continue to bring great products to market. That's what we plan to do. We're very confident in our road map on HDD and we'll continue to bring the best TCO solutions to our customers. On bit growth, we do expect flat bit growth into the calendar Q2, but we'll see a pickup in bit growth in the second half of the year. Amit Daryanani: Got it. Thank you. David Goeckeler: Thank you. Operator: Our next question comes from Harlan Sur from JPMorgan. Please go ahead with your question. Harlan Sur: Good afternoon. Nice job on the quarterly execution. Another question on enterprise is so you guys have been really smart on how you are allocating flash bits, right, with a strong focus on profitability. So as you reallocate more bits towards eSSD in the second half, is the profitability profile of enterprise SSD portfolio expected to be accretive to the overall flash business and your shares peaked previously sort of in that sort of high single-digit percentage range in enterprise. Just given a more competitive portfolio, like what type of share is the team targeting kind of mid- to longer term? David Goeckeler: Okay. Thanks, Harlan, your questions are very related. So we saw a pickup in enterprise SSD in the March quarter. It's still -- quite honestly, it's still relatively small numbers, but it's growing quite well. So we wouldn't have supplied those bits if it wasn't the right thing to do from a portfolio strategy point of view. We'll see when we get to the second half, what pricing looks like, that versus other options we have, and then we'll decide how much supply we put into those products. And you're really getting into core of our portfolio strategy, which is to have a lot of optionality. We have a lot of optionality across client SSD, across gaming, now across enterprise SSD, across mobile, across consumer, obviously, which is a big business for us. And then based on what we see going into the quarter. And then very importantly, what happens during the quarter, how do we allocate our supply to get the best return? And clearly, we're in an environment right now where things got better throughout the quarter. So as we go through the quarter, we find more opportunity to mix and get more profitability, and that's what happened in the March quarter, and you saw the results of having that agility into the business. So I really don't want to call a share number or anything like that because it tends to distort, what we want to do is maximize profitability, not maximize share in any particular market. We want to maximize where we get the most return for our supply. Harlan Sur: I appreciate that. And then maybe a question on BiCS 8. I know you're not calling out any timing yet, but you have had it sort of in preproduction for quite some time. How are the early yields on this technology? And I guess, more importantly, like can the team still drive mid-teens percentage annualized type cost down with the new bonded the raise technology? David Goeckeler: Yes. So what I'll say about yields is we're very confident in the technology. I mean, we feel very, very good about it. It's a major advancement in the architecture OptiNAND from an industry perspective to the CBA architecture. And it's -- the development has gone well. We feel very good about it. We can productize it when we need it. Again, this gets into a larger conversation about the dynamics of the market and when is the supply needed, and we're going to be very, very disciplined about going through any transition or putting any CapEx to the market until we see the profitability that we want to get. So we feel very good about BiCS 8. There was a second part of the question. Harlan Sur: On the cost downs. David Goeckeler: Cost downs. Wissam Jabre: Yes, maybe I'll take that, Harlan. Yes. On the cost down, we're still anticipating the mid-teens percentage year-on-year cost downs. So there's no change there. Harlan Sur: Perfect. Thank you. David Goeckeler: Thanks, Harlan. Wissam Jabre: Thank you. Operator: Our next question comes from Carlos Colorado from UBS. Please go ahead with your question. Carlos Colorado: Thanks for taking my question. So I have -- the first one is about nearline. You are going outperforming your competition by a lot. So what are the underlying reasons in your opinion for this? And do we have to expect this to normalize over time? And do you think this can be sustained? And I have a follow-up. Thanks. David Goeckeler: Yes, the performance of the HD business is driven by the product, right? It's pretty straightforward. Products are -- they're great products. This architecture that we built on ePMR, OptiNAND, UltraSMR, customers are really committed to SMR. They deliver the best TCO in the market. We can produce them at scale and that's what leads to the performance. Carlos Colorado: Okay. Thanks and the follow-up is, you mentioned that AI has revenues are of SSD sales. You have a perfect vantage point to see if AI is driving applications that traditionally were HDD is that now being transferred to SSD some of those applications, or is the classic question on cannibalization from one to the other. Is that -- is AI change in that scenario? Thanks. David Goeckeler: We do not see any cannibalization clearly, HDD plays a big role in the AI storage life cycle as well as the whole ingest phase because all of the big data lakes and all of the raw data sets, those are all going to be stored on HDD. It's just the economics of where you store that data and how do you access that data. It's all that part of the AI pipeline, if you will, is going to be HDD. Now you have all of these other new use cases around training and inference, and those are all going to be SSDs. So it's really about growth as opposed to substitution. And that's what's so exciting about this. And obviously, once you get the models trained, then the models are going to turn out more data, which is going to be stored on HDD. So you got this virtuous cycle going. So it's kind of literally rising tide lifts all boats. It's not a substitution game. Clearly, there's a lot of new use cases being developed around AI, like the whole training infrastructures that are being built, that's what's driving these very high-capacity storage-based enterprise SSDs that we're seeing demand for. So hopefully, that helps. Operator: Our next question comes from Krish Sankar from TD Cowen. Please go ahead with your question. Krish Sankar: Thanks for taking my question. I have two of them. First one on flash for Dave. You spoke about the BiCS 6 hyperscale qualifying it. My understanding was a BiCS 6 was kind of more like a sub node and BiCS 8 is going to be the bigger one. I'm just kind of curious to get to your enterprise SSD market share target. Do you really need BiCS 8, or can you achieve it with BiCS 6? And then I have a follow-up. David Goeckeler: You're right. BiCS 6 is when we say stub node, it's we're not going to take the whole portfolio to BiCS 6. So we have a big portfolio, and we're choosing which products to take the BiCS 6. And clearly, we're taking the products that require QLC and the kind of things you're talking about. So we feel good about our node a plan in the fab being able to supply what we need in these markets. Krish Sankar: Got it. Got it. And then, Dave, on the hard drive side, I think you said in the past that you can get to 40 terabytes of the ePMR technology. I'm just kind of curious with obviously a competitor like trying to ramp up HAMR, and it took them a while like a few years to even get the 3 terabytes per disk in R&D to [indiscernible]. Can you give us an update on your HAMR road map or the status of your HAMR technology, how we think about 30, 40 terabytes plus. David Goeckeler: So we've been working on HAMR for quite some time. We understand HAMR extremely well. We understand all the issues with HAMR, and what it takes to get it qualified. Clearly, we're doing that all behind the scenes because we have a product portfolio with the best TCO we can offer in the market today, and we can do that all the way up to 40 terabytes. And 40 terabytes is where the economics flip over and you get the 4 terabyte per platter or 40 per unit, where essentially the capacity increase will cancel out the increase in costs you have to put in the unit to get the economics to work on margin, right? That's kind of a complicated -- a lot to say in 1 sentence. But our portfolio is very focused on the right product with the right cost at the right time. The right time for HAMR is at 40 terabytes. And we've got a lot of development going on that product. We have for a long time. We, quite frankly, don't need to do it in public because we have another portfolio that's selling extremely well, which we've talked about throughout this process. But have a lot of confidence in our HAMR development. And quite frankly, our customers know exactly what we're doing, and where we're at and what our plans are, and they're comfortable with that as well. Krish Sankar: Thanks, David. Operator: And our next question comes from Tom O'Malley from Barclays. Please go ahead with your question. Tom O'Malley: Thanks for taking my question. I'm going to do one on the CFO side real quick on OpEx. So big step up in the June quarter, and you're talking about some special projects. How should we think about that progressing? Is that investments that are going to stick around for the next couple of quarters? Or should that reset back to kind of the lower base you've been running out? You've just seen OpEx move from kind of the 550 to 660 over the past year, obviously, revenue increasing as well, but any color there on what that investment is for and if you see a step down after that? Wissam Jabre: Yes. Sure, Tom. So let me first start by saying that the way we think of OpEx is we don't see OpEx increasing faster than revenue. So we're still very focused on that cost discipline and OpEx discipline. When it comes to this quarter, we're expecting some increase. The increase is almost 50-50 driven by variable comp as the financial outlook has improved much faster than anticipated. So there's a bit of increase there. But also, as you mentioned, there's some project-specific R&D investments that also -- that we have sort of a direct correlation and line of sight to revenue. I would say for the next couple of quarters, the range that we've guided for Q4 is a reasonable range. I know it's too early to talk about fiscal year '25. But for modelling purposes, we can use the same type of numbers for now. Tom O'Malley: Helpful. And if I look at your cost guidance for the year, a couple kind of with what you're looking at for June of '24, when I'm looking at gross margins, it seems like you need to have a pretty significant step-up in HDD gross margins. Are you planning for all of that the underutilization to come out of the model in the June quarter? And if any remains, can you let us know how much you're expecting? Wissam Jabre: So for this most recent -- for Q3, we had a little bit -- and we disclosed, we talked about those. But as you can see, the numbers are becoming less and less significant. And so for the June quarter, there's still a little bit, but it's not really very significant for us to talk about on this call. Tom O'Malley: Thank you. Wissam Jabre: Thanks, Tom. David Goeckeler: Thanks, Tom. Operator: Our next question comes from Vijay Rakesh from Mizuho. Please go ahead with your question. Vijay Rakesh: Yes, hi. David, Wissam. Just a quick question on the Flash side. Dave, when you look at the profitability, as you mentioned, how does the BiCS 6 compare to -- if you look at some of the competitive NAND out there, either in terms of die size or cost per gig versus some of the peers? Wissam Jabre: So that's a very complicated question. I mean we can go into it in detail offline. We obviously do tons of work, and I appreciate your question that it's a multifaceted issue. It's die size, it's memory hole density, it's all kinds of very complicated thing goes into producing a NAND product. Look, we think the product compares extremely favorable. We think it leads the market. Again, for the last -- looking back many years, we have been able to produce bits at one third less CapEx than the industry average, and we expect BiCS 8 to continue that leadership in the market. So we feel very, very good about the product, about its performance. Again, when you build, this is like kind of one of the magic of wafer bonding. You can build the CMOS separately from the NAND stack and then the CMOS is kind of pristine. So the interfaces are really, really fast. So there's lots of good things about that architecture that leads to a really, really market-leading product, and we feel good about it. And we've got that all ready to go when the market the market conditions will support that level of investment. Operator: Our next question comes from Mehdi Hosseini from Susquehanna. Please go ahead with your question. Mehdi Hosseini: Yes. Most of the good questions have been asked. But David, I just have a longer-term question, and I think it will help many investors let's say, prices were to go sideways in '25, and you're just focusing on that 15% cost down and higher mix of higher-value SSD products. Can you help us understand how your flash margins would evolve from here? And then I'm not trying to ask you for pricing. But I'm just wondering how we could gauge your execution first, on the product mix and be on the cost down and how they both would manifest into higher margins. Wissam Jabre: Yes. Then let me first start with -- I'll take a stab at the answer, Mehdi. So look, our target model hasn't changed. We're still targeting through cycle for the flush business to be 35%, gross margin to be between 35% to 37%. And so that means, obviously, as -- from where we are today, we still have some ways to go to get to that through cycle margin. And the way we achieve these gross margins is what we've been talking about on this call. We focus on the product portfolio, the bit placement as well as on the cost side, which we still anticipate a similar type of ranges in terms of cost downs. Mehdi Hosseini: Okay. That's reasonable. Let me just move on to the second question. And this is something I always ask, focusing on HDD. Is there any update how you see exabyte shipment evolving like over the next couple of years? Is the target now 25% to 30% or less or more? David Goeckeler: We're not -- we're still in the 20% to 25% camp, maybe around 25%. That's -- we're clearly in a cyclical recovery here, getting back to that kind of through-cycle number. I think the kind of the question inside your question is how much does AI add on to that. And I think it's still a little early to tell. We definitely see -- as I talked about earlier, we see the value of data going up, you want to store more data to train more models. Those models are going to turn out more data. So we think that the bias is higher. I'm not in a position yet to call exactly how much it changes the slope of that line. So that's something we're going to stay very focused on as we go forward here over the next several quarters, stay close to our customers as these models get deployed and AI gets more broadly deployed and adopted so that we can dial in what we expect that impact to be on HDD storage demand. But we feel good that it's -- and we've got that secular tailwind to the business that will emerge. Operator: Our next question comes from Steven Fox from Fox Advisors. Please go ahead with your question. Steven Fox: Hi. Two quick ones for me. First of all, on the HDD side, your large competitors talked about having to sort of support the supply chain going forward. I was wondering what -- how you look at that option or need to do that? And then secondly, since cash flows turned positive again, I was wondering if you could sort of give us a little bit of help on how to think cash flow tracks maybe versus net income or EBITDA over the next few quarters? Thanks. David Goeckeler: I'll just say something about supply chain. Look, we stay -- we've stayed very close to our suppliers throughout the entire downturn and stay very close to them as we're planning the business going forward. So we think we always support our supply chain and Irwin Tan, who leads operations is based in Singapore, a lot of our suppliers are there, and he personally can stay very, very close to them. So we've stayed we've been very close and have supported our supply chain throughout this entire downturn. And now as things are getting better, that's a good situation for all of us. You want to talk about the cash flow? Wissam Jabre: Yes, let me take that. So on the cash flow, yes, thanks. Obviously, we returned to free cash flow positive in Q3. And as the revenue and the business continues to recover, we're completely focused on profitability and cash flow generation. So we should expect that to improve from here. Operator: Our next question comes from Ananda Baruah from Loop Capital. Please go ahead with your question. Ananda Baruah: Yes, thanks guys for taking the question. Just one for me. David, really, I think, piggybacking off the part of Mehdi's question. So just a TAM question on both sides of the business, HDD and Flash, is really the spirit of it that you see some near-term demand from AI coming and TBD on the impact to the TAM over time and also TBD on impact to the normalized growth rate off of whatever the new TAM looks like. And that's really the question. And TBD is the financing, but I just wanted to make sure we get all of your current opinions there. Thanks. David Goeckeler: I think that's a fair way to say it. I think it's coming into focus as to where it's going to show up on both sides of the business, but it's -- to your point, we're not ready to call what it does to the TAM, besides, we believe, it's a tailwind to both TAMs. So clearly, on the NAND business, there's very specific use cases on model training that are coming up substantially. I mean, obviously, you're seeing that across the whole technology landscape. And maybe that's a little bit easier to see we're actually seeing demand for those kind of products in the second half. And for HDD, we see it as all the data that's going to feed that process is going to sit on HDDs. And obviously, once those models get trained, they're going to turn out data that's 85% plus of that is going to be stored on HDD. So we see a very, very good setup, but we're staying close to our customers in these markets. It's still a little bit early to actually put a number on it of what it does to the growth rate or the TAM size. Operator: And our next question comes from Tristan Gerra from Baird. Please go ahead with your question. Tristan Gerra: Hi, good afternoon. A quick follow-up on this, which is how critical is it to have U.S. manufacturing for SSDs in relation to AI? And how do you look at partnership with hyperscalers as opposed to more kind of a general purpose business. David Goeckeler: You mean U.S. manufacturing of the NAND itself or the SSD, which -- well, our NAND is manufactured in Japan. So we don't see that as -- we feel really good about our manufacturing footprint, by the way. So the JV, we haven't talked at all on this call about the JV, but that puts us in a great position from a scale perspective and gives us -- is the big underlying part of that low-cost lowest-cost bids, low capital efficiency and great product road map because we -- all of that is done in tandem with Kioxia, and so we're able to invest as the largest supplier in the market, which is a great position to be in. But we haven't -- the way our footprint is set up for a manufacturing point of view, we haven't seen anything that impairs us ability to serve the entire market. And as far as partnership with hyperscalers, like, look, we stay very close to the hyperscalers. Obviously, they're big customers of ours. We're big suppliers of theirs on both sides of the business. So we're very, very close to them and staying close to what are different use cases, how do they want the products built especially in the enterprise SSD market, every -- there's not just one enterprise SSD. Everybody uses slightly different interfaces and there's different ways, their architecture of their data centers are built. So we stay close to them to make sure we build the right product for what we're -- what the markets we want to serve. Operator: And at this time, we'll conclude today's question-and-answer session. I'd like to turn the floor back over to David for any closing remarks. David Goeckeler: All right. Thanks, everyone. We appreciate all of the questions, and we look forward to talking to everybody throughout the quarter. Thanks again. Operator: This concludes today's conference call. We thank you for joining. You may now disconnect your lines.

Operator: Good afternoon, and thank you for standing by. Welcome to Western Digital's Second Quarter Fiscal 2024 Analyst Call. Presently, all participants are in listen-only mode. We will open the lines up for questions shortly. [Operator Instructions] Now, I will turn the call over to Mr. Peter Andrew, VP of FP&A and IR. You may begin. Peter Andrew: Well, thank you, and good afternoon, everyone. Joining me today are David Goeckeler, Chief Executive Officer; and Wissam Jabre, Chief Financial Officer. Before we begin, let me remind everyone that today's discussion contains forward-looking statements based on management's current assumptions and expectations. And as such, does include risks and uncertainties. These forward-looking statements include expectations for our product portfolio, business plans and performance, market trends and dynamics, and financial results. We assume no obligation to update these statements. Please refer to our most recent financial report on Form 10-K and our other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations. We will also make references to non-GAAP financial measures today. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the investor relations section of our website. With that, I will now turn the call over to David for introductory remarks. David Goeckeler: Thank you, Peter. Good afternoon, everyone, and thanks for joining the call to discuss our second quarter of fiscal year 2024 results. Western Digital second quarter results demonstrate that the structural changes we have put in place over the last few years and the strategy we have been executing are producing significant outperformance across our Flash and HDD businesses. I am confident that building leading products across a broad range of end markets, closely controlling our product cost through focused R&D and manufacturing, and bolstering the agility of our business will allow us to improve through-cycle profitability and dampen business cycles. As a result, we reported revenue of $3 billion, non-GAAP gross margin of 15.5%, and a non-GAAP loss per share of $0.69, all of which met or exceeded the non-GAAP guidance ranges we provided in October. Before discussing the business details, I want to provide some comments on the emerging trends we are seeing and how the changes we have made position our Flash and HDD businesses to benefit. In Flash, we've been able to navigate business cycles by managing inventory proactively, offering a broad range of products, and optimizing capital efficiency through our joint venture partnership with Kioxia. These successful efforts are reflected in our best-in-class gross margin throughout the cycle. During the quarter, our portfolio strategy to dynamically allocate bit shipments drove upside in ASPs and gross margin. Looking ahead, we will continue to take a disciplined approach to our supply and capital investments. Consequently, we continue to proactively manage our bit shipments to structurally align our supply and inventory with customer demand and improve through-cycle profitability into the future. In addition to the recovery in both Flash and HDD markets, we believe storage is entering a multi-year growth period. Generative AI has quickly emerged as yet another growth driver and transformative technology that is reshaping all industries, all companies, and our daily lives. Importantly, industry analysts estimate that the edge now represents approximately 80% of total NAND bit shipments, an increase from approximately 75% in calendar year 2022, which is another indication that cloud demand was significantly pulled in during the pandemic. In addition, we believe the second wave of generative AI-driven storage deployments will spark a client and consumer device refresh cycle and reaccelerate content growth in PC, smartphone, gaming, and consumer in the coming years. Our Flash portfolio is extremely well positioned to benefit from this emerging secular tailwind. In HDD, Western Digital's leading EPMR platform and enhanced UltraSMR technology allow us to provide the highest capacity drives for mass market deployment. We believe this innovative technology and portfolio strategy enable us to offer the best TCO to our cloud customers and outperform our peers throughout the cycle. We are confident that the multi-quarter near-line demand headwinds have subsided as our major cloud customers have reengaged with us. We anticipate our financial outperformance resulting from profitable share gains to become more evident as nearline demand accelerates into the second half of fiscal year 2024 and beyond. Moving on to end market commentary. During the quarter, revenue in the cloud end market returned to sequential growth for the first time in six quarters. The sequential revenue growth was led by an increase in nearline shipments. In client, sequentially, revenue declined slightly as the increase in Flash ASPs was offset by a decline in bit shipments as we proactively optimized product mix. In consumer, the sequential revenue growth was led by seasonal strength in Flash bit shipments into retail and an increase in Flash ASPs. I'll now turn to business updates starting with Flash. During the quarter, the sequential revenue increase was due to stronger execution and driving price inflection by optimizing bit shipment across our broad go to market channels into the consumer and client end markets, resulting in stronger than planned ASP increase. In particular, our WD Black gaming SSD product, which offers high reliability, best-in-class performance, expansive storage capabilities, and a hyper realistic gaming experience, achieved a new record revenue with bit shipment growth of over 50% year-over-year. On the technology front we remain on track to ramp an array of QLC-based client SSDs utilizing BiCS6 technology. Our ability to combine this new high-performance node with our in-house controller development allows us to offer a portfolio of client SSDs with unmatched performance and value. We expect these products to lead the transition to QLC Flash in calendar year 2024. Additionally, BiCS8 yield is progressing well and we remain on track to productize this technology. Turning to HDD, the sequential revenue increase was driven by improving nearline demand and pricing. Moreover, we are encouraged by demand in China with revenue doubling on a sequential and year-over-year basis, both of which were ahead of our expectations. We anticipate year-over-year growth in HDD throughout this calendar year. In both the first and second quarters, we shipped approximately 1 million UltraSMR drives per quarter. We forecast UltraSMR hard drive shipments to increase significantly in the fiscal third quarter and SMR drive shipments to continue to outgrow that of CMR drives going forward. Importantly, the adoption of UltraSMR is broadening to our major customers worldwide, including a third cloud titan in the US this year, as well as hyperscale and smart video customers in China. We expect to complete the qualifications of our 26 terabyte and 28 terabyte UltraSMR drives at these customers this quarter and throughout the calendar year and forecast SMR to comprise the majority of nearline demand by calendar year 2025. We have strong conviction that our portfolio strategy of first commercializing Western Digital's industry-leading UltraSMR technology, which will be followed by our transition from EPMR to Hammer offers the best TCO to our customers in both the near and long term, while delivering leading portfolio profitability in the industry. Over the next several years we will be introducing a number of exciting products, including multiple generations of nearline drives combining EPMR, OptiNAND, and UltraSMR technologies in the 30 to upper 30 terabyte capacity range, all of which will be ready for high volume production to support the explosion of AI training data and content. Before I turn over to Wissam, I wanted to share some perspectives on our outlook. In Flash, starting with demand in calendar year 2024, we estimate industry bit growth to be around the mid-teens percentage, similar to the growth rate in calendar year 2023. On the supply side, we estimate that fab-out bit production growth to remain in the mid-single digit percentage range. We believe our business agility and our highly capital efficient and low cost BiCS architecture have enabled us to align supply with demand via nodal transition much more quickly than our peers. We will continue our disciplined approach to dynamically managing our inventory capacities and capital expenditures to keep our supply aligned with end customer demand. Although Flash pricing has started to increase, our profitability and cash generation continue to be well below the level that justify an increase in capital investments. We anticipate wafer equipment spending will remain at historic lows in the near term and Flash to be undersupplied for an extended period of time. Overall, we will continue to focus on allocating our bids to the most attractive end markets and anticipate Flash ASP increases to be the primary revenue growth driver throughout this calendar year. In HDD, our competitive portfolio strategy has enabled us to consistently achieve profitable share gain in the last two calendar years. We are confident that this trend will continue as nearline demand continues to improve and we continue to ramp our UltraSMR enabled products. Let me now turn the call over to Wissam, who will discuss our financial second quarter results. Wissam Jabre: Thank you, and good afternoon, everyone. Following on David's comments, the success of the strategy we have been executing is reflected in our financial performance. Non-GAAP results in the fiscal second quarter exceeded or were at the high end of the guidance ranges we provided in October. Total revenue for the quarter was $3 billion, up 10% sequentially and down 2% year-over-year. Non-GAAP loss per share was $0.69, as strong execution with our broad go-to-market channels benefited Flash ASP and gross margin. Looking at end markets, cloud represented 35% of total revenue at $1.1 billion, up 23% sequentially and down 13% year-over-year. Sequentially, the growth is attributed to higher nearline shipments to that of center customers and better nearline pricing. Nearline bit shipments were 67 exabytes, up 23%. The year-over-year decrease was due to lower eSSD bit shipments. On a year-over-year basis, HDD cloud revenue increased for the first time in six quarters. Client represented 37% of total revenue at $1.1 billion, down 2% sequentially, and up 3% year-over-year. Sequentially, an increase in Flash ASP was more than offset by a decline in flash bit shipments. The year-over-year increase was due to higher flash shipments, primarily driven by client SSD shipments into PC applications, more than offsetting a decline in ASP. Consumer represented 28% of total revenue at $0.8 billion, up 15% sequentially and 6% year-over-year. Sequentially, the growth was primarily due to seasonal strength in Flash bit shipments. On a year-over-year basis, the increase in Flash bit shipments was partially offset by a decline in Flash ASP, as well as lower HDD shipments. Turning now to revenue by business segment. In the fiscal second quarter, Flash revenue was $1.7 billion, growing 7% sequentially, as Flash ASPs increased 10% on a blended basis and 7% on a like-for-like basis, stronger than anticipated entering the quarter. Bid shipments decreased 2% after record shipments in the prior quarter. On a year-over-year basis, Flash revenue grew slightly with a 21% increase in bit shipments, offsetting lower prices. HDD revenue was $1.4 billion, increasing 14% sequentially. As total exabyte shipments increased 14%, an average price per unit increased 9% to $122. On a year-over-year basis, HDD revenue declined 6%, while total exabyte shipments increased 2% and average price per unit increased 23%. Moving to gross margin and expenses. Please note my comments will be related to non-GAAP results unless stated otherwise. Gross margin was 15.5% above the guidance range provided in October and improving 11.4 percentage points sequentially, while declining 1.9 percentage points year-over-year. The sequential increase was primarily driven by higher Flash ASPs as we proactively optimized product mix, which more than offset higher than anticipated underutilization charges of $156 million or a 5.1 percentage points headwind. Flash gross margin was higher than expected at 7.9%, up 18.2 percentage points sequentially, and down 6.6 percentage points year-over-year. This includes underutilization charges of $107 million or a 6.4 percentage points headwind to gross margin. HDD gross margin was 24.8%, up 1.9 percentage points sequentially and 4.1 percentage points year-over-year. This includes underutilization charges of $49 million or a 3.6 percentage point headwind. We continue to tightly manage operating expenses, which were $561 million for the quarter, down 15% year-over-year, and at the lower end of the guidance range. Operating loss in the quarter was $91 million, which included underutilization charges of $156 million. Fiscal second quarter loss per share was $0.69, inclusive of a $14 million dividend associated with the convertible preferred shares. Operating cash flow for the second quarter was an outflow of $92 million, and free cash flow was an outflow of $176 million. Cash capital expenditures, which include the purchase of property, plant, and equipment, and activity related to our Flash joint ventures on the cash flow statement represented a cash outflow of $84 million. The quarter ending inventory was $3.2 billion, declining $281 million from the prior quarter. Days of inventory decreased five days to 115 days. The majority of the decline was in Flash, where Flash days of inventory remained at a four-year low. During the quarter, we issued $1.6 billion in convertible notes, repurchased $508 million of the outstanding 2024 convertible notes and paid down $300 million of the delayed draw term loan. Gross debt outstanding was $8.5 billion at the end of the fiscal second quarter. We expect to retire the remaining balance of approximately $600 million of the 2024 convertible notes at maturity in February 2024. At the end of the fiscal second quarter, cash and cash equivalents were $2.5 billion and total liquidity was $4.7 billion, including the undrawn revolver capacity of $2.25 billion. For the fiscal third quarter, our non GAAP guidance is as follows: we expect revenue to be in the range of $3.2 billion to of $3.4 billion; we expect sequential revenue growth to be mainly driven by an increase in HDD; we anticipate Flash revenue to be up slightly as we remain focused on optimizing bit shipments and ASP; we expect gross margin to be between 22% and 24%, which includes HDD underutilization charges of $30 million to $40 million; we expect operating expenses to be between $600 million and $620 million with the increase driven by the reinstatement of certain incentive compensation programs as the financial outlook has strengthened. Interest and other expenses are expected to be approximately $95 million. We continue to expect income tax expenses to be between $20 million and $30 million for fiscal third quarter and $80 million to $120 million for fiscal year 2024. We expect a preferred dividend of $15 million. We expect earnings per share to be $0.05, plus or minus $0.15, based on approximately 330 million shares outstanding. As the financial outlook has improved, we will remain disciplined in executing the business, proactively managing our supply and inventory to meet customer end demand and controlling capital spending, all with the goal of improving profitability. I'll now turn the call back over to David. David Goeckeler: Thanks, Wissam. Let me wrap up and then we'll open up for questions. I want to emphasize that the steps the Western Digital team has taken to instill and deploy an industry leading product portfolio, while also moving quickly to adapt to both volatile market dynamics and anticipate future trends have enabled us to capitalize on the upswing we see ahead. Through our product leadership and ability to dampen business cycles and improve through-cycle profitability, I am confident we are well positioned to execute on our current strategy, which will reaffirm our strength over the long term. Let's now begin the Q&A. Operator: [Operator Instructions] Our first question comes from Joe Moore with Morgan Stanley. Your line is now open. Joe Moore: Great. Thank you. I wonder if you could talk about the gross margin improvement in Q1. I guess, how would -- how do you portion that between the drive business and the NAND business? And I guess, I would think with being judicious on volume, you get some pretty good NAND pricing. I guess, I might have expected a little bit more gross margin improvement. So just curious what I'm missing there? Thanks. David Goeckeler: Yeah, Joe. So we've been it's good to see the pricing inflect. If you look into Q1, we were happy with the gross margin we delivered in the Flash business in the December quarter at 7.9%. I think we were able to capture the turn in the market well. So it gives us a little higher base going into the March quarter. But if you look at both businesses, you see Flash will be down on bits and up on price. So we see -- we still see strong price increases quarter-to-quarter, but we're down on volume. Let's call it, low double digits. And then in the HDD business, we see increase in volume and increase in price. Joe Moore: Thank you. David Goeckeler: Thanks. Operator: Our next question comes from Aaron Rakers with Wells Fargo. Your line is now open. Aaron Rakers: Yes, thanks for taking the question. Just kind of building off that last question, I know you talked about hard disk drive underutilization, expectation in this current quarter kind of embedded in that 22% to 24% guide. What's the underutilization assumption you're making on the Flash business? And just in general, how do you think about the trajectory of Flash gross margin? Let's say, in theory of pricing and your implementation of price increases continues, how do we think about the return to kind of a 30% plus gross margin in Flash? So just trying to think about the puts and takes in the guidance and then the longer term kind of view at what you characterize as normalized gross margin? David Goeckeler: Hey, thanks, Aaron. So for Flash, in our guide, we don't have underutilization for Q3. In fact, we executed ahead of schedule and reached our targeted supply and inventory goals faster than what we anticipated. And so, as you know, we continue to dynamically manage supply and inventory to meet our end demand and so the fab utilization reflects that. If you recall, in our results in Q1, Flash inventory was down almost $400 million, last quarter we saw another over $200 million dollar decline in inventory. We exited the quarter at levels that we haven’t see in few years. So having said that, obviously, we will continue to be disciplined in how we manage our supply and inventory to meet end customer demand on Flash and also, of course, control our capital spend. With respect to your question at the 30%, let me clarify. Was your question 30% on the Flash or on the HDD side? Aaron Rakers: Well, I guess, I'm going to say both, but [Multiple Speakers] David Goeckeler: Yes, I thought I heard you say Flash. I was going to start talking about it. Well, let me start talking about HDD. Look, at HDD, we're pretty much very close to that level. When you look at what we delivered in the second quarter and when you also look at the guide, it does reflect the continuous margin improvement on the HDD side. And so, I also anticipate that there should be continuous improvement as the recovery continues in that business. So 30% is very much within reach. And we should be able to achieve it pretty soon. On the flash side, the --lot has to do with continuing to optimize the product mix to drive that ASP up. And also, of course, continuing to deliver on our cost reduction. And so, on the cost reduction, we've done well so far. We've been in the mid-teens. I expect us to also hit that mid-teens percentage cost reduction for this fiscal year. So, as the pricing continues to improve, I’d anticipate that we would be -- we would also be there -- let’s say in the next few quarters. Aaron Rakers: Thank you. Operator: Our next question comes from CJ Muse with Cantor Fitzgerald. Your line is now open. CJ Muse: Yes, good afternoon guys. Thanks for taking the question. I guess I was hoping to focus on the NAND bit side of the house. You're talking about optimizing product mix, but here we have bits down in December. It looks like they're down -- implied down again in the March quarter. So can you speak to, I guess, your plans there? When do you think that will open up? And can you be a little more specific in terms of which end markets you're focused on and how we should think about when they come to market and the timing and implications to pricing? David Goeckeler: Yeah. So I'll start and Wissam can add some too. So yes, we had bits down, we had a record quarter last -- two quarters ago and then we were down a little bit this past quarter, then we'll be down more. I mean, it’s just a reflection of the flow through the underutilization that we were doing to kind of keep supply and demand matched. We've talked about this a lot and not let our inventory get out of control. I think we've been very good about keeping our inventory -- we're at a four-year low on inventory, so on the NAND side. So, look, CJ, we're just going to keep very focused on what demand is, where we're at in inventory, and adjust the utilization of the fab to make sure those stay aligned as we go forward. So I think as we said in the script, you kind of assume that throughout this calendar year, you're going to see most of the growth in Flash be from pricing. CJ Muse: [Multiple Speakers] Go ahead, please. Wissam Jabre: Now, I was going to move on to the second part of your question. CJ Muse: Yeah, please go ahead. Wissam Jabre: Okay. So mix is like -- mix is just a very dynamic process, literally day-by-day, week-by-week in the business. We have a big consumer franchise, we sell all over the world, we have hundreds of thousands of points of presence and retail platforms. We have a big channel business where pricing can get adjusted weekly, then all the way up to, obviously, the quarterly negotiated markets. So we're just always dynamically understanding where pricing is going to be. And then again, in each of those segments, we have different products. We have client SSDs that are WD Black all the way down to WD Green. So in different segments of the market, all with different price points, all with different margins, all with different demand profiles. And it's a constant process of just making sure we put the supply where we're going to get the best return. This last quarter we talked about, we mixed a little bit out of client and into consumer, as you would expect in a strong consumer quarter. And we'll continue to do that. The place where we're still waiting for it to come back is enterprise SSD, that’s still been pretty depressed and as that market starts to come back, we expect to mix into that as well. CJ Muse: Very helpful. If I could ask just a quick follow-up. Wissam, can you shed some light on how to think about OpEx into June quarter and beyond? Thank you. Wissam Jabre: Yes, of course, CJ. So on the OpEx side, for the June quarter I expect us to be more or less in line. Beyond that, as the business profitability continues to improve, I expect a gradual increase. But we're laser focused on profitability and so I don't anticipate to increase our OpEx faster than revenue growth, of course. And when you look at look at where we've come from and where we are today. We're still at or maybe more than 20% lower than where we were at the beginning of the cyclical downturn. CJ Muse: Thank you. David Goeckeler: Thanks, CJ. Operator: Our next question comes from Karl Ackerman with BNP Paribas. Please go ahead. Karl Ackerman: Yes. Thank you, gentlemen. I have two if I may. The first, why do you think there was a doubling of China demand for [indiscernible] applications this quarter? And how sustainable do you think that is? I ask, because the Chinese economy hasn't been robust for some time, so any thoughts on that would be helpful. David Goeckeler: Yes, I wouldn't attribute it to the smart video market. It's more of the China hyper scalers coming back and better demand there. Karl Ackerman: Got it. Okay. Thank you for that. I guess, [indiscernible] if I may. It's nice to see an improving outlook for March. Showing one quarter ahead of many of our expectations. However, I'm a bit surprised to see your NAND ASP trajectory in December below that of peers. So is there any reason why your NAND prices or ASPs perhaps would fall behind peers from here? And/or maybe there would be a catch-up opportunity as well. Thank you. David Goeckeler: Yes. Price, your price deltas, obviously, have a big dependency on your starting point and we were starting from a better gross margin position than anybody else in the industry by quite a bit. And then on top of that, you have mix based on what's happening in the quarter and kind of where the product is going. I think if you look at profitability of the franchise, it's still leading the industry. Karl Ackerman: Thank you. David Goeckeler: Thank you, Karl. Operator: Our next question comes from Tom O'Malley with Barclays. Your line is now opened. Tom O'Malley: Hey guys, thanks for taking my question. It's Tom O'Malley here at Barclays. I wanted to ask you [Multiple Speakers] So I wanted to ask on the competitive environment. Your competitor obviously talked about a million unit shipments of Hammer in the first half of the calendar year here. I just wanted to get your comments on, are you seeing any change in your interactions with your customers? Are they pointing to Hammer as a solution that they're going to move too early in the year? Can you just talk to just the broader ecosystem and if you are seeing a transition or if it's the other side really, clearly you are seeing some better trends with your UltraSMR drives. Just any color on that transition with your customers would be helpful. David Goeckeler: I think customers just want to understand everybody's roadmap, right? And they're not looking for a particular solution. I mean, for example, we've been shipping EPMR drives for years versus PMR drives and nobody really asked us for EPMR drive. So they just want the capacity point at a TCO at a reliability level and be able to satisfy their demand. And I think that's the way we've optimized our portfolio. We've commercialized EPMR, we're very happy with the technology. We have UltraSMR on top of that. That allows us to deliver both highest capacity point in the industry, the best TCO position at very, very large scale. We can produce millions and millions of those drives per quarter. So that's what customers are looking for and they're looking to understand on your road map that you can continue to drive that TCO equation forward, because they're obviously betting extremely large data centers on our ability to do that. And our customers, I can tell you, our customers have an enormous amount of confidence in our roadmap, in our current products, and you're seeing that in the performance of the business. You're seeing accelerating growth, you're seeing better profitability, you're seeing share gains. That's a clear indication that customers are very happy with our products. Now in particular on the transition of EPMR to Hammer, I know this has gotten a lot of attention. For our portfolio, given our UltraSMR technology, it's been adopted by the market, Hammer does not make sense until we get to 4 terabytes per platter. Because Hammer adds a lot of costs to the product, so it adds a lot of costs to your bill of material. So we can deliver -- we see the next couple of generations or couple of years of ability to deliver a very strong TCO proposition at scale on the EPMR plus UltraSMR platforms that customers have clearly adopted. We see it as the majority of our demand in calendar year 2025. We will transition to Hammer when we get to that 4 terabytes per platter. That's the economic crossover, right, that we're looking for from a portfolio management point of view. So that gives you a little more color on how we're thinking about the technology, the transition, and how customers are thinking about it. I think it's very clear, customers are very happy with our road map and they understand in great detail where we're going. Tom O'Malley: Perfect. And then just one quick one on HDD gross margins. I think, when you look at the underutilization charges that are still present, you can look at just taking that out and what that means to the gross margins over the next couple of quarters. But is there any way to frame like a revenue level that gets you back to that 30% gross margin target for the HDD business or is it kind of just a wait and see when utilization takes back up and it will get there eventually. Any way to frame that from a modeling perspective as to when that can get back to your range? Thank you. Wissam Jabre: So, Tom, if you look at our numbers and you adjust for the underutilization charges, we’re almost there. So, what I would say, instead of giving a number or movement, let's say, in quantifying it. What I would say is, I expect us to be at the 30% level, at a lower level than then our normal run rate that we've had in any priors through-cycle periods. We've taken quite a bit of cost out of our -- cost structure as you very well know. And so, that will help us get there at a faster phase. With respect to underutilization, I do anticipate to probably have a bit more in other quarter of underutilization beyond this one and then we'll see where we are in the June quarter. We can talk about it then. Tom O'Malley: Thank you very much. David Goeckeler: Thanks, Tom. Wissam Jabre: You're welcome. Operator: The next question comes from Krish Sankar with TD Cowen. Your line is now open. Krish Sankar: [indiscernible] the first one on NAND. Either Dave or Wissam, how do you think of the sustainability of NAND pricing into the back half, given that there's a view that first half pricing could be up. In a calendar year base, calendar first half we have over 50%. How do you think about the sustainability and what would be the trigger point for you to start adding capacity in that? And then just as a follow-up on the hard drive side, you kind of mentioned Hammer adds cost, which kind of makes a lot of sense, given the laser and NFT. Kind of curious, if you -- whenever you start doing it would you do it with 10 discs? And if the market wants a Hammer solution from WD, how soon can you get it? David Goeckeler: Okay, there's a lot in there. So on NAND, we obviously look at a lot of things in NAND, there's a lot of stuff that goes into supply of NAND, from utilization rates, to nodal transitions, to CapEx investment, and it's a complicated equation. But our current view is, we see NAND under supplied for quite some time in the market and that's appropriate given where we are in the profitability of the business. As I said in the prepared remarks, we're happy to see the inflection in pricing and the performance of the business and it's ahead of where we thought it was going to be, but we've got a long way to go before we're going to get to the profitability levels where investments are going to come back. I think the answer to your question, we need very clear visibility into through-cycle profitability numbers that match our model. And we're coming out of a deep hole and that would imply that you need to be above your through-cycle level for a while to get to that level over time. So that's what we're looking at, and we expect pricing to -- pricing is notoriously difficult to predict and we're very careful that we don't forecast it, but clearly, we're predicting good pricing increases into the next quarter and we will stay very disciplined of managing supply and demand in our business. We talked about that, bits are down sequentially. On HDD, I'm sorry, could you just repeat the HDD question again so that I make sure I got it? Krish Sankar: Yeah, sure, Dave. I was just trying to figure out on the HDD side. A, number one, in Hammer would you be doing it with 10 disks? Second one is, if the market wants a solution from Western Digital a Hammer solution, how soon can you get it out. David Goeckeler: Yes, so let me -- we'll defer the details of product launch on Hammer and how many discs it's going to have until we get closer to that process. I mean, it's a project that's -- we're happy with where the progress of it is, given what I said earlier. We've got -- we've built a technology roadmap that allows us to get to 40 terabytes on very well proven cost controlled, high manufacturing ability technology and we're looking forward to delivering that to the market over the next couple of years. The reality is, there's no customer like demands a particular technology. The customer wants a capacity point at a certain TCO, at a certain level of reliability, and a certain level of performance. And our technology roadmap is built to deliver that. What's inside the box is less important. The real thing is, you have to deliver all of those that we just said and you have to be able to manufacture it at a level of millions and millions of units per quarter to satisfy the market. That's what our customers are looking for. Our EPMR and UltraSMR technology, that's exactly what it delivers. The ability to deliver increasing TCO, which -- if we can deliver increasing TCO, we can continue to drive pricing higher. We can produce it at very high scale, it can be qualified very, very quickly and it's very highly reliable and high quality product. And our customers are increasingly adopting that technology as you see from our forecast. Krish Sankar: Thanks, David. Very helpful. David Goeckeler: Thanks. The next question comes from Wamsi Mohan with Bank of America. Please go ahead. Wamsi Mohan: Hi. Thank you so much. Dave, I appreciate the answer you just gave around pricing, but if I could ask this in a slightly different way. How would you think about pricing, the runway that you have in Flash relative to past cycles? I mean, given that your commentary on how you managed your inventory, given your comments on expectation to be undersupplied for a long time, would you venture to say that the pricing runway that you have should be longer than what you had in past cycles? A - David Goeckeler On NAND. I'm sorry. Look, I mean, I think it's the cycle we just -- I guess we're not out of it. We're coming out of it. Like I said, like we're just taking the first steps out of a cycle we haven't seen before, I think in the 3D era. So, what we're doing, Wamsi, is just making sure we get our supply and demand matched and make sure we keep our inventory controlled and deliver the best profitability, given the portfolio we have and continue to optimize the portfolio that we can have the best mix and therefore the best profitability. It's very difficult to predict future pricing and -- but our general point is that, although things are going in the right direction, we're not close to a point where the CapEx investment is going to come back and I think that's the real number on what future supply is going to be. I mean clearly there's some utilization that is going to come back, but it's going to be needed, quite frankly. And we're going to wait to see on -- as I said through-cycle profitability where we have visibility to that, to reinvest more in this business. Krish Sankar: Okay thanks. If I could, you mentioned about entering a multi-year growth period with Generative AI and especially at the edge, the demand for NAND bits. When do you thing that the industry will start to see this demand NAND bits at the edge start to reflect higher? David Goeckeler: Yes, look, I think we're going to see it as we start to go into PC refresh cycles. We admitted that, we're still very early in this, right? Getting the cloud -- I mean the big part right now is getting the cloud capable of delivering GenAI to all of us, and then drive that architecture, down to the edge. I think we're starting to see in some of the markets some of the future specs of products where they're increasing the amount of NAND, so we're optimistic about that. As we go through the next couple of years when this architecture gets deployed and adopted. So I can't like put it down to a particular quarter for you, but certainly as new technology launches or new technology adoption, it's moving at a faster pace than any technology I’ve seen in the very long time. Krish Sankar: [indiscernible] David Goeckeler: Thanks, Wamsi. Operator: The next question comes from Mehdi Hosseini with SIG. Your line is now opened. Mehdi Hosseini: Yes, thanks for taking my question. Just wanted to make clarification. David, did you say that demand is tracking to mid-teens and that compares to bid supply growth of 5%? David Goeckeler: Yes, we see demand around mid-teens and that's fab out. What we see is kind of fab production of mid-single digits. And obviously, there's inventory between those. Mehdi Hosseini: Okay. Now what got me confusing is, you also said your NAND inventory is a multi-year low, did I misunderstand you? David Goeckeler: You did not misunderstand me. Mehdi Hosseini: So if your inventory is at multi-year low and demand [indiscernible] have all exceeding supply so you basically are not going to ship to supply, or you are not going to ship to demand throughout the year. David Goeckeler: We'll ship to our share demand throughout the year. Mehdi Hosseini: Okay. Would that impact your marker share or you are focusing on [indiscernible] more profitable than market? Wissam Jabre: No, we don’t anticipant that to impact our market share. The stats that you mentioned on the supply and production were for our estimates and what we see from third party estimates on the overall market. Mehdi Hosseini: Okay. That’s overall market, not reflection of [Multiple Speakers] David Goeckeler: Go ahead, Mehdi. I’m sorry. No, please go ahead. Mehdi Hosseini: So these are market trends, not so specific to Western Digital. And then, if I may just have a quick follow up. In terms of the NAND cost down, should we assume that long-term trend of down 10% in terms of CAGR, cost per… Wissam Jabre: No, we're comfortable with the 15% cost downs. We believe that if you -- I mean, we're ahead of that right now in FY 2024, quite frankly, but it'll come back and I think when you look at the full year, you can still model 15% for the fiscal year. Mehdi Hosseini: Okay. All right. Thank you. David Goeckeler: Thank you. Operator: Our next question comes from Steven Fox with Fox Advisors. Please go ahead. Steven Fox: Hi, good afternoon. I was just wondering on enterprise SSDs, you mentioned that they're still depressed and you'll mix into it. But given the supply situation that you just talked about and where we are in the cycle. Like, what is your -- how do you envision coming back in that market? And like, can you just remind us what a normal mix of enterprise SSDs looks like in your Flash business? Thanks. David Goeckeler: Well, I mean, for us it was a -- it's an emerging -- it's an emerging part of the portfolio. I think, right -- going right into the downturn, we got qualified at numerous or a number of cloud titans in our NVMe based enterprise SSD, and then we kind of went into a market where, quite frankly, enterprise SSD has been the most depressed part of the NAND market in the downturn and we haven't seen that come back yet. So, as that starts to come back out of digestion, it'll just be another opportunity for us to mix into that. How much we mix into it will be depending on what the price is on that -- in that segment versus other options we have for those bits. So we don't necessarily -- we don't necessarily have a fixed percentage we're going for, it's just -- we have the product, it's qualified, as demand comes back, we'll consider that demand and part of the whole portfolio calculus. Steven Fox: Would the big picture be that it trails enterprise HDDs by a certain amount of time in general? Like, do you have a vision for just -- as enterprise spending recovers, where that product cycle would be? David Goeckeler: Well, certainly, it is trailing enterprise HDD. I mean, enterprise -- I don't know if I could make a generalization about that, because it's just one cycle here, but clearly there's more inventory digestion in the hyperscale market on enterprise SSD than there was in capacity enterprise HDDs. As we talked about, we see continued growth in capacity enterprise HDDs, we started out this fiscal year projecting sequential growth throughout the fiscal year and now we're talking about sequential growth throughout the calendar year. So we see good demand trends coming back on capacity enterprise HDD, which again is a good sign for enterprise SSDs will come back, because there's a little -- there's more inventory digestion to get through. Steven Fox: Got it. Very helpful. Thank you. David Goeckeler: Thank you. Operator: Our next question comes from Mark Miller with The Benchmark Company. Your line is now live. Mark Miller: Your cash flow significantly improved during the quarter, but still there was an outflow. When do you expect to be positive from a free cash flow perspective? Wissam Jabre: Yeah, Mark. So turning free cash flow positive is a top priority for us. We are very much focussed on it and we have line of site to achieving it. We expect to achieve free cash flow positive in the second half of the fiscal 2023, either this quarter on the next. As you know, we typically don’t guide for cash flow. Mark Miller: Do you expect to -- will you have to draw on your revolver or do you expect we won’t have to draw on it? David Goeckeler: I don't see that at this point. Mark Miller: Thank you. Wissam Jabre: Thanks, Mark. David Goeckeler: Thank you. Operator: The last question comes from Ananda Baruah with Loop Capital. Please go ahead. Ananda Baruah: Yeah, thanks guys. Good afternoon. Thanks for taking the question. Hi, David. Thanks a lot. Just wondering do you guys have an early opinion on if NAND bit rate increases, as GenAI sort of impact, not just edge cycles, but sort of corporate cycles, Fortune 1000 and hyper scaler storage as well. And all the other sort of end market constituencies, do you have any opinion on if there's a sort of increase to NAND supply overtime? And if you do, do you think the increase could be material and noticeable? Thanks. David Goeckeler: It's a good point here, which is, like -- my comments earlier were about the cycle and what we see in NAND and investing in. And we're big believers in the NAND market and there's going to be a lot of bit growth in the future. And also the great thing about the NAND market is, you still have the ability to produce new nodes and more efficient as far as how much capital you need to put in to get that growth. So, look, the overall thesis on NAND continuing to grow, we have a long technology roadmap where we can continue to deliver cost downs, that's still a great story and we expect -- to your point, we expect generative AI to be additive to that, especially on the edge. The NAND market has really rotated -- through this downturn really rotated to an edge centric market. Which, again, our portfolio is very, very well positioned with our consumer business, with our client SSD business, with our gaming business, with our position with PC OEMs. So, we're very well positioned there. And yes, as we see that demand come back, and it resets the economics of the industry, we have the ability to go satisfy that demand. And so, I think you are very bullish about that. Ananda Baruah: That’s a useful context. Thanks a lot. David Goeckeler: Thank you. All right, thanks everyone. I appreciate your time today. We will see you throughout the quarter. Take care. Operator: This concludes our conference. Thank you for attending today's presentation. You may now disconnect

Operator: Good morning, ladies and gentlemen and welcome to the Western Digital First Quarter Fiscal 2024 Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please also note today’s event is being recorded. At this time I’d like to turn the floor over to Peter Andrew, VP of FP&A and Investor Relations. Sir, please go ahead. Peter Andrew: Thank you, and good afternoon, everyone. Joining me today are David Goeckeler, Chief Executive Officer; and Wissam Jabre, Chief Financial Officer. Before I begin, we have a lot of exciting items to discuss today. In addition to the earnings press release and slides, we also have a press release and slides regarding the conclusion of our strategic review. All of these materials will be posted in the investor relations section of our website shortly. Let me remind everyone that today's discussion contains forward-looking statements based on management's current assumptions and expectations and as such does include risks and uncertainties. These forward-looking statements include expectations for our product portfolio, spending and cost reductions, business plans and performance, market trends, financial results, the outcome of a potential separation of our HDD and flash businesses, including the form, timing, and tax-free status of the transaction, our ability to complete the transaction, the future performance of our separated businesses, and the creation of shareholder value by separating our businesses. We assume no obligation to update these statements. Please refer to our most recent financial report on Form 10-K and other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially. We will also make references to non-GAAP financial measures today. Reconciliation between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the investor relations section of our website. With that, I will now turn the call over to David for introductory remarks. David Goeckeler: Thank you, Peter. Good morning and thank you for joining our call. I will first discuss the completion of the strategic review and then turn to our first quarter results. We're thrilled to announce the completion of our strategic review and plans to form two independent public companies focused on capitalizing on the data storage industry's growth in HDD and flash. After evaluating a comprehensive range of alternatives, the Western Digital management team and Board determined that spinning off its flash business is the best executable alternative at this time to fully realize value for shareholders. This transaction will allow each franchise to execute on its product and innovation roadmap and capitalize on the unique growth opportunities in their respective end markets. Each company will benefit from streamlined management focus, operational flexibility, and the ability to set its own distinct capital allocation and shareholder return policies. We are excited for the opportunities this transaction creates to better serve our customers, support our suppliers, partners, and employees, and unlock significant value for our shareholders. Before discussing the details, let me walk you through the journey that brought us to this point. In March 2020, I joined Western Digital with a strong conviction in the company's unique position to accelerate and benefit from the digital transformation that is reshaping every industry, every company, and how all of us live our daily lives. And importantly, I saw an opportunity to create value for a leader in both NAND flash and hard drives. During my early days at the company, I spent considerable energy into rebuilding and refocusing the company, including the formation of the HDD and flash business units. It soon became clear that our focus on driving two distinct technology portfolios was the right strategy, and the new management team that I brought and worked together to transform Western Digital by bolstering business agility and reinvigorating innovation. In addition, we promptly focused on strengthening our balance sheet. We made the tough decision to suspend our dividend, which allowed Western Digital to speed up debt reduction and paid down $2.7 billion of debt over a couple of years following the suspension. We further enhanced our liquidity by bringing in $900 million of strategic investment from Apollo Global Management and Elliott Investment Management and amended our credit agreements. We also settled a long-standing tax dispute to increase strategic optionality. The groundwork we laid over the past several years, including the additional actions taken in fiscal year ‘23 to right-size the business, have enabled us to navigate a dynamic environment, all while staying focused on delivering a range of industry-leading products. Each business is now in a strong operational position to succeed on its own and the actions we are announcing today will further enable each company to drive long-term success in the years to come. The Western Digital team and Board completed the strategic review after evaluating a comprehensive range of alternatives and determined that spinning off its flash business is the best executable alternative at this time to fully realize value for shareholders. During our strategic review process, we evaluated material opportunities for each of our businesses. However, given current constraints, it has become clearer to the board in recent weeks that delivering a standalone separation is the right next step in the evolution of Western Digital and puts the company in the best position to unlock value for our shareholders, while providing strategic optionality for both businesses. Given the confidential nature of the strategic review, we will not be discussing any of the other alternatives that were considered during the process. On page six of the presentation, we present a separation transaction summary. The HDD business will retain the Western Digital name and become an independent publicly traded company. The flash business is expected to be spun-off in a tax-free transaction to Western Digital shareholders, and the name of the publicly traded company will be determined at a later time. We target to complete these plans in the second-half of calendar year ‘24, subject to the principal closing conditions described in the slide. Page seven provides a bit more visibility into some of the end market exposure for our flash and HDD businesses on a trailing 12-month basis. Moving to the individual businesses on page eight. In HDD, Western Digital is a well-known leader in the mass storage market with an ability to generate consistent cash flow on a standalone basis. Our ability to lead the industry in bringing new innovations to the hard drive market to enable higher capacity points for mass market adoption has established Western Digital as a key strategic supplier to the world's global cloud service providers, storage OEM, and distributors. The massive opportunity is driven by the ongoing expansion of the cloud infrastructure, connected to intelligent endpoints and powered by high-speed networks. Industry analysts estimate the HDD addressable market to grow at approximately 12% compounded annual growth rate to $25 billion over the next three years with cloud representing over 90% of the total addressable market. The cloud represents an incredibly large and growing end market for Western Digital and we are well positioned to address customer storage needs. Moving to our flash business on page 10. The Western Digital flash business is well-known for its broad go-to-market channels, enviable premium brand retail franchise, and strong client SSD portfolio. Industry analysts forecast the flash market to grow at approximately 15% compounded annual growth rate over the next three years to $89 billion in calendar year 2025. We believe content increases in the consumer and client end markets, as well as explosive growth of data created in the cloud by emerging applications such as generative AI, virtual reality, and autonomous driving, are driving a faster growth in flash versus HDD. The highlight of our consumer end market is the strength of our SanDisk brand of retail products and our suite of high-performance SSDs for gaming enthusiasts. The brand recognition and affinity, combined with our unmatched presence across the world, is a great setup for the business on a standalone basis. Our successful 23-year partnership with Kioxia continues to provide us a reliable source of high-performance, low-cost flash. Together, we have successfully brought to market numerous generations of flash technology with the industry's lowest cost and best capital efficiency. The joint venture fabs produce over 30% of the world's bits and our joint memory technology roadmap remains incredibly well positioned especially as we lead the industry's transition to wafer bonding. We will likely host an investor day closer to the time of the spin-off of our flash business to give investors greater clarity into the historical and future outlook for each of our businesses, along with the intended capital structures for each business. With that, I'd like to turn to first quarter fiscal ‘24 earnings review and business update. Western Digital's first quarter results exceeded our expectations as the team's efforts to bolster a business agility, drive innovation, and right-size the business have enabled us to capitalize on enhanced earning power in an improving environment. We reported first quarter revenue of $2.75 billion and a non-GAAP loss per share of $1.76. Our ability to develop differentiated and innovative products across a broad range of end markets has resulted in sequential margin improvement across both flash and HDD businesses. In flash, healthy inventory levels on our balance sheet and signs that flash pricing is beginning to inflect have laid the groundwork for further gross margin improvements. Our broad go-to-market channels, enviable retail franchise, and strong client SSD portfolio have enabled us to shift bits to the most attractive end market categories and achieve 26% sequential bit growth, as well as upside and gross margin. In HDD, our industry leading 26 terabyte ultra-SMR drive became the highest near-line volume runner in just two quarters, which demonstrates Western Digital's aerial density leadership and ability to deliver high volume innovative technologies to data center customers worldwide. During the quarter, demand in consumer and client continued to improve, exceeding our expectations. In consumer, flash revenue has returned to growth on a year-over-year basis, led by strong content increases and unit growth. In client, PC and component demand also exceeded our expectations, and demand for gaming consoles and mobile remained resilient. In cloud, demand for both hard drive and flash products remains subdued. I'll now turn to the business updates starting with flash. During the quarter, flash revenue increased sequentially, led by record exabyte shipments and continued content growth in consumer and client end markets, including PCs and all retail products, as we continue to optimize bit placement in an improving environment. WD Black, which is optimized for gaming, continued to perform well, with bits shipments more than doubling and content per unit increasing over 50% year-over-year. We are in an excellent position from both of flash technology and capital efficiency perspective. Today, a majority of products we are shipping are based on BiCS5, the most capital efficient node in the 3D era that continues to provide an amazing cost structure and efficient capital spending. As we look into calendar year ‘24, we are ramping an array of QLC-based client SSDs based on BiCS6 technology to lead the expected industry transition to QLC. After BiCS6, we remain on track to introduce a broad range of high performance products based on BiCS8 technology with its unique chip bonded on array architecture. Turning to HDD, revenue declined due to lower nearline exabyte shipments driven by subdued demand from our cloud customers and slower-than-expected recovery in China. However, demand for consumer and client hard drives was stable. Western Digital has continued to lead the industry in driving innovation within the nearline market. Our ability to bring innovation into mass market drives that are quickly deployed into cloud data centers is reflected in our results as we successfully led the industry's transition to SMR-based nearline drives. Specifically, our 26 terabyte ultra-SMR drive, which we first announced at our investor day, accounted for nearly half of our nearline exabyte shipments with total SMR shipments exceeding the 40% goal we laid out in the same quarter a year prior. We are on track with our 28 terabyte ultra-SMR drive qualification and have a clear roadmap of EPMR and ultra-SMR based innovations into the 40 terabyte range. These developments are a result of the choices we have made in the past few years through a combination of product R&D and manufacturing capabilities, and we are proud of how we have been executing against our strategy. Looking ahead to the fiscal second quarter, in flash we expect both modest bit and ASP improvement and a decline in underutilization charges to drive continued sequential improvement in both revenue and gross margin. In HDD, we expect higher nearline shipments and seasonal demand in consumer end market to drive sequential revenue growth. We anticipate our value-based pricing efforts and lower underutilization charges will lead to sequential revenue and gross margin improvement in the quarter and through the rest of fiscal year ‘24. As we continue to execute against our HDD product roadmap, we are setting the stage for profitable growth for years to come. With that, I'll turn it over to Wissam. Wissam Jabre: Thank you and good morning everyone. As David mentioned, fiscal first quarter results exceeded the guidance ranges provided in July. Total revenue for the quarter was $2.75 billion, up 3% sequentially and down 26% year-over-year. Non-GAAP loss per share was $1.76. Looking at end markets for the fiscal first quarter, cloud represented 32% of total revenue at $0.9 billion, down 12% sequentially, and 52% year-over-year. Sequentially, the decline was primarily due to lower nearline hard drive shipments to data center customers. The year-over-year decrease was primarily due to declines in shipments for both hard drive and flash products. Client represented 42% of total revenue at $1.1 billion, up 11% sequentially, and down 7% year-over-year. Sequentially, the increase was due to growth in flash-bit shipments. The year-over-year decrease was primarily due to declines in flash pricing. Consumer represented 26% of revenue at $0.7 billion, up 14% sequentially and 8% year-over-year. On both a sequential and year-over-year basis, the increase was driven by both higher content per unit and increased unit shipments in flash. Turning now to revenue by segment. In the fiscal first quarter, flash revenue was $1.6 billion, up 13% sequentially, and down 10% year-over-year. This marks the second consecutive quarter of sequential increase. Sequentially, flash ASPs decreased 10% on a blended basis, and 4% on a like-for-like basis. We shipped a record amount of flash bits in the quarter with shipments increasing 26%, sequentially and 49% year-over-year. HDD revenue was $1.2 billion, down 8% sequentially and 41% year-over-year. Sequentially, total HDD exabyte shipments decreased 5%, and average price per unit increased 13% to $112. On a year-over-year basis, total HDD exabyte shipments decreased 42% and average price per unit decreased 10%. Moving to gross margin and expenses, please note that my comments will be related to non-GAP results unless stated otherwise. Gross margin for the first quarter was 4.1%, which was at the higher end of the guidance range provided in July, and included $225 million in underutilization expenses and $9 million in other one-time charges. In total, these charges represented an 8.5 percentage point headwind to gross margin. Flash gross margin was negative 10.3%. Underutilization charges due to reduced manufacturing volumes were $142 million and flash inventory write-downs were $9 million, resulting in a combined 9.7 percentage points headwind to gross margin. HDD gross margin was 22.9%. Underutilization charges were higher-than-expected at $83 million or a 7 percentage point headwind to gross margin. We continue to tightly manage our operating expenses, which were down 19% year-over-year to $555 million, well below our guidance range. Operating loss was $443 million, which included underutilization charges and inventory write-downs totaling $234 million. Income tax expense in the fiscal first quarter was $25 million. Net loss per share was $1.76, inclusive of a $15 million dividend associated with the convertible preferred equity. Operating cash flow for the first quarter was an outflow of $626 million, and free cash flow was an outflow of $544 million. Free cash flow included a payment of $523 million for the IRS settlement and $191 million cash receipt from the sale and lease back of our facility in Milpitas, California. Inventory declined $201 million sequentially to $3.5 billion. Days of inventory declined 10 days to 120 days. Flash inventory declined by nearly $400 million, driven by record bit shipments in the quarter and proactive actions taken to reduce wafer starts. Days of inventory for flash have reached the lowest level in nearly four years. HDD inventory grew by nearly $200 million, due to the timing of certain purchases and lower-than-expected shipments. Cash capital expenditures, which include the purchase and sale of property, plant, and equipment, including the proceeds from our sale lease back of our Milpitas facility, and activity related to our flash joint ventures on the cash flow statement, represented a net cash inflow of $82 million. In the fiscal first quarter, we fully drew the $600 million delayed-draft term loan facility. Gross debt outstanding was $7.7 billion at the end of the fiscal quarter. At the end of the quarter, total liquidity was $4.3 billion, including cash and cash equivalents of $2 billion and undrawn revolver capacity of $2.25 billion. Before I cover guidance for the fiscal second quarter, I'll discuss the business outlook. For fiscal second quarter, we expect total revenue growth to be led by higher nearline HDD shipments and improved pricing in flash. We continue to adjust production into the second quarter to better align supply with demand and anticipate lower underutilization charges in both flash and HDD. For our fiscal second quarter, our non-GAAP guidance is as follows. We expect revenue to be in the range of $2.85 billion to $3.05 billion. We expect gross margin to be between 10% and 12%, which includes underutilization charges across flash and HDD, totaling $110 million to $130 million. We expect operating expenses to be between $560 million and $580 million. Interest and other expenses are expected to be approximately $105 million. We expect income tax expenses to be between $20 million and $30 million for fiscal second quarter and $80 million to $120 million for fiscal year 2024. We expect a preferred dividend of $15 million. We expect a loss per share of $1.35 to $1.05, assuming approximately 325 million shares outstanding. I'll now turn the call back over to David. David Goeckeler: Thanks, Wissam. Let me wrap up and then we'll open up for questions. We are now emerging from a historic storage cyclical downturn, where all of the changes made in the past several years were evident in how well each business performed relative to peers. The first quarter of fiscal ‘24 builds upon the improvements we made in fiscal year ‘23 around discipline, supply, and capital expenditure management, while executing on our product innovation roadmap. We continue to tightly manage our operating expenses and are closely monitoring demand in our end markets to appropriately manage our inventory in both flash and HDD, all to improve sequential and year-over-year upside in our results. Moving forward, as we progress through fiscal year ‘24, we see an improving market environment in both businesses. With an improved position, the separation of the company unlocks value by creating two independent public companies with market-specific strategic focus. Better positions each franchise to execute innovative technology and product development, capitalize on unique growth opportunities, extend respective leadership positions, and operate more efficiently with distinct capital structures. Okay, Peter, let's open up for Q&A. Operator: Ladies and gentlemen, we will now begin the question-and-answer portion of today's conference. [Operator Instructions] And our first question today comes from Joe Moore from Morgan Stanley. Please go ahead with your question. Joe Moore: Great. Thank you. And congratulations on the decision here. Can you talk through a little bit anything preliminary in terms of how the OpEx might be a portion between the two businesses and you mentioned, you know, maybe you'll give us the capital structure at a later date, but just anything early on, unlike, you know, what you think the right amount of debt is to apportion to the two businesses? Wissam Jabre: Hey, Joe, good morning. Thanks for the question. Look, it's a little bit too premature to talk about details with respect to each side of the business or each company as we get closer to the separation will be in a better position to talk about much more details with respect to OpEx apportionment, as well as capital structures, leverage targets, and capital return policies, et cetera. David Goeckeler: Hey Joe, this is David. Thanks for the question. Good to hear from you this morning. One thing I will say is we're very happy with the level of efficiency we've driven into the business over the last year, especially during this downturn, and we think has put us in a very good position to go through this transaction. I think OpEx over two years is down, over the last two years is down over $200 million. So we put ourselves in a position where we've got very efficient business and some flexibility to go through a transaction like this. So as Wissam said, we'll have more to say as we get closer. Joe Moore: Okay. And then I wonder if I could just ask more tactically in terms of the need to pay down the convert early next year, how you're thinking about that and whether this, you know, the strategic change here changes anything in terms of your ability to do convert issuance or things like that, pay that down? Wissam Jabre: Yes, Joe, the current announcement does not affect our ability to address the convert. As we've said before, our plan is to address the convert that's maturing in Feb ‘24 by the end of this calendar year. Joe Moore: Okay, thank you very much. Wissam Jabre: You're welcome. Operator: Our next question comes from Aaron Rakers from Wells Fargo. Please go ahead with your question. Aaron Rakers: Yes, thank you for taking the question. Two, if I can as well, real quick. I guess the first question is just thinking about the separation, appreciating that you're not going to give anything at this point around the capital structure. I'm just curious though, the relationship with Kioxia, you know, I know in the past there's been certain attributes of rights as part of the JV. Any kind of context about the dialogue, you know, moving to the separation as it relates to that JV rights or, you know, should we be thinking about any approval processes that are involved in that? David Goeckeler: No. So first off, the relationship with Kioxia is outstanding and it has been for a very, very long time so we expect that to continue on absolutely it's a -- provides a tremendous foundation for our NAND business with both very capital efficient NAND and a tremendous roadmap as we're going into BiCS8 here. But we can execute this transaction without any other approvals. Aaron Rakers: Okay, and then as a quick follow up, I'm just curious on the hard disk drive business. I know the cloud revenue and total is down consistently, again, quarter-over-quarter. Just how would you characterize what you're seeing from a nearline perspective from the cloud? Have you started to see demand pull again? Just any kind of context of how you're thinking about, you know, the shaping of kind of a recovery here as we move forward? David Goeckeler: Yes, we think this past quarter was the bottom, Aaron, and we see improving demand as we move throughout the fiscal year on a quarter-over-quarter basis. You know, we've had certain customers that have been on the sidelines for a while, and they're starting to come back and give us visibility into ordering. So we expect the market to recover from here going forward. Aaron Rakers: Okay. Thank you. Operator: Our next question comes from Krish Sankar from TD Cowen. Please go ahead with your question. Krish Sankar: Yes, hi. Thanks for taking my question. I had two of them too. First one, again, sorry to harp on the separation, it makes a lot of sense. I'm just kind of curious. In the past, David, you've spoken about some of the synergies in R&D and how the HDD product line uses some of the bomb from OptiNAND et cetera. I'm just kind of curious, would that change post the separation, or there's going to be no strategic shift on that, and then I had a follow-up? David Goeckeler: So there's no, the separation doesn't imply any change in strategy for either business. So both of them will continue to go forward. No change in our product roadmaps. We feel very good about what's been built over the last three, four years. We feel like we're in a market-leading position in both franchises, both from a product point of view, if you look at what's happened in the hard drive business, you know, it's very, very clear now the adoption of SMR is the next big step in the cloud data center and that's progressing very well. Our 26-T drive just became the highest shipping drive in the quarter. And we, you know, we announced the next generation that with the 28-T, as well so no change there, you know, OptiNAND still a big part of that architecture and the team will be able to procure that and continue to drive that part of the strategy. And on the flash side of the business, the portfolio is also in great shape with both for product strategy and also the branding strategy. SanDisk, WD Black, these brands continue to perform extremely well. So we think it's a great setup for both businesses going forward. Krish Sankar: Got it, thanks for that David. Another quick follow-up, your peers spoke about the HAMR Technology getting like adopted next year, and your road map shows EPMR to extending to 32 plus terabyte,. I'm kind of curious how you think about HAMR and your road map in case they'll catch up with C8? David Goeckeler: Well, look we put a lot of optionality in our roadmap a number of years ago, so that we could extend the capacity points with things like OptiNAND, SMR, Ultra-SMR, EPMR, so that strategy is working very, very well. We're leading the industry in capacity points. We expect to be able to drive this strategy into the 40 terabyte range on our drives. HAMR is in development, it's going well, and we'll be able to fold that into our roadmap at the appropriate time. But for now, we've got a great roadmap, we've got a market-leading roadmap, we're leading the adoption of SMR into the cloud data center and we expect, you know, we have many more generations to go on our current roadmap and then we'll move to HAMR at the appropriate time when it's mature and we can build it at scale and it'll be the next leg of growth into the future. Krish Sankar: Thanks, David. David Goeckeler: Thank you, Krish. Operator: Our next question comes from Wamsi Mohan from Bank of America. Please go ahead with your question. Wamsi Mohan: Hi, yes, thank you so much. Good morning. Back to the transaction, I guess, can you maybe talk a little bit about all the actions that you have taken that might be preventing some of the dissynergies that typically occur in terms of standard costs when there is separation of the business? Can you maybe A, address that? And B, on your comments on the roadmap, Ultra-SMR, EPMR, you have a lot of options. You've noted scaling up to 40 TV. Can you just talk about what the cost of that, how that would compare to, you know, your own future HAMR roadmap and give us some sense of how cost competitive you think these products would be? Thank you. Wissam Jabre: Okay. So, on the first one, yes, I mean, Wamsi, I think you kind of laid it out there. We've been going through a whole series of actions that have set us up for this announcement. You know, it was really about execute the business better and give ourselves as much strategic optionality as possible. So as I talked about in the prepared remarks we've, you know, we separated ourselves in the business units on the product side that allows us to really get very focused on the portfolio and all the OpEx we spend on building our products, make sure we get the best return for it. I think that's worked out well. We then did the same thing in operations. We've now divided those organizations around HDD and flash. So we’ve -- and then we've optimized, taken out cost everywhere we can so that we can operate them independently and also have just the most efficient business possible. As I said, we've focused on our balance sheet. So I think we've put ourselves in a very good position where we can go through this separation and the organization is as prepared as we possibly can be for it. We've also, as I said earlier, we've taken a lot of OpEx out of the business. So we've driven the OpEx down to a very efficient number. So we believe we can go through the separation and end up with two very well-structured companies that can execute very well. And they come out of the gate with market-leading portfolios on each side and into a recovering market. So we feel good about that. Cost of the portfolio look I mean as you continue we feel the roadmap we have in place, you know, we can produce ultra-SMR, EPMR, OptiNAND drives very high scale, very quickly, very high yields on all the products. So we think the cost position is very advantageous. You see that in our results, you know, so you know when HAMR comes will fold that in and you know we want to get to the point where we have the same level of yields we have the same level of confidence as we do something like a 26-T drive that we just launched and now it's the, you know, nearly half of our exabytes, a quarter or two in. And that's how we think about launching new products. So you know, when we get there, I think that we'll have that same kind of cost structure on HAMR, and we have a great, very, very strong position to drive very efficient, very high scale, very quickly, new drives for many generations on the technology that we've put in place over the last three or four years. Wamsi Mohan: Thanks, Dave. David Goeckeler: Thank you. Our next question comes from Sidney Ho from Deutsche Bank. Please go ahead with your question. Sidney Ho: Thank you. Congrats on the announcement today. Understanding you have amended the debt covenants back in June, given the announced transaction, how are you thinking about the covenants over the next few quarters, specifically with the free cash flow before the transaction is closed? And does that limit the amount of CapEx you could spend in the meantime? And I'll follow up. Wissam Jabre: Yes. Good morning, Sidney. Thanks for the question. The current announcement does not affect the amended credit agreements. And so from a free cash flow, from a governance perspective, we're comfortable that we can operate effectively. We have ample liquidity. We do have ample operational flexibility to operate, so I don't see the current announcement as impacting us in any way. Sidney Ho: Okay. My follow-up is, if you look at the fiscal second quarter guidance, if you can walk us through your assumptions that drive 7 points of increase in gross margin, that would be great. It looks like under your utilization charges coming down, are there benefits from sales of previously written down inventory? And what are you expecting in terms of price increases in both flash and hard disk drive on a like-for-like basis. Thank you. Wissam Jabre: Okay, maybe I'll start a little bit on the cost side and then David could chime in on the top line side. Look, the -- when -- one of the bigger, obviously, levers is the underutilization. We did in Q1, around $225 million. In total, we had around $234 million to 235 million of other charges. And our guide has a underutilization at a much lower level, and so that's one element. In addition, obviously, we continue to focus on cost reduction. We do have still, we're still, if you exclude the underutilization aspect, we're still taking cost out of the system on both the flash side and the HDD side. And so that's a key lever to improve the gross margin. And then if I take it back up to the top line, we see obviously improvement on the revenue side and the improvement is coming from both sides of the house on both businesses. So that also contributes quite well with respect to the gross margin and within that revenue also we do have a bit of a mix that's helping us as well. David Goeckeler: Yes, Sidney, I guess, what I would add is, if you look at the HDD business, we're ramping new products, right? The 26-T drive is ramping rapidly. And we also have an improving pricing environment in drives, which is a nice tailwind. And then in flash, we have an improving pricing environment as well, as Wissam said, a better mix. And we expect that business to inflect a positive gross margin next quarter, which is a great milestone for us as we continue the recovery of the business. Sidney Ho: Thank you. Operator: Our next question comes from Tom O'Malley from Barclays. Please go ahead with your question. Tom O'Malley: Good morning, and thanks for taking my question. I just wanted to ask on your expectations for both market demand on the NAND exabyte side for fiscal year ‘24, as well as your view of supply. I mean, you're starting the year up almost 50% year-over-year, obviously off a very low base and sequentially up mid-20s. Some of your peers have talked about really demand here to begin the fiscal year or to begin the recovery in those -- for those other guys, but kind of some slowing as guys saw the bottom ordered a bunch and then have kind of slowed down. Could you just give me your comments on if you're seeing any of that and then your expectations for the exabyte shipments for you for the fiscal year? David Goeckeler: Yes, so, you know, we have seen an acceleration here at the end of ‘23. We've raised our demand number quite a bit into the mid-teens for ’23, we'll get to ‘24. You know, some of that, you know, there has been some strategic buys as part of that. I know that's been a big discussion in the industry, but we’d also just see the markets returning to normal inventory levels. So for us, that's been more of what's been happening and a good mix across the businesses. For ‘24 we see high-teens, kind of, demand and we continue to see production significantly below that. Tom O'Malley: Helpful, and then on the other side of the business, you talked about the, kind of, you know, varied inventory positions you have, flash going down, HDD actually going up a bit. And if you compare your results with Seagate, at least for the last couple of quarters, results have been relatively similar. Could you just talk about when we should start to see that divergence, just given the fact that you're addressing a higher capacity point in the market today, and theoretically you should see some outside benefit. When do you think you'll start to see that divergence in the market? Thank you. Wissam Jabre: Divergence in what aspect, Tom? Tom O'Malley: In terms of revenue difference. Wissam Jabre: So we're managing the business for profitability on HDD. I mean, I think it's, you know, we and I think we are driving a more profitable business. So that, that's the way we think about the business and driving back to our model, which we expect to get back to here over the next several quarters. Jamie? Operator: Our next question comes from Srini Pajjuri from Raymond James. Please go ahead with your question. Srini Pajjuri: Yes, thank you. Good morning, guys. David, on the HDD comments that you see growth throughout the fiscal year, just looking for some additional color, just kind of listening to some of your customers and the big hyperscalers. I think the CapEx comments have been fairly mixed and I'm just curious as to how broad-based this recovery that you're seeing is. Is it primarily driven by the inventory work-downs or anything else that's driving it? And also, if you can comment on by geography, I think, you said China was weak in the quarter, if you could talk about how -- what’s your expectation for China business is going forward? David Goeckeler: Yes, I think you got it there in your question. I think you have more broad-based participation in the market by the big hyperscalers as they get to the end of their inventory corrections. So that's been part of it. Remember, we're coming off very, very, very low numbers. So we expect improvement throughout the year by more people participating in the market and more consistent participation by the ones that have been in it on a quarter-over-quarter basis. China has been -- it’s been better, but not -- it hasn't recovered as fast as we expected, so it's still a little bit lumpy and weaker than we would like. So the smart video market has been pretty consistent and we've seen some good results there. But in the cloud space, it still has a little ways to go. Srini Pajjuri: Thank you. And then a cash flow question for Wissam. I guess, I'm just curious, you had an IRS payment due during the quarter. Did you make that payment? I see like a $300 million impact from the tax. And then if you could walk us through some of the puts and takes in terms of free cash flow for next quarter, I think that would be helpful. Thank you. Wissam Jabre: Yes, sure. So on the tax payment, in Q1 we made a $523 million payment with respect to the IRS settlement. This covers the years 2008 through 2012. And so this is why you see when you look at our free cash flow that we reported for fiscal Q1 at a negative $544 million, in that we had that $523 million payment. On the -- it was partially offset by the sale and lease back of the Milpitas facilities of around $191 million. So all in all, we're around the negative $200 million for the quarter. As we look forward, obviously, the key is the continuous improvement of the profitability and of the business, working capital management. You've seen our transition on the inventory side, for instance, in Q1. We continue to manage inventory very, very closely on both flash and HDD. So I expect that inventory to continue to decline gradually in this coming quarter and the next. And then the continued focus on CapEx for the fiscal year. Would it say that for fiscal ‘24 we expect our cash CapEx to be significantly lower than fiscal 2023. So, you know, free cash flow is, and cash flow is very important to us, big focus, and we'll continue to focus on it. And as we look into the second-half of fiscal ‘24, we're projecting to be cash flow positive on a quarterly basis in the second-half of this fiscal year. Srini Pajjuri: Thank you. Operator: Our next question comes from Karl Ackerman from BNP Paribas. Please go ahead with your question. Karl Ackerman: Yes, thank you. Good morning. David Goeckeler: Good morning, Karl. Karl Ackerman: Hey, good morning. When do you anticipate NAND underutilization charges to abate? And then second, you indicated that NAND and HDD bit shipments will recover in December. I guess for NAND, will that be primarily tied to consumer applications, or do you expect enterprise to be the larger driver over the next couple of quarters? Thank you. David Goeckeler: Yes, I'll take the second part of that, and Wissam can comment on the underutilization charges. Look, we expect bits to be up slightly in the December quarter. It's a strong consumer quarter for us, although we don't really break out by mix. But I mean, I think that's one way to think about it. We expect an improving price environment and bits to be slightly up. Wissam Jabre: Yes, and with respect to underutilization, Karl, we do manage our supply very dynamically. And so we guided this quarter based on what we see today. We do expect underutilization to continue in the third fiscal quarter, maybe a little bit lower than here, but it's a bit too early to cover the quarters beyond the next one. Karl Ackerman: Thank you. Operator: Our next question comes from Vijay Rakesh from Mizuho. Please go ahead with your question. Actually the next question comes from Timothy Arcuri from UBS. Please go with your question. Timothy Arcuri: Thanks a lot. David, at the bottom of slide four, you did say that the board remains open to considering other alternatives should they become available. So since you put that in the presentation, can you talk about what other options could be available? Is this a reference to the collapse of the JV that Hynix commented about or was asked about on its call? Is this in reference to an outright sale of the NAND business? Can you just talk about that a little more? David Goeckeler: No, it's not in reference to any particular thing. It just says that we think this is the best next step for the business to unlock value. We think that, you know, we put the business in a position to go through this right now. It's all the reasons we talked about from the portfolio to where we are on efficiency point of view to where we are on the work we've done to retire debt. And also going into an improving market. But I think any company is always open to other strategic options should they become available and we'll consider them at that time. Although I do want to be very clear that the strategic review is completed and any conversations that were going on as a part of that have ended. And we're very excited about this step forward. We think it's the best next step for the business. But I think in any business, you're always going to be open. If there's other strategic options that become available, we will thoroughly consider those at the time. Timothy Arcuri: Got it. And then, Wissam, for you, so the underutilization charges of $120 million at the midpoint, how do they split for December? I would think that more of its now in the HDD business, but how does that split things? Wissam Jabre: Yes, the split of the underage utilization is two-thirds flash and one-third HDD. Timothy Arcuri: Great, thank you, Wissam. Wissam Jabre: You're welcome. Operator: And our next question does come from Vijay Rakesh from Mizuho. Please go ahead with your question. Vijay Rakesh: Yes, hi. Just a quick question if you went to it already. When you look at the hard disk size, I'm wondering if you had, you know, what the exabyte growth was for the last two years and what you're seeing as you look forward with this, seems like a little bit of a bounce coming through. What do you expect for fiscal ‘24, fiscal ‘25, or calendar ‘24, let's say, yes. David Goeckeler: So yes, we, I mean, coming off such a high on ‘22, ‘23 will be down, but then we expect to get back to, we expect a consistent exabyte growth in this business in the mid to high-20 range on an ongoing basis. Vijay Rakesh: Got it. And the same on the NAND side, with the spin-off, do you see any change in the technology roadmap? How do you see the 218 BiCS, next generation BiCS coming? And if you can also give us your expectation on NAND bit growth for ‘23 and ‘24? David Goeckeler: Yes, no, we don't expect any change in the technology roadmap. The JV is very strong, very solid, very productive. Teams work together on a day-by-day basis. We've talked a lot about that. We're very happy with where it's at. The relationship is very strong. The technology roadmap, we think, as we talked about last time with BiCS8 and wafer bonding, we've made a huge step forward there. You know, we've always been able to produce NAND at a better capital intensity than the rest of the industry. Our measures over the last several years are up to a third less capital intensity for the business. So the JV has been strong for ‘23 plus years and we expect it to be strong for very, very far into the future. So we feel very good about that. Vijay Rakesh: Got it. Any thoughts on the bit growth I guess for ‘24 and as the next generation, as the next bit stage starts to ramp I guess? Thanks. David Goeckeler: Yes, we expect demand in ‘24 in the NAND business to be high-teens, you know, and if it gets really strong maybe it'll creep over the 20s and low-20s, but we're thinking about those high teens numbers. And like I said, production will be significantly below that. Vijay Rakesh: Alright. Thank you. Operator: Our next question comes from Harlan Sur from JPMorgan. Please go ahead with your question. Harlan Sur: Hi, good morning. Congratulations… David Goeckeler: Good morning, Harlan. Harlan Sur: …on the strategic. Yes, congratulations on the strategic actions announced today. On the flash technology side, the JV brings strong synergies in flash manufacturing development and manufacturing scale. Excluding the underutilization charges, you guys have been driving down the underlying cost per bit at around a mid-teens type CAGR and in line with your prior targets and that's even with the rising capital intensity, right? As you look ahead, BiCS6 transition moved to bonded architecture on BiCS8. Does the team believe it can sustain its mid-teens cost down profile? David Goeckeler: Yes, we do. We feel very good about that. I mean, I've spoken about this in the past. It's an explicit goal of the technology team to continue to drive those cost downs and we feel good about our ability to do that. It's been one of the strengths of the JV and the JV technology team for a very long time. Harlan Sur: Well, thank you for that. And then on the flash portfolio side within SSD, particularly the team has been in a very, very strong number two market share position in client SSD, very strong portfolio. In enterprise and cloud, however, you've been consistently in the sort of number five, number six global market share position. So as you think about spinning out the flash business, what is the team doing to improve its competitiveness in its enterprise and cloud SSD portfolio? David Goeckeler: Well, we like the portfolio we have. We qualified our NVMe based enterprise SSD at multiple cloud providers. And unfortunately, we qualified right into a significant downturn in cloud consumption of enterprise SSDs. So as that starts to come back over the next several quarters and as we go through ‘24, we expect our position to improve as those vendors start consuming again. I mean, the reality is there's just not a lot of buying in that market going on right now. Harlan Sur: Perfect. Thank you. David Goeckeler: Thank you. Operator: Our next question comes from Mehdi Hosseini from SIG. Please go ahead with your question. Mehdi Hosseini: Yes, thank you. David, I just want to go back to your comment just made regarding enterprise SSD. When I look at the slides from the results of a strategic review, you're highlighting strengthening client SSD and also retail. But I don't see any mention of enterprise SSD. How should I reconcile that with the comment you just made? David Goeckeler: Well, I mean, it's because those are two very, very strong strengths of the portfolio. I think they're very unique. Look, our retail franchise is a real gem. I mean, it's a big part of the portfolio. It provides better through cycle profitability. We've done a lot of work on building brands over the last several years. I mean, we've already had very, very strong brands in SanDisk. I think everybody knows SanDisk is the premier brand in the industry. We've built the BLACK brand around gaming now. That's a significant part of the portfolio. I think we're the preferred provider in gaming. We talked about it this quarter, where 50% year-over-year content increases in devices and doubling the number of bits in that. So it's been, you know, it's a very, very key part of the portfolio. We look forward to highlighting it more. The client portfolio has always been a strength of the business. It's something that's been built over the last several years. We've driven several innovations in that, like the DRAM-less client SSD. That's always been a very strong part of the portfolio. I guess, you know, Mehdi, we could have put a whole bunch of stuff on the slide that we're proud of in the portfolio, but we picked the strongest ones. But we're very bullish on the enterprise SSD market. It's just a market that's depressed right now. We talked a lot about that last year. We had qualifications at multiple hyperscalers. Those products are still active. We're migrating them forward to future nodes and we expect those to ramp as that market recovers. Mehdi Hosseini: Okay, great. And just a question, a follow-up question for Wissam, and I'm not asking you for a guide on 2024, but if I just look at your cost decline, if I just assume 10% the cost decline and assume the current ASP trend, your NAND flash business should become profitable maybe by mid-year or sooner than later. The trajectory is very supportive of reaching profitability in the next couple of quarters. Is that a fair assumption? Wissam Jabre: Well, look, what -- in the current guide for this quarter, it does imply that NAND should be gross margin positive. And in terms of the outer quarters, it's a little bit too early for us to comment on them. Mehdi Hosseini: Okay, thank you. David Goeckeler: Thanks, Mehdi. Operator: And our final question today comes from Toshiya Hari from Goldman Sachs. Please go ahead with your question. Toshiya Hari: Hi. Good morning, and congrats on the announcement. David Goeckeler: Thanks, Toshiya. Toshiya Hari: Yes, Dave. So, on the NAND side, I think based on a response to a prior question. It looks like you're assuming underutilization charges declined by about $60 million from September to December. Are you guys taking up wafer starts, or what's driving the sequential decline in charges in NAND? David Goeckeler: Yeah, I guess what I -- Wissam will comment a little bit as well, but I guess what I would say Toshiya is we're, you know, we're not putting a broad statement out there about that. What we're doing is just being very dynamic with how we manage wafer start so that we can keep supply and demand matched as best we can without letting inventory get up too high. So as you saw, I mean, our NAND inventory is at the best level since I've been here in the company. I mean, Wissam's team has done a great, and the operations team just done an unbelievable job of managing that. So we'll stay very close to where our markets are and how we're seeing demand, and then we'll adjust wafer starts appropriately. Wissam Jabre: Yes, thanks, Dave. The only thing I would add, Toshiya, is that when you think of underutilization just I know there was an earlier question on this. Yes, we do expect underutilization further in the second-half of fiscal year. The way to think of it as we were expecting underutilization to be slightly lower from these levels in the third fiscal quarter. And as David said, this is very dynamic. We continue to manage the business on a day-to-day, week-to-week basis. And so obviously, depending on business conditions, this could still change. Toshiya Hari: That's very helpful. Thank you. And then as a quick follow-up, David, you talked about value-based pricing on the hard disk drive side and how that's driving better gross margins into the December quarter. Can you speak to any kind of specific end markets where you're seeing traction? Is it mostly client and consumer? Are you able to push through some price increases in the cloud segment as well? Thank you. David Goeckeler: I think it's, so first of all on the channel, we're seeing good response to value-based pricing. And then as we bring out new products, you know, as I said in the past, I think innovation is what the first part of value-based pricing is bringing a better value proposition to our customers. And as we continue to bring out unique products 26 terabyte ultra-SMR ramped very fast, nearly half of our nearline exabytes this quarter, and we're now bringing out 28. And I think as we continue to do that, we'll have the opportunity to have a better conversation with our customers, because we're bringing more value to them. So I would say it's, we're looking at it across all of our markets. Toshiya Hari: Got it. Thank you. David Goeckeler: All right. Hey, thank you, Toshiya. We appreciate that. All right, everybody, we appreciate the time today. Thanks for the discussion, and we look forward to talking to you as we progress throughout the quarter. Operator: And ladies and gentlemen, with that, we'll conclude today's conference call. We thank you for joining. You may now disconnect your lines.

Operator: Good afternoon, and thank you for standing by. Welcome to the Western Digital's Fiscal Fourth Quarter and Fiscal 2023 Conference Call. Presently all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded. Now, I would like to turn the call over to Mr. Peter Andrew, Vice President, Financial Planning and Analyst and Investor Relations. You may begin. Peter Andrew: Thank you, and good afternoon, everyone. Joining me today are David Goeckeler, Chief Executive Officer; and Wissam Jabre, Chief Financial Officer. Before we begin, let me remind everyone that today's discussion contains forward-looking statements, including expectations for our product portfolio, spending and cost reductions, business plans and performance, market trends and financial results based on management's current assumptions and expectations, and as such does include risks and uncertainties. We assume no obligation to update these statements. Please refer to our most recent financial report on Form 10-K and/or our other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially. We will also make references to non-GAAP financial measures today. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the Investor Relations section of our website. With that, I'll now turn the call over to David for introductory remarks. David Goeckeler: Thank you, Peter. Good afternoon, and thank you for joining the call to discuss our fourth quarter and fiscal year 2023 results. Western Digital's fiscal fourth quarter revenue exceeded expectations as our access to broad go-to-market channels, enviable retail franchise and strong client SSD portfolio enabled us to capture demand upsides in both client and consumer end-markets, reaffirming our strength in a challenging market environment. We reported fourth quarter revenue of $2.7 billion and non-GAAP gross margin of 3.9%. Non-GAAP loss per share was $1.98. Before diving into the specifics of the quarter and the full fiscal year, I would like to take a moment to reflect on our accomplishments in fiscal year 2023. Importantly, we continued to optimize our operations and successfully executed our innovative product roadmap, priming ourselves for greater profitability when demand rebounds across hard drives and flash. Throughout the fiscal year, we were focused on enhancing our product leadership and reinforcing our business agility. In HDD, we have successfully qualified our latest family of capacity enterprise hard drives that all major customers and are shipping our 26-terabyte Ultra SMR drive in high volume. In Flash, we pioneered the use of wafer bonding and advanced 3D NAND manufacturing and introduced the groundbreaking technology in BiCS8, which sets the foundation for future 3D NAND scaling. On the expense front, we streamlined investments across our HDD and Flash portfolio, which enabled us to significantly reduce quarterly operating expense, while continuing to deliver innovative products and technologies that address customers’ growing storage needs. Further, we have reduced our cash capital expenditure run rate by over 50% in the fiscal second-half and consolidated our hard drive manufacturing footprint. These efforts enabled Western Digital to preserve capital, while effectively executing on product strategies and aligning our supply with post-pandemic demand environment. Notably, we reduced our inventory by nearly $300 million sequentially and exited fiscal year 2023 at a much healthier level than a few quarters ago. And in June, we successfully completed amendments to our credit agreements, which provide Western Digital with significant additional financial flexibility as we navigate macro dynamics. In summary, we continue to proactively take action to bolster our agility, enhance our liquidity position, optimize our inventory levels across HDD and Flash, and strengthened our position as an industry and market leader. We exited fiscal year 2023 well-positioned to capitalize on improving market conditions and capture long-term growth opportunities in data storage, spanning from client to edge to cloud. Finally, I want to acknowledge that the strategic review is ongoing. We continue to make progress on this process and we'll provide updates as appropriate. Turning to the fiscal fourth quarter, revenue in both client and consumer end-markets returned to sequential growth led by normalized end-market demand and higher average capacity per unit in Flash. In consumer, retail flash exceeded our expectations across all major product categories. We saw similar results in client with upside in both HDD and Flash and across almost all major product categories, including client SSD, gaming console, embedded flash and client hard drives. In cloud, demand for both hard drive and flash products remained subdued. I'll now turn to a business update, starting with HDD. In the fiscal fourth quarter, ongoing cloud weakness drove the overall decline in HDD revenue. However, demand for both client and consumer hard drives has stabilized and exceeded our expectations. At the end of the fiscal fourth quarter, we have successfully qualified all variance of our 22 terabyte CMR and 26 terabyte Ultra SMR hard drive platforms at all major cloud customers, setting the stage to improve shipments and profitability. In addition, we are about to begin product sampling of our 28 terabyte Ultra SMR drive. This cutting-edge product is built upon the success of our ePMR and Ultra SMR technologies with features and reliability trusted by our customers worldwide. We are staging this product for quick qualification and ramp as demand improves. Turning to Flash, revenue increased sequentially led by growth in both client and consumer flash bit shipments, which exceeded our expectations with total bit shipments returning to year-over-year growth. The stronger-than-expected bit growth is attributable to normalizing PC and consumer demand, as well as content growth. Average capacity per consumer and client SSD increased over 40% and 20% year-over-year, respectively. Moving to technology developments, we continue to aggressively productize BiCS8 based on a chip, bonded to array architecture. BiCS8 solidifies Western Digital and Kioxia's leadership in cost capital efficiency and I/O performance into the future. Before I turn it over to Wissam, I wanted to share some perspective on our outlook. In HDD, as we look to the fiscal first quarter, we expect overall demand to remain stable. Beyond the fiscal first quarter, we anticipate both improving demand and new product ramps to drive growth in revenue and profitability. In Flash, we are encouraged by several indicators signaling improving market dynamics. Notably, our two largest end markets, client and consumer are returning to growth, inventories are normalizing, content per unit is increasing and price declines have been moderating. With that, I'll turn it over to Wissam. Wissam Jabre: Thanks, David, and good afternoon, everyone. As David mentioned, fiscal fourth quarter revenue exceeded our expectations. Total revenue for the quarter was $2.7 billion, down 5% sequentially and 41% year-over-year. Non-GAAP loss per share was $1.98. Looking at end markets for the fiscal fourth quarter, cloud represented 37% of total revenue at $1 billion, down 18% sequentially and 53% year-over-year. Sequentially, the decline was primarily due to a decrease in capacity enterprise drive shipments. Nearline bit shipments were 59 exabytes, down 26% sequentially, driven by ongoing weakness at cloud customers. The year-over-year decrease was primarily due to declines in both hard drive and flash product shipments. Client represented 39% of total revenue at $1 billion, up 6% sequentially and down 37% year-over-year. Sequentially, the increase was driven by growth in bit shipments for gaming consoles. The year-over-year decrease was due to declines in flash pricing and lower client SSD and hard drive unit shipments for PC applications. Consumer represented 24% of total revenue at $0.6 billion, up 3% sequentially and down 19% year-over-year. Sequentially, the increase was primarily due to higher retail SSD shipments. The year-over-year decrease was driven by price declines in flash and lower retail hard drive shipments. For the fiscal year, revenue was $12.3 billion, down 34% from fiscal 2022. Non-GAAP gross margin declined 17.2 percentage points to 15.7%, and non-GAAP operating margin decreased 21.8 percentage points to negative 4.8%. Non-GAAP loss per share was $3.59. Looking at end markets for fiscal year 2023, cloud revenue decreased 34% year-over-year, primarily due to reduced shipments of capacity enterprise hard drives and enterprise SSDs. Client revenue decreased 39% year-over-year, primarily due to declines in flash pricing, as well as lower client SSD and hard drive unit shipments for PC applications. Lastly, consumer revenue decreased 26% for the year as growth in retail SSD bit shipments was more than offset by broad-based flash price decline and lower consumer hard drive shipments. Turning now to revenue by segment. In the fiscal fourth quarter, HDD revenue was $1.3 billion, down 13% sequentially and 39% year-over-year. Sequentially, total HDD exabyte shipments decreased 18% and average price per unit decreased 9% to $99. On a year-over-year basis, HDD exabyte shipments decreased 38% and average price per unit decreased 17%. Flash revenue was $1.4 billion, up 5% sequentially and down 43% year-over-year. Sequentially, Flash ASPs decreased 6% on a blended basis and 9% on a like-for-like basis. Flash bit shipments increased 15% sequentially and 7% year-over-year. Moving to costs and expenses. Please note that my comments will be related to non-GAAP results unless stated otherwise. Gross margin for the fiscal fourth quarter was 3.9%, down 6.7 percentage points sequentially and 28.4 percentage points year-over-year. This includes $272 million in costs or 10.2 percentage points for manufacturing underutilization, flash inventory write-downs and other items. HDD gross margin was 20.7%, down 3.6 percentage points sequentially and 7.5 percentage points year-over-year. Sequentially, the decrease was primarily due to lower capacity enterprise volume, as well as higher underutilization-related charges. Underutilization charges were $76 million, or 5.9 percentage points. Flash gross margin was negative 11.9%, down 6.9 percentage points sequentially and 47.8 percentage points year-over-year. Underutilization charges due to the reduced manufacturing volumes were $135 million, and inventory write-downs were $27 million, resulting in 11.8 percentage point reduction. We continue to tightly manage our operating expenses of $582 million for the quarter, down $20 million sequentially and $178 million year-over-year. Operating loss in the quarter was $478 million, driven mainly by underutilization charges, inventory write-downs and other items totaling $272 million. Income tax expense was $57 million for fiscal fourth quarter and $237 million for fiscal year 2023. Despite a consolidated loss, we continue to have taxable income in certain geographies resulting in taxes payable in those areas. Fiscal fourth quarter loss per share was $1.98, inclusive of $15 million dividend associated with the convertible preferred equity. Operating cash flow for the fourth quarter was an outflow of $68 million and free cash flow was an outflow of $219 million. Cash capital expenditures, which include the purchase of property, planning and equipment and activity related to our flash joint ventures on the cash flow statement were $151 million. Gross debt outstanding was $7.1 billion at the end of fiscal fourth quarter. Trailing 12-month adjusted EBITDA at the end of the fourth-quarter as defined in our credit agreement, was $1.6 billion, resulting in a gross leverage ratio of 4.5 times, compared to 2.8 times in the fiscal third quarter. As a reminder, the credit agreement includes $0.7 billion in depreciation add back associated with the Flash joint ventures. This is not reflected in the cash-flow statement. Please refer to the earnings presentation on the Investor Relations website for further details. During the fiscal fourth quarter, we executed an amendment to our credit agreements. These amendments include modifications to the leverage ratio requirements applicable through the fourth quarter of fiscal year 2025, which provide additional financial flexibility in the near-term. We also extended the commitment under the delayed-draw term-loan agreement to August 14th, 2023. Please refer to our earnings presentation for details. At the end-of-the quarter, total liquidity was $4.9 billion, including cash and cash equivalents of $2 billion, undrawn revolver capacity of $2.25 billion, and an unused delayed draw term-loan facility of $600 million. Before I cover guidance for the fiscal first quarter, I'll discuss our business outlook. For fiscal first quarter, sequentially, we expect both HDD and Flash revenue to be relatively stable. In fiscal first quarter, we are continuing to adjust production to better match demand and anticipate underutilization charges to impact both HDD and Flash gross margins along with product mix pressures on Flash ASP. Beyond the fiscal first quarter, we anticipate both HDD and Flash revenue to improve through the remainder of fiscal year 2024, driven by normalizing demand in storage, as well as higher average content per unit in Flash. Gross margin is expected to gradually improve driven by higher HDD volume and lower underutilization charges in both Flash and HDD. We will continue to tightly manage our cost structure and expenses as we navigate the challenging environment. For fiscal year 2024, we expect capital expenditures to decline significantly. I'll now turn to guidance. For the fiscal first quarter, our non-GAAP guidance is as follows. We expect revenue to be in the range of $2.55 billion to $2.75 billion. We expect gross margin to be between 2.5% and 4.5%, which includes underutilization charges across Flash and HDD totaling $200 million to $220 million. We expect operating expenses to be between $570 million to $590 million. Interest and other expenses are expected to be approximately $90 million. We expect income tax expense to be between $30 million and $40 million for the fiscal first quarter and $130 million to $170 million for fiscal year 2024. We expect the loss per share of $1.80 to $2.10, assuming approximately 323 million shares outstanding. I'll now turn the call back over to David. David Goeckeler: Thanks, Wissam. Let me just wrap up. Fiscal year 2023 marked a period of exceptional progress and strategic planning for Western Digital. We diligently optimized our operations and executed our innovative product roadmap, priming ourselves for greater profitability as demand inevitably rebounds across hard drives and flash. As we move forward, we remain confident in our ability to capitalize on emerging opportunities and deliver continued success. Before opening up for Q&A, I would like to take a moment to recognize Siva Sivaram, our esteemed President of Technology and Strategy. Siva will be leaving Western Digital to pursue a great leadership opportunity in a different technology domain. Siva has made significant contributions to Western Digital and SanDisk over the past 10-years and he is a wonderful friend. We wish him all the best going forward. Peter, let's start the Q&A. Operator: Thank you. [Operator Instructions] Our first question is going to come from the line of Joseph Moore with Morgan Stanley. Your line is open. Please go ahead. Joseph Moore: Great. Thank you. I wonder if you could talk to NAND in the current quarter looks like the underutilization charges are similar. Does that mean your utilization is unchanged? And I guess it seems like you're able to make some inventory progress. Does that mean that you can at some point have a line-of-sight to bring that back up? David Goeckeler: Yes. Hey, Joe, thanks for the question. NAND in the current quarter, as we said, we saw a good, I guess good market reaction in consumer and in the client business, both returned to growth on an exabyte basis. They both were sequential grower, so we saw incremental upside there, so we were happy about that. We are still underutilizing the fab. I'll let Wissam talk about that in a little bit more detail. We do plan to underutilize for another couple of quarters, but we feel good about the overall -- the signs in the overall market, price declines are moderating, our inventory is down, bit shipments are up and we expect bit shipments to be up again double-digits next quarter. So not quite where we want to be yet, but the market is stabilizing and we see a lot of good things -- a lot of metrics going in the right direction. Wissam Jabre: Yes, Joe. And with respect to underutilization, we saw similar type of underutilization charges in fiscal Q4 versus Q3. For the Flash side, and when you look at HDD, we had a bit of more underutilization. But sticking with the Flash, also in our guidance, we've noted similar levels into fiscal Q1. Albeit, if you look at, sort of, the range of $200 million to $220 million, I would say it is split 70% Flash, 30% HDD. And also we're -- if I think of, let's say, the fiscal Q2, I anticipate more or less similar levels of underutilization from where we stand today. Joseph Moore: Great. Thank you. And if I could ask the follow-up. In terms of the uses of cash in the next few quarters, I know you've got the convert that comes due early next year. I think there's still some issues about a potential tax payment. Can you just update us there and sort of do you need to raise money to pay those out? Wissam Jabre: So with respect to uses of cash, as you noted, we do have the convert that matures in February ‘24, and we plan to address that this quarter or the next one. We also have the IRS settlement that is coming up and we expect also this payment to be very likely this quarter. But with respect to liquidity, exiting fiscal Q4, we had approximately $4.9 billion of liquidity. And so if you recall the delayed-draw term loan was put in place in the event we need to address the IRS settlement. So that will be drawn down to take care of the IRS settlement when it happens. And with respect to the convert, I mentioned we'd address it in the coming two quarters. Joseph Moore: Great. Thank you very much. David Goeckeler: Thanks, Joe. Wissam Jabre: You're welcome. Operator: Thank you. [Operator Instructions] Our next question is going to come from the line of C.J. Muse with Evercore ISI. Your line is open. Please go ahead. C.J. Muse: Yes. Good afternoon. [Technical Difficulty] Good question, I guess this question [Technical Difficulty] supply perspective, we haven't seen any [Technical Difficulty] realization aggressively as we've seen. So how would you think about the current impact of supply-demand normalization in the next six, nine, 12-months? David Goeckeler: Okay. Hey, C.J., right? C.J., that was very -- it was a little tough to hear you there, but I think we got the gist of the question, which was supply demand normalization. Is that right in Flash? C.J. Muse: Yes. Sorry about that. Yes. David Goeckeler: No, that's right. Okay. So look, I think as I said, there are a number of things we saw in the market. This quarter we saw sequential bit growth overall, we saw clients and consumer returning to exabyte growth on a year-over-year basis, with consumer SSD content up 40%, client SSD up 20%. We saw our inventory down. We think in the client -- in the consumer and client markets, PC markets basically shipping to demand at this point. We expect our -- for the fiscal year, we saw our bits about flat year-over-year. For the calendar year, we see them down low-single-digits. We probably see the industry down a little lower than that. So we're taking the actions to bring supply and demand better into balance, and I think we're seeing that across our markets. Cloud is still -- there's still a couple of quarters ago, there that's a larger story, but in our two biggest markets for Flash, we're seeing that supply-demand balance start to move closer together, put it that way. C.J. Muse: Thank you. And my second question. [Technical Difficulty] you announced [Technical Difficulty] I think there was a hope that maybe -- there might be some underlying deposits underneath that thing [Technical Difficulty] How should we be thinking about training and hearing about [Technical Difficulty] David Goeckeler: Okay. I think that was the strategic review and timing, C.J. So as the process is active, we look forward to talking more about it when we reach a conclusion. C.J. Muse: Thank you. David Goeckeler: Thank you. Operator: Thank you. [Operator Instructions] Our next question is going to come from the line of Aaron Rakers with Wells Fargo. Your line is open. Please go ahead. Unidentified Analyst: Thank you, guys. This is [Michael] (ph) on behalf of Aaron. I wanted to ask, how are you guys thinking with the recent uptick in AI investment in the data center? How do you think that impacts the mix of Flash relative to HDD capacity being deployed, or maybe how that would impact you going forward? And then kind of related to that, how -- are you guys -- can you guys just give us an update on where you stand with your enterprise SSD qualifications? Thank you. David Goeckeler: Yes. I've been thinking a lot about generative AI. It's clearly a big topic these days and obviously, a lot of spend going on to build out the infrastructure in the cloud, which I think, quite frankly, is a great thing. The cloud distribution model of new technology is something that is pretty amazing. That's been built out over the last decade, so we all get access to this technology very rapidly. And when I think about this in the storage domain, clearly, the compute infrastructure is being built out now, but what we're all going to be enabled with there are like incredible tools to automate data creation at many different levels, whether it's text data, video data. Whatever it happens to be, I think that we're essentially going to really accelerate our ability all of us to create information that needs to be stored. So I see this is kind of a catalyst for just a profound increase in the amount of data creation. I think that once those tools get distributed and we all start using them, I think that drives incremental growth across SSDs and hard drives. I mean hard drives are the foundational storage in the cloud. It's going to be that way for a very long-time. So while Gen AI may have some disruptions on the business in the near-term, as the compute infrastructure gets built out, very optimistic that this is a - as I said, I think it's a profound -- it's a catalyst for a profound increase in the rate of data creation. So quite excited about that. We don't know exactly what -- how you model that just yet, except that there is new innovation drives new data creation, which drives the need for storage. So we look forward as these -- as this infrastructure gets built out and rapidly adopted, the impact it's going to have on our business. Now on enterprise SSD, we still have the qualifications. We've recently qualified BiCS5 in some of these places. That market along with nearline HDD or capacity enterprise HDD is depressed right now or subdued. So we're not seeing a lot of growth in that. But we fully expect that when that market comes back and that part of cloud in structured spending comes back that we'll be in a good position. We're still investing in the products and feel good about the position we have with the major cloud vendors. Unidentified Analyst: I appreciate that. Thank you. David Goeckeler: Thank you. Operator: Thank you. [Operator Instructions] Our next question is going to come from the line of Tom O'Malley with Barclays. Your line is open. Please go ahead. Tom O'Malley: Hey, good afternoon, guys, and thanks for taking my question. I just -- I wanted to narrow in on the HDD side. There's been a variance of timing of recovery across the industry. Could you just give us your latest -- on when you think the cloud portion of your HDD business is going to recover? I know you previously have said the fourth quarter, has there been any push out in that expectation? And could you also just comment on the health? I know it's down this quarter, but just the health of that HDD business as you're seeing it today. So just the timing of the recovery and how it's been today? David Goeckeler: Yes, I think as we moved, you know, so first of all, we think we're going to see sequential exabyte growth in capacity enterprise HDD throughout the fiscal year, but it's going to be towards the end of the year, end of the first quarter where we start to get line of sight to all of the customers coming back. I think we're having discussions across all of our customers about what they're -- we always have conversations, but some of the big ones have been in inventory digestion for quite a while. So we're getting better line of sight to the end of that. But I think we still have a couple of quarters to go, but improving I think next quarter things will be stable. It will be a bit of mix impact there. We expect client to be a little bit more challenged in this quarter. But I think as we move throughout the year, things will get better. And I think your timing of a couple more quarters of getting through phase and as we get into early next year, we expect things to look better. Tom O'Malley: Helpful. And then also in the HDD business, your competitor, kind of, talked about being more aggressive in certain areas on pricing. Have you guys also looked to be more aggressive on pricing and any comments that you have on just your strategy with clients on the pricing side? Thank you. David Goeckeler: Yes. Pricing really starts with innovation. I mean, I think that's where we -- we're staging our 28 T Ultra SMR product. We're really happy with where Ultra SMR is at. EPMR opting in and we're already staging our next product for growth there. That's the underpinnings of where we're able to bring a better TCO proposition to our customers. And as we do that, we're able to share in the benefits of that as those drives gets deployed. The rest of the market is more market driven pricing. We have a lot of different channels, a lot of different markets we sell into. And that type of pricing is just is more of what you would typically think in any big market around supply and demand. Tom O'Malley: Thank you. David Goeckeler: Thanks, Tom. Operator: Thank you. [Operator Instructions] Our next question comes from the line of Krish Sankar with Cowen. Your line is open. Please go ahead. Krish Sankar: Yes. Hi, thanks for taking my question. I told them personally with some Flash side [Technical Difficulty] and June was [Technical Difficulty]. Just so that the pricing should improve after or revenue should improve after December. Is that a function of overall NAND pricing getting better, or your specific exposure to retail and PCs above BU? And then I have a follow-up. David Goeckeler: I missed the first part of the question… Peter Andrew: Yes. Sorry. Sorry, Krish. Could you please repeat? A – David Goeckeler: Sorry, Krish. You know, we never agreed. There was a little bit of static on the line. Q – Krish Sankar: I apologize. I was just trying to figure out the pricing [Indiscernible] in June. We spoke about the revenue improvement. Is it a function of NAND pricing improving or just statistic [Indiscernible] your targeted retail and PC is going to get better? David Goeckeler: Okay. I think I got it at that time. So NAND pricing, so first of all, in the last quarter, NAND price -- you saw like-for-like pricing down 9%, blended down 6%, so moderating from the quarter before. Next quarter, we expect volume to pick up, which will drive -- volume pick up margin to be impacted a little bit more from where it is today. So continue to moderate, but volume picking up. Does that help answer your question? I don't know. I didn't get all of your questions, Krish. so I'm sorry if I'm not answering it. Krish Sankar: No, no. I think it does. It does. I was just trying to figure out the specific and verticals, which is PCs and retail. David Goeckeler: Yes. I got you. So as we said, we saw the client and consumer markets return to growth -- exabyte growth and sequential revenue growth. So we see those markets have kind of through their inventory digestion and more shipping to end demand so that -- we expect that to continue as we go forward. Krish Sankar: Got it. Thanks David. And then a quick follow-up on hard drive. You said that you're sampling the 8-terabyte ePMR. Is the 32 terabyte ePMR still on your road map? And are you like doing that by increasing the number of disks per drive? And how do you think about the gross margin [Technical Difficulty] to terabyte? David Goeckeler: Okay. So let me -- again. I think I got most of the questions. So we're not adding more disks I mean, Ultra SMR is -- it's a combination of our ePMR, OptiNAND and Ultra SMR technology. So the next step on the roadmap, I think we've talked a lot over the last year, plus about this driving from 20 to 30 plus with a set of technologies around ePMR, OptiNAND, Ultra SMR. And this is the next step in that roadmap. We still have a couple of more steps to go. So we'll announce the products one at a time, but we're happy with where we are and continue to drive innovation. And as demand comes back, we'll be ramping into a great set of products. And these are products that can be staged quickly and ramp in volumes very quickly, very established technology. And the 26-terabyte drive, Ultra SMR drive, we really -- that sold at scale this quarter and we expect a significant growth in that in the next quarter as well. Krish Sankar: Awesome. Very good update. Very helpful. Thank you. David Goeckeler: Thank you. Operator: Thank you. [Operator Instructions] Our next question comes from the line of Wamsi Mohan with Bank of America. Your line is open. Please go ahead. Wamsi Mohan: Yes. Thank you so much. So we've had a few head fakes on phone recovery on the cloud side, particularly in HDDs. And wondering as you think through, sort of, this improvement starting in fiscal 2Q, what's underpinning some of the confidence? You noted demand recovery. Are you seeing particular signs from customers that are pointing to that? And your primary competitor also noted taking some changes, including a build-to-order philosophy. Curious if you guys are contemplating any such changes. And I have a follow-up. David Goeckeler: Hey, Wamsi. So first of all, yes, I mean, you hit it. I mean we have ongoing and very significant conversations with our customers on a -- many quarters out, so that's what gives us -- that's what underpins the view we have. To your point, things can change, but that's the current view and the conversations are productive and positive. On the build, the order comment, look, I think the industry is going to come out of -- well, let me speak about us. So Western Digital will come out of this downturn. It's a pretty severe downturn in a cyclical industry, but we've done a lot of things that I think the business is going to be different on the other side of this. So first of all, we've taken a significant amount of capacity out-of-the system. We've talked about the shifts from client to capacity enterprise, at least as long as I've been here and it's been going on for many, many years before that. I think that transition is going to be essentially done. There is a long tail on any technology, but if you look on a unit basis, we'll come out of this with significant less spending on our infrastructure. We'll have the lowest fixed-cost we've had in a decade-plus in our HDD infrastructure, and we'll really be focused exclusively on that client enterprise business going forward. That's not a -- we still have a client business. Don't get me wrong. It's still going to be there. Like I said, there's a long-tail of technology. But I think as part of that, the industry will come out and we will come out of this as more of a build-the-order, if you will, as opposed to a build to forecast. So that's why we're having these conversations with our customers because it is a it is a long build time on an HDD, and we want to make sure that we've got the infrastructure in place. We've got the components in place, and we're running the right process to deliver what our customers need at the right time. So I think that maybe the short answer to your question is yes, Western Digital will be -- is going to more of that kind of process. Wamsi Mohan: Okay. Dave, and just a clarification on the underutilization charges, which look roughly flattish quarter-on-quarter. Are those charges roughly similar in flash and HDD this past quarter? Or are there different moving pieces underlying that for September? Wissam Jabre: Sure, Wamsi. So when you look at the September quarter, the guide at $200 million to $220 million of underutilization charges and they're split roughly 70% Flash, 30% HDD. And I would -- just to clarify also to add with respect probably to the following quarter. I expect -- sorry, underutilization related charges to be let's say, 5% to 10% down and most of the -- if not all of the decrease would be coming from HDD. Wamsi Mohan: Thank you, Wissam. Wissam Jabre: You’re welcome. David Goeckeler: Thanks, Wamsi. Operator: [Operator Instructions] Our next question comes from the line of Sidney Ho with Deutsche Bank. Your line is open. Please go ahead. Sidney Ho: Thank you. I wanted to ask about the cloud weakness again. I understand the cloud things could be lumpy. But curious about your conversations with the large hyperscale guys. How has that changed around a quarter ago? Are they giving you signals about when inventory will start stabilizing? Are they worried about supply in the second half given production cuts by all the suppliers? And are they more receptive to purchase commitments? David Goeckeler: Yes. What I would say is the it's always a very robust conversation given the amount of business we do with the hyperscalers. It's clear that some of them have been in a very severe inventory digestion phase and kind of took a pause on buying anything, but we're back to having conversations with those customers. I mean, they're still growing. And storage is still being created and growing. So we expect those conversations in those businesses to the buying will reemerge and we're having the conversations on when that will happen and in what magnitude just to make sure that we've got all of our capacity aligned to deliver that. I think we're getting very good reception on the product road map. As we talked about our 22, 24, 26 terabyte platform and products have now been qualified by all of the major cloud vendors. We're just -- we expect to ramp those significantly, especially the 26 T next quarter. That's really becoming a major capacity point for some of the biggest cloud builders. And right on the back of that, we're launching a 28 T UltraSMR drive. So the conversations are strong, and it's about making sure we have clear alignment on what their requirements are going to be and that we get the proper manufacturing in place to deliver on that. Sidney Ho: Okay. Maybe a quick follow-up on the Hard Drive side. Clearly, you guys have been better than the competitor last quarter. But I just want to hone in on the SMR drives, which you said have qualified at all major cloud customers. Can you give us an idea what SMR adoption is today and where you think it will be in a few quarters from now? Thanks. David Goeckeler: SMR, it's very idiosyncratic. I mean the intersection of adoption and inventory digestion makes it very lumpy. And if you look at the current quarter or last quarter, but I can say going forward that several of the major cloud providers are standardizing on an SMR deployment, UltraSMR for us, and we expect have a significant ramp of that technology over the next several quarters. Sidney Ho: Okay, thank you. David Goeckeler: Thank you, Sidney. Operator: Thank you. [Operator Instructions] And our next question comes from the line of Toshiya Hari with Goldman Sachs. Your line is open. Please go ahead. Toshiya Hari: Hi, guys. Good afternoon. Thank you so much for taking the question. I had one clarification and then a question. David, on NAND ASPs for the current quarter, I guess you talked about bids being up double digits sequentially, and you're kind of guiding revenue to flat sequentially. So I guess, the implied ASPs are down perhaps a little bit more than what they were down in the June quarter, but you talked about moderation. So is the sharper price decline in September that's implied in guidance or embedded in guidance, primarily a function of mix? Or am I missing something there? David Goeckeler: Yes. It may be a little bit -- sequentially, maybe a little bit lower than what you're modeling. So I think that's where it is. Toshiya, we can follow up with you on kind of more details, but I think that's probably the clarification. Toshiya Hari: Okay. Got it. And then as my follow-up, maybe one for Wissam. You mentioned that for fiscal '24, you plan to cut CapEx significantly. Curious if it's purely impacting your capacity decisions in NAND? Or are there any changes or shifts to how you think about the road map? And related to that, I think on a bit shipments, David, you mentioned for calendar ‘24, you guys are going to be, I think, down low single digits. But how should we think about bit production in calendar '24, given the CapEx and production cuts that you're going through right now? Wissam Jabre: Well, maybe let me first start with the first part of the question on CapEx, Toshiya. The comment on CapEx is -- well, when you look at calendar -- sorry, fiscal '23, we've taken quite a bit of CapEx out from our plans as we continue to preserve cash. I mean you can see that we've spent, I think, year-on-year, we're down roughly 30% to 35%. And it's almost $1 billion lower than -- at the gross CapEx level, almost $1 billion lower than what our plan was at the beginning of the year for fiscal '23. For fiscal '24, we're projecting to be significantly lower. It's mostly in line -- it doesn't impact necessarily our product road map. It is more or less what we see today relative to what our NAND or basically other types of investments, meaning no other transitions or other types of investments planned. And so I wouldn't say there's any major change relative to what we've already been planning. But given the dynamic macro environment we're operating in, we will continue to monitor, just like we've done in fiscal '23 on a quarterly basis and adjust as needed. Wissam Jabre: Thanks, Toshiya. Operator: Thank you. [Operator Instructions] Our next question comes from the line of Shannon Cross with Credit Suisse. Your line is open. Please go ahead. Shannon Cross: Thank you. Thanks for taking my question. I'm wondering, you have any unique perspective having both HDDs and SSDs. There's commentary coming out of Pure, and I'm hearing more from some of the other storage vendors of a growing use of or cloud within data -- or sorry, growing use of SSDs within cloud and data centers and almost like a potential secular shift. Again, Pure takes it kind of to the extreme. But I'm just wondering how you think about how the mix will trend over time, maybe layer in AI, if you want? And just think about [Technical Difficulty] we should worry about what are you hearing from your customers? And then I have a follow-up. Thank you. David Goeckeler: Yes. Hey Shannon, thanks for the question. We've talked about this a lot over the years. I think that both technologies are growing in the data center. HDD is the predominant storage mechanism in the data center we don't expect that to change. Our customers don't expect that to change. As long as we continue to drive the HCD road map forward, we just -- we're ramping 26 terabyte. We're already launching 28 terabytes. So we're moving forward with capacity points on HDD. And we expect robust growth of HDD storage in the data center going forward. We also expect growth of enterprise SSD storage in the data center going forward. It's probably growing a little bit faster than HDD, but not in a way where you're looking at one is a substitute for the other. They're highly complementary technologies, and we expect that to be the case for any useful planning horizon in the future. We look at a decade out. The cost differences are still significant, and that's certainly the way we talk to our customers about how they're building mass scale data centers. Shannon Cross: Okay. Great. And Wissam, can you talk a little bit about OpEx? How you're thinking about it relative to maybe a more normalized level? And how much loan for the model as revenues come back before you have to start spending more from an OpEx perspective? Wissam Jabre: Yes, sure. So on OpEx, you saw we continue to manage it very, very tightly in fiscal Q4. We ended at $582 million, which is around $180 million lower than the same quarter last year. As to your question, over the near term, I think we're within sort of the range where we expect to be. But as the business starts coming back, there could be some small increase as we start layering up some of the variable expenses on that. However, we should never -- we shouldn't expect the increase in OpEx to be faster than the increase in revenue. And so we would be monitoring that, and it will be gradual. And similarly, if there's a need for us to take additional action on OpEx to continue to manage very tightly. We also have some room to do that. David Goeckeler: Michelle, can we have the next question please? Operator: We sure can. Just one moment. Our next question comes from the line of Timothy Arcuri with UBS. Your line is open. Please go ahead. Timothy Arcuri: Thanks a lot. I had two, Wissam. The first one is on underutilization charges. And it's kind of like a two-part question. So the first is what's the current utilization in NAND? And then on the HDD side, is there kind of a mild post as to where these could start to go away? Because you're guiding $70 million for September for underutilization in HDD. It sounds like it goes to maybe 60 to 65 in December quarter. But when does it go away because you started to take underutilization charges. I think when HDD revenue went sub $2-billion per quarter. So do we have to get all the way back to $2 billion a quarter to have those HDD underutilization charges go away? Wissam Jabre: Okay. So Tim, with respect to the Flash side, we continue to make these decisions on an ongoing basis. And from the numbers, you can tell the underutilization related charges were are projected to be roughly flat from Q4 to Q1. As for HDD, I think the math is -- your math on Q1 is close to where the guidance is. But I think in the December quarter, think of the underutilization charges going, let's say, from Q1 to Q2 going down 5% or 10% and all of that decrease coming from HDD, you start seeing some declines basically in the HDD underutilization in the December quarter. And based on what we see today, it's a bit too early to talk about the second-half of the fiscal year 2024. But to the point you were making around the $2 billion revenue mark, we don't need to get to the $2 billion revenue mark to really fully utilize our capacity. If you recall, we've restructured quite a bit of our manufacturing capacity in the Hard Drive business, and we continue to take and optimize that fixed cost aspect of the cost structure. And so we can be fully utilized at a lower level than $2 billion, given the current cost structure. Timothy Arcuri: Thanks a lot for that, Wissam. And then just on the debt service cost. So you have the convert due in February. I think that's at a pretty good rate. I think it's at 1.5%. So the debt you're going to replace that with, I imagine, is going to be pretty expensive. So it seems sort of -- I guess my question is sort of where does that leave you in the cap structure? Obviously, it seems like debt service costs are going to go up maybe $20 million a quarter once you have to issue new debt for that. So can you just talk about sort of how you solve for all that? Thanks. Wissam Jabre: So yes, the current rate on the convert is 1.5%. And given where the interest rate environment is today, I would expect that to be replaced by that -- when replaced by that to be roughly more expensive than that. So look, it's a little bit too early to talk about it in a lot of details, but this is something that is definitely a focus for us as we think through the various options that are available to us. With respect to refinancing, for instance, we look at the potential cost of capital and our goal is to make sure that we maintain a lower cost of capital to the extent possible. But I expect it to be slightly up from here, all said. Timothy Arcuri: Thanks a lot, Wissam. Operator: Thank you. [Operator Instructions] Our next question comes from the line of Ananda Baruah with Loop Capital. Your line is open. Please go ahead. Ananda Baruah: Yes. Thanks, guys. Appreciate you taking the question. Thanks so much. Really just -- two quick ones, if I could. When would you expect 26 terabyte and maybe I'll even through 28 in there since you mentioned it, David, there each crossover. And then I just have a quick follow-up to that. Thanks. David Goeckeler: Crossover as -- look, let me say that -- there's a lot of -- there's multiple different capacity points. So I think we need to maybe talk about this a little bit different. It doesn't just move from 14, 16, 18, maybe like it did two, three years ago. Now there's a bit of distribution of different customers and what kind of technologies they're using, whether it's 20s or 22s or 26s or going to 28s or even some 24s. So as I look at where things are going to be in the next couple of quarters, you're going to see a pretty even distribution across three or four different capacity points, all of them shipping 0.5 million or more drive. So we expect a very substantial ramp of 26. I don't want to take away from the ramp that's going to happen there. It's going to be very quick and very rapid now that it's qualified and getting close to being a leading capacity point in the next couple of quarters. Ananda Baruah: Thanks for making the distinction. That's actually really helpful. And the follow-up is, do you guys have any view yet, any opinion, on when things normalize out in hard drives, if the hyperscalers return to what their classic utilization levels have been historically, how they run the capacity? Or do you think they settle in somewhat different on the utilization? David Goeckeler: Look, I think anytime you go through a period like this, there's some work done on optimization of the infrastructure and consolidation, I think that's happening. But I would expect things -- you go through that and you just incrementally get better. Like anything in technology, you're constantly improving, constantly getting more efficient. I think that, that is something that's always going to go on and we're still going to see the growth in exabytes on top of that. So I think we're still looking at 20%, 25% exabyte growth in the HDD business. And I think we clearly haven't seen that in the last year, but we know it's a cyclical business, and we expect to get back to those levels. Ananda Baruah: Right. That’s awesome. Thanks a lot. David Goeckeler: Thank you. Operator: Thank you. And our last question is going to come from the line of Karl Ackerman before we have a short statement by our CEO. Karl Ackerman: Could you discuss how we should think about a recovery in nearline units and unit pricing as you and your peer implement a build-to-order process? And as you address that question, can you discuss how this build-to-order process may differ from long-term agreements signed in 2021 that were a bit challenging to implement over time? David Goeckeler: So units, I expect to recover, right? I mean we're going to get exabyte growth. We're at a low point on units. We expect units to recover and get back to where they were and eclipse that actually as we continue to get exabyte growth. I'll put in say, a once again, I am very excited about generative AI. I know everybody is. But I think it's going to come to our world on storage once all this gets deployed. And so I expect to see units recover. I think the build-to-order process is going to be a fairly straightforward process because we have deep relationships with set of customers here. It's a big market. It's a big relationship. And I think it's just getting the business model to a place where there's better alignment between the infrastructure we have in place. Again, we've been talking about this for many years now that in a lot of ways, cloud has significantly benefited from the reduction in client and there's been a consistent availability of infrastructure to build hard drives. And we're at the end of that transition now, so we have to just have more planning around that. I think the long-term agreements were a step into that. I think this is maybe the next step into how do we run our franchise to make sure we've got the best alignment between delivering a great product and value proposition to our customers, which is extremely important, the storage is an incredibly important part of the data center and making sure that we have the right infrastructure in place to fuel that growth. So I expect it to be a pretty natural change or evolution of the business model, and I expect it to be a very positive on all sides. Thank you, Karl. All right, everyone. Thanks for joining the call. We look forward to talking to you all throughout the quarter. Take care. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.

Operator: Good afternoon, and thank you for standing by. Welcome to the Western Digital’s Fiscal Third Quarter 2023 Conference Call. Presently, all participants are in listen-only mode. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the call over to Mr. Peter Andrew, Vice President, Financial Planning & Analysis of Investor Relations. You may begin. Peter Andrew: Thank you, and good afternoon, everyone. Joining me today are David Goeckeler, Chief Executive Officer; and Wissam Jabre, Chief Financial Officer. Before we begin, let me remind everyone that today's discussion contains forward-looking statements, including expectations for our product portfolio, cost reductions, business plans and performance, demand and market trends, and financial results based on management's current assumptions and expectations, and as such, does include risks and uncertainties. We assume no obligation to update these statements. Please refer to our most recent financial report on Form 10-K and other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially. We will also make references to non-GAAP financial measures today. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the Investor Relations section of our website. With that, I will now turn the call over to David for introductory remarks. David Goeckeler: Thank you, Peter. Good afternoon, and thank you for joining the call to discuss our 2023 third quarter results. Western Digital’s third quarter performance exceeded expectations with core metrics at the high-end of our guidance range, demonstrating the company's resilience in a challenging market environment. We reported third quarter revenue of 2.8 billion non-GAAP gross margin of 11% and a non-GAAP loss per share of $1.37. Over the last several years, our team is focused on enhancing business agility and delivering a range of innovative industry leading products that address the increasing data storage demands of our customers. The groundwork we laid combined with the actions we have taken since the beginning of this fiscal year to right size and refocus our business have enabled us to navigate a dynamic environment. I am pleased that we delivered non-GAAP gross margin at the higher-end of our guidance range due to strong execution across both our HDD and Flash businesses. In HDD, our early actions to streamline our manufacturing footprint and focus our product offerings on delivering the best value for our data center customers have resulted in gross margin upside and profitable market share gains in HDD. In Flash, our broad go to market strategy anchored on our enviable retail franchise in a strong client SSD portfolio enabled us to optimize bid placement and bolster gross margin. During the fiscal third quarter, we saw signs of demand stabilizing across various end markets. In consumer, Our flash and HD results were consistent with the expectations we shared in January. In client, demand for each major product area came in better than we expected across PC OEM, channel, mobile and gaming. In cloud, demand for capacity enterprise hard drives improved whereas the demand for flash drives was consistent with our expectations set in January. Before I jump into updates on our HDD and Flash businesses, I would like to reiterate that the strategic review process is ongoing and we will provide updates as we have them. I'll now turn to the business update starting with HDD. During the fiscal third quarter, our HDD revenue improved sequentially with growth in capacity enterprise offsetting seasonal declines in retail and client. During the quarter, our 22 terabyte CMR drive became the highest volume product among all of our 20 terabyte and above capacity points. Demonstrating our leadership position at this capacity point. In addition, we expect the complete qualification of our 26 terabyte Ultra SMR technology in the fiscal fourth quarter. These innovative products provide multi-generation benefits to our customers. Turning to Flash, total exabyte shipment came in higher than expected in consumer, mobile, PC OEM, and channel products. Despite the industry experiencing the worst downturn in over a decade, Western Digital delivered positive product gross margin, excluding underutilization charges, driven by our unique combination of premium retail brands, broad go to market channels, and low cost flash supply from our joint venture fab with Kioxia. Furthermore, we continue to see encouraging signs of price elasticity driven content growth in retail flash led by WD Black, SSD optimized for gaming, as well as mobile PC OEMs and channel within client. On the technology front, BiCS6 achieved its anticipated cost crossover during the quarter. Moreover, on March 30, Western Digital and Kioxia announced our next generation BiCS8 node, a groundbreaking technology that builds upon the success of BiCS5 and BiCS6. This new technology is based on circuit bonded to array architecture, which provides several benefits, including reduced cycle time faster yield ramp, better or lateral scaling, and industry leading IO performance when compared to products based on circuit under array architecture. We continue to aggressively productize BiCS8 for a broad range of applications, which will position Western Digital for success as business conditions improve. As we look to the fiscal fourth quarter, in hard drives, overall demand will be impacted by ongoing inventory digestion at cloud customers and a sustained decline in client. However, we are beginning to experience improved demand at certain customers in China. In Flash, we are seeing signs of stabilization and content increase per unit. PC OEMs have emerged from inventory digest and are now shipping closer to end demand. Gaming will remain strong, while enterprise SSD for cloud applications will remain soft. We anticipate modest growth in bit shipments into the fiscal fourth quarter. Before I hand the call over to Wissam, I would like to thank the Western Digital team for the response efforts they made in addressing the network security incident we disclosed on April 2nd. Our team took proactive and precautionary measures to secure our operations and successfully executed on our business continuity plans. With that, I'll turn it over to Wissam. Wissam Jabre: Thank you, David, and good afternoon, everyone. Fiscal third quarter results reflected the challenging market environment with continued pressure on revenue and profitability. Total revenue for the quarter was $2.8 billion, down 10% sequentially and 36% year-over-year. Non-GAAP loss per share was $1.37. Looking at end markets, cloud represented 43% of total revenue at 1.2 billion, down 2% sequentially, driven by an increase in capacity enterprise drive shipments, which was offset by a decrease in Flash shipments. Nearline bit shipments were 79 exabytes, up 31% sequentially. Year-over-year, revenue declined 32%, primarily due to a decline in shipments of both hard drive and flash products, as well as price decreases in Flash. Client represented 35% of total revenue at $1 billion, down 10% sequentially and 44% year-over-year. On both a sequential and year-over-year basis, the decrease was driven by price declines across our flash products and lower client SSD and hard drive shipments for PC application. Finally, consumer represented 22% of total revenue at 0.6 billion, down 22% sequentially, and 29% year-over-year. Sequentially, the decrease was due to a seasonal decline in shipments of both retail hard drive and flash products, as well as price declines in retail flash. The year-over-year decrease was driven by lower retail hard drive shipments and price declines in flash. Turning now to revenue by segment. HDD revenue was 1.5 billion, up 3% sequentially and down 30% year-over-year. Sequentially, total HDD exabyte shipments increased [50%]] and average price per hard drive increased 10% to $109. On a year-over-year basis, total HDD exabyte shipments decreased 23%, and average price per unit increased 9%. Flash revenue was 1.3 billion, down 21% sequentially and 42% year-over-year. Sequentially, Flash ASPs were down 10% on a blended basis and 12% on a like-for-like basis. Flash bit shipments decreased 14% sequentially and 1% year-over-year. Moving to costs and expenses, please note that my comments would be related to non-GAAP results unless stated otherwise. Gross margin for the fiscal third quarter was 10.6%, down 6.8 percentage points sequentially and 21.1 percentage points year-over-year. This includes $275 million of charges for manufacturing underutilization, inventory write-downs and other items. HDD gross margin was higher than anticipated at 24.3%, up 3.6 percentage points sequentially and down 3.4 percentage points year-over-year. Sequentially, the increase was primarily due to higher capacity enterprise volume, as well as lower manufacturing costs and underutilization related charges. Underutilization charges were less than projected at approximately $40 million or 2.7 percentage points, partially benefiting from the actions to streamline our manufacturing footprint and offsetting other charges of $22 million. Flash gross margin was negative 5%, down 19.5 percentage points sequentially, and 40.6 percentage points year-over-year. Underutilization charges associated with the reduced manufacturing volumes were approximately $160 million or 12.2 percentage points, less than expected as we focused on lowering manufacturing costs. During the quarter, we incurred $53 million of flash inventory write-down charges resulting from projected selling prices falling below the cost of inventory. We continue to tightly manage our operating expenses, which were at $602 million for the quarter, down 57 million sequentially and 138 million year-over-year. Operating loss in the quarter was $304 million, driven by underutilization charges, inventory write-downs and other items totaling 275 million. Income tax expense was $60 million. Despite a consolidated loss, we continue to have taxable income in certain geographies resulting in taxes payable in those areas. Fiscal third quarter loss per share was $1.37, inclusive of a $9 million dividend cost associated with the convertible preferred equity. Operating cash flow for the third quarter was an out flow of 381 million and free cash flow was an outflow of 527 million. Cash, capital expenditures which include the purchase of property, plant, and equipment and activity related to our Flash joint ventures on the cash flow statement was $146 million. Gross debt outstanding was 7.1 billion at the end of the fiscal third quarter. Trailing 12 month adjusted EBITDA at the end of the third quarter, as defined in our credit agreement was 2.5 billion, resulting in a gross leverage ratio of 2.8x, compared to 2.1x in the fiscal second quarter. As a reminder, our credit agreement includes $0.7 billion in depreciation addback associated with the Flash joint ventures. This is not reflected in our cash flow statement. Please refer to the earnings presentation on the Investor Relations website for further details. At the end of the quarter, total liquidity was $5.3 billion, including cash and cash equivalents of 2.2 billion, undrawn revolver capacity of 2.25 billion, and unused delayed draw term loan facility of 875 million. Before I cover guidance for the fiscal fourth quarter, I'll discuss the business outlook. We expect HDD revenue to decrease sequentially, due to ongoing inventory digestion at cloud customers. We expect Flash revenue to decrease sequentially as modest growth in bit shipments is more than offset by ASP declines. We expect Flash bit shipment growth to accelerate in the first half of fiscal year 2024. In the fiscal fourth quarter, total gross margin will be negatively impacted by underutilization charges and Flash pricing. We continue to tightly manage our cost structures through this dynamic environment and expect operating expenses to be below $600 million. For fiscal year 2023, we project gross capital expenditures to be approximately $2.2 billion, and cash capital expenditures to be approximately 0.8 billion. The projected cash capital expenditures represent more than a 50% reduction from our forecast as we entered fiscal year 2023 and approximately 35% reduction from fiscal year 2022. I'll now turn to guidance. For the fiscal fourth quarter, our non-GAAP guidance is as follows: We expect revenue to be in the range of $2.4 billion to $2.6 billion. We expect gross margin to be between 3% and 5%, which includes underutilization charges across Flash and HDD totaling $220 million to $240 million. We expect operating expenses to be between $580 million to $600 million. Interest and other expenses are expected to be approximately 90 million. We expect income tax expense to be between $60 million and $70 million. We expect loss per share of $2.20 to $1.90, assuming approximately 321 million shares outstanding. I'll now turn the call back over to David. David Goeckeler: Thanks, Wissam. Over the past few quarters, we have successfully ramped a series of industry-leading storage products and commercialized innovative technologies, while concurrently rightsizing our cost structure. Our proactive actions have positioned Western Digital favorably for the future as demand gradually returns to normal levels. In closing, I would like to thank our team members for their unwavering commitment in advancing innovative products and driving operational efficiency. Their exceptional efforts have allowed Western Digital to deliver in [Technical Difficulty] to the dedication and support of our people worldwide, and we remain committed to upholding the highest ethical standards in all that we do. Okay. I look forward to your questions. Let's open it up. Operator: [Operator Instructions] Our first question comes from C.J. Muse from Evercore ISI. Please go ahead. C.J. Muse: Yes, good afternoon. Thank you for taking the question. I guess I'd love to get a sense for where you're seeing demand stabilize versus where you still see pockets of inventory? And as part of that, I guess embedded in your revenue guide, it looks like you're kind of suggesting HDD down maybe 10% to 15%, SSD down 5% to 10%. So, I guess is that kind of the right way to think about it? And then as part of that, where do you think we're seeing stabilization and where do you think we need to work down inventory some more? David Goeckeler: Inventory correction there is mostly behind us. Our channel business performed really well this past quarter, I think, above what our expectation was. The inventory issue is still very much in data center and it's very lumpy. We have some big cloud customers that are consuming. We have others that are really in a full inventory digestion and aren't taking anything. So that market is still where we see a lot of inventory digestion going on. And I expect that to be lumpy for the next couple of quarters. We are seeing some signs of stabilization in China. We talked about that. I think it's setting up for recovery in the second half of the year, a lot more activity around RFPs and discussions about what demand is going to look like the second half. So, that's a bit – an overview of where we see the market. I think on your numbers, you're probably down a little more than we are on HDD. I think that's probably more a single-digit kind of number on a sequential basis. C.J. Muse: Very helpful. And as a quick follow-up, can you kind of walk us through what you're thinking today in terms of underutilization charges beyond the June quarter? David Goeckeler: Yes. Well, let's talk about for each business. I mean, I think in HDD and I'm sure Wissam will have a little bit to add here as well. HDD, which is the smaller part of the number, but still significant we're going to see a drop in volume next quarter. So, we'll see some underutilization there. On the Flash side, we continue to underutilize the fab. We're managing it in a very dynamic way, kind of week-to-week month-to-month to make sure we've fully understand demand and keep our inventory in a position where we want it. And so – but we will definitely see underutilization on both sides of the business next quarter. Wissam Jabre: And just to add – C.J., sorry, just to add a bit more color, I think we – in our guide, we're estimating around [220 to 240] [ph], the range of underutilization charges. And by business, this is roughly two-thirds Flash, one-thirds HDD or one-third [SSD] [ph]. C.J. Muse: Thank you. David Goeckeler: Thanks, C.J. Operator: Our next question comes from Joe Moore from Morgan Stanley. Please go ahead. Joe Moore: Great. Thank you. You mentioned that you're taking lower cost for market charges on NAND, can you talk about the methodology there? Is that – do you pool that and then take a charge overall or is it anytime any individual product falls below the market price you adjusted down? David Goeckeler: So, Joe with respect to our LCM charges, we do it at the finished good product level. It is not pulled. Joe Moore: Got it. Okay. Thank you. And then in terms of the underutilization charges and things like that, do you know how the covenants are going to be defined? Are you going to be able to remove those charges from the EBITDA number as defined in the covenant? David Goeckeler: Those are typically allowed to be added back per our credit agreement to the EBITDA. David Goeckeler: Okay, great. Thank you very much. Wissam Jabre: Thanks Joe. Operator: The next question comes from Aaron Rakers from Wells Fargo. Please go ahead. Aaron Rakers: Yes, thank you for taking the questions. Just to build on that last question, just to be safe. Your gross margin expectation in this current quarter, I'm guessing the commentary assumes that you're not expecting another inventory charge in the flash business? And if so why not? Wissam Jabre: So Aaron, we typically factor into our guidance all the expectations. And when we exited Q3, like a typical quarter, we do our reserve reviews and we take the – we make sure that the balance sheet properly stated. And so based on our forecast, everything is baked into the guidance. Typically, we have a small amount in the guidance just like we did also in the past quarter. Aaron Rakers: Okay. And then I guess my follow-up question is on the hard disk drive business, I can appreciate you guys seeing some cloud customers, kind of – it sounds like purchased really no product this last quarter. I'm guessing from a competitive perspective how would you characterize the current environment? Have you seen increased price aggressiveness? How do you guys think about the discussion around HAMR and your roadmap going forward, etcetera? David Goeckeler: Yes, I mean, I think there's always price pressure in this market Aaron, but we've been very disciplined about the value of our products. I think you – one of the things we feel very good about is, we've been investing in our HDD roadmap, things like OptiNAND, ePMR, UltraSMR, these products are really now starting to ship in volume. We talked about the 22-terabyte CMR drive was the highest volume drive at 20 and above. So, we feel very good about where the portfolio is, about where it's going. We've got a number of very large customers qualifying SMR right now. That's clearly the next step in the data center, our UltraSMR product there, the 2016, we talked about we'll finish up calls this quarter and start deploying next quarter. So, we feel like we've got a portfolio that is aligned with what the market needs. And that's showing up in, kind of how we're able to monetize that portfolio and not have to compete on price. So, future technologies like HAMR will be there. We're still are ways away before that product is going to be a volume type product. The volume products are the 22s going and then SMR are going to be the big volume products over the next couple of years and after that we'll get to HAMR. We feel confident about that technology. It's been in development for a long time. We're in the final stages of it as an industry and I think everybody is excited that it will be the roadmap for 30 and above when we need it. Aaron Rakers: Thank you. Operator: Our next question comes from Sidney Ho from Deutsche Bank. Please go ahead. Sidney Ho: Thank you. I wanted to ask about the network security breach. Can you give us an update on the recovery there? Looks like your operations are back to normal levels, but have you experienced or do you expect any more issues with productions or your ability to ship products? David Goeckeler: Yes, we've been very transparent about that incident. When we noticed it, we let folks know, we took our – we basically disconnected ourselves from the public Internet to protect ourselves and then restore the environment. We still have capabilities inside the companies and the factories were operational throughout that. Clearly, a tremendous amount of work by the team, but we feel like we're nearly all the way back now as far as operation. We got to bring the store online in here in another week or so, but it was really, really good to see our business continuity plans, you don't want to rely on them too often, but when we had two, they were there and they kept the company moving forward. Sidney Ho: Okay, great. Thanks for that update. Wissam Jabre: Sorry, Sidney. I just wanted to add that for fiscal Q3, we don't have any impact in the numbers to the network security. Sidney Ho: Okay. That's great. Maybe my follow-up question is, Samsung [indiscernible] talk about their cutting production. I'm curious if your competition with the customers have changed since that announcement, and related to that, do you expect the June quarter to be the bottom of – for your margins for your Flash business? Thank you. David Goeckeler: I would say, we have – I mean obviously we have very robust conversations with our customers all the time. I wouldn't pin the tone of conversations on to how any one particular player in the market is acting or what they're doing. We stay very focused on our business. As far as where is the bottom, I mean we expect the market to come into balance as we go through the second half of the year. I think we're clearly taking a lot of actions in our own business to closely manage it, supply and demand. Keep the utilization of the fab close to where demand is. So, we manage our inventory. Clearly, we're going through one of the most severe downturns in a while, but we think as we move through the second half of the year the market will come into balance. Sidney Ho: Great. Thank you. Operator: Our next question comes from Mehdi Hosseini from SIG. Please go ahead. Mehdi Hosseini: Yes, thanks for taking my question. One near term and more to with inventory. Your inventories are – absolute dollar value keeps going higher. And I want to understand how the mix is changing between wafers, finished good, and other material? Is there any way you can give us a color how incremental changes are happening for different categories within inventory, and have a follow-up? Wissam Jabre: Yes, we typically don't break that out as much on the call. This is a bit too much detail, Mehdi, for me to discuss here. The one comment I would make though, when we think of inventory, our operations team is really focused on minimizing where we can. So, we basically try to stage it in the places that makes the most sense from a demand perspective. Mehdi Hosseini: Let me rephrase the question. How do you – how should we think about the risk of inventory write-down? Wissam Jabre: I mean, the inventory write-down typically is, it's really based – the ones that was, for instance, I called out is based on basically the inventory value relative to where the market price is. And so, if – when prices decline by a lot, then we do have to take a closer look and see if there's any impact, but that's what I would say about that. Mehdi Hosseini: So, would – are you assuming that the rate of price decline is moderating, so maybe that would minimize the downside risk? Wissam Jabre: What I'm saying is, we – what I'm saying is, at the end of every quarter our balance sheet is properly stated because we do look at where the inventory value is versus where the demand is and the prices are most particularly at the finished good level. And so, where we see differences we have to adjust our inventory value, otherwise it is properly stated. I guess your question is more around trying to predict where the price is going and we typically don't necessarily do that. Mehdi Hosseini: Okay. Thank you. And then the question for David, looking at longer-term more than just one quarter. I think there is some confusion or unknown factor how new type of AI would impact demand for HDD versus SSD, do you have any view how this incremental demand created. These are expensive working stations. How is it going to impact SSD versus HDD? David Goeckeler: We're doing analysis on that, Mehdi. What I would say is, to me – I'll even go a little longer-term, bigger picture. This just reinforces the value of stored data. I think that it just seems like there's this constant ways for people can figure out how to use all the data they've stored to do very productive things with it. And I think the latest is training these AI engines. And so, we just think it's another element of the long-term value of data storage and it's just a big secular tailwind for the HDD business and the enterprise SSD business. I mean, again, you know that they're both – they both have big TAMs in the data center, and they're both growing. And we think this is another reason why people will store more data is because they can monetize it in different ways in the future. Mehdi Hosseini: But I guess I was hoping you would shed some light as to how the HDD CAGR would change? I don't think this is going to lift the TAM for each different types of stores at the same rate. Is there any thoughts that you can share with us? David Goeckeler: I think it will – HDD is the lion's share of storage in the cloud. So, you would expect that's where the bigger lift would be across those two technologies. Mehdi Hosseini: Okay, thank you. David Goeckeler: Thanks Mehdi. It’s good to talk to you as always. Operator: The next question comes from Shannon Cross from Credit Suisse. Please go ahead. Shannon Cross: Thank you very much for taking my questions. My first is, as you look at what you're doing on OpEx in terms of holding in cost, how do you think about the – how you're – where you're investing? And how are you making those decisions? And how should we think about potential impact to future projects at this point? And then I have a follow-up. Thank you. David Goeckeler: Yes. We've been very – obviously, we've been – one of the things we've been building into the business over the last several years as we've restructured the business is more agility and the ability to proactively respond to the market we're in. I think that's kind of the hallmark of the organization we're trying to build is agile and dynamic. But clearly, on top of that, Shannon, we went to a business unit structure for a reason. It's because we have two very, very focused organizations with very sophisticated leaders in them that is constantly doing the ROI analysis of where we put our OpEx, and we get the most out of it. And I think quite frankly, that's led to the portfolio we have today. I think we have the best portfolio we've ever had. And that's an effort that goes on constantly, continuously. And so, as we continue to draw down OpEx to resize the business to the realities of what the market is. We've built the capability over the last couple of years to do that in a way where we can make sure we're going to get – first of all, the OpEx we spend, we get the best ROI out of it, the best return and that we make sure that we're making – we're taking actions to the business that don't harm the long-term value of it, and we make the right decision on a day-by-day, week-by-week, month-by-month basis. So, I think this is really a capability we've built in the last three years, and I think it's serving us well right now to make sure that we're not cutting in ways that are going to impact the long-term health of the business. Shannon Cross: Thank you. That was helpful. I'm curious – and maybe I'm trying to make lemonade out of lemons. But I'm just wondering, as you've cut capacity on the HDD side, and you've had these underutilization charges, are there things that you've learned in terms of maybe how you manufactured in the past ways to drive incremental productivity? I'm just thinking it's kind of – it's certainly a unique time to maybe take a step back and look how things are – how things have been done and what you can do in the future? Thanks. David Goeckeler: So, I'll make a few comments. I suspect Wissam will have a few comments as well. I mean this is – there's been a lot of focus on this in the last year of how do we become more efficient, how do we automate more. Several of our factories have won World Economic Forum Lighthouse awards for automation. How do we rescale our employees? And how do we just – we've been very focused on driving a level of automation, driving productivity, and just lowering our fixed cost asset base in the HDD business. And I think our fixed – I don't think I know, our fixed costs in that business are now the lowest they've been in well over a decade. So, I think that's paying off in the way we're able to generate margin in the business at lower volume levels. And then as the volume starts to pick back up, we've got capacity to meet what the market needs, and I think we'll do that at a much lower cost basis. Wissam Jabre: Yes. I mean the one thing I would add also, in addition to what David said, some of the activities that we drive in terms of the manufacturing side are taken back into the development organizations to think about things that come on platforms and the ability to improve on the way our products are designed for manufacturing efficiency, even increasing manufacturing efficiency going forward. And of course, with that comes a better cost structure. Shannon Cross: Alright. Thank you very much. David Goeckeler: Thanks, Shannon. Appreciate it. Operator: Our next question comes from Krish Sankar from TD Cowen. Please go ahead. Krish Sankar: Hi, thanks for talking my question. David, first question is on your NAND ASP decline in March quarter, seems to be better than what your competitors had. I'm just kind of curious, any puts and takes if you talk about your specific pricing versus competition in March, how to think about it in June? And along the same path, you mentioned the supply-demand balance later this year and bit shipment for flash growing. Are you baking in some, kind of a mobile recovery that's going to help you drive that? And then I have a follow-up. David Goeckeler: Yes. I think on pricing, it's kind of the same story all the time, right? Whether it's a down market, upmarket, mid-cycle market, which is really have a diverse portfolio. We've talked about this a lot from retail to the channel business, PC OEMs, enterprise SSD gaming has become a very nice part of the portfolio and growing part of the portfolio. And it's just that – mobile, obviously, is a big part of our portfolio. And it's just been mixing across that where we get the best return, right, putting our supply and our bits in the places where we can get the best return. I do think that, that is a – that go to – that breadth of go-to-market is in markets that we can reach literally from every single consumer to the largest technology companies in the world and kind of everything in between. And just the ability to mix across that with a strong portfolio and a strong set of brands as well, SanDisk, SanDisk Professional, WD_BLACK, puts us in a good position to get the best return on our supply. Next quarter, we don't really want to comment on future pricing. It's all into the guide. We've talked about the individual markets. What I would say is, we're pricing in or we're putting in what we think is going to do on an individual market-by-market basis and then how we'll mix that next quarter. Krish Sankar: Got it. Got it. Thanks for the dividend. And then as a follow-up on the HDD side, it's kind of nice to see the 22 terabyte CMR is now bigger than 20 terabytes in terms of volume. How should we expect that to grow? And what is its impact on gross margin? David Goeckeler: I think that's our focus – on a CMR drive, that's our focused capacity point and it's significantly ahead of other CMR drives above 20. So – or above the 20 terabyte drive. We expect that to be our premier drive for the next – until we have a different CMR product in that part of the business. So, we expect that to be a very good growth engine, and we've talked a lot about that drive of – it provides a lot of value. It provides a lot of TCO value for our customers. And we – it contributes an appropriate amount of margin from that perspective as well. Krish Sankar: Got it. Thanks David. David Goeckeler : Thank you. Operator: Our next question comes from Wamsi Mohan from Bank of America. Please go ahead. Unidentified Analyst: Hi, thanks for taking my questions. It's [indiscernible] filling in for Wamsi today. David, I think maybe another pricing question for you. I think you talked about price elasticity. Could you just elaborate a little bit on what exactly you're seeing either in Flash or in HDD? And a related question to that is, there's some worry that maybe a lot of memory inventory might be built again this quarter from the likes of some OEMs like Apple because they want to maximize their favorable component pricing? So, do you think this could lead to a further elongation in the recovery of the market, even though in the near-term it might get a little bit tighter? So, just your thoughts on that? And what exactly are you seeing in price elasticity? David Goeckeler: I think the elasticity in NAND is mainly what I was talking about. I mean, we're seeing PC OEM up mid-20s year-over-year on capacity. I think a really interesting number to me is the elasticity across our consumer franchise, which is tens – hundreds of millions of devices we sell a year in that channel up a third year-over-year on capacity per unit. Gaming up more than that, and mobile up even more than that. So, I think we're seeing the market work. Even in the midst of a great downturn, you expect – well, especially in the midst of a great downturn, you expect to see elasticity start to kick in, and we are starting to see that across the portfolio. What was the second part of the question, again? Unidentified Analyst: It was about a customer [indiscernible]. David Goeckeler: Prebuying. Yes. I think you do see – I think we are seeing instances of that. I wouldn't say it's pervasive, but we see instances of it. And I think it – I think maybe it's a sign of where the customers think we are in the cycle as well. Unidentified Analyst: Got it. So, for my follow-up, if I can ask a quick one to Wissam, how are you thinking about free cash flow going forward? I mean is it – what needs to happen to get to positive free cash flow? And is that possible in this calendar year? So, just your thoughts on that? I mean, how are you looking at working capital and thinking about free cash flow? Thank you. Wissam Jabre: Yes, [real close] [ph]. So, we are totally focused on free cash flow. As you've seen us since the beginning of the year, we've been very proactive on OpEx, reducing that quite a bit on CapEx, as well as taking underutilization to manage and preserve our cash and not build inventory. And so, this is very important to us. In fact, we continue to make improvements. I mean, if you look at our CapEx trend, it's gone down quite a bit. This year, we'll probably be spending approximately if not even more than 35% below last year. With respect to the next few quarters, we typically do not guide for free cash flow. But what I could say is that this is, as I said, a top priority for us and is a big focus, as you would imagine, as we navigate the dynamic environment. Unidentified Analyst: Thank you for all the detail. Appreciate. David Goeckeler: Thank you. Wissam Jabre: Thank you. Operator: The next question comes from Tom O'Malley from Barclays. Please go ahead. Tom O'Malley: Hi, good afternoon guys and thanks for taking my question. My first one is related to the HDD side of the business. Your competitor recently talked about a recovery that initially was expected to be in June and is now pushed out to the December quarter. Could you just frame the way that you're thinking about the recovery? Is it kind of in-line with that? You're obviously guiding the HDD business down, but any color you could give on the back half of the calendar year about when you expect that business to recover? David Goeckeler: Yes. I think, Tom, it's – I would say as we go through the second half of the year, it will get better. The issue is that these revenue levels and these unit levels, it's just very lumpy. You have very large customers that if they buy or not buy, it can impact the TAM and the available market in a very significant way. So – and that's what we're experiencing next quarter. I mean, this quarter, we saw things were a little better than we thought on capacity enterprise shipments. We'll see a sequential decline in that, and then we're expecting to go back up as we go in the second half of the year. But I expect it to be lumpy as we go through this inventory digestion because a lot like we saw in the PC OEM space, a lot of customers are just completely focused on inventory digestion, which is basically new purchases just go to zero. And customers at this scale with this, kind of business that has an impact. So, I expect to see a lumpiness over the next several quarters. I do have a level of optimism about China in the second half of the year. We're seeing better activity there. And so, we expect to see that improve in the second half of the year as well, which should also help the business. Tom O'Malley: Helpful. And then just a follow-up is on the Flash side. You guys talked about a mix of customer behavior, right, where some are still consuming inventory and then others are more aggressively purchasing to various degrees. I don't want you to speak on specific customers, but we've heard this across the ecosystem, particularly through this earnings period here where there is a discrepancy in terms of spend. Could you help maybe just frame where you're seeing that spend? Is there a certain type of customer that's spending more than others or is it really just random where guys came in with certain inventory levels and are working through that? Just any color there would be really helpful as we've heard that data point from multiple companies here? David Goeckeler: I guess I would say that customers that are different segments of the market that are through their inventory digestion are now more or less shipping to end demand being lean on inventory. There are instances of people doing strategic buys in that – in some of those cases where they've got their inventory to where they want it, but now they're making their own – they have their own view of the cycle. That's a very small number, I would say. And then the other one is just – where they're at in their – the data center customers especially are just in – there's a variability of the level of inventory at each customer, and they're so big that it can impact the entire market. So – and like I said, ones that have heavy inventory are basically working that down in an aggressive way. And so, I think it's going to – like I said, I think it will be lumpy for a couple of quarters until we get through that. Tom O'Malley: Thank you. David Goeckeler: Thanks, Tom. Operator: Our next question comes from Toshiya Hari from Goldman Sachs. Please go ahead. Toshiya Hari: Hi, good afternoon. Thank you so much for taking the question. David, three months ago, you mentioned that you were cutting production in your NAND business by 30%. I'm curious if the magnitude of the cuts today are, kind of in that ZIP code, if anything has changed materially? And going forward, what would you need to see to start taking up your utilization rates in the Flash business? David Goeckeler: Yes. We're kind of at the point where we're – I think it's – I think probably the same ZIP Code is probably a fair way to say depending on where you live, ZIP codes can be pretty big if you're in the country, I guess. But it's really about managing to where we see the demand and keeping our inventory relatively in check. We know it's going up somewhat, but we want to make sure it doesn't get away from us. So, we'll use the fab in that. I mean, we're just – we're going to have to see demand signals for our customers is just as simple as that. We have a very close relationship with a lot of them. We're in the – obviously, in the market every single day. A lot of these consumer and channel markets are more transactional, where we can see the business across a wide swath. And then, of course, we're talking to the biggest customers biggest technology companies in the world. So, we'll get a – we have a pretty good idea of where their demand is, and we'll set the fab appropriately to make sure that we keep the right inventory position and we have the product when they're ready. Toshiya Hari: Got it. That's helpful. Thank you. And then one follow-up for Wissam on the balance sheet side of things. I know you don't guide free cash flow on a quarterly basis or annual basis, but just curious how we should be thinking about inventory, whether it be dollars or days, going into the June quarter and working capital overall. Is that going to be a consumer of cash in the June quarter or do you think you can generate some cash from working capital? Thank you. Wissam Jabre: Sure, Toshiya. With respect to inventory, the current projection is, I would say, flattish in terms of dollar, but in terms of days, I anticipate we should see a downtick from here. Well, we continue to, as David said, manage it on a very, very regular basis very closely. And so, that's probably the biggest in terms of the working capital. That's the number that would be moving the most. Again, we don't guide the free cash flow, so I wouldn't want to make any more comments around working capital. But I think the answer on the inventory would be a good indicator to what working capital will look. Operator: Our next question comes from Harlan Sur from JPMorgan. Please go ahead. Harlan Sur: Hi, good afternoon. Thanks for taking my question. The market share numbers are out for last year, you guys drove a strong number 2 position in client SSD, strong double-digit sort of percentage share position, right? But in enterprise, you guys drove, sort of low single-digit enterprise SSD market share last year, and it’s sort of hovered in this 4% to 7% range for a while now, like what is the team doing to try and drive its share in this fast-growing market to more of what I would call appropriate, sort of double-digit percentage share profile? David Goeckeler: Yes. Thanks for the question, Harlan. Always good to hear from you. We've talked about this quite a bit over the last year. It's about qualifying the products at the big players, qualified in the channel. We just qualified this last quarter on BiCS5 enterprise SSD with some of the biggest customers. So, the road map is moving forward as we expected. It's just a very dynamic market right now. So, it's difficult to judge share. Obviously, our goal is what we've put out there is to drive that higher. And I have every confidence we'll do that as the market stabilizes and some of these big customers get back to their normal rates of purchasing. Operator: Our next question comes from Srini Pajjuri from Raymond James. Please go ahead. Srini Pajjuri: Yes, thank you. I have a question on the cost side, Wissam. So, it's a little tricky to figure out given all the, I guess, one-time charges. I'm just wondering, you previously talked about NAND cost declines in the mid-teens, I believe, just wondering if you're tracking to that. And then as we go to BiCS8, how should we think about the cost declines, especially – I guess, historically, we've had 30% to 40% bit demand growth. And going forward, if that dynamic changes, if it's lower than 30%, do you think we can still, kind of get to that mid-teens cost declines or do you need the 30% to get to that level? Wissam Jabre: Sure. So, thanks for the question. In terms of Q3, we have to think of it basically with and without underutilization. When you factor in the entry underutilization charges, we wouldn't be – we wouldn't have reduced cost or cost income down by mid-teens. However, if we exclude that, then we're close to mid-teens in Q3. Now, to your question on BiCS8. I mean this is – with the way our road map works and the timing of when BiCS8 starts ramping, it is pretty much designed in a way to allow us to continue that mid-teens reduction – cost reduction over time. I wouldn't want to comment about the exact sort of percentage and so on in terms of the crossover because I think it's a little bit premature to talk about this. But conceptually, that's what we're aiming with ramping BiCS8 slightly earlier than previously anticipated. Operator: Our next question comes from Karl Ackerman from BNP Paribas. Please go ahead. Karl Ackerman: Yes. Thank you. I was hoping you could discuss the trajectory of exabyte demand of your cloud customers in the next couple of quarters? And whether there's a divergence and a recovery across on-prem and public cloud? And I guess as you address that question, how do you assess whether you might be shipping below normalized replacement demand? Thanks. David Goeckeler: I think we see the enterprise and the cloud market. They're both soft right now. So, we don't see a huge difference between the two. Again, the difference is, Karl, that you got this idiosyncratic behavior at really big customers. So, a customer that usually buys a significant amount of hard drives in a quarter, hundreds of millions of dollars goes to zero. You can pretty much assume they're buying under replacement demand. So, that's kind of where we're at. We just – again, other customers are going along more according to plan. So, the inventory level is a bit distributed across big customers. So, we look at this quite a bit to understand like where do we think the exabyte growth is and where are we setting the – our long-term production capabilities and all of that. But right now, it's just a little difficult to draw long-term conclusions and some of – a little bit behind some of your question, given just the way the market is – the lumpiness of the market. Operator: The next question comes from Vijay Rakesh from Mizuho. Please go ahead. Vijay Rakesh: Hi. Just a quick question. I don't know if you talked about Elliott strategies, and I think they had filed some – they had some filings, but just wondering how that process is progressing? I don't know if you can talk to it. David Goeckeler: It's progressing. Very active. Everybody in it is under NDA, so I can't say anything about it, and we look forward to talking about it when we reach a conclusion. Operator: Our last question comes from Ananda Baruah from Loop Capital. Please go ahead. Ananda Baruah: Hey, thanks guys. Appreciate it. Maybe for Wissam. I might have missed it, but just wondering if there's any context you can provide about how you're thinking about the debt due in February of 2024? How you're going to handle that, go back handling that? Thanks. Wissam Jabre: Yes, Ananda. With respect to the 1.1 billion of convert due in February 2024, the plan is to address it over the next couple of quarters. Peter Andrew: Okay. Jason, is that the last one? Operator: Yes, that was the last question. David Goeckeler: All right, everyone. Thanks for joining us today. We look forward to seeing you through the quarter. Take care. Peter Andrew: Thank you. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.

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. Now I will turn the call over to Mr. Peter Andrew. You may begin. Peter Andrew: Thank you, and good afternoon, everyone. Joining me today are David Goeckeler, Chief Executive Officer; and Wissam Jabre, Chief Financial Officer. Before we begin, let me remind everyone that today's discussion contains forward-looking statements, including expectations for our product portfolio, cost reductions, business plans and performance, demand and market trends and financial results based on management's current assumptions and expectations, and as such, does include risks and uncertainties. We assume no obligation to update these statements. Please refer to our most recent financial report on Form 10-K filed with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially. We will also make references to non-GAAP financial measures today. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the Investor Relations section of our website. With that, I will now turn the call over to David for introductory remarks. David Goeckeler: Thank you, Peter. Good afternoon, and thank you for joining the call to discuss our 2023 second quarter results. The Western Digital team worked diligently within a dynamic market and delivered revenue at the high end of the guidance range we provided in October. We reported second quarter revenue of $3.1 billion and non-GAAP operating loss of $119 million. Our non-GAAP loss per share was $0.42. Our ongoing efforts to control expenses, optimize working capital and deploy capital judiciously helped us manage cash flow amidst a challenging flash pricing environment and larger-than-expected ACD underutilization that pressured gross margins. Before we discuss the details of our second quarter results, I wanted to cover two other announcements that we are making today. First, we disclosed that Western Digital has entered into agreements with Apollo Global Management and Elliott Investment Management for convertible preferred equity investments totaling $900 million. In connection with the agreement, Reed Raymond, a partner at Apollo, will join our Board starting immediately. On behalf of the Board, I am pleased to welcome Reed, a leading technology investor who will provide us with additional financial and strategic expertise, which will be critical as we continue to execute on our business strategy and complete our strategic review. Second, on January 25, we secured access to $875 million of financing through a delayed draw term loan. When combined with the actions we undertook to structurally lower our cost structure, these financings provide valuable financial optionality and flexibility to Western Digital as we continue our strategic review. Regardless of the outcome of the strategic review, our goal is to ensure the business is in a solid financial position to invest in innovation and create long-term shareholder value. Given the ongoing nature and confidentiality of the process, we will not be answering any questions about the strategic review process or making comments on market rumors. We will provide updates as we have them. Over the past three years, we have worked continuously to reinvigorate innovation and bolster business agility for both our flash and HDD organizations, which enabled the Western Digital team to stay ahead of the market. Over the same period, we paid down $2.7 billion in debt and arranged for settlement of a long-standing tax dispute. Since the beginning of fiscal year 2023, we have taken additional actions to reset the business in response to the post-pandemic environment. These actions include: first, we have further reduced our capital expenditures across Flash and HDD to moderate our supply. As a result, our projected cash capital expenditure for fiscal 2023 has declined nearly 40% from six months ago. Second, we have decreased supply bid growth across both Flash and HDD. In Flash, we reduced wafer starts by 30% in January. In HDD, during the fiscal first quarter, we consolidated production lines across our manufacturing facilities and idled certain media production lines in Asia, reducing client hard drive capacity by approximately 40%. During the fiscal second quarter, we continued to optimize our capacity enterprise manufacturing footprint to align our supply with the new demand environment. Third, we have reduced our quarterly non-GAAP operating expense by over $100 million since the close of fiscal year 2022, driven by lower headcount, discretionary spending and variable compensation. We are targeting to reduce quarterly non-GAAP operating expense level to below $600 million by the time we exit the fiscal year. And lastly, in December, we successfully executed an amendment to the existing financial covenants under our credit agreement. Turning to end market demand during the fiscal second quarter. Demand for consumer-oriented products stabilized as we discussed in October. In Consumer, we experienced a seasonal uptick across both Flash and HDD. In client, channel demand for both SSD and HDD have improved. However, commercial PCs are now being impacted by tightening budgets and spending across corporations, which is negatively affecting client SSD shipments. In cloud, we experienced a decline in nearline shipments as our customers were undergoing inventory digestion and ongoing subdued China demand. I'll now turn to business updates, starting with HDD. During the fiscal second quarter, our HDD revenue declined significantly as cloud inventory digestion intensified, while demand for retail and client HDD improved. We continue to successfully execute on our product road map as we completed qualifications and commenced shipments of our latest generation 22-terabyte CMR hard drives at multiple cloud and major OEM customers last quarter. We are aggressively ramping this 22 terabyte CMR product this quarter and expect this drive along with its SMR variants to be our growth engine going forward. Qualifications of our 26 terabyte UltraSMR drives are also progressing well. Our major customers remain committed to adopting SMR drives as the 20% capacity gain that UltraSMR drives over CMR offers multi-generation TCO benefits to the most complex data centers worldwide. We expect sequential growth in revenue and margin into our fiscal third quarter and continued recovery as we move through calendar year 2023. Turning to Flash. Thanks to our broad portfolio, diverse routes to market and leading retail franchise combined with strong seasonal demand, bit shipments increased 20% sequentially, exceeding our forecast. While we continue to experience pricing pressure in the market, our premium brands, including SanDisk, SanDisk Professional and WD_BLACK continued to deliver strong share and profitability to support the business. Our premium WD_BLACK client SSD, which is optimized for gaming continues to be well received in the marketplace. It achieved a record exabyte shipments, unit shipments and average capacity per drive resulting in exabyte shipment increase of 73% sequentially and 41% year-over-year for this product. On the technology front, BiCS5 represented 70% of our flash revenue in the December quarter, while BiCS6 will reach cost crossover in the fiscal third quarter. Our next-generation 3D NAND node BiCS8 has entered productization phase. BiCS8 incorporates several groundbreaking 3D NAND architectural innovations to deliver a major leap in performance and cost-effective solutions to a broad range of exciting products, demonstrating the benefits of Western Digital's strong partnership with Kioxia and our innovation leadership in 3D NAND architecture. As we look into the fiscal third quarter, in hard drives, overall demand in cloud has stabilized, and we expect modest improvement in near line to offset a seasonal decline in client and consumer hard drives. We expect stronger improvements in the second half of this calendar year, led by the aggressive ramp of our 22 and 26 terabyte hard drives. In flash, we expect enterprise SSD product demand for the fiscal third quarter to be sharply reduced as certain large cloud customers have entered a digestion period. In addition, a reduction in commercial PC demand is expected to impact client SSD shipments in the near term. Driven by the lower customer demand forecast in enterprise and client SSDs, we anticipate bit shipments to decline in the fiscal third quarter and return to growth in the fiscal fourth quarter. As I mentioned earlier, Western Digital lowered wafer starts in January, and we remain flexible in adjusting the magnitude and duration to restore our flash supply and demand balance. As noted, for calendar year 2023, we expect reduced capital investment and lower utilization in response to the new demand environment. Our initial estimate is for flash demand bit growth to be in the low 20% range with production bit growth to be well below that of demand. With that, let me turn the call over to Wissam, who will discuss our second quarter results in greater detail and provide an outlook for the third quarter. Wissam Jabre: Thank you, David, and good afternoon, everyone. Total revenue for the quarter was $3.1 billion, down 17% sequentially and 36% year-over-year. Non-GAAP loss per share was $0.42. Looking at our end markets, cloud represented 39% of revenue at $1.2 billion, down 33% sequentially and 36% year-over-year. Sequentially, the declines in capacity enterprise drives sold to our cloud customers and smart videos were partly offset by an increase in Flash shipments. Nearline bit shipments were 61 exabytes, down sequentially, driven by inventory digestion. The year-over-year decline was also primarily due to inventory digestion in hard drives. Client represented 35% of total revenue at $1.1 billion, down 11% sequentially and 41% year-over-year. Sequentially, the decline was driven by pricing pressure across our Flash products, which was partly offset by an increase in hard drive shipments. The year-over-year decline was also due to pricing pressure in Flash as well as lower client SSD shipments for PC applications. Finally, consumer represented 26% of revenue at $0.8 billion, up 17% sequentially and down 25% year-over-year. Sequentially, the increase was driven by a seasonal uptick in both retail hard drives and Flash shipments. The year-over-year decline was driven by lower retail hard drive shipments and pricing pressure in Flash. Turning now to revenue by segment. We reported HDD revenue of $1.5 billion down 28% sequentially and 34% year-over-year. Sequentially, total HDD exabyte shipments decreased 35% and average price per hard drive decreased 21% to $99. On a year-over-year basis, total HDD exabyte shipments decreased 33%, and average price per unit increased 2%. Flash revenue was $1.7 billion, down 4% sequentially and 37% year-over-year. Sequentially, Flash ASPs were down 20% on a blended basis and 13% on a like-for-like basis. Flash bit shipments increased 20% sequentially and remained approximately flat year-over-year. As we move to costs and expenses, please note that my comments will be related to non-GAAP results unless stated otherwise. Gross margin for the fiscal second quarter was 17.4%, down 9.3 percentage points sequentially and 16.2 percentage points year-over-year. Our HDD gross margin was 20.7%, down 7.8 percentage points sequentially and 9.9 percentage points year-over-year. On both a sequential and year-over-year basis, the decline was due to underutilization related charges of approximately $100 million. Our Flash gross margin was 14.5%, down 10 percentage points sequentially and 21.6 percentage points year-over-year. We are continuing to reduce our costs with operating expenses at $659 million for the quarter, down $30 million sequentially. Operating loss was $119 million. Taxes were a benefit of $48 million. Taxes are influenced by several factors, including the projected quarterly profitability for the rest of the year and our corporate tax structure. Earnings per share was a loss of $0.42. operating cash flow for the second quarter was $35 million, and free cash flow was an outflow of $240 million. Cash capital expenditure which includes the purchase of property, plant and equipment and activity related to our Flash joint ventures on our cash flow statement was $275 million. Our gross debt outstanding remained at $7.1 billion at the end of the fiscal second quarter. Our trailing 12 months adjusted EBITDA at the end of the second quarter, as defined in our credit agreement, was $3.3 billion, resulting in a gross leverage ratio of 2.1 times compared to 1.5 times a year ago. As a reminder, our credit agreement includes $0.8 billion in depreciation add-back associated with the Flash Ventures. This is not reflected in our cash flow statement. Please refer to the earnings presentation on the Investor Relations website for further details. As David mentioned, during the fiscal second quarter, we executed an amendment to the credit agreement that temporarily increased the covenant leverage ratio for the next seven quarters. Our liquidity position continues to be strong. At the end of the quarter, we had $1.9 billion of cash and cash equivalents and a revolver capacity of $2.25 billion for total liquidity of $4.1 billion. Today, we announced multiple agreements to further enhance our liquidity position by $1.8 billion as follows. On January 25, we closed the delayed draw term loan agreement with our lenders in the amount of $875 million. In addition, as David mentioned, Western Digital entered into an agreement with Apollo Global Management and Elliott Investment Management for a convertible preferred investment of $900 million. Together, these actions significantly increase our ability to access liquidity and provide additional financial flexibility and optionality as we manage through this challenging downturn and execute on our strategic review. Before I go over guidance for the fiscal third quarter, I'll discuss the business outlook and the financial impact associated with the actions we are taking to rightsize our cost structure. In HDD, we expect revenue to increase modestly in the fiscal third quarter as growth in nearline shipments outpaces decline in consumer. In Flash, we expect both shipments and ASP to decrease sequentially. We expect bit growth to resume in the fiscal fourth quarter. For the fiscal year 2023, we are reducing our gross capital expenditures to approximately $2.3 billion compared to our prior forecast of $3.2 billion entering this fiscal year. We are also aiming to reduce our cash capital expenditure to $900 million which is about 40% below our forecast six months ago. The primary drivers of our lower capital expenditures are the delay of the BiCS6 transition in flash and reduced investment levels in both client and capacity enterprise hard drive manufacturing. We have reduced our quarterly operating expenses by over $100 million compared to six months ago. We are targeting to exit this fiscal year with quarterly operating expenses below $600 million. These actions will allow us to weather this cycle while also enabling us to continue advancing our innovative product road map going forward. I'll now turn to guidance. For the fiscal third quarter, our non-GAAP guidance is as follows: We expect revenue to be in the range of $2.6 billion to $2.8 billion. We expect gross margin to be between 9% and 11%, which includes underutilization charges in Flash and HDD totaling $250 million, with Flash driven by a 30% reduction in wafer starts. We expect operating expenses to be between $600 million and $620 million. Interest and other expenses are expected to be approximately $90 million. We expect tax expenses to be between $60 million and $70 million for the fiscal third quarter and approximately $240 million to $260 million for the fiscal year. We expect loss per share of $1.70 to $1.40 in the third quarter, assuming approximately 319 million shares outstanding. I will now turn the call back over to David. David Goeckeler: Thanks, Wissam. Before we open up for questions, I wanted to reiterate our view of the long-term opportunities for both Flash and HDD storage. Importantly, our efforts have enabled us to regain architectural leadership in both Flash and HDD, and we are preparing these technologies to address the meaningful long-term growth for data storage from client to edge to cloud. With our diverse portfolio, broad go-to-market engine, an enviable retail franchise and a lower cost structure, we remain confident in our ability to deliver long-term shareholder value. Okay. Peter, let's open up for Q&A. Operator: [Operator Instructions] And our first question today will come from C.J. Muse with Evercore. C.J. Muse: Yes, good afternoon. Thank you for taking my question. Obviously, we're kind of in a perfect storm here. But curious, as you think about maintaining your technological competitiveness in the NAND side, while at the same time, significantly slowing down CapEx for both you as well as what we've heard from Kioxia for BiCS6. I guess, how do you balance those two things? How do you set the stage into a recovery and maintaining that leadership? And how much longer can you squeeze the requisite kind of 15% cost down out of BiCS5. David Goeckeler: C.J., thanks for the question. Good to hear from you. So yes, that's a balancing act. There's no doubt. I mean one of the things we talked about in the script and we feel really good about is BiCS8, I think BiCS8 has reached productization. We'll have more to say about BiCS8. Siva will do -- I think we'll do a webinar during the quarter on all the technological innovation there. There's been an enormous amount of R&D going into that. So, we feel very good about where we are from a technology road map. I'm actually in my hand right here I'm holding a BiCS8 USB, one of the first ones. And so, we're putting enough capital in the system to move BiCS6 along. I mean, BiCS6 will be a shorter node for us. It won't go into all products. We'll be making choices about what we take it into or where we need BiCS6, BiCS5 will serve us well for the rest of the portfolio, and then we'll move right into BiCS8, which quite frankly, is ahead of schedule as far as production, and we feel very good about it. So, we'll balance all of that and have enough capital to accelerate, have enough BiCS6 there that we need it and then accelerate BiCS8 when we see the growth come back. As far as the cost downs, look, I mean, in the second half of the year, cost downs are going to be very difficult because we are far along in BiCS5 and BiCS6 is not ramping that much. We'll return to those as we start to ramp BiCS8. But we'll still have some, but not to the level, especially with the underutilization of fabs. So, all of those mixed in, we're going to -- we will have gotten most of our cost downs in the first half of the year, and then we'll see them come back as we ramp up BiCS6 and especially BiCS8. C.J. Muse: Very helpful. If I could follow up, Wissam, can you confirm that for the March quarter is just $150 million incremental underutilization charges? And then how are you thinking about that rolling off through calendar '23. Thank you so much. Wissam Jabre: Yes. C.J., so the -- for the March quarter, we're projecting $250 million in total. That's between both Flash and HDD. We expect the probably, I would say, 3/4 of those to be in the Flash -- on the flash side and 1/4 in the HDD business. As we roll into the fourth quarter, I expect HDD to become minimal. But Flash will depend on how long we continue with the underutilization. The way to think of it is typically we -- as we under or as sort of we reduce the wafer starts, given the cycle time, we expect approximately 60% to 70% of the impact to come in the first, let's say, 90 days and then the remaining impact would be in the following quarter. So, the way to think of it is the March quarter would have around 60% to 70% of the impact from the underutilization for -- that we've taken -- the actions we've taken so far. Now that said, it could be that, depending on how the demand picture evolves, we haven't yet decided how long the underutilization is going to be, and we'll manage this in a very dynamic way as we continue to look at market inputs and so on. My comments were around assuming, let's say, a one-quarter event. Operator: And our next question will come from Aaron Rakers with Wells Fargo. Please go ahead. Aaron Rakers: Thanks for taking my question. I'll try to slip in two as well here real quick. First of all, on the 30% reduction of the wafer starts starting in early January. I'm just curious in the context of what you had outlined, you still -- it sounds like I think that NAND Flash bit demand growth is somewhere in the 20% plus range. With that 30% reduction, how has your bit production changed as you look at calendar '23, how much -- what's your assumption as far as your own bit supply growth as we move forward? David Goeckeler: So first of all, let me talk about the kind of how we're thinking about it. It is a very dynamic situation. I think when we were looking at our CQ1, we've seen some demand drops. We've come off a very strong quarter of bit growth. We just delivered 20% sequential bit growth. That's why we didn't cut wafers earlier. When we look at our fiscal Q3, we're seeing some drop in both client and enterprise. The enterprise SSD side of it is more a digestion issue. So, to make sure we manage our inventory and we don't get things to build up. And so that's why we're -- we've decided to cut wafer starts in the first quarter. Again, as Wissam said, that's a -- it's literally a decision we can make every week about how do we load wafers into the fab. Right now, that's a one quarter decision to make sure we keep our supply and demand balanced as best we can. I see Wissam looking up -- do you have a number on the overall bit growth for the year. Wissam Jabre: Yes. I think the -- from a supply perspective, I would say, it will be in the lower -- I would say, it's probably given the CapEx situation, we're looking at this to be in the single-digit growth from a supply perspective. Aaron Rakers: That's helpful. And then as a quick follow-up, on the hard disk drive side, I mean, looking at 61 exabyte capacity shift, that's down 40%, 45% sequential. What gives you the confidence that, that's just a transitory digestion thing? And maybe there isn't anything going on competitively? Just any kind of visibility you want to share in that business? David Goeckeler: Yes. I think we signaled this a little bit last quarter. We knew there was going to be some variability in demand across the industry and across customers. Quite frankly, when you're at these revenue levels, which are the lowest we've seen in the long time, orders from big customers make a very big difference. So, if you go back for the last couple of quarters, the way different big cloud customers, the way either LTAs were restructured, the way big orders came in one way or another, you're seeing some pretty large share shifts quarter-over-quarter. But when you look at it on a sex month basis, you look at it on a 12-month basis, you see pretty consistent share. I think we've gained a little bit. But again, we're managing for profitability. We think share is going to be over a multi-quarter period, pretty stable, and that's actually the way it's working out, you're just seeing some pretty big swings here quarter-over-quarter. So, we feel really good about the competitive situation. The 22 terabyte drive shipped significant volume this quarter. We expect to ramp that throughout the year. We've got big customers very committed to SMR. Our UltraSMR technology gives us a unique position of an additional 20% gain over CMR. And that is in qualification across a number of very large customers. So, we feel like as we ramp throughout calendar year '23, we ramp into a stronger and stronger portfolio as we move through the year. Aaron Rakers: Thank you, David. Operator: Our next question will come from Joe Moore with Morgan Stanley. Please go ahead. Joe Moore : Thank you. I just wanted to make sure I understood the mechanics of the underutilization charge. Is that sort of the cost of just higher cost per bit because you're running underutilized? Or are you -- I mean it sounds like you're pulling some of that forward in time, but maybe not all of it. Can you just talk about what exactly that charge will represent and how that's going to play out this quarter and next? Wissam Jabre: Yes. Sure, Joe. I should have clarified when I talked about the underutilization that we don't necessarily have a similar approach to the accounting for underutilization as some of our peers. For us, the underutilization charges are taken as a period expense. And so, any portion of the factory that's not being utilized is basically expensed within the quarter. And so, it does not flow through the inventory and back to the P&L, if that helps. Joe Moore : Okay. It does. I guess, how are you guys thinking about the signals of like when that goes back to full utilization? I mean do you wait for pricing to stabilize? Or is there something you can see beforehand that will tell you and it's time to kind of keep to move the fab back to full. David Goeckeler: Yes. Well, we're always talking to our customers, right? So, we have a very good sense of where they're at and what the demand signals are going to be. I mean as we talked about, we expect volumes to increase going into our fiscal fourth quarter. So, as we get closer to that and we understand what that looks like we'll make an incremental decision on when and how to ramp back up the fab. Joe Moore: Great. Thank you very much. Operator: And our next question will come from Tim Arcuri with UBS. Please go ahead. Unidentified Analyst: This is Jason on for Tim from UBS. I have a couple of questions. So, my first question is on your -- on the NAND segment. Sorry if I misunderstood, but I believe you said single-digit bit growth for NAND in calendar year '23. So, I was just curious which end markets are driving this demand weakness this year. Also, I was just curious whether we should expect any potential risk for NAND inventory write-downs in March quarter or June quarter. Thank you. Wissam Jabre: Yes. So, Jason, my comment was around the supply side. I would say, single digit, let's call it, high single-digit percentage growth. I didn't necessarily make any comments on the demand side. On the demand side, it'll probably be in the low 20% range in calendar '23 versus calendar '22. As for the second part of your question, which is related to inventory. Look, we go through the process at the end of every quarter as part of our quarter close. We look at the various demand signals versus the inventory on hand and the costs, et cetera. And we're comfortable with where we ended at the end of calendar Q4. Unidentified Analyst: Got it. Thank you. And my second question is, apart from your comment on the utilization charges, do you guys also see any potential additional risk or purchase order cancellation fees for any type of pay agreements you have with your suppliers if it remains weak in the near term? Thank you. Wissam Jabre: I mean we typically don't forecast these things and we manage the business in a dynamic way. So, I don't expect anything major there. David Goeckeler: Yes. Again, going back to Wissam's prior comment, that's part of our normal quarterly close process. And if there were any adjustments that were needed to be made, we would have made them at that time. But of course, you got to remeasure it and take a look at it every quarter. Operator: And our next question will come from Krish Sankar with Cowen and Company. Please go ahead. Krish Sankar: Hi, thanks for taking my question. To first one, David, you mentioned nearline HDD could improve. I'm kind of curious how to think about pricing trends for nearline HDD in the March and June quarter? And also think about the nearline exabyte growth in the first half of this year in calendar '23 overall. And then I had a follow-up. David Goeckeler: Yes. I mean, I think the pricing environment has been pretty good throughout this whole cycle. I mean any time you're seeing this kind of underutilization, you're going to see a little bit of pressure on pricing, which is not surprising, I would say we're seeing a little bit more. I mean I think as we look at exabyte growth is -- I think it's pretty clear to say it will be stronger in the second half than the first half. I mean we're going to now ramp back off of this very low in calendar Q4, and we expect growth as we move throughout the calendar year. As we said, we're anticipating modest revenue growth, maybe low to mid-single digits quarter-over-quarter here going into calendar Q1, our fiscal Q3, we expect margin improvement is, of course, the volume comes back and the underutilization charges drop, and we'll see that continue as we go throughout the calendar year. So -- but we are coming off of very low levels. I think that exabyte growth in the full calendar year will probably be below 20%, something around that. But again, we got to see how it plays out. We got -- we still got big customers going through inventory digestion, some are coming out of it. We'll know more as we work our way through the calendar quarter. And we also have a very dynamic situation in China. The China market has been very subdued for quite a long time now. I would say there are some signs of things getting better. We'll see after we get past the new year, how that progresses. But that could be that -- depending on how that comes back, will have an impact as well, of course. Krish Sankar: Got it. Very helpful. And then as a follow-up, just kind of curious, you mentioned the cloud inventory digestion. And you also mentioned that for HDD in March, the cloud business stabilized. So curious on the NAND side or even HDD side, when do you expect this digestion to bottom? And then when you think things start improving from a demand standpoint or maybe your own inventory standpoint. Thank you. David Goeckeler: Yes. That's a very difficult question given how dynamic the market is. I mean I think we're coming off of a very strong quarter of bit growth, 20% sequential bit growth in our FQ2 was a good result. Obviously, it's a very challenging pricing environment. Going into our fiscal third quarter, we see a drop in both bits and pricing. So that's a pretty significant impact on the business. And then current forecast is going into our fiscal Q4, we see the volume pick back up. So that's a little bit a little bit of how we see the dynamics. The pricing environment will change as supply and demand come more into balance. And we're doing everything we can to manage our supply situation, demand balance so that we keep our inventory situation under control, very important in this kind of cycle. And we'll continue to be very dynamic of how we manage it. It literally changes week over week. And again, one of the things I'm very happy about what we've built in the organization over the last several years is a tremendous amount of agility in the organization to react. It's important that we react faster than the market is moving. Otherwise, we just get carried along with the market. And I think we're doing a good job with that to get the best result we can out of a difficult market and prepare ourselves from a technology and portfolio position that when things get more in balance and we get to the inevitable upturn that we're very, very well positioned, and we feel good about that from Flash technology. I talked about BiCS8. Again, we'll talk more about that throughout the quarter. I think you're going to be impressed about the innovation that's in that. I certainly was and also about where we're at in the product portfolio. Operator: And our next question will come from Wamsi Mohan with Bank of America. Please go ahead. Wamsi Mohan: Thank you. If I could just follow up on your comment on underutilization charges will be minimal in HDDs in fiscal 4Q. What's giving you the confidence there that this inventory digestion and particularly in the high cap price will largely be done? I know you're coming off low levels, but it also seems like some of the broader cloud customers are starting to tick down as well in terms of their own demand. So, any color you can share on what you're seeing in the market that's giving you the confidence that those underutilization charges will go away in HDDs by fiscal 4Q. And I have a follow-up. Wissam Jabre: Well, let me start with the answer, Wamsi. When we look at our inventory exiting the fourth quarter, our inventory appears to be in a better position than our peers. And so obviously, when we consider the utilization and where the demand is and the improvement in demand over time on the HDD side, that's really what drove my comment. And so, based on what we see today, this is how we anticipate things to unfold. Wamsi Mohan: Ok, thanks Wissam. And Dave, you noted in your prepared remarks a lot of different things that you're doing all the things that are kind of under your control, right, negotiating covenants, cutting costs, lowering CapEx, OpEx. And despite all of these, you are sort of doing these converts. So maybe you can just talk about why this incremental liquidity is needed as your view on the market changed materially or your share assumptions changed materially? Or is this more of a strategic investment and just optionality? Just -- maybe any color you can share around that would be helpful. David Goeckeler: Yes. It's a number of things. So first of all, it is to give us the flexibility to manage through the depths of the downturn. It's important that we look at -- we have a blend of different kind of financing, both debt and equity. We can't just take all debt. We've got to watch our debt to equity our EBITDA to debt ratios and make sure we manage it all as one package. And I think so that's part of it. A big part of it is kind of facilitating the execution of our strategic review. These. You'll see in the 8-Ks that are filed. These agreements are very complicated and they're very well thought through to give us the ability to execute a range of outcomes and make sure that we can be in a good position as we move to that stage of the process of not putting a time line on that, but these are set up in a way that give us a lot of optionality and flexibility to facilitate that outcome. And then third thing it brings additional capability to our company. Reed Raymond is a very sophisticated technology investor that will join our Board. Elliott will have the right to join our Board under an amended letter agreement with them when they clear some issues at their choice. So, it brings a lot of capability to us as well. So, we feel good about people investing in the business about the opportunity to do this, and it puts us in a very strong position to continue to execute the business, invest in innovation as well as set ourselves up for the next phase of our strategic review. Operator: Our next question will come from Shannon Cross with Credit Suisse. Please go ahead. Shannon Cross: Thank you very much. I have a follow-up to the last question and then an additional question. I just want to -- should we assume that you're not going to initially draw down the term loan that you have and that's kind of an insurance policy? And how should we -- I'm just trying to figure out interest expense on that. And then I have a follow-up. Wissam Jabre: Yes, Shannon. So, the one thing to keep in mind is the -- we still have the IRS settlement payment that's expected to be in the fourth quarter. And so, when the time comes for that, we will make a decision based on what's the most efficient way to pay. If we don't need to draw down on our new facility, then we won't do that because obviously, the additional investment also gives us flexibility and optionality from a liquidity perspective. Shannon Cross: Okay. Thanks. And then I'm curious, what changes are you looking at to get down to OpEx at about $600 million a quarter just as you look across your cost basis? Thank you. Wissam Jabre: Yes. So, when you look at where we ended the December quarter, we were down versus also the September quarter, which was also down versus the previous quarter. So, in other words, from the beginning of the fiscal year until now, we've taken down approximately $100 million. And we guided to be $600 million to $620 million. We continue to take similar actions going through the typical focusing on exiting or reducing all sorts of discretionary expenses. But more importantly, we're basically focusing on maintaining the critical R&D investments so that we continue to invest in our technology and drive the long-term growth. So more of a similar type of actions as we've taken so far. And that should get us close to the $600 million and below that by the end of the fourth quarter. Operator: Our next question will come from Tom O'Malley with Barclays. Please go ahead. Thomas O'Malley: Hi guys. Thanks for taking my question. My question is on the preferred equity convert. We've seen different companies handle them from a dilution perspective where sometimes even out of the money, you'll see them come into the non-GAAP share count. Can you just talk about what you're expecting from dilution there and how you're handling that and the guidance given I really don't see shares getting moved around at all? Thank you. Wissam Jabre: So, Tom, maybe I'll start with the latter part of your question. as we're guiding for a share loss for this quarter, including the dilution of the preferred -- the convert would be anti-dilutive. And so that's why you don't see them reflected in the share count. However, as we swing to a profit, I would expect us to include them as part of our fully diluted share count. So, they'll have some limited dilution impact. Thomas O'Malley: Helpful. And then just on the recovery side into the fourth quarter on some of the bit shipments or the [indiscernible] can you just -- are you just thinking that it will inflect higher? Or are you expecting a material step-up because you outperformed your peers in the December quarter with the growth you saw there. You're obviously expecting a step down in March. But just talk about the cadence. Is it an extreme step down in March with a small step up? Any kind of color on how you're looking at that forecast given you're giving some color there. David Goeckeler: Yes. I think one of the things we're seeing is one of our big enterprise SSD customers go through a digestion phase in our FQ3 and I think they'll get through that in a quarter and be back to buying. So that should be -- that will get back to a good guy instead of a bad guy as far as the volume. And then we'll -- this is a very seasonally weak quarter for consumers. So, we'll see some step-up there. Client is a little bit TBD is now commercial and enterprise is a little weaker. The consumer side has stabilized. So, I don't want to put too much of qualification on it. But again, we feel good about our ability to have a very diverse portfolio, very diverse go to market engine. We've talked about this from the channel to consumer to the big OEMs to the web players. And I think, quite frankly, we saw last quarter that go to market engine performed really well. And when we get past a few seasonality things and a few things that are idiosyncratic with big customers, we'll see it kick back in and perform well. Operator: Our next question will come from Jim Suva with Citi. Please go ahead. David Goeckeler: Hi, Jim. Jim Suva: Thank so much, David. It sounds like with the charge of $250 million now, and you mentioned NAND underutilization starts to kind of go away in Q4. That kind of you're seeing a bottom or the worst of the utilization charges kind of in the March quarter. Is that fair to say? I know you still have to do some adjustments for NAND and wafers based upon how the market goes. But is that fair to say kind of the worst of it and the digestion and equilibrium are kind of hitting in the March quarter? Wissam Jabre: So, Jim, thanks for the question. My comment around underutilization going away was more related to the HDD side of the business. On the flash side or on the NAND side, I would say it is a dynamic situation. We will continue to assess as we see the demand signal coming. And so, the example I gave earlier was on the assumption that we don't -- that we have only one quarter of underutilization. I wanted to make sure that's well described, so that -- for modeling purposes. But yes, the comment around underutilization disappearing was mostly related to the hard drive side. And look, on the NAND side, also when we exited Q4, we -- our inventory position was better than some of our peers. And we're taking this action to continue to manage our inventory given where the demand picture is today. but that's an evolving situation, and we will be -- we can -- as David said, this is a decision that we can take on a weekly basis if we need to change the approach. Jim Suva: Thanks, Wissam and David for the details. Thank you. Operator: And your next question will come from Karl Ackerman with BNP Paribas. Please go ahead. Karl Ackerman: Thank you. I was wondering -- I wanted to talk about NAND for a second. Does the capital infusion from the convertible stock and draw on your revolver change your approach to ramping BiCS6 and BiCS8. I asked because 90 days ago, you indicated you'd be pushing out to BiCS transition to reduce your CapEx for fiscal '23. But today, you're also indicating BiCS6 will reach cost crossover with BiCS5 in March, and you're also currently in production of BiCS8. And so, I guess, specifically, when should we expect BiCS8 should reach volume crossover to your NAND business? Thanks. David Goeckeler: Yes. I don't think we're that far along to say -- to issue that kind of guidance, I guess, I would call that. But I think what we're saying is BiCS8 is well along in its technology evolution and it's reached production phase like I said -- I wish we had -- on video, I can show you the BiCS8 product I'm holding in my hands and playing with. But yes, I would say the investment doesn't change the way we're thinking about our supply situation. What we're trying to do is match our supply situation to our demand and make sure we can manage our inventory and it doesn't get out of control as we go through this process. We're trying to be very dynamic. And obviously, when you're slowing down the fab. And one of the ways to do that is to slow down the nodal transition. It brings in this whole question of how long we're going to stay on BiCS6, how fast do we transition to BiCS8. And we're working through all of that. Again, that's a bit dynamic. A lot of it depends on what BiCS8 looks like and how it's being productized. And I think one of the things we're seeing here today is it has reached the productization stage ahead of schedule. And so, we'll have more to say about what that fab mix looks like as we go forward. It's clear we're going to have BiCS6 will be a shorter node. It won't go into every single product if it will go into the products that it needs and then we'll move other products straight to BiCS8. Karl Ackerman: I appreciate that. If I may because you are discussing an improvement in HDDs beginning in March, could you discuss whether you need to take further action to rightsized your own inventory of components? Thank you. Wissam Jabre: The quick answer to this, Karl, is we don't see the need to do that. And so, this is why we don't project it. We continue to manage the inventory situation on a dynamic basis. But as of the end of the quarter, we were comfortable on where we are. And from where I stand today, we don't see the need to do that. Operator: And our next question will come from Steven Fox with Fox Advisors. Please go ahead. Steven Bryant: Thanks for taking my question. I just want to follow up on that last question about the inventories. Can you expand on the strategy from here? Because I'm looking at your inventory days and they're up from 102 a year ago to 133 days. And you mentioned there's still some demand question. So, I'm trying to understand why start ramping back HDDs next quarter versus taking an inventory write-down versus other strategies to sort of get your inventories in better alignment and generate some better cash flows? Thank you. Wissam Jabre: So, let me maybe just clarify on the HDD side, to be clear, when we look at the inventory movement in the December quarter that just ended, we did reduce the HDD inventory quite a bit. In fact, the increase came from the Flash side. So, when we look at the numbers, I think quarter-to-quarter at the company level, we saw around $90 million reduction in inventories. And those were more than $200 million of reduction was in the HDD side. That was partly offset by some of the growth in Flash. And so, we don't think the inventory situation on the hard drive side is bad. We obviously will continue to monitor as we do on a regular basis. We also are, as part of the $250 million underutilization that we talked about for the March quarter, there are some continued underutilization on the hard drive side, which would allow us to continue to manage inventory very tightly and maintain that discipline on the supply side until, obviously, the demand growth accelerates. And that's what my comment was about the next quarter, not necessary, in other words, the June quarter, not necessarily seeing as much of hard drive underutilization charges. I hope this clarifies. Steven Bryant: Yes. No, that definitely helps filling some of the blanks. I appreciate that. Thank you. Wissam Jabre: Thank you, Steven. Operator: And our last question will come from Sidney Ho with Deutsche Bank. Please go ahead. Sidney Ho: A couple of quick ones. On the gross margin side, if I think about fiscal third quarter, if hard drive underutilization charges goes down quarter-over-quarter and revenue goes up modestly, is it fair to assume that gross margins for hard drive goes up. And if that's the case, does that mean NAND gross margin could go below zero in the quarter. Obviously, there's a onetime charge involved. Wissam Jabre: So, Sidney, this is a fair way of looking at the transition from Q2 to Q3 with the improved utilization or, let's say, smaller -- lesser underutilization on the hard drive side, we expect to see some improvement in the gross margin quarter-to-quarter. And unfortunately, with the high underutilization charge related to the 30% supply cut on the Flash side, we're anticipating the gross margin there to be slightly negative. And so that sums it up. Sidney Ho: Great. And then my quick follow-up here is just maybe you have covered this already. But how would you characterize the inventory level in the channel and the customers for both hard drive and Flash. It sounds like hard drive is in decent shape. But curious, more curious on the flash side. David Goeckeler: Yes. I would say it's -- actually, the channel has been pretty good on the client -- on SSDs this past quarter. So, I don't think there's anything particularly unusual in the channel. I think the channel performance has been -- was actually one of the bright spots last quarter. So, I don't think we see anything too unusual there. Sidney Ho: Thank you. David Goeckeler: Thank you, Sidney. Hi, everyone. Thanks for joining us on the call. We look forward to talking to you throughout the quarter. Take care. Wissam Jabre: Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.

Operator: Good day, and welcome to the Western Digital First Quarter Fiscal 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Peter Andrew. Please go ahead. Peter Andrew: Thank you, and good morning, everyone. Joining me today are David Goeckeler, Chief Executive Officer; and Wissam Jabre, Chief Financial Officer. Before we begin, let me remind everyone that today's discussion contains forward-looking statements, including product portfolio expectations, business plans and performance, demand and market trends, and financial outlook based on management's current assumptions and expectations, and as such, does include risks and uncertainties. We assume no obligation to update these statements. Please refer to our most recent financial report on Form 10-K filed with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially. We will also make references to non-GAAP financial measures today. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the Investor Relations section of our website. With that, I'll now turn the call over to David for introductory remarks. David Goeckeler: Thank you, Peter. Good morning, everyone, and thank you for joining the call to discuss our 2023 first quarter results. I am pleased to see the Western Digital team work together to deliver revenue at the upper half of the guidance range in the midst of an incredibly dynamic and challenging macroeconomic environment. We reported first quarter revenue of $3.7 billion and non-GAAP operating income of $307 million. Our operating income performance was above the midpoint implied by our guidance and demonstrated our ability to actively respond and navigate this environment. Our non-GAAP earnings per share was $0.20 and included an approximately $0.30 impact due to higher than forecasted tax rate. Overall, the actions we have taken over the past few years are enabling us to manage through business cycle troughs more effectively and position the company to thrive as market conditions improve. These efforts have reinvigorated the Western Digital innovation engine and strengthened our product portfolio. In particular, we are leading the transition to SMR-based hard drives alongside our cloud customers, showcasing our product leadership. In flash, we have nearly tripled our bit shipments in the NVMe enterprise SSD product category as compared to the last down cycle, adding another large and growing end market in which we can allocate our flash bits. Our industry-leading innovation, diversified portfolio and broad go-to-market strategy across cloud, client and consumer end markets allow us to enjoy strong relationships with our customers and meet the full range of storage needs. The breadth of markets we address also offers us unique visibility into end market demand signals, which allowed us to recognize potential challenges to our business as they unfolded. We have proactively and effectively managed our business through weakening consumer demand by optimizing product mix and rightsizing our hard drive manufacturing footprint. As part of these efforts to manage through this part of the cycle, we are reducing our capital investments and operating expenses as we move to align our cash flow and cost structure with market conditions. Wissam will go over our efforts in more detail. As we closely monitor the macro environment, we are encouraged to see retail flash and channel demand leveling out and orders from PC customers stabilizing, a sign that consumer-led inventory correction is abating. We believe the long-term growth in flash demand, combined with reduced flash industry supply will restore supply and demand balance in the next couple of quarters. Before I jump into updates on our HD and Flash businesses, I want to provide a short update on our strategic review process. The executive committee of our Board, which I lead, continues its process, which I previously announced includes the participation of Elliott Management under a non-disclosure agreement. Given the ongoing nature and confidentiality of the process, we will not be answering any questions about the strategic review today. We will provide updates as we have them. Now turning to our HDD business. During the first quarter, our HDD revenue declined modestly as we had forecasted in August. Sequentially, total HDD and nearline exabyte shipments were both flat. Continued momentum with U.S. cloud customers and accelerated adoption of SMR hard drives were offset by softness in other capacity enterprise product channels and consumer HDD demand. Shipment of capacity enterprise drives based on SMR technologies exceeded 25% of this category, one quarter ahead of our expectations. We now expect SMR to represent over 40% of our capacity enterprise exabyte shipment exiting fiscal year 2023. SMR adoption drove a 19% sequential and 21% year-over-year increase in average capacity to 17 terabytes per capacity enterprise drive, and our 20-terabyte drive exabyte shipments increased more than 150% sequentially. We are deep into the process of qualifying our latest generation of hard drives, including our 26 terabyte UltraSMR hard drives at multiple U.S. cloud and OEM customers. Interest in SMR from other hyperscalers worldwide is increasing as the 20% capacity gain offers multi-generation TCO benefits to the most complex data centers worldwide. Looking ahead, our U.S. cloud customers have started sharply reducing their hard drive inventory alongside other components for their data center build-outs. This, along with continued subdued demand across markets in China, will impact near-term demand over the next few quarters. Despite these near-term corrections, it is clear from our conversations with these customers that HDD products will be the foundational storage for their continued cloud build-out in the years to come. Our product leadership and innovation engine remain as strong as ever and we are confident that Western Digital's hard drive business will thrive over the long-term as demand improves and new products continue to ramp. Turning to flash. Revenue was slightly ahead of our expectations. Thanks to our broad portfolio, diverse routes to market and leading brands, including WD Black, SanDisk and SanDisk Professional that are recognized globally for their cutting-edge innovation, performance and quality. I'm pleased to say that we exceeded our bit shipment forecast this quarter. Our client SSD products for PC OEM, retail and mobile drove the upside in bit shipments. Average capacity per client SSD increased 24% sequentially and 54% year-over-year, driven by doubling of standard storage capacity for PCs sold by multiple OEMs. This is another reminder of the insatiable demand for data storage and the resilience of flash demand as price elasticity drives increased consumption per device. On the technology front, BiCS5 accelerated to over two thirds of our flash revenue in the September quarter, up from about half in the previous quarter. BiCS6 yield and development of subsequent 3D NAND flash are both progressing well. For the December quarter, we expect flash shipments to increase sequentially, led by seasonal strength in retail and mobile. With the abrupt change in market conditions, we are acting decisively to adjust our supply trajectory to align with demand. We are pushing out BiCS6 transition to meaningfully reduce our capital expenditures for fiscal year 2023 which may offer us a potential opportunity to leapfrog to a future BiCS technology node as demand normalizes. With that, let me now turn the call over to Wissam, who will discuss our first quarter results in greater detail and provide an outlook for the second quarter. Wissam Jabre: Thank you, David, and good morning, everyone. As David mentioned, revenue was in line, thanks to our team's agility and resilience in managing through this dynamic environment. Total revenue for the quarter was $3.7 billion, down 17% sequentially and 26% year-over-year. Non-GAAP earnings per share was $0.20 and, as David mentioned, included an approximately $0.30 impact due to the higher than forecasted tax rate. Looking at our end markets, cloud represented 49% of revenue at $1.8 billion, down 13% sequentially and 18% year-over-year. Compared to the prior quarter, continued momentum in capacity enterprise drives sold to U.S. cloud customers and an increase in smart video hard drive demand partly offset the decline in all other hard drive product channels and flash. Sequentially, nearline bit shipments were flat at 112 exabytes, driven by our success in leading the industry transition to SMR hard drives. The year-over-year decrease was due to broad-based decline across both hard drive and flash products. Clients represented 33% of total revenue at $1.2 billion, down 25% sequentially and 34% year-over-year. Sequentially, the decline was attributed to flash driven by inventory reduction at PC OEMs and lower pricing. The year-over-year decline resulted primarily from the reduced flash pricing. Lastly, consumer represented 18% of revenue at $0.7 billion, down 15% sequentially and 30% year-over-year. On both a sequential and year-over-year basis, the revenue decline was due to flash pricing and lower retail HDD shipments. Turning now to revenue by segment. We reported HDD revenue of $2 billion, down 5% sequentially and 21% year-over-year. Compared to the prior quarter, total HDD exabyte shipments increased by 1% and average price per hard drive increased by 4% to $125. On a year-over-year basis, total HDD exabyte shipments decreased by 12% and average price per unit increased by 23%. Flash revenue was $1.7 billion, down 28% sequentially and 31% year-over-year. Sequentially, flash ASPs were down 22% on a blended basis and 17% on a like-for-like basis. Flash bit shipments decreased 10% sequentially and 7% year-over-year. As we move to costs and expenses, please note that my comments will be related to non-GAAP results unless stated otherwise. Gross margin for the fiscal first quarter was 26.7%, down 5.6 percentage points sequentially and 7.2 percentage points year-over-year. Our HDD gross margin was 28.5%, up 30 basis points sequentially and down 2.4 percentage points year-over-year. Our flash gross margin was 24.5%, down 11.4 percentage points sequentially and 12.5 percentage points year-over-year. Operating expenses were $689 million, down $71 million sequentially and below our guidance range due to lower variable expenses and tighter expense management, including reduction of discretionary spending. Operating income was $307 million, representing a 56% decrease from the prior quarter and a 68% decrease year-over-year. As David mentioned, we are pleased to have delivered operating income above the midpoint implied by our guidance in a challenging market backdrop. Our tax expense was $168 million, resulting in a tax rate of 72% higher than previously forecasted. Tax expense is influenced by several factors, including the projected quarterly profitability for the rest of the year and our corporate tax structure. Earnings per share was $0.20 compared to $1.78 in the prior quarter and $2.49 in the year ago quarter. Operating cash flow for the first quarter was $6 million and free cash flow was an outflow of $215 million. Cash capital expenditures, which includes the purchase of property, plant, equipment and activity related to our flash joint ventures on our cash flow statement represented a cash outflow of $221 million. Our gross debt outstanding remained at $7.1 billion at the end of the fiscal first quarter. Our liquidity position continues to be strong. At the end of the quarter, we had $2 billion of cash and cash equivalents and revolver capacity of $2.25 billion. Our trailing 12-month adjusted EBITDA at the end of the first quarter, as defined in our credit agreement, was $4.1 billion, resulting in a gross leverage ratio of 1.7x compared to 2x a year ago. As a reminder, our credit agreement includes $0.9 billion in depreciation add-back associated with the flash ventures. This is not reflected in the cash flow statement. Please refer to the earnings presentation on the Investor Relations website for further details. Before I go over guidance for the fiscal second quarter, I would like to discuss the business outlook for the balance of this fiscal year and the actions we are taking to align our execution plan with the changes in business environment. In flash, we expect shipments to increase sequentially in the fiscal second quarter and the balance of the fiscal year 2023 as the market stabilizes. In HDD, we expect our revenue to recover as our U.S. cloud customers reduced their inventories over the next two quarters. On the manufacturing front, we have sharply reduced client hard drive production capacity by approximately 40%. For the fiscal year 2023, we are reducing our gross capital expenditures to $2.7 billion. We are also aiming to reduce our cash capital expenditure by 20% versus our prior expectation. The main drivers of our lower capital expenditures are primarily the push out of BiCS6 transition in flash and reduced investments in hard drive manufacturing. As for our operating expenses, we proactively reduced our spending by approximately $80 million in the first fiscal quarter relative to the midpoint of the guidance range. We are also taking further action to lower our ongoing operating expenses range to $650 million to $700 million as we navigate this dynamic environment. We believe these actions we are taking will allow us to continue to invest in innovation as a top priority for our company going forward. For the fiscal second quarter, our non-GAAP guidance is as follows. We expect revenue to be in the range of $2.9 billion to $3.1 billion. We expect gross margin to be between 20% and 22%. We expect operating expenses to be between $650 million and $670 million. Interest and other expenses are expected to be approximately $80 million. We expect the tax benefit between $70 million and $90 million. We expect loss per share of $0.25 to earnings per share of $0.05 in the second quarter, assuming approximately 319 million fully diluted shares outstanding. I'll now turn the call back over to David. David Goeckeler: Thanks, Wissam. Let me briefly wrap up, and then we'll open up for questions. While near-term market conditions are challenging, digital transformation continues to drive long-term growth for data storage from client to edge to cloud. With products and solutions that play in every part of the technology ecosystem, Western Digital can meet customers' needs across the spectrum and unlock the possibilities of data. For example, while we are successfully managing through the consumer-led downturn, which is showing signs of stabilization, we are ramping multiple new products into data centers worldwide. As we remain focused on innovation and execution, I am optimistic that Western Digital will emerge stronger as we continue to ramp multiple new products into data centers worldwide and market conditions improve. With our top-tier team innovative and diversified portfolio, broad customer base and differentiated go-to-market engine, we are uniquely positioned to capture the opportunities stemming from the rapid global adoption of the cloud and the expansive and growing ecosystem it supports. Finally, I want to thank our employees for their hard work during this quarter and for solidifying our leadership in storage. In the face of an extremely challenging macro environment, our team worked together to deliver solid financial performance for Western Digital. I’m proud of what this team has accomplished and excited to see what we can do together in calendar 2023 and beyond. All right, Peter. With that, let's open it up for Q&A. Operator: We will now begin the question-and-answer session. [Operator Instructions] Our first question today comes from Aaron Rakers with Wells Fargo. Please go ahead. Aaron Rakers: Yes, thanks for taking the question. I want to go into the Flash business and kind of parse out kind of how you're thinking about the gross margin trajectory into the December quarter guidance? And specifically, within that, your JV partner, Kioxia announced a couple of weeks ago that they were going to cut production by as much as 30%. I'm curious your gross margin expectations. Have you taken any actions to take out production? And with that, any underutilization charges that are baked into your expectations into the December quarter? Thank you. David Goeckeler: Yes, Aaron, good morning. And thanks for the question. We have not taken any major underutilization actions in the fab. We always reserve that right in the future, depending on market conditions. So when we look at our – the way to think about Q4, and I'll invite calendar Q4, Wissam, obviously, make some comments. I mean we're still under a – pricing is still under pressure. I think that's fairly clear what's going on in the market. And then we've got a sequential increase, slight increase in bit shipments. So think that's one way to think about how we're thinking about the quarter. Wissam, anything to add? Wissam Jabre: Yes. The only thing – I mean, I think the only thing I would add, David, is yes, pricing is pretty much what's going to be the main driver of gross margin in the calendar Q4. Aaron Rakers: And then as a quick follow-up on the hard disk drive, the nearline, it sounds like you and your competitors are going through some digestion at some of your CSP partners. What's the expectation for the December quarter? It sounds like you expect – is the expectation is that shipments start to improve going into the March quarter at this point? And then I'll see the floor. Thank you. David Goeckeler: Yes, we're going to – you've got it. We're going to see a sharp decline in shipments in calendar Q4 and that's going to lead to some pretty significant absorption charges or underutilization charges. And then will grow back out of that as we move into – as we move through 2023. Aaron Rakers: Thank you. Operator: The next question comes from C.J. Muse with Evercore. Please go ahead. C.J. Muse: Yes, good morning. Thank you for taking the question. I guess a follow-up to the prior first question around NAND. I was hoping you could speak maybe more broadly around your NAND bit allocation strategy. You spoke to no underutilization charges today. I think your NAND gross margins, obviously moving lower. And in the last cycle, I think in 2019, we troughed at 19%, so curious, how are you thinking about what business you'll take, what you won't take and how that will impact, whether desire to build inventory and/or choose to cut utilization at some point. David Goeckeler: Good morning. So I think this is – the strategy we've been executing over the last couple of years and what we've been talking about, I think, is really paying off for us now at this part of the cycle. We've worked very hard to drive the portfolio abroad and deep portfolio across consumer, across mobile. We obviously still stay qualified at all the vendors, the client SSD portfolio is an anchor of the portfolio, gaming. And now we've added enterprise SSD into the mix. So we've always talked about – we want to have a broad portfolio to be qualified everywhere we can. And then be able to mix based on what gets us to the best return. And so I think at this part of the cycle, we're able to do that. And it also gives us quite a few homes for our supply. So that allows us in a tough quarter, have sequential bit growth. Obviously, pricing is market-based pricing. So we participate in the market and it allows us to basically just change the mix to get the best return we can. So again, I think the portfolio strategy we've been pursuing and we've been talking about getting qualified at the hyperscalers on enterprise SSD, and that is – that gives us another really important home for our supply. So that's how we're thinking about it. I think when you look across the portfolio, we have five or six categories, depending on the quarter, if you look at it for the whole fiscal year, we'll have six different categories where we have a double-digit mix of bits going into those different parts of the market. So I think it gives us a lot of optionality and the ability to generate the best return we can. C.J. Muse: That's very helpful. I guess, a follow-up on your technology road map. You talked about theoretically potentially skipping a node. And historically, players in the market have not done very well when they pursue that strategy. So I guess, can you kind of walk through what gives you the confidence that, that's something that would make sense for you guys, just given the historical precedents? David Goeckeler: Yes. I think the way we think about it right now, BiCS6 is – we're taking the actions around capital investment to slow down our bit supply in the market to try and get the market balance. I think everybody is doing that. There's really an enormous number of actions to try and get the market back in balance. We feel good about those. We'll take effect next year as we move through the year. What it means for us is BiCS6 will be a shorter node. At this point, the follow-on node BiCS8 is progressing very, very well. And as we move through the year, we'll be able to make a judgment about how long we're going to stay on which node. There's a number of issues around qualifications of products and all those kinds of things. So we'll make thoughtful decisions about that when we get closer to that point as we move through 2023. But we feel very good about where both nodes are and how they're progressing and that will give us the – give us, again, more optionality about how we think about what products we put in the market to get us the best financial return and obviously, the best solution for our customers. C.J. Muse: Thank you. Operator: The next question comes from Joe Moore with Morgan Stanley. Please go ahead. Joe Moore: Great. Thank you. Sounds like you guys are pretty optimistic that this improves. But I guess in the event that it doesn't, if earnings stay at this level for a few quarters or get worse, it looks like you might be challenged on the leverage ratio. We've talked to a bunch of people in credit, and it sounds like that's a relatively easy amendment to make that there's no strain to it, if you do it quickly. So just wondering how are you thinking about that? Are you – and then just sort of broader, more philosophically, it feels like it's going to be a tough economic year next year, there could be a lot of challenges. But with Chinese supply out of the mix, the next NAND cycle should be pretty exciting. So I feel like as you think about more negative scenarios, how do you think about weathering the storm and making sure that the kind of $15 of earnings power you did a few years ago is something we might see in the future? Wissam Jabre: Yes. Good morning, Joe, thanks for the question. So with respect to the first part of your question, look, we're – we entered this down cycle in a very much stronger financial position than the previous one. If you recall, we reduced our debt by $2.7 billion. We've improved the earnings power of the business. We strengthened our portfolio. And also, if you look at our liquidity at the end of Q1, we had around $4.3 billion between a little bit more than $2 billion of cash and cash equivalents and the $2.25 billion revolver that's undrawn. So we have ample liquidity to operate within the – in the next few quarters. And from where we are now, we're very comfortable in terms of the continued profitability of the business. David Goeckeler: Joe, and just to add to that, I mean, we're thinking about how you are. I mean, look, we've got a – we've got to get through this phase of the cycle. I think there's been a lot of discussion about everything from reduced utilization to pushing out CapEx. To your point, there are some regulations that are going to impact supply in the market in 2023. So we're optimistic about the next cycle about getting there. The market is all the – we're reacting strongly to get supply and demand back in balance. But we – as Wissam said, we've invested in our balance sheet – we've invested in innovation in our portfolio to build the resiliency and the agility in the business to manage through this. Joe Moore: Okay, thank you. Operator: [Operator Instructions] The next question comes from Toshiya Hari with Goldman Sachs. Please go ahead. Toshiya Hari: Hi, good morning. Thanks for taking the question. I had a question on the NAND business as well. So David, based on the CapEx decisions you've made over the past couple of months, how should we think about your bit supply growth in, say, calendar 2023. Obviously, you've got bids on your balance sheet. But on a manufacturing basis, given the decisions you've made, how should we think about bit supply growth. And it seems like you're not cutting production like many of your other peers. I guess, my question is, why not? Is that a function of the contaminant issue earlier in the year and you're looking to regain some ground? Or is there something else? Thank you. David Goeckeler: No, it's – on the second part of your question, it's not because of that at all. It's because we have a lot of homes for our supply, and we're able to get, we think, a good economic return for that. So from – just purely from an economic point of view, it makes sense for us to continue to build the supply. We're definitely going to slow down our bit supply. I think you can think like low to mid-20s for supply next year is kind of the way we're thinking about it. Toshiya Hari: Okay, helpful. Thank you. Operator: The next question comes from Wamsi Mohan with Bank of America. Please go ahead. Wamsi Mohan: Yes, thank you. Good morning. I wanted to go back to your initial comments around consumer stabilization. I know you alluded to some points around retail and PC orders. And I was hoping that you can maybe double click a little bit on what you're seeing both in retail and PC orders, specifically. And also perhaps touch on your expectation of inventory levels exiting the December quarter. Thank you so much. David Goeckeler: So let me take the first part, and I'll ask Wissam to comment on inventory. If we go back and we look at kind of the progression of what's happened this year. Back in March, we – roughly the March time frame, we saw the consumer market come under pressure. We talked a lot about that. In let's call it, the June time frame, we saw the PC OEMs really start adjusting their inventory very aggressively. We talked about that last quarter. And we've seen that play out during the quarter now in a number of different fronts. And then just within the last month or two, we've started to see the big data center operators do the same thing, really sharply adjust their inventory. And obviously, that's factored into our guide. So we've seen this kind of rolling change as it goes through one market to the next. If you look at the other side of it, where are they at in that process, consumer market, we're seeing relatively predictable behavior, it's not like it's at a great point, but it's not falling the way it was, our ability to predict where it's going to be week-over-week and month-over-month have increased. And so we've got more confidence we understand where that market is at and how it's going to play out going forward. In the PC market and see Q4, we're actually going to see some sequential growth in units of client SSD, not a huge amount, but it's sequential growth. Again, we talked about a very, very sharp inventory correction. So we're starting to see – we're getting to the point there where the inventory correction last quarter was quite severe. I mean, when customers going down to less than 10% of their usual demand. Now we see things coming back and stabilizing a little bit. So I don't want to leave you with the impression that things are back up and back up and to the right, but they're stabilizing a bit, and we're starting to see some signs that we're getting more predictable behavior and then that we can then grow out at this point. Obviously, the data center, the big U.S. hyperscalers were just kind of going into that. And we'll have more to say as we – it's going to be a couple of quarters, but we'll have more to say as we go through the quarter of what we're seeing and then what we see going into next quarter. Inventory? Wissam Jabre: Yes. And on the second part of the question, Wamsi. In Q1, we saw approximately a couple of hundred million dollars of growth in inventory at the end of the quarter. Our days of inventory were at 128. We're expecting to see a similar type of trends in the calendar Q4, roughly speaking, let's say, $100 million to $200 million growth and a bit of an increase in our days of inventory. Wamsi Mohan: Thank you. Operator: The next question comes from Timothy Arcuri with UBS. Please go ahead. Timothy Arcuri: Hi, I had a question, and then I had a clarification. So the question is on NAND cost. And the question really is sort of what the push out of BiCS6 does to your longer term? And when I say longer term, I mean like inside of calendar 2023 and into 2024, like what that does to your NAND cost curve? You've been bringing costs down mid-teens. I know it's going to be less than that next year. But what is the push out due to your cost curve? And then I wanted to clarify on the HDD margin assumption for December, can you sort of disaggregate a little bit what you think HDD margins will be for December like what's implied? It seems like gross margin is down to smidge that's being implied in your guidance? Thanks. David Goeckeler: Yes. On NAND cost, when we went through the CapEx exercise, we obviously kept a very close eye on still being able to drive cost declines. It's a very important element of the whole model of what we're doing here. So we're still comfortable with you modeling 15% year-over-year cost declines. I mean, clearly, there'll be some variability from quarter-to-quarter, but we still target that 15% year-over-year. It's a big part – I've talked about this a lot in the past. It's an actual input into the process, into the design process, not an output. And so we really designed to meet that, and it's a strong part of what we're – what the whole business is about. HDD margins will be under pressure next quarter. We will have – as I said before, we'll have some significant underutilization costs that will go into the financials – the other side of that is pricing in nearline and capacity enterprise has been stable benign about what we expect. But we're clearly going to have to – we're going to slow down production significantly, and that will hit us in the margin line next quarter. And then we'll grow out of that as volume comes back. And as we go through 2023, we also feel very – we feel very good that we're going to be ramping into the 22-terabyte drive, which is deep in qualification at a lot of different places around the world. And also the 26-terabyte UltraSMR drive is in qualification as well. And we talked a lot about SMR in the prepared remarks, that is a technology we believe very strongly. That's the next phase of the data center is SMR. And it was – just last quarter, we talked about ending the year with 25% of our exabytes in that market being SMR, we achieved that a quarter early. And now we expect to exit the fiscal year with over 40% of our exabytes being shipped on SMR. So I feel really good about where the portfolio is. And as we grow out of this sharp inventory correction through 2023, we'll be going into strength in the product road map. Operator: The next question comes from Shannon Cross with Credit Suisse. Please go ahead. Shannon Cross: Thank you very much for taking my question. I'm just wondering, can you talk a bit about the pricing environment, both in NAND and drives. And how both – you expect the prices to move from an absolute basis and then also from a mixed basis, the 22, 26, et cetera comes out over time. I’m just wondering how we should sort of think about that. Thank you. David Goeckeler: Pricing in HTD has been something we’ve been very much focused on. We feel very, very positive about the innovation we’re bringing to market. I mean, that’s where all – everything about pricing starts with innovation. You got to bring a great product to market. You got to continue to drive a better value proposition for our customers. And we believe strongly we’re doing that. These new drives have very good TCO benefits for our – the largest data center operators in the world. So pricing in nearline has been, I think benign is the word I’ve used for many quarters now, and I would continue to use that word. And we’re going to be focused on value-based pricing as we ramp into 22 and 26. So that’s the way we’re thinking about it. Again, it’s all about driving a better TCO value proposition through innovation, and then we get to share that benefit of that with our customers. In NAND pricing has clearly been under pressure. I think that’s very well documented. As I said before that look at our pricing last quarter, like for like for like minus 17%, blended minus 22%, we’re clearly mixing this – the mix hurts the pricing a bit, but it also allows us to move a lot of supply. And we think it’s the right – we think it’s the right decision for the business. We expect pricing to be under pressure in calendar Q4 as well. Operator: The next question comes from Krish Sankar with Cowen & Company. Please go ahead. Krish Sankar: Hi. Thanks for taking my question. I had a quick one on SMR. Can you talk a little bit about how to think about SMR in terms of your revenue mix? And also how many customers you have? And are you seeing any nearline HDD share shifts because of the SMR position? Thank you. David Goeckeler: Yes. We don’t talk about specific customers. But what I can say is there’s multiple, very large customers committed to SMR, some of the largest data center operators in the world. And I think the whole industry is especially UltraSMR. I mean, SMR has been around a long time, right? SMR has been shipped and client drives for a long time, but it actually requires some work on the host side for the data center operators. So when we were able to introduce UltraSMR and get plus 20% on a CMR drive versus the industry standard of plus 10% that really changed the equation a bit. And when you can get 20% capacity uplift, it’s worth the investment on the host site. And we’re seeing that – we’re seeing that move across a lot of operators be very interested in that. So we don’t break out specific customers. I said on an exabyte basis, we expect it to be over 40% exiting the fiscal year. I think you can assume on a revenue basis, it’ll be slightly more than that. But I think that’s how we think about it. Operator: The next question comes from Mehdi Hosseini with SIG. Please go ahead. Mehdi Hosseini: Yes. Thanks for taking the question. I also have one question, two parts. Your wafer purchase based on cost plus and given continued weakness in NAND prices, how is that going to impact your margin? There was a reference earlier of a minimum margin of 19%, and I just want to make sure that we understand that there is that minimum gross margin given the fact that you actually purchase wafer from the JV. And on the HDD side, as you think about the dynamics, if we’re actually seeing the bottoming into next year, how are you planning for your capacity and what kind of exabyte growth are you forecasting for your HDD manufacturing capacity that you have online? And in other words, how are you thinking about your HDD capacity? What kind of assumption for shipment you have? Thank you. David Goeckeler: All right, let me – I’ll make some comments here and then I’m sure Wissam will probably have something to add as well. So first of all, let’s clarify the comment on gross margin. There is no minimum gross margin. I think the comment was that in the last down cycle, the company’s gross margin bottomed at 19% in flash. I will note that that number did not include the underutilization charges. And when you include the underutilization charges, Wissam, I know we calculated this number. Wissam Jabre: Yes. We’re in the sort of let’s say between the – it’s in the low teens. David Goeckeler: Low teens, okay. So I think that was just a – Mehdi, I just think that was a benchmark that one of the previous questioners was using. So you’re right about how we get the – how the JV economics work. But again, our – the way we think about the portfolio is if we can get the – if we can – if we have a home for the bits, that’s number of – that’s the first thing like, do we have a place where we can – do we have customers that value our innovation in our portfolio and we have a place to put the supply and then we look at pricing and then we look at that equation and does it make economic sense to do that and we drive the portfolio. We’re actually given where we are in the cycle, we’re pleased with the gross margin we’re able to drive in the business at this point. So that’s how we’re thinking about it. Exabyte growth, I mean, clearly we’re going to slow down ACD exabyte growth. I think this – that the industry is going through a pretty large digestion cycle. Part of the CapEx pushout that we saw them talked about, the lion share of that is on the flash side of the business. But we’re also moving out ACD CapEx as well to slow down our exabyte growth there. We have a lot of conviction that the market’s still going to grow in that high 20, 30 plus range on exabyte growth, but we’re going to have to grow back into that as we go through this inventory correction. Operator: The next question comes from Harlan Sur with JPMorgan. Please go ahead. Harlan Sur: Hi. Good morning. Thanks for taking my question. On the inventories 6% sequential growth and I know you guys expect more sequential growth in inventories this quarter. Is the build more flash or HDD driven? I’m talking about the September quarter. And then given the sharp pull back in clouds, you guys are cutting utilizations in HDD this quarter. But are you guys also holding back shipments of HDD in the December quarter? And then on the NAND side, despite the sequential growth for bits and flash, are you guys holding back some shipments in the December quarter? Wissam Jabre: So let me take the question. So with respect to inventory in the September quarter the majority of the inventory growth was in NAND. On the HDD side, we were mostly flattish. As we look into the December quarter, we’re expecting to continue to see more NAND inventory growth and there will be some HDD inventory growth, but not as much as we are anticipating to see NAND growth there. And the HDD growth will be basically just driven by the weakness we’re seeing in the market. But also we will – we’re carefully managing our utilization. They will be under absorption costs. We’re also trying to carefully manage our utilization going forward. And in terms of the – the part of the question with respect to holding shipments no, we’re not planning to hold shipments. Operator: The next question comes from Tom O’Malley with Barclays. Please go ahead. Tom O’Malley: Hey, thanks for taking my question, guys. You guys have seen a pretty long stretchier of seeing HDD ASPs on the rise. Obviously with a lot of moving parts with the weakness that you’re seeing, could you guys comment on what you expect HDD ASPs as a whole? You report the number every quarter to do sequentially. Is it falling because of mix or is there any puts and takes that we need to be considering when we look at the December guide? Thank you. Wissam Jabre: Yes. The transition is primarily driven by mix. That’s a key driver for HDD. Peter Andrew: Yes. So Tom, if you look at calendar Q4, you should expect ASP for HDDs to be down, mainly driven by mix as the hyperscale guys go through the digestion phase. Tom O’Malley: Helpful. Thank you. Operator: The next question comes from Jim Suva with Citigroup. Please go ahead. Jim Suva: Thank you. You mentioned Q4 will be burdened or December quarter will be burdened with underutilization charges. Is that kind of the brunt of it, the worst or the most amount to be absorbed there, and then we start to improve going after? Or does it continue? And you mentioned CapEx, you’re slowing that down. Could you quantify or give us some CapEx guidance about where we should kind of anticipate for CapEx and for modeling cash flow around CapEx? Thank you. Wissam Jabre: Yes. So on the comment with respect to underutilization, yes, from where we stand today, this seems to be where we see probably underutilization at its lowest. And we would start getting ourselves out of that as demand improves. With respect to CapEx, we are aiming to reduce our cash CapEx for the fiscal year by 20%. Ideally we want to do more. The way to think of it is in our cash CapEx the 20% is roughly split around the 30% reduction with respect – and these are relative to our previous expectations. So 30% lower than previously expected on the NAND side. And on the HTD side, it’s a reduction of 10% to 15% relative to the previous expectations. Operator: The next question comes from Sidney Ho with Deutsche Bank. Please go ahead. Sidney Ho: Thanks for taking my question. I want to ask about the free cash flow expectation. What is your expectation for the December quarter and for fiscal 2023 and perhaps kind of trajectory of how things go? And maybe I’ll throw this one in too. When you look at the inventory still going up next quarter, are you concerned about inventory write-downs, especially given name gross margin? I think it was 25% probably going down for a couple more quarters. Thanks. Wissam Jabre: Yes. So Sidney, for free cash flow, we’re projecting a negative free cash flow in the December quarter and for the fiscal year. Keep in mind that we have the IRS settlement payment that is still projected to be in the fiscal 2023. And this was estimated at $600 million to $700 million. With respect to inventory, look, we did see a small impact in terms of write-down in the September quarter. Ultimately, it all depends on how the net pricing develops in the next few quarters. So it’s difficult to predict at this time, but it will depend on where the net pricing progresses. Operator: The next question comes from Ananda Baruah with Loop Capital. Please go ahead. Ananda Baruah: Good morning, guys and thanks for taking the question. David Goeckeler: Good morning. Ananda Baruah: Yes, good morning. Yeah, just interested in hearing what you’re seeing and what your thoughts are with regards to nearline demand from your OEM customers that might go to the on-premise spending. David Goeckeler: Yes. I would say, those are under pressure as well. I mean, I think across the whole data center business, we see pressure on that part of the market, both from the OEM side and the hyperscalers. I would say the hyperscaler is a little more severe correction, but we’re seeing pressure on both sides of the data center business. Operator: The next question comes from Karl Ackerman with BNP Paribas. Please go ahead. Karl Ackerman: Yes. Thank you. I was hoping you could discuss the run rate level of OpEx for the next few quarters. And as you address that question, how much of the $70 million improvement this quarter is from the 40% reduction in hard drive capacity versus changes in accounting for R&D in NAND? As well as, could you touch on your ability to redeploy heads in media production into cloud products where demand should grow very well on a structural basis going forward? Thank you. Wissam Jabre: Yes. So with respect to the run rate of OpEx when you look at – maybe I’ll talk a little bit about where we ended in Q1, because this is a bit relevant on how we think about it going forward. So in Q1 we saw an approximately $70 million to $80 million actually drop from the prior quarter. So we ended it around $689 million. We took action on variable expenses and non-discretionary spend. Basically we are tightening the – totally the expenses management. As we look forward for the next few quarters, the run rate is expected to be $650 million to $700 million. And we’re still contemplating few other actions that may help us keep things even tighter. So that’s the run rate. On the part of the question related to the client capacity restructuring, the OpEx does not reflect that. This mostly – the impact of that is mostly on the cost of goods sold. And with the reduction of approximately 40% of our capacity, we expect to see on an annual basis, roughly $45 million to $50 million benefit. So that’s roughly speaking a little bit more than $10 million, let’s call it around, $10 million to $12 million a quarter. In terms of the last part of the question on the heads and media, some of this capacity is fungible. And we can – part of our capital investment was to continue to invest in our heads and media to ensure we have the capacity to drive the – or supply the growth expected in the future. But as we talked about that, also we are managing our capital expenditures over the next few quarters to manage our cash. David Goeckeler: I think you’ve got the headset right, which is in the transition from client to cloud, we move all the heads and media over to cloud. We’ve been in that transition for a long time. We’re very, very deep in that. I would say we’re in the last stages of that transition. So simple thing with client drives have a lot more discs and heads in them and we use all that capacity. Operator: The next question comes from Mark Miller with Benchmark Company. Please go ahead. Mark Miller: Thank you for the question. You saw a decline in cash in the current quarter and you’re talking about negative free cash flow. Where do you think cash will be at the end of December quarter in the year? Wissam Jabre: Yes. So, I won’t necessarily guide to a cash number, but we’re expecting a negative free cash flow quarter in the calendar Q4. From a liquidity perspective, look, we ended the Q1 at $4.3 billion with around $2 billion of cash. And we still have $2.25 billion of revolver. And so from a liquidity perspective we’re comfortable in the ability for us to continue to operate comfortably. Mark Miller: Thank you. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to David Goeckeler for any closing remark. David Goeckeler: All right. Thanks everyone for joining us. Look, we’ll be talking to all of you throughout the quarter. We appreciate your participation in the call. It’s obviously a very dynamic environment we’re all facing out there. Feel really good about the way we’ve been navigating this. Hopefully we’ve given you some good color about how we’re thinking about the business going forward. Again, have a great day everyone. Thank you. Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

Operator: Good day and thank you for standing by. Welcome to Western Digital's Fiscal Fourth Quarter 2022 Conference Call. Presently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this call is being recorded. I will now turn the call over to Mr. Peter Andrew, Vice President, FP&A and Investor Relations. You may begin. Peter Andrew: Thank you, and good morning, everyone. Joining me today are David Goeckeler, Chief Executive Officer; and Wissam Jabre, Chief Financial Officer. Before we begin, let me remind everyone that today's discussion contains forward-looking statements, including product portfolio expectations, business plans and performance, demand and market trends and financial outlook based on management's current assumptions and expectations and, as such, does include risks and uncertainties. We assume no obligation to update these statements. Please refer to our most recent financial report on Form 10-K filed with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially. We will also make references to non-GAAP financial measures today. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the Investor Relations section of our website. With that, I'll now turn the call over to David for introductory remarks. David Goeckeler: Thank you, Peter. Good morning, everyone, and thanks for joining the call to discuss our fourth quarter and fiscal 2022 results. I'm pleased that the Western Digital team executed well and delivered solid results in light of the ongoing macro and geopolitical dynamics. We reported fourth quarter revenue of $4.5 billion, non-GAAP gross margin of 32% and non-GAAP earnings per share of $1.78, all within the guidance ranges we provided in April. Fiscal year 2022 revenue totaled $18.8 billion, and we reported non-GAAP earnings per share of $8.22. This compares to revenue of $16.9 billion and non-GAAP earnings per share of $4.55 in fiscal year 2021. We grew revenue 11% and EPS increased 81%, demonstrating progress in unlocking the earnings potential of our business. In addition to strong financial performance, fiscal year 2022 was a hallmark year for Western Digital from an innovation, product development and execution perspective. In particular, we regained innovation leadership with the introduction of multiple products and technologies for the cloud. In May, we announced a 26-terabyte drive, leveraging our OptiNAND and UltraSMR technologies as well as ePMR. Impressively, this means we've nearly doubled drive capacity relative to when I joined Western Digital just over two years ago. In Flash, we expanded adoption of our NVMe enterprise SSD from one cloud titan to three as well as qualification at several enterprise OEM suppliers. From an organization perspective, we have bolstered the company's executive management team, further strengthening our ability to drive operational excellence, innovation and disciplined financial management. On top of all of these achievements, we reduced debt by $1.7 billion and attained an investment-grade corporate rating, placing Western Digital on a solid financial foundation. Before I jump into additional detail on the quarter, I wanted to provide an update on our strategic review. As you know, two months ago, we announced that we are reviewing potential strategic alternatives aimed at further optimizing long-term value for our shareholders. The Executive Committee of the Board, which I lead, continues to oversee the review and Elliott Management is participating alongside us under a non-disclosure agreement, along with other interested parties. We're evaluating a range of alternatives, including options for separating our market-leading Flash and HDD franchises. We are moving expeditiously, but this work will take time. We will not be answering any questions about the strategic review today giving -- given the ongoing nature and confidentiality of the process. We will provide updates in the future as appropriate. Now I'll provide updates on our HDD and Flash businesses. During the fiscal fourth quarter, strong demand from our cloud customers for our latest generation energy-assisted drives drove near-record near-line shipments of 111 exabytes. Total HDD revenue declined sequentially due primarily to consumer and client HDD demand. We commenced commercial shipment of a number of products incorporating our OptiNAND technology. In addition to shipments of our 20- terabyte and 22-terabyte CMR drives, qualifications of our 26-terabyte SMR drive are underway, as we noted at our product launch event in May. This SMR-enabled drive enables 20% higher capacity than our CMR variants, offering significantly better TCO for our cloud customers and further highlighting the performance-driven benefits of the innovation that Western Digital is packing into a hard drive. Finally, we are ramping a second cloud customer with SMR technology this quarter and remain on track to lead the industry's transition to SMR-based drives for the cloud. We are very confident in our multiyear product roadmap for capacity enterprise drives, which combine ePMR, OptiNAND, UltraSMR and triple-stage actuators to deliver a cutting-edge portfolio of drives in commercial volumes at a wide variety of capacity points. We also continue to invest in HAMR and the commercialization of this technology alongside our other HDD technologies that are leading the industry. The breadth and depth of this portfolio strongly positions us to be the provider of choice for the largest and most complex data centers in the world. Building on the expertise cultivated over decades of bringing to market industry-leading technologies, we are committed to leveraging our innovations to continue driving business results in capacity enterprise into the future. Turning to Flash. Revenue grew sequentially on an improving product mix and increased flash supply. Growth in Flash during the quarter came primarily from enterprise SSD, with revenue more than doubling sequentially. Gaming is another key growth market for us, where we continue to demonstrate the strength of our client SSD franchise with exabyte shipment growing nearly 70% year-over-year. We have a leading position in gaming with our WD_BLACK brand being recognized globally for innovation, performance and quality. The latest example of this is our WD_BLACK SN-850 NVMe SSD product certified for Sony PS5 game consoles, which enables players to expand the high-speed storage capacity of their PS5 console and allows them to store and play both PS5 and PS4 games directly from the drive. On the technology front, BiCS5 represented about half of our Flash revenue in the June quarter, up from 46% in the previous quarter. We are preparing to ramp BiCS6 late this calendar year and into 2023. Based on circuit under array architecture, BiCS6 enables many exciting high-performance products for 5G phones, SSDs and QLC flash. Let me now offer a few observations on the demand environment. In the cloud end market, we experienced strength in the fiscal fourth quarter as supply constraints at Western Digital and our end customers started to ease. Overall, demand from our cloud customers has been consistently strong and we expect this strength in cloud to carry into the second half of calendar year 2022. We believe the accelerated digital transformation will continue to drive cloud growth and believe we are on track to generate about half of our revenue from this market by fiscal year 2025. Outside of cloud, our expectations for calendar year 2022 demand growth have moderated since our last earnings call. As the fiscal fourth quarter progressed, we saw consumer spending soften, impacting both retail Flash and HDD demand. This weakness has migrated to the consumer PC end market as we enter the second half of the calendar year. In client, the market generally expect PC shipments to decline approximately 10% in calendar year 2022. We are seeing our PC OEM customers aggressively rightsize their inventory to reflect current demand conditions, which will impact our business in this market in the second half of the calendar year. After going through that correction, we expect a more normal flow of business going forward as we believe PCs will continue to fulfill broader use cases as the foundation of the increasingly common hybrid enterprise, driving unit demand above pre-pandemic levels in richer SSD content. All of these PC market dynamics are accelerating the final phase of the shift of client devices from HDD to flash technology. Consequently, the client HDD market is now declining at an accelerated rate relative to the period before the onset of the pandemic. To reflect this reality, we are now taking aggressive action to restructure our HDD manufacturing footprint to reflect this market dynamic. In mobile, expectations for smartphone units have come down in recent months, led primarily by reduced demand in China. Industry analysts expect the smartphone industry unit volume to decrease by a mid-single-digit percentage year-over-year in calendar 2022. While we are well-positioned in supplying flash memory for 5G smartphones, we are also seeing our largest customers aggressively resetting their inventories for these products. We expect the inventory correction to be primarily impact our fiscal first quarter and return to market demand for the remainder of the fiscal year. In consumer, we have a premium brand and a great franchise in the marketplace. In particular, we have developed an enviable position and excellent relationships with major brick-and-mortar retailers and online retailers across the globe, including Best Buy and Target in the US, MSH Group in Europe, JD.com in China and Officeworks in Australia. As a result of these strong relationships, our impressive scale, product breadth and trusted brand, we lead most consumer storage product categories. While macroeconomic factors and COVID measures have impacted consumer demand in the near term, our customers' loyalty and preference for the performance and quality of our solutions are key differentiators, which will position Western Digital well, for the upcoming back-to-school and holiday seasons. Before turning the call over to Wissam, I want to leave you with a few takeaways. First, at the Investor Day, we laid out the case, where the world of ever-increasing intelligent devices powered by the cloud is creating an astonishing amount of data, of which only a small percentage is stored. Our conviction remains strong and our view on near double-digit revenue growth remains intact. Over the past several years, the storage market has entered an era of accelerated growth, led by the strength of the cloud market, which drove HDD revenue growth for Western Digital and the industry. In Flash, capital investments for incremental NAND bit growth are becoming more expensive, resulting in a more disciplined investment across the industry. At Western Digital, our long-standing and growing relationships with hyperscale and OEM customers across the world, coupled with our leadership in commercializing innovations for capacity enterprise hard drives and momentum with NVMe enterprise SSD for data center, has made us a trusted partner. This combination of rapid demand growth in storage, technology leadership and product momentum offer Western Digital opportunities for financial outperformance. With that, let me now turn the call over to Wissam, who will discuss our fiscal fourth quarter results and provide an outlook for the fiscal first quarter. Wissam Jabre: Thanks, David, and good morning, everyone. As David mentioned, overall results for the fiscal fourth quarter were in line with our expectations, reflecting the resilience and agility of our business model, against such a dynamic macro environment. Total revenue for the quarter was $4.5 billion, up 3% sequentially and down 8% year-over-year. Non-GAAP earnings per share was $1.78, within the guidance range we provided in April. For the full fiscal year 2022, revenue was $18.8 billion, up 11% from fiscal 2021. Non-GAAP gross margin expanded 4.3 percentage points and non-GAAP operating margin increased 5.7 percentage points, as we proactively managed our expenses, resulting in non-GAAP EPS of $8.22, up 81% from last year. Turning to our end markets. For the fiscal fourth quarter, cloud represented 46% of total revenue at $2.1 billion, up 18% sequentially and 5% from a year ago. Within Cloud, Western Digital's continued success in leading the industry transition to energy-assisted hard drives drove the growth. The continued ramp of our 18-terabyte and 20-terabyte drives drove a 7% year-over-year increase in nearline HDD revenue. Sequentially, nearline bit shipments increased 9% to 111 exabytes. In Flash, enterprise SSD revenue more than doubled sequentially and was up 38% year-over-year. The client end market represented 36% of total revenue at $1.6 billion, down 5% sequentially and 14% year-over-year. On both a sequential and year-over-year basis, client HDD led the revenue decline, while Flash revenue was roughly flat. Consumer represented 18% of revenue at $0.8 billion, down 9% sequentially and 23% year-over-year. On a sequential basis, the revenue decline due to lower HDD retail shipments. The year-over-year decrease was due to broad-based decline in retail products across HDD and Flash. For the full fiscal year 2022, Cloud revenue increased 40% year-over-year, led by a 38% increase in nearline HDD. Flash product revenue for enterprise SSD applications more than doubled year-over-year. Client revenue decreased 3% year-over-year as growth in Flash was offset by a 30% decrease in client HDD. Client HDD for PCs and Notebooks represents just mid-single-digit percentage of total HDD revenue exiting the fiscal year. Lastly, consumer revenue decreased 6% for the year, all attributed to a decline in retail HDD. Turning now to revenue by segment. In the fiscal fourth quarter, we reported Flash revenue of $2.4 billion, up 7% sequentially and down 1% year-over-year. Sequentially, Flash ASPs were up 2% on a blended basis and up slightly on a like-for-like basis. Flash bit shipments increased 6% sequentially and 11% year-over-year. HDD revenue of $2.1 billion was flat sequentially and down 15% year-over-year. Sequentially, total HDD exabyte shipments increased 1%, while the average price per HDD increased by 19% to $120 as our mix continues to transition towards the cloud. On a year-over-year basis, total HDD exabyte shipments decreased by 10% and average price per unit increased by 24%. As we move to costs and expenses, my comments will be related to non-GAAP results unless stated otherwise. We continue to exert disciplined financial management to drive better results. Gross margin for the fourth quarter was 32.3%, up 60 basis points sequentially and down 60 basis points year-over-year. Our Flash gross margin was 35.9%, up 30 basis points sequentially and 40 basis points year-over-year. On both a sequential and year-over-year basis, growth in enterprise SSD for data center applications led the improvement in gross margin. Our HDD gross margin was 28.2%, up 50 basis points sequentially and down 210 basis points year-over-year. Operating expenses of $760 million were below our guidance range as we continue to prudently manage our expenses. Operating income was $702 million, representing an 8% increase from the prior quarter and a 15% decrease year-over-year. Our tax rate was 11% for both the fiscal fourth quarter and fiscal year 2022. Earnings per share was $1.78, compared to $1.65 in the prior quarter, and $2.16 in the year-ago quarter. Operating cash flow for the fourth quarter was $295 million, and free cash flow was an outflow of $97 million. Operating cash flow was impacted by revenue linearity. The ramp back to normal production output at the flash joint venture, timing of component deliveries to our factories and corporate-related control measures in China contributed to a back-end loaded quarter. Cash, capital expenditures, which include the purchase of property, plant and equipment; and activity related to our Flash joint ventures on our cash flow statement represented a cash outflow of $392 million in the fiscal fourth quarter. We remain disciplined in investing in manufacturing capacity. Gross CapEx and cash CapEx for the fiscal year 2022 were $2.7 billion and $1.2 billion, respectively, below our expectation, as we actively managed our capital investments. We made a $150 million scheduled and discretionary debt repayment. Our gross debt outstanding was $7.1 billion at the end of the fiscal fourth quarter. We ended the quarter with $2.3 billion of total cash and cash equivalents. Our trailing 12 months adjusted EBITDA at the end of the fourth quarter as defined in our credit agreement was $4.8 billion, resulting in a gross leverage ratio of 1.5 times compared to 2.4 times a year ago. As a reminder, our credit agreement includes $0.9 billion in depreciation add-back associated with the Flash Ventures. This amount is not reflected in the cash flow statement. Please refer to our earnings presentation on the Investor Relations website for further details. I'll now provide our view of both HDD and Flash businesses for the fiscal first quarter as well as comments on several key items for fiscal year 2023. For the fiscal first quarter, we expect Flash to lead the sequential revenue decline as our customer's right-size their inventory. We expect a relatively modest decline in overall HDD revenue, primarily driven by client and consumer, with gross margin relatively flat. As we look towards fiscal year 2023, we expect cash capital expenditures to be in line with our target model, within the range of 8% to 10% of total revenue. Total gross capital expenditures are expected to be approximately $3.2 billion. Regarding Flash CapEx, we remain excited about our technology road map despite what is clearly a volatile period in the memory industry. As we have discussed on prior calls, BiCS6 is more capital intensive technology node that will require an increase in capital expenditures. Our CapEx outlook for fiscal year 2023 reflects our commitment to technology leadership and will accelerate our path to leapfrog from BiCS6 to BiCS+ in the next several years. I am also pleased to share that the Flash JV Fab 7 manufacturing facility at Yokkaichi plant has been approved to receive a subsidy of up to JPY92.9 billion from the Japanese government, further demonstrating the strategic importance of what is the world's largest NAND manufacturing facility. Given the macro environment, we continue to actively manage our capital expenditures and supply. We are in discussion with our joint venture partner to adjust capital investments and align our production growth with demand. In HDD, we will continue to focus our capital spending primarily in heads and media in order to meet the future growth in cloud demand. Offsetting these investments, we are taking aggressive actions to restructure our client HDD manufacturing footprint. We strive to optimize free cash flow generation in response to the macroeconomic dynamics. For our fiscal first quarter, our non-GAAP guidance is as follows. We expect revenue to be in the range of $3.6 billion to $3.8 billion. We expect gross margin to be between 27.5% and 29.5%. We expect operating expenses to be between $760 million and $780 million. Interest and other expenses are expected to be approximately $70 million. Our tax rate is expected to be between 28% and 30% in the first quarter and for fiscal year 2023. This increase is due to the tax law changes that became effective for our fiscal year 2023, requiring the capitalization of certain R&D expenses that were previously eligible for immediate deduction from taxable income. These changes are expected to result in an immediate increase in our tax rate of approximately 12 percentage points, which will then decrease gradually over time. We expect earnings per share to be between $0.35 and $0.65 in the first quarter, assuming approximately 319 million fully diluted shares outstanding. I'll now turn the call back over to David. David Goeckeler: Thanks, Wissam. Let me just wrap up, and then we'll open up for questions. In summary, we continue to believe that we have built the right foundation for long-term growth. We have reignited our innovation, established discipline in spending and investment and remain consistent in deleveraging our balance sheet. The innovation engine that drives TCO benefits and value to our customers, the multiple channels to deliver our products to market and the large and growing storage markets put us in a great position to capitalize on the opportunity presented by the proliferation of intelligent devices and rapidly accelerating data creation. While segments of our end markets are now going through an aggressive inventory adjustment as supply chain impacts of the pandemic start to ease and the macro economy softens, secular demand for storage continues to be strong and underpins the digital transformation that continues across all industries. I also want to thank our employees for their hard work during the fiscal year. Despite ongoing geopolitical and macro challenges, our team worked together to deliver strong financial performance for Western Digital. I am proud of what this team has accomplished and excited to see what we can do together in the next fiscal year. All right. Peter, with that, let's open it up for Q&A. Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer portion of today's call. And today's first question comes from C.J. Muse with Evercore ISI. Please go ahead. C.J. Muse: Yeah, good morning. Thank you for taking the question. I guess, first off, just want to clarify here. In terms of what's driving the weakness, is it safe to say that it's entirely consumer client and that on the hyperscale and enterprise side you're not seeing any changes? And as part of that, as you think about this inventory correction on the consumer client side, how long do you think the duration will last? Is this a one-quarter phenomenon? Too early to tell? Would love to hear your thoughts there. David Goeckeler: Hi C.J., good morning. Yes, I would say, you’ve pretty much got it right. The one thing I would add to that on the Cloud side is, we are seeing some inventory digestion in China cloud. The US hyperscalers continue to chug along. But especially in the PC OEMs is where we saw it first, a very sharp inventory correction really in the current quarter, taking down their demand significantly to reset their inventory for what is the reality for the number of unit sales. So right now, we think that is a relatively short period of time. Is it one quarter, two quarter, we'll see that as we go through the quarter, but it's definitely very, very sharp in the quarter we're in. And then in the smartphone market, we're seeing it as well. As a matter of fact, it's even developing within the quarter. Just a couple of weeks ago, we had one of our biggest customers take down their forecast in the quarter by over $150 million. So -- and it's all like the message, very strong message we're getting directly from our customers, this is just resetting inventory. So that one, we expect to be a one-quarter phenomena. I think in a larger market, we'll see over the next couple of quarters. I will say that in the consumer and channel space, given our broad reach and where we operate around the world in the consumer business, we are starting to see some stabilization of those markets. Our channel business, if you look at sell-through for the first 4 weeks of the quarter, has been on plan. And even some regions like Europe, we're starting to see some strength. And I would say consumer is pretty much in the same place, starting to stabilize, not great growth yet, but that part of the market looks better than it did, let's say, two months ago. And it's really the OEMs that are really in a rapid and significant correction of inventory as well as, as I said, some of the cloud business in China. C.J. Muse: Very helpful. And just a follow-up question on the NAND side of the house. You talked about rising cap intensity at BiCS6 and what's next. But at the same time, it sounds like you're talking about tempering investments at the JV. So could you walk through how you're thinking about forward CapEx given the changes you're seeing in the end markets? David Goeckeler: Yeah, I'll make a few comments and Wissam can comment as well. But we've always known that BiCS6 was going to be a more capital intensive node. I mean, again, we're coming off of a BiCS5, which is the most capital efficient node in the history of the -- our road map, so that's not surprising. And we're driving through that transition. We feel very good about the node. It's just it's a more capital intensive note. Now I will note, as we talked extensively about our Investor Day, our capital intensity in general per bit is the best in the industry, and that's something we really strive for in our road map. So when we're talking about a more capital intensive node, remember, that's a relative issue. We're still in the best position as far as capital per additional bit, and that's a very, very big focus of ours. Now the more macro question is, we're obviously having conversations across the JV about resetting our bit growth in general, independent of node, given the reality of what the demand environment is. Overall, bit demand is coming down. We're in an oversupply environment, it’s demand driven oversupply, it's not a supply driven oversupply. But we'll reset. We're looking at our CapEx. And we'll make adjustments given what the current situation is. Wissam? Wissam Jabre: Yeah. If I can add, C.J. The -- we're targeting our cash CapEx per our target model, which is 8% to 10% of revenue. But, of course, as the macro conditions develop, if we need to adjust to that, we will manage dynamically. Operator: Thank you. And ladies and gentlemen, our next question today comes from Aaron Rakers at Wells Fargo. Please go ahead. Aaron Rakers: Yeah. Thanks guys. Good morning. So I've got a couple of questions, if I can as well. I just -- I wanted to unpack a little bit more the implied Flash revenue expectation you're making this quarter. With hard disk drive revenue being flat roughly sequentially, it looks like you're talking about a high 20% or 30% sequential decline in the NAND revenue this quarter, the Flash revenue. With that in mind, I mean, how are you guys thinking about bit shift versus what is your assumption around pricing baked into that expectation? I'm just trying to understand, is this more pricing versus bit shipped? And is this really kind of -- do you think that this guide represents a bottom here? David Goeckeler: Yeah. I think the way to think about it, as I said earlier, it's kind of a demand driven situation where we're just seeing are biggest customer, and really not all of our customers across the PC space, just resetting inventory and really dropping their demand in the quarter, so they can reset their inventory. So that leads to pricing pressure and volume pressure, so it's both of them. And so as we work through the quarter and they get their inventory to where they need it to, then I think we'll see some of the volume come back as we work through this. From some of our customers, I have more confidence that this is a one-quarter change. But other ones, I think it may take a little longer than that. So we'll see -- we'll have more information as we work through the quarter and we'll be talking about that through the quarter in the appropriate forums. As I said before, I will point out, I mean, this is a very dynamic market. I mean this is -- some of this has happened in the quarter. So it's very difficult to bound this, but we think we're very -- we're confident in the guide, don't get me wrong. But I'm happy we guided when we did because the -- it's a very, very dynamic environment out there. But I think our customers are aggressively managing their inventory. And my sense is they'll get through it in a pretty expeditious fashion. Like I said in the prepared remarks, we've got kind of the supply chain is loosening up. We're getting more components. I think our customers are getting more components. Maybe that's giving them more confidence in how they manage their own inventory. And at the same time, we're going into a softer economy. So everybody is in a big reset and it's especially impacting the Flash business, to your point. The HDD business still get consistent strong growth out of the hyperscalers in the US, and feel very, very good about the portfolio position there and what we're going to drive throughout the fiscal year. Aaron Rakers: Okay. And as a quick follow-up, just thinking about the Flash business a little bit more. These last couple of quarters, and appreciating that mix is a factor, but these last couple of quarters, it looks like you've seen a little bit of a slowing of your ability to drive cost down in the Flash business. As we think about BiCS6, how are you thinking about the relative cost down structure of BiCS6 relative to BiCS5? Thank you. David Goeckeler: Yeah. I mean the -- as we've talked about cost downs, we target 15%. We always know there's going to be some quarters below, some above. Hopefully, there's more on the favorable side, and I think that's been the history, but we've hit a couple of quarters where that's not the case. But if you look at our fiscal year, we delivered right at the 15%, I think, even a tick over. Is that right, Wissam? Wissam Jabre: Yes, that's correct, David. And one of the things to keep in mind, Aaron, is we did have the fab contamination in the third fiscal quarter. And so this is why -- this is partly why we haven't seen necessarily the same cadence of cost reduction in the last couple of quarters of the fiscal 2022. David Goeckeler: So Aaron, we feel really good about the BiCS6 transition and what that's going to bring. And I think you'll see in the upcoming quarters, the costs will get back to where we expect it to be. We explicitly drive our road map around this number. We explicitly drive the nodal transition and the road map development around making sure we can deliver the 15% year-over-year and we are very pleased that we just delivered it again in the last fiscal year. Operator: Thank you. And our next question today comes from Joe Moore of Morgan Stanley. Please go ahead. Joe Moore: Great. Thank you. I wonder if you could address, I mean, I didn't hear a specific answer to volume versus prices in NAND in Q3, but I guess what is your inventory balance going to look like at the end of Q3? And I know in the past, you guys have been willing to take fab utilization adjustments to keep that number under control. Have you thought about that in this environment? David Goeckeler: Yeah. I'll make a few comments. I'll let Wissam make a few comments. And we don't guide to that level of specificity, but they're both roughly down about the same. Wissam Jabre: Yes. That's where the numbers shape up, roughly among the same. Joe Moore: And your inventory balance? Wissam Jabre: Well, given that this is mostly demand driven, we expect inventory to be -- to grow a bit this quarter as the supply is higher than the -- where the demand is. However, as we said in the prepared remarks, we are in discussions with our JV partners to take appropriate action if -- to the extent we can to limit that. Operator: Thank you. Our next question today comes from Patrick Ho with Stifel. Please, go ahead. Patrick Ho: Thank you very much. Maybe just as a follow-up on the HDD side, taking it on the positive end, Dave, maybe if you could give a little color on your confidence level on the sustainability of the US hyperscalers' spending trends. What gives you the confidence that this will at least carry through the second half of this year and maybe into the early parts of 2023? David Goeckeler: Yes, a couple of things. One is the message we get from them -- obviously, we have a very, very close relationship and talk on a daily basis. And so the message we get in planning for the second half continues to be a strong and consistent message. We've got a great portfolio around 22 and 26 and SMR. I think one of the big highlights of last quarter on the HDD side is we got a second hyperscaler that fully qualified SMR. And with our position with UltraSMR getting 20% more out of a drive puts us in a great position for that transition. So it continues to be a very, very consistent message from them about how they plan to consume the product in the second half and going into next year. And like I said, from the portfolio point of view, we've got lots of new qualifications underway on 22 terabytes CMR, 26 terabyte SMR. And as we go through the fiscal year, you'll see all of those products start to ramp and be adopted at volume. Patrick Ho: Great. That's helpful. And maybe as my follow-up question, in terms of following up from your Analyst Day where you did put a big focus on the NAND flash moving to the SSD market for the Cloud segment itself as well. Do you see this shift beginning with BiCS6, or is this more of a BiCS+ type of endeavor where it will be future generations where you see the biggest shift towards SSD NAND? David Goeckeler: No. I mean, the shift is happening now. I mean, we just delivered a quarter of 105% sequential growth on our enterprise SSD portfolio. Now that's a particularly strong result. But we're very confident that as we work through the next couple of years, we're going to drive our share of enterprise SSD from the 8% to 16%. We've got a very good plan for that. It's a great market to participate in. Like I said, we broke through with the qualifications and the success has been strong. Now it will be lumpy, not every quarter is going to be up. But the trajectory over the three-year time span is we have a lot of confidence, we're going to drive that to the 16% share in FY 2025. Operator: Thank you. And ladies and gentlemen, before we go to our next question, we do ask that you please limit yourself to one question in the interest of time. Today's next question comes from Wamsi Mohan with Bank of America. Please, go ahead. Wamsi Mohan: Yes. Thank you. Good morning. You're basically shipping well below demand levels, given the inventory correction when you look at the September quarter. Can you maybe help quantify that and help us think through if the digestion that you're calling for is completed, let's say, in September, what's roughly the right base we should be thinking of to drive any sequential growth off of that in -- for the December quarter? David Goeckeler: Well, I mean, for -- in the PC market, we think the market is -- there was consensus earlier in the year of maybe 325 million units. We think that's going to land more around 305 million units. So, that gives you a sense of the correction that's happening aggressively right now. And we saw -- I think we talked about smartphone demand being down single-digits, mid-single-digits on a unit percentage. So I think, Wamsi, we're just going through this very sharp step-down right now where everybody resets their inventory, especially as they have -- I personally think, as they have more confidence, that the inventory -- the supply chain is loosening up. It's not completely loosened up, there's still tight areas. But in general, we're able to get more upsides on products that -- components that even a couple of quarters ago were very tight. So, I think everybody is kind of resetting for that world and they're resetting going into a softer consumer environment. So, I think that gives you a little bit to bracket how we're thinking about it. Operator: Thank you. And our next question today comes from Sidney Ho with Deutsche Bank. Please go ahead. Sidney Ho: Thanks for taking my question. So, looking at your Flash margins, they are still at a pretty decent level in the June quarter, but obviously that will come down in the September quarter. But with margins coming down into, let's say, the next few quarters given where the pricing is heading, do you think your margins will get back to that last trough in 2019 when it was below 20%? Obviously, pricing is out of your control, but are there things in your control that you will make the mix trough be better than the last one? Thanks. David Goeckeler: Yes, I mean I think that we've done a tremendous amount of work on the portfolio in the last couple of years, and I think that's is going to show up. And the way we think about through-cycle margin, we talked a lot about this at the -- our Investor Day, we're managing for through-cycle margin. We want to drive the higher lows and higher highs. And we think we're set up well to do that given the qualifications across enterprise SSD. Our very strong position in gaming, that's been a great market for us and a growth area just over the last year and a half. So, yes, I think it's -- I think we go into this situation with a lot better portfolio and a lot better diversity, a lot more places to put our supply, and we think that's going to lead to a better result. Operator: Thank you. And our next question today comes from Toshiya Hari with Goldman Sachs. Please go ahead. Toshiya Hari: Good morning. Thanks for taking the question. I had a multipart question on your HDD business, primarily around utilization rates and CapEx and the restructuring plan that you talked about. In terms of utilization rates, your nearest competitor talked about making some adjustments in the near term. Is that something that you guys are thinking about or doing in HDD? And on the CapEx side, what's contemplated in your fiscal 2023 outlook, again, as it pertains to your hard drive business? And then on the restructuring, I was hoping you could expand on what exactly you're doing, how much capacity is coming online over the next -- in the medium to long-term? Thank you. David Goeckeler: Thanks Toshiya. So, let me just add a little context and, Wissam, give a little more detail on CapEx and how we're thinking about this. So, as we talked about that the client HDD market has been interesting over the last couple of years. We went into the pandemic and we saw a big surge in demand for client hard drives. Just in general, we saw a big surge in demand for PCs. That has turned around dramatically. And what we're seeing right now is that business is down over 50% year-over-year. So we're seeing – it's returning to pre-pandemic trajectory, and even going down faster than that now as far as the transition to flash happens. That's a good transition for us, because we have such a great portfolio in client SSD. So we've been playing that transition for years. But it really calls for us to reset our – how much client HDD capacity we have in the system, and that's what we're aggressively undertaking right now. Wissam Jabre: Yes. So on that, Toshiya, on the restructuring, we're basically, as David said, we're taking – we're reducing our manufacturing footprint on the client side. And the expectation is this should benefit us from a couple of areas, a little bit on the CapEx side, but also in terms of the cost of goods sold. And so if there's any underutilization that was associated with that or would have been associated with that part of the manufacturing capacity, it's being basically managed out. And so that should help us be able to – as we sort of said, in terms of the gross margin transition for the HDD business from the fourth quarter to the first quarter, we're expecting it to be more or less flat. And so based on that, we should probably see even further improvements in the following quarters. David Goeckeler : On CapEx. Wissam Jabre: And on CapEx, we typically don't break out the CapEx between HDD and Flash. But as I said, we do plan to stay within our target model of the 8% to 10% of revenue. And if you recall at Investor Day, I did say that the – we typically – we would like to get to a point where for the HDD business we target 4% to 6%, maybe higher than this, in the near term simply because we are investing in the capacity enterprise side of the – of the manufacturing of the house. The one thing though to keep in mind is, we are keeping a close eye to the supply-demand situation, and we do not plan to be investing or building overcapacity short term to be able to maintain that supply-demand balance. David Goeckeler: So Toshiya, just a few more comments on this so we fully paint the picture. So you're really starting to see this, what we talked about at our Analyst Day. In heads and media, we still have to invest. I mean there's – we need – these big drives have a lot of heads in them, so we're still investing in heads. Media, we transition to capacity enterprise. But we just have the manufacturing ability to produce millions and millions of client drives that we don't need anymore. So that's the part we're resetting, and to get that cost out of the system. Operator: Thank you. Ladies and gentlemen, our next question today comes from Tom O'Malley of Barclays. Please go ahead. Tom O'Malley: Hey, good morning, guys, and thanks for taking my question. I just wanted to look at the overall business. Obviously, you've talked about the moving parts into September. But could you talk about when you think you might see the total top line start to recover? I know, there's a lot of moving parts. I know, there's not a ton of visibility right now. But obviously, from a net income pro forma earnings perspective, do you guys see yourselves making losses in the coming quarters? And just if you do, can you talk about the depth in which you're kind of planning for that based on recessionary scenario? Just any color on where you might see this bottom from a total company perspective? Thank you. David Goeckeler: So first off, we don't see losses, no. So, look, you hit on it. It's just very dynamic right now. Let me paint the picture and Wissam can say, maybe a little bit about the out quarters. We're seeing – I would say, if we went back several quarters, we started talking about it very early this year. The consumer started softening really in Europe when the war broke out, in China with the lockdowns and that progressed throughout the first half of the year. The consumer business is something that usually is soft. It's seasonally the weakest part of the year. April and May, calendar Q2 is an interesting quarter for that business because it always starts off in April and May and comes on strong in June, that really didn't happen. It stayed soft. And then we started to see the spread into consumer -- consumers purchasing PCs and now smartphones. And so, now we're seeing the OEMs and the PC and the smartphone business, as we talked about, very aggressively reset their inventory levels. At the same time, we're starting to see the consumer in our channel business, stabilize. So, we're starting to see the early signs of the consumer business stabilizing, the channel business, stabilizing. If I look at sell-through for the first part of the quarter, it was to plan. Sell-in, it's still a little bit behind because nobody wants to build inventory right now. But sell-through has stabilized. And in some regions, like I said, in Europe, we're even seeing Q-over-Q growth in the channel. So it all depends on how we get -- how fast we get through the inventory correction on the OEM side. And then just to cap that off, in the cloud, we continue to see very consistent demand from the US hyperscalers and we see some digestion in China cloud. And we expect that digestion in China cloud to work its way through this quarter. In general, China has been, I think the word I would say, has been quiet across all the markets. There's not a lot of visibility. We'll see how that comes back throughout the quarter. But that gives you a little bit of kind of the evolution of how we've seen this and kind of how we see it going forward, as I said. Although the PC and the OEMs are going through – PC and smartphone OEMs are going through very, very sharp correction, we are seeing other parts of the market start to stabilize. So, I don't know, Wissam, you want to add that up? We don't really forecast the out quarters, but anything to say about that? Wissam Jabre: Yes. I mean we don't forecast the out quarters. We don't see losses. The one – the couple of points I would add to that, David, is we obviously are – with this down cycle, we're starting from a much, much stronger financial position. We've done a lot over the last couple of years to strengthen our financial position. We also launched a very exciting set of products last quarter. So, we have really a very strong portfolio. We have good additions to the leadership team. And so, we're in a much better position to manage through this. Operator: Thank you. And our next question today comes from Timothy Arcuri with UBS. Please go ahead. Timothy Arcuri: Thanks a lot. I also had a two-part question is on HDD gross margin. And you're still running a couple of hundred basis points lower than your peer. And I'm wondering if you can sort of unpack that. Is this related to the client capacity that you're trying to take out? And then on the NAND side, you answered a prior question saying that -- I think you're implying that the decline is roughly equal between bits and pricing. And I just want to clarify, is that what you meant to say? Because if that's the case, then bits are certainly -- well, I mean, both bits and pricing are down more than your peers. So I'm just wondering if you can sort of handicap why your NAND business is performing worse than your peers. Thanks. David Goeckeler: So on HDD, I think -- I think the gap in gross margin is now 100 basis points. But first of all, I feel good about the quarter we had on gross margin. We expected -- we expected -- well, let's put it this way. We're able to get the gross margins up in HDD a little faster than we thought. When we talked about last quarter, we thought they would start going up sequentially going into the second half, and we were able to pull some of that back into calendar Q2, our fiscal Q4. That was due to a number of things. One is pricing continues to be pretty benign to even up a little bit, which is something we've been -- I think the industry has been striving for, again, given all the innovation we're bringing to market. And then we were able to work some on the cost side as well. Us versus our competitors, remember, everybody has a different mix. And they -- there are some markets, especially the performance enterprise markets that Western Digital exited a number of years ago, and that's a declining but margin-rich part of the HDD market that we don't participate in. But in general, from a margin perspective, on HDD, I get back to innovation, the portfolio, the 22-terabyte drive, the 26-terabyte UltraSMR drives, those are in a unique position in the industry. And we have a plan as we move through FY 2023. Those will become bigger and bigger and, in fact, the predominant part of the portfolio and what we're shipping as we move through the year. So I think that sets us up in a very strong position to have a really good TCO conversation with our customers as we continue to drive innovation. Second part of your question was in Flash. Again, this is a very dynamic market. Things have changed even in the last week and half to two weeks. So I think that we're at a different point of when we're forecasting and we are rolling in everything we have heard from our customers. As I said, we have customers that have very, very significant amounts of demand that are changing within the quarter. So we put a guide around that. Obviously, we'll work to make that better, but that's the reality of where the business is today. Operator: Thank you. And ladies and gentlemen, today's final question comes from Mehdi Hosseini with SIG. Please go ahead. Mehdi Hosseini: Thank you. Thanks for squeezing me in. David, I just wanted to follow up to the last comment. You highlighted earlier in the call that you remain comfortable with near-line cloud demand, especially in North America. And then you just said that demand is very volatile. What gives you confidence that the North American cloud service providers go through inventory digestion later this year and into next year? Is there anything that you can share with us? And I have a follow-up. David Goeckeler: I think it's just our deep relationship with them and the conversation we have. We also have multi-quarter agreements with a lot of these customers, which gives us more visibility into what their plans are. We're, obviously, in deep conversations with them about our next generation products, which is very exciting. We're able to bring a market-leading capacity points to them across CMR and SMR. So, again, 22-terabyte CMR is a unique product in the industry. And then we have 26-terabyte SMR, which is, again, a unique product in the industry. Nobody else can go to those capacity points. And so, we feel very good about where the portfolio is. Those are being adopted and qualified across our customer base. I think the strength of where we're at in the TCO equation we bring to our customers, as well as the visibility that we see and given the relationship gives us confidence as we move through the second half of the year. Operator: Thank you. And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to the management team for any final remarks. David Goeckeler: All right. Thanks, everyone. We appreciate you spending time with us here early on a Friday morning. Thanks for all the great questions, and we'll look forward to talking to you throughout the quarter. Operator: Thank you. Ladies and gentlemen, this concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

Operator: Good afternoon, and thank you for standing by. Welcome to Western Digital's Fiscal Third Quarter 2022 Conference Call. Presently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. . As a reminder, this call is being recorded. Now, I will turn the call over to Mr. Peter Andrew, Vice President, Financial Planning and Analysis and Investor Relations. You may begin. Peter Andrew: Thank you, and good afternoon, everyone. Joining me today are David Goeckeler, Chief Executive Officer; and Wissam Jabre, Chief Financial Officer. Before we begin, let me remind everyone that today's discussion contains forward-looking statements, including product portfolio expectations, business plans and performance, demand and market trends and financial outlook based on management's current assumptions and expectations, and as such, does include risks and uncertainties. We assume no obligation to update these statements. Please refer to our most recent financial report on Form 10-K filed with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially. We will also make references to non-GAAP financial measures today. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the Investor Relations section of our website. With that, I will now turn the call over to David for introductory remarks. David Goeckeler: Thank you, Peter. Good afternoon, everyone, and thanks for joining the call to discuss our fiscal 2022 third quarter results. We delivered excellent performance in the quarter, with revenue of $4.4 billion and non-GAAP gross margin of 31.7%, both of which are at the higher end of our updated guidance ranges we provided in early March. Additionally, we reported non-GAAP earnings per share of $1.65, which exceeded our revised guidance. I am proud of the team's execution as we navigated dynamic geopolitical and macroeconomic environment as well as ongoing supply challenges. On top of that, we successfully managed through a fab contamination event that is now fully resolved. Overall, the Western Digital team did an amazing job of meeting our customers' growing and evolving storage needs. This has all been made possible by the operational and technological improvements we have made over the last couple of years that enable us to unlock the true earnings power of the Western Digital model. Looking ahead, we are optimistic about the business outlook for calendar year 2022. We believe the secular demand for storage in our new product ramps in HDD and Flash, combined with the seasonally stronger second half of the calendar year, will drive growth across our end markets. With 40% of the world's data stored on Western Digital products, our innovation powers the global technology ecosystem from consumer devices to the edge to the heart of the cloud. Our vision is to create breakthrough innovation inspired by the convergence of human potential and digital transformation that enables the world to actualize its aspirations. At Western Digital, we have established an admirable position in the large and growing storage markets. Our proven ability to develop a diversified portfolio of industry-leading products, coupled with our broad routes to market, puts Western Digital in a unique position to capitalize on the promising growth opportunities ahead of us. I'll now turn to an update on our HDD and Flash businesses. Our HDD revenue was as forecast and in line with typical March quarter seasonality led by growth in capacity enterprise drives. Robust demand in the cloud end market for 18- and 20-terabyte drives generated a nearly 40% increase in nearline revenue from the same period last year. Of note, our 20-terabyte drive exabyte shipments approached high single-digit percentage of total capacity enterprise shipments. During the quarter, qualification of OptiNAND-based hard drives progressed as planned across multiple cloud and OEM customers. Combining OptiNAND with our SMR leadership uniquely positions Western Digital in the marketplace. Putting it all together, we have positioned our innovations in OptiNAND and SMR to drive business results in our capacity enterprise business for the rest of this calendar year and into the future. Our largest cloud customers are aligned with this strategy and are accelerating adoption of SMR products within data centers later this year. We are laser-focused on bringing new cutting-edge features and functions to our products for cloud storage. We will provide more details around these exciting innovations at our Investor Day on May 10. Turning to Flash. Our overall business was impacted by our ability to ship product due to the fab excursion. In light of this event, coupled with the supply chain challenges facing all companies across the industry, I would like to thank our customers and the Western Digital teams for working together diligently to mitigate the impact of supply chain disruptions. From a product perspective, client SSD demand improved in the quarter as our PC OEM customers successfully worked through their own supply chain issues. Gaming is another growth market for us, where we continue to have success with exabyte shipment nearly doubling year-over-year. We have a leading position in the marketplace with our brands, including WD_BLACK, SanDisk and SanDisk Professional, recognized globally for cutting-edge innovation, performance and quality. An example of this is our WD_BLACK SN770 SSD product, which leverages our cutting-edge BiCS5 technology, an in-house DRAM-less controller architecture. This SSD product is one of the fastest and best drives available in the market. We have received excellent reviews from tech journalists, which is a great testament to the company's strength in both our BiCS technology leadership and our ability to develop innovative solutions, enabling our customers to unlock the potential of their PCs. Qualifications of BiCS5-based products for client and consumer end markets were largely completed, and we are making great progress in qualifying our next-generation BiCS5 enterprise SSD products. We expect these products to drive revenue growth and mix improvements into the future. Lastly, BiCS5 represented nearly half of the Flash revenue, up from 41% in the previous quarter. Let me now offer a few observations on the demand environment. In cloud, we see continued strength in calendar year 2022. The increase in cloud capital investment for data center build-outs is expected to propel growth for our HDD and Flash products in this growing end market. In client, PC end demand growth has been solid for the last 2 years, and we are starting to see some normalization in the PC market. We expect PC unit demand to remain significantly above pre-pandemic levels, with the return-to-site trend driving a mix shift towards commercial and enterprise PCs with richer client SSD content versus consumer-oriented PCs. In mobile, we have a strong position in 5G phones and we see demand for the latest 5G flagship phones remaining solid, with NAND content doubling from prior generation smartphones. In other emerging applications, demand from gaming and VR/AR devices remains robust. Industry analysts expect VR headset sales to grow at a 47% CAGR over the next couple of years. In consumer, we are experiencing short-term demand weakness outside the U.S. tied to the geopolitical events in Europe, as well as COVID-related lockdowns in China. However, we are confident in the strength of the business as we are entering a seasonally stronger second half of the calendar year with a number of new innovative products. We feel good about the overall demand in calendar year 2022. We are continuing to navigate the macroeconomic and geopolitical factors I mentioned earlier. While these transitory issues are affecting both revenue and gross margin in the near term, we expect them to subside over time. We are confident that the growth and profitability opportunities in front of us have not changed. In closing, I want to acknowledge the hard work and unrelenting spirit of our employees that goes into creating our game-changing products. In particular, I want to thank our employees in China for their efforts to work through all the supply chain and logistics challenges during the lockdowns. Before turning the call over to Wissam, I wanted to make a quick announcement that Western Digital and the IRS have reached a tentative agreement to resolve a long-running tax matter, covering the fiscal years 2008 through 2015. With offsetting tax benefits, we expect the ultimate net amount will be in the range of $500 million to $600 million. While this settlement will result in a previously unforecasted cash payment in fiscal year 2023, it does highlight the work that I and the rest of the Western Digital team have undertaken in the last 2 years to instill strong financial discipline and provide greater financial flexibility upon which we are building a foundation for future growth for the company. Wissam will go into more detail in a minute. Let me now turn the call over to Wissam, who will discuss our fiscal third quarter results and provide a more detailed outlook for the fiscal fourth quarter. Wissam? Wissam Jabre: Thanks, David, and good afternoon, everyone. As David mentioned, overall results for the fiscal third quarter were better than our revised expectations. Despite the incredibly dynamic macro environment that David discussed, our results reflected the resilience of our business and our ability to continually deliver solid financial performance. In addition, we completed a debt restructuring with our lenders in the March quarter, marking continued success in paying down debt and providing increased financial flexibility and stability. Total revenue for the quarter was $4.4 billion, down 9% sequentially and up 6% year-over-year. Non-GAAP earnings per share was $1.65, above the revised guidance range of $1.30 to $1.60 we provided in early March. We are pleased to have delivered such strong results in the face of the challenging environment. Turning to our end markets. Cloud represented 40% of total revenue at $1.8 billion, down 8% sequentially and up 25% from a year ago. Within cloud, Western Digital's leadership position at the 18-terabyte capacity point and ramp of 20-terabyte drives drove a nearly 40% year-over-year increase in nearline revenue. This growth was partially offset by lower enterprise SSD and smart video hard drive revenues. The client end market represented 40% of total revenue at $1.7 billion, down 7% sequentially and 2% year-over-year. The sequential decrease was primarily due to typical seasonality in both Flash for mobile and client hard drives. On a year-over-year basis, growth in Flash was offset by a decline in hard drive. Lastly, Consumer represented 20% of revenue at $0.9 billion, down 17% sequentially and 8% year-over-year. On a sequential basis, the decline was primarily due to lower retail Flash shipments. The year-over-year decrease was roughly evenly split between hard drive and Flash products. Turning now to revenue by segment. We reported Flash revenue of $2.2 billion, down 14% sequentially and up 3% year-over-year. On a blended basis, Flash ASPs were down 1% sequentially. On a like-for-like basis, Flash ASPs were down 2% sequentially. Flash bit shipments decreased 14% sequentially and increased 9% year-over-year. During the quarter, we recognized the majority of the bit supply impact caused by the fab contamination. Hard drive revenue was $2.1 billion, down 3% sequentially and up 9% year-over-year. Sequentially, total hard drive exabyte shipments increased 1%, while the average price per hard drive increased by 4% to $101. On a year-over-year basis, total hard drive exabyte shipments and average price per hard drive increased by 20% and 22%, respectively. As we move to costs and expenses, my comments will be related to non-GAAP results unless stated otherwise. In the March quarter, total fab contamination charges of $203 million were excluded from our non-GAAP results. Gross margin for the third quarter was 31.7%, down 190 basis points sequentially and up 400 basis points year-over-year, including approximately $59 million in COVID-related expenses. Our Flash gross margin was 35.6%, down 50 basis points sequentially and up 560 basis points year-over-year. Our hard drive gross margin was 27.7%, down 290 basis points sequentially and up 270 basis points year-over-year. Hard drive gross margin included COVID-related impact of approximately $51 million or 240 basis points. Operating expenses of $740 million were below our guidance range as we tightly managed our expenses. Operating income was $650 million, representing a 26% decrease from the prior quarter and a 58% increase year-over-year. Earnings per share was $1.65, up from $1.02 in the year-ago quarter. Operating cash flow for the third quarter was $398 million, and free cash flow was $148 million. Cash and capital expenditures, which include the purchase of property, plant and equipment, and activity related to our Flash joint ventures on our cash flow statement, represented a cash outflow of $250 million. We remain disciplined in investing in manufacturing capacity and expect gross CapEx for the current fiscal year to be around $2.9 billion. We expect cash CapEx to be around $1.3 billion as we actively manage our overall spending. In the fiscal third quarter, we made a discretionary debt repayment of $150 million. Our gross debt outstanding was $7.25 billion at the end of the fiscal quarter. We ended the quarter with $2.51 billion of total cash and cash equivalents. Our trailing 12-month adjusted EBITDA at the end of the third quarter, as defined in our credit agreement, was $5 billion, resulting in a gross leverage ratio of 1.4x compared to 2.6x a year ago. As a reminder, our credit agreement includes $1 billion in depreciation add-back associated with the Flash Ventures. This is not reflected in our cash flow statement. Please refer to our earnings presentation on the Investor Relations website for further details. Before discussing our outlook, I wanted to provide some more details on the settlement with the IRS that David mentioned. As previously disclosed in our quarterly SEC filings, the company has been in a significant long-running situation with the IRS regarding taxes owed for fiscal years 2008 through 2015. As you can see in our GAAP statements, we took a tax charge in the fiscal third quarter, primarily based on our latest assessment of the situation. In the last few days, we reached a tentative agreement to settle the transfer pricing issues in dispute. The actual amount to Western Digital will have to pay and exact timing of the payments have not been determined yet. However, we currently expect to make a cash payment in the range of $600 million to $700 million some time in the first half of fiscal 2023. Please note that this is the cash out number. We currently expect that the ultimate net amount will be in the range of $500 million to $600 million after accounting for certain offsetting tax benefits expected to be recouped over the next 3 years. Finally, in the fourth quarter, we will make a GAAP-only adjustment to the reserve associated with this settlement. You will find additional details in our 10-Q, which we plan to file next week. I'll now provide our view of both hard drive and flash businesses for the fiscal fourth quarter. As we indicated on our last earnings call, we continue to expect hard drive revenue to increase driven by growth in nearline hard drives. We also expect Flash revenue to increase sequentially in the fourth fiscal quarter as our flash supply improves. For our fiscal fourth quarter, our non-GAAP guidance is as follows: we expect revenue to be in the range of $4.5 billion to $4.7 billion with sequential revenue growth for both hard drive and flash businesses; we expect gross margin to be between 31% and 33%; we expect operating expenses to be between $770 million and $790 million; interest and other expenses are expected to be approximately $70 million; our tax rate is expected to be approximately 11% in the fourth quarter; we expect earnings per share to be between $1.60 and $1.90 in the fourth quarter, assuming approximately 317 million fully diluted shares outstanding. I'll now turn the call back over to David. David Goeckeler: Thanks, Wissam. Looking ahead, we remain optimistic about our business outlook for the calendar year as customer demand across our end markets continues to be generally strong. Despite the supply chain challenges and macroeconomic factors we discussed earlier, it is evident that we have the right foundation for long-term growth, the right technology portfolio in place to meet evolving customer needs and the broad routes to market necessary to scale our business. Over the last couple of years, we have planned and executed significant changes to improve our focus, sharpen execution and set strategic goals to place Western Digital in a position of greater strength. And I'm excited that we are witnessing the positive impacts of those changes. Before I wrap up, I want to remind everyone, we have an Investor Day coming up on May 10, and I look forward to seeing you all there. Let's start the Q&A. Operator: . Our first question will come from C.J. Muse with Evercore. C.J. Muse : I guess the question relates to your June quarter outlook. I would love to hear how you're thinking about any kind of ongoing implications to both the NAND contamination issue, what kind of impact that might have on your bit availability. And then secondly, in terms of the China lockdown, the impact on your HDD media side and whether that's pushing out any shipments beyond the June quarter. David Goeckeler : Hey, C.J., thanks for the question. Yes, on the flash side, so first of all, as we said, the flash contamination issue is behind us in the fab. We expect bit growth next quarter. We won't be all the way back, but we'll -- we expect to accelerate from where we were this quarter. As far as the situation in Penang and China, we did have that facility shut down for a couple of weeks. At the end of last quarter, we've mostly recovered that as far as the -- as being able to meet demand for this quarter. I would say that as a general statement, it's -- I think it's very difficult for everybody to meet what true demand is right now in the market. So between component shortages and the situation in China, it makes it really tough. But I think we were able to navigate through the situation quite well, quite -- frankly, the team there did a fantastic job and has kind of recovered. There were some incremental costs as we saw in the HDD margin line that we didn't expect. But all in all, I think we navigated through the situation fairly well. For the coming quarter, yes, we're still dealing with the situations in China, but we think we'll be able to navigate through, although it is very, very dynamic. But we factored in all the risks into the guide, and we're comfortable with where the number's at. Wissam, anything to add? Wissam Jabre: Not much, David. I think you've covered it well. Operator: Our next question will come from Aaron Rakers with Wells Fargo. Aaron Rakers : I'll stick to 1 as well. I -- just kind of thinking about the gross margin guidance into this next quarter, I think it was 31% to 33%. I was curious if you could help kind of unpack the variables. Maybe give us some color on how you're thinking about the flash gross margin relative to the hard disk drive gross margin. And I guess within hard disk drives, how much COVID-related expenses, are you still embedding? Just any other variables you can help us appreciate on both those 2 segments. David Goeckeler : So I'll take -- I'll start on it, and Wissam can add. So on the drive business, last quarter, we talked about the 200 basis point to 300 basis point impact that we were expecting. I think we took a little that in this quarter than we had expected. Some of that was some cost we didn't expect, like I just talked about in Shenzhen. I think I said Penang earlier, but Shenzhen. And -- so in that business, looking forward, I think we see it as pretty much -- we've pretty much hit the bottom. We basically see it flat going forward. In the flash business, we expect some acceleration of gross margin given the supply-demand balance situation. So Wissam, anything to add to that? Wissam Jabre : Yes David, just maybe to follow-on on the comments or Aaron's question with respect to COVID, where we see the COVID costs going into next quarter are expected to be a little bit less than what we've experienced in the fiscal third quarter. Operator: Our next question will come from Joe Moore with Morgan Stanley. Joe Moore: Just following up on the contamination issue. Is the 7 exabyte number that you guys talked about still the right kind of number to think about the lost production? And how does that split across the March and June quarters? David Goeckeler: Joe, yes, that's still the right number. I mean the team will always work in kind of an evolving situation to see what they can do with the material that we had to take out. But I don't think it will be super material to the numbers. So 7 is a good place to work from. And we haven't split it up over the quarters, but the majority of it we took in the previous quarter. Joe Moore : Okay. And your joint venture partner, I don't want to speak for them, but like just in terms of assessing the industry situation, would have lost proportionally the same amount? David Goeckeler : Yes. I'm not going to speak for them. But we have joint manufacturing facilities, for sure. Operator: Our next question will come from Patrick Ho with Stifel. Peter Andrew : Patrick, are you there? Why don't we skip over and try to get Patrick back in. Operator: Okay. Our next question will go to Tom O'Malley with Barclays. Tom O'Malley : You're seeing a really -- you're seeing a really strong trend in the HDD pricing side. Is that entirely related to the mix more towards nearline? Or are you seeing any underlying trends in other parts of the business as well? Anything helpful there would be really good. David Goeckeler : I'll put a much larger frame on it, Tom. I think what's happening, and we see it show up in a number of ways, and there's a lot of COVID implications and costs in it, too. But I just -- I think we're just seeing the industry change from a world where there was always capacity enterprise drives available. Hard drives were available. It was about putting as many as you could in places where you could fill up factories and get good absorption and not have to pay incremental cost for that. That's kind of decline of the client era and the rise of the cloud era. We're pretty much through that, we're in the last legs of it. And I just think you're seeing a lot of industry dynamics change. You're seeing long-term agreements come in much something that last year was kind of a new concept that we were working through. Now it's becoming much more mainstream with our big customers just to give us visibility to making investments in this business. Essentially, we don't have a lot of capacity anymore to shift from client to enterprise and the cloud, and we're having to invest in that, and that's causing the whole industry to shift the way it thinks about this technology and my point of view. I think it starts with we're still driving a strong TCO model for our customers. That's where it all starts. Every generation of technology, we're able to bring down the TCO for our customers. In the past, I think as we did that, the reward for our side of it was more volume, to soak up that capacity. Well, that's not the case anymore. Now we have to invest in new volume, so the industry has to change. So we're bringing a lot of TCO value. And I think you're seeing the industry move to providing more visibility, thinking about value-based pricing more -- and how do we move that value equation in a way that we can continue to drive the TCO down and drive a better pricing environment. So that's the big picture. And then, of course, there's a lot of costs in the system right now and inflation input costs are going up, and we're working through pricing if we can mitigate parts of that. That's happening as well. Tom O'Malley : Helpful. And if I could just sneak just another quick one in. On the flash side, obviously, you had a lot of disruptions during the quarter. It looks like the implied cost was relatively flat. When you're looking into the out quarter, you're obviously saying gross margins are up. You should see some pricing tailwinds given the industry. But Wissam, maybe any sort of color on the cost versus pricing impact in the quarter. I know you don't like to get specific, but obviously, given the situation, anything would be helpful here to kind of move on the moving pieces. Wissam Jabre : Yes, of course. Yes, Tom. So we do expect that our long term -- to continue to reach our long-term target of cost reduction, which is 15% year-on-year. The -- we did see a bit of a headwind in the current quarter, but it's really impacted by a few factors that we expect will anticipate in the next couple of quarters. So we saw, for instance, we continue to ramp our BiCS5 technology, as well as just like everybody, we're seeing some inflationary pressure as well as the start-up of our Yokkaichi Fab7. But we still expect for this fiscal year '22 to be at least 15% year-on-year in terms of cost reduction. And as I started with, we do expect to continue to meet that target going forward. Operator: Our next question will go to Timothy Arcuri with UBS. Unidentified Analyst: This is Jason on for Tim. So, could you please provide any color on the trajectory of your HDD gross margins through the second half of this year? I'm asking because we're expecting some benefit that we'll get for the -- on the stronger -- likely stronger pricing environment in the end of the first half. David Goeckeler : Yes. We do expect -- as we talked about last quarter, we're pretty much in the same place, which is we expected the decline we saw this quarter -- we actually expected gross margin to be a little lower next quarter. Now we think that will be flat. And then we expect that to improve in the second half for a number of reasons: Mix, input costs that are changing a bit and also some pricing benefit. So yes, we expect next quarter to be the low and then we expect to improve from there. Operator: Our next question will come from Patrick Ho with Stifel. Patrick Ho : I apologize before. Dave, maybe if you could give a little bit of color. You gave some very encouraging commentary regarding the data center and cloud spending into the second half of the year. One, are these because of the long-term agreements you're signing with customers? And maybe secondly, along with that question, how do you see the customer base in terms of this transition from 18 to 20? Is it a new set of customers? Or are your 18 customers quickly transitioning over to 20 terabytes? David Goeckeler : Yes. So let me unpack that a little bit and thanks, Patrick. So -- the -- it's largely the same customers that will move from 18 to 20. I mean I think, as I said earlier, the TCO equation improves as you go -- as you keep driving forward. So it's a very part of what we do. I mean this is -- I talk about innovation a lot around here, and the innovation we've driven around ePMR and now OptiNAND and SMR, those are all things that we layer into our products and allow our customers every time they move a generation forward, they get better TCO equation. So there's reasons to keep moving forward. So that's kind of the way that works a little bit. By the way, we'll come back and talk about SMR a little bit more. We're continuing to see more momentum towards SMR. That is the future of the cloud HDD business, is SMR. All the big players are now moving down that path, which is a technology we've been investing in for quite some time. On your other question on -- look, the LTAs don't drive the spending and the LTAs help smooth out the spending. I think the whole idea with the LTA is to give -- we have a strong relationship with our big customers and to give better visibility 2, 3 quarters out. I've talked about this a lot in the past, the business used to -- if I think back a year ago or 2 years ago when I came into the business, the business was just transacted quarter-to-quarter and even within the quarter. And clearly, given the investments we need to make to continue to drive investments in heads and media to fund -- to fuel the exabyte growth, we're going to need more visibility than that. And so the LTAs have been adopted. And we strike those with our big customers on multi-quarter timeframes, and then we stick to them. And that's been very good as far as smoothing out any ups and downs in builds on their side. And so, as far as the second half environment, our big cloud customers continue to tell us and signal a strong demand environment in the second half of the year. So we'll be excited about driving to them with -- starting with 18 and then transitioning to 20 as we move through the year. Operator: Our next question will come from Krish Sankar with Cowen. Unidentified Analyst: It’s for Krish. For HDDs, when do you expect the crossover between 20 terabytes and 18 terabytes? And can you please tell us if you did see slowdown in the VIA market for HDDs over the last quarter? David Goeckeler : Yes. I would imagine the 20 crossover will be in the second half of the year. I mean we're deep into the 18s right now. I mean, 18 is probably 80% of the portfolio of shipping. So it's the sweet spot of the market. As we move through the year, we'll start to ramp 20. So towards the end of the year, early next year -- we can circle back on a specific date, but that's the way we're thinking about it. The surveillance market, smart video market, that's been soft all year. So we continue to see that with the lockdowns in China. We expect that once that ends, there'll be some snapback and some recovery of pushed out demand there. But right now, given the COVID situation, I think that, that market is not going to change until the COVID situation changes. Unidentified Analyst: And if I can squeeze one in. Is surveillance margin accretive? David Goeckeler : Is it -- margin. I don't think we break out of that level. I don't know, Wissam, do you have a comment on that, or Peter? Wissam Jabre : Yes. Actually, David, we don't break out down to that level of detail. Operator: Our next question will come from Sidney Ho with Deutsche Bank. Sidney Ho : A couple of short ones on the flash side. How are you thinking about your full year bit shipment growth for calendar '22? I know you don't want to go quarter-by-quarter, but for the full year. And then the follow-up question is gross margin for flash, and you talked about maybe up a little bit for next quarter. Are you actually expecting much price increase? How much is mix a factor? And maybe talk about -- Wissam you talked about the Yokkaichi start-up costs. Can you kind of quantify what that number is? David Goeckeler : I will let Wissam handle the gross margin question. The bit growth -- look, our bit growth will be down this year. We're not going to put a fund number out there right now. But given the fab excursion, we'll be down this year. And then we'll make it up over the next year or so, a year plus. It will take a while to fully come back to our fair share of bits. Our strategy has been very consistent for a long time. We invest to maintain share. And you see us doing that, including recent fab announcements with Kioxia. Wissam, do you want to talk about gross margin a little bit in flash? Wissam Jabre : Of course, David. So Sidney, thanks for the question. The -- when we think of the flash business, I think to address maybe the part of the question around the Yokkaichi start-up cost, they're not very significant and actually, they're much lower than the K1 fab start-up, we're talking about really a brownfield expansion here versus a greenfield expansion. To the part of your question with respect to our flash gross margin that's sort of embedded in the guidance. Of course, mix always plays a part in any gross margin, whether it's actual or projected. So -- but as I said earlier, we're still expecting to meet that 15%-plus year-on-year cost reduction for flash in the fiscal year 2022. I hope this helps. Operator: Our next question will come from Mehdi Hosseini with SIG. Mehdi Hosseini : Yes. And just as a follow-up to the previous question, how should I think about the impact of FX exchange rate on the flash gross margin? Wissam Jabre : So maybe I'll -- thanks, Mehdi, for the question. Then maybe I'll just talk about the FX in general. So our approach is we do -- we use a layered hedging approach, which means it's -- there's much more coverage in hedge on the shorter term versus the longer term. And so that smoothens out the impact of FX over time. And the way also to think of it as any incurred cost within the quarter typically will not really impact the P&L until approximately 90 to 120 days later, given the manufacturing cycle times and lead time for delivery of product. And so the -- whatever we're seeing at least in the past short term in terms of currency fluctuations, will not be that impactful to the numbers. What we saw in -- what we're sort of expecting -- actually, what we saw in this quarter and what we're anticipating for the fiscal fourth quarter is less than 1% impact on all of our cost of goods sold. Not on -- that basically talks about all of the costs of goods sold, maybe not only the flash portion. Mehdi Hosseini : Okay. Can I not answer a question? Is FX more like a clarification? David Goeckeler : So far, Mehdi. Mehdi Hosseini : Just back to David, given your LTAs and you sound confident that the cloud demand is going to sustain into the second half. How should we think about nearline exabyte growth prospect in calendar year '22 versus '21? David Goeckeler : Exabyte growth in '22 versus '21, I can get you -- let me look this up real quick. If I have a pie -- look, I mean, Mehdi, if I look at it -- looking at over -- we keep coming back to 35% growth in the -- in exabytes in the cloud. That's been a pretty consistent number. I'd have to go back and put it in -- I tend to look at it more in fiscal years and calendar years, but I can follow up with you on a calendar year number. Mehdi Hosseini : Okay. And I look forward to meeting you at the Analyst Day. David Goeckeler : I look forward to it. It's going to be fun. Operator: Our next question will come from Nik Todorov with Longbow Research. Nik Todorov : David, you talked about SMR quite a bit on this call. Maybe can you unpack how should we think about the impact on SMR on mix, pricing and margins, and HDD. Maybe can you touch on what kind of workloads are the cloud guys looking to deploy some more initially? David Goeckeler : Well, I'll defer the workloads until our Investor Day. We'll go into a little more detail there. But look, I think big picture, we see this last quarter, I think -- well, I know I said we had 2 big cloud titans that we're working on SMR and we expected significant shipments towards the end of the year. Within the quarter, we had another one and another one come to us about adopting SMR. So I think that -- I think that it's very clear to me that the capacity gains that can be achieved with SMR, we've been investing in this technology for a long time and this idea that you can get an extra 10% or more. And again, we'll talk about that next week -- or in a couple of weeks as well. It's very attractive, especially given the size of the drives now and how big they are, you're talking big numbers, multiple terabytes that are being added through the changes. Now, the thing that gives me a lot of conviction on this is because it requires the -- on the host side, you have to do some software work. And nobody wants to do software work if they can avoid it or if the return is not good enough. And the fact that the big players are coming in, they're saying, look, we're going to invest in this, and we're going to pull SMR into our data centers, tells me that this is the next leg of growth in this industry. So again, we'll get to our Investor Day to talk about what it means on the portfolio, but I get back to just another way that allows us using innovation to drive a better TCO equation for our customers. And when we can drive better TCO, then we can leverage that into a conversation about value-based pricing. And that's exactly what we're doing, and that's -- it's exactly where the industry is going. And like I said, LTAs are a part of that, about getting more predictability. But the fact that we can continue to drive down the cost of storage, continue to drive a better TCO with every generation of products, to do that through innovation, that gives us opportunity to create margin and create value. Operator: Our next question will come from Nam Kim with Arete Research. Nam Kim : How should we think about some of your hyperscaler moving into their own enterprise SSD build? Do you expect such DIY enterprise SSD to impact your business negatively or just have a limited impact? Any color would be great. David Goeckeler : I think various of our customers have DIY projects. I think that's fine. They still -- first of all, I don't know if anybody does 100% fab, because everybody wants diversity in their supply chain. But even DIY provides us opportunity to provide, well NAND, so not just the full enterprise SSD. But like I said, even anybody that's doing DIY is also going to be buying enterprise SSDs as well for part of their footprint. And the numbers here are getting so large that whichever way you play or both. It gives us the opportunity to play in both of those franchises, quite frankly, with our big customers, providing enterprise SSDs and then providing NAND into their projects. So I think it's a reflection of how important enterprise SSDs are to the future of a very modern cloud data center. It's extraordinarily important technology, and we're very happy to be involved with the biggest customers and qualified at the biggest customers with our technology. Operator: Our next question will come from Jim Suva with Citigroup. Jim Suva : Thank you. And I look forward to seeing you all next month. But before that, it's great to see that the contamination issue is kind of behind us, of course, working through that. With that being said, the cost of all that, is that solely borne by Western Digital? Or does your supplier kind of remunerate you for that, or make up for it in future pricing or some type of insurance? And most critically, what are you doing? Have you put in something to make sure such thing doesn't happen again? David Goeckeler : Yes, I'll give some input when we so can maybe provide more details if we have them. But look, we -- the issue is fully behind us. The team has done a fantastic job of root causing it down to the very, very bones of what the issues are, and then putting in place -- obviously putting in place screens and other things to make sure it doesn't happen again. Or if it does happen again to make sure we catch it proactively. As far as the costs are split by us and our JV partner and as far as the ability to recoup any of those, I mean, I think we'll look at that. Once we get fully passed anything, we'll look and see if there's anything that will happen there. Anything to add to that, Wissam? Wissam Jabre: I think -- no, David, I think you've covered it well. Operator: Thank you. Our next question will come from Steven Fox with Fox. Steven Fox : I was wondering if you could just talk a little bit more about the hard disk drive pricing. So as you mentioned, your ASPs were up 4% in the quarter. But can you talk a little bit about the like-for-like pricing currently and for the rest of the year, how you're approaching it maybe differently by the different segments. And whether it's being impacted by the sort of extended lead times you've talked about in terms of where you're maybe putting more bits than maybe you were a year ago. David Goeckeler : I think, like I said, we're working on -- I want to repeat the same thing. Again, pricing starts with value. We have to deliver value, and we're constantly innovating to deliver more value. But we're clearly working on pricing to see -- to defray some of the input costs and all the logistics costs has impacted. So that's going on across the portfolio. And then we're having conversations with our customers about the value we're providing with these next generation of drives about what that value is and how do we move to a value-based pricing model. I don't know if there's a whole lot more to say about it than that. I don't know, Wissam, anything from your perspective? Wissam Jabre : No, not on this, David. Operator: Our next question will come from Christian Schwab with Craig-Hallum. Christian Schwab : I just have a quick question on disk drive gross margins. Given the positive impacts of mix and decreased input costs and value pricing, if we have a China COVID shutdown end, is there any reason why the disk drive business can't be operating at plus growth exiting calendar year? David Goeckeler : I'm sorry, you broke up when you said the number. Christian Schwab : Is there any reason you could -- you wouldn't be exiting the calendar year with gross margins at 30% plus again? David Goeckeler : Yes. I mean, so I think we broke those numbers out. Wissam, I think he's got the details, he had it in his remarks. But I mean, if you just took all the COVID cost of business right now, I think we'd be about 30%, right, Wissam? Wissam Jabre : Yes. So that's very true, David. I mean the -- we did have in the quarter around 240 basis points related to the COVID costs. We've talked about slightly impacted, of course, by COVID lockdowns. We continue to see some inflationary cost pressures short term with supply chain disruptions. The -- I mean, to your question, I wouldn't necessarily want to talk about where the margins are going to be in Q4. But would it say that we do expect the margins to be better from here in the second half of the calendar year '22. David Goeckeler : Yes. It was -- I mean we're not going to commit to your number, but just as a general point, I mean, look, there's just been a lot of a lot of additional costs on the business. We've talked about it for many quarters now, logistics costs and now increased input costs that have really hit us this past quarter. And you would think as the world comes out of the pandemic, I think which is the major crux to your point, as this starts to unwind and logistics gets back to a steady state, and some of the input costs get more reasonable, we stop paying expedite fees for certain components and things like that because there's just a more smooth flowing supplier ecosystem. It will unburden a lot of costs on the business. And again, I think this is masking somewhat, although not completely, a major fundamental structural change that's going on in the business, which I've talked about a lot, which is the HDD market is a growth market, and it's a growth market where we're going to need to invest capital to build additional heads and media capacity. And when that happens, I think the economic equation changes, and we get -- the key thing in that kind of world is can you still innovate and can you still bring new things to the product that makes it more valuable to your customer? And I think that is what we've really been focused on, from ePMR to OptiNAND to SMR, we're just really focused on innovation, bring a better value proposition that will be able to build a better product for our customers, and we'll get into that value-based pricing thing. So if we get both of those going and we can get the cost out because of the pandemic, I think we'll -- we feel very good about the business. Operator: Our next question will come from Mark Miller with Benchmark Company. Mark Miller : I'm just wondering in terms of mix, NAND mix, how is that progressing in terms of mobile versus the other segment you ship into? Are you seeing increasingly more shipments in the mobile? And where do you expect that's going? David Goeckeler : There's a couple of dynamics to this. I think over the -- looking -- the past couple of quarters, we had a higher shift -- higher mix towards mobile as we were ramping BiCS5. We talked about it in the prepared remarks, we've gotten past our qualifications of BiCS5 in the consumer market, and in our client SSD market. So we see an acceleration of mix into those on BiCS5. And then there's a lot of hard work going on to qualify our enterprise SSDs on BiCS5. And as that happens throughout this year, then you'll see an acceleration of that market as well into BiCS5. The reality is we have demand on enterprise SSD. We can't meet because it's on BiCS4 right now. So as we get that into BiCS5, you'll see the mix change, and you'll see the enterprise SSD mix accelerate through the second half of the year, which will provide a tailwind to business. This -- we'll talk about this a little bit more at Investor Day as well to put one more plug in to see all of you on the 10th. Operator: Our next question will come from Kevin Cassidy with Rosenblatt Securities. Kevin Cassidy : Yes, looking forward to May 10 and May 9. I just wondered if you could give us a little more details on the Fab7 ramp. What what's -- you've mentioned brownfield as production. And can I just understand a little better what that means? Is it -- you start off with only 20,000 wafers a month or, any numbers like that you can give us? David Goeckeler : So first of all, let me clarify the brownfield. I think what the point Wissam was making there was that K2 expenses will not be at the level of K1 because K1 was a greenfield and K2 is a brownfield. So -- the same situation with Y7, which ramping in Yokkaichi, obviously a brownfield launch there as well. Wissam may have some information about how the expenses roll out. As far as how the wafer scale, we'll start ramping that, I think, on our newer nodes, but we'll have more to say about that when we start getting the tools in there and all of that. I don't know, Wissam, anything to add? Wissam Jabre : Yes. The -- just maybe to clarify thanks, to clarify the -- my comment on brownfield versus greenfield was exactly just to really highlight that the costs aren't as high as we've seen in K1. They weren't really -- they're not very significant. But of course, it's a bit of a headwind to the gross margin. Operator: Thank you. Speakers, I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. David Goeckeler for any closing remarks. David Goeckeler: All right. Thanks, everyone. We appreciate you joining us. As we've said a couple of times, we look forward to seeing -- hopefully, we'll see you on May 9 as was pointed out for some new product launches. We'll have some exciting new technology coming out then. And then on the 10th -- May 10, May 9 and 10, on the 10th, we'll have our Investor Day, which we've been looking forward to for quite some time. So we will see you there. Thanks, everyone. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator: Good afternoon and thank you for standing by. Welcome to Western Digital’s Fiscal Second Quarter 2022 Conference Call. As a reminder, this call is being recorded. Now, we will turn the call over to Mr. Peter Andrew. You may begin. Peter Andrew: Thank you and good afternoon, everyone. Joining me today are David Goeckeler, Chief Executive Officer and Bob Eulau, Chief Financial Officer. Before we begin, let me remind everyone that today’s discussion contains forward-looking statements, including product portfolio expectations, business plans and performance, trends and financial outlook based on management’s current assumptions and expectations, and as such, does include risks and uncertainties. We assume no obligation to update these statements. Please refer to our most recent financial report on Form 10-K filed with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially. We will also make references to non-GAAP financial measures today. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the Investor Relations section of our website. With that, I will now turn the call over to David for introductory remarks. David Goeckeler: Thank you, Peter. Good afternoon, everyone and thanks for joining the call to discuss our second quarter of fiscal 2022 results. We delivered strong results for the fiscal second quarter, with revenue of $4.8 billion and non-GAAP gross margin of 33.6%, both of which are within the guidance range we provided last quarter. Additionally, we reported non-GAAP earnings per share of $2.30, which was ahead of our expectations. I am proud of the team as this marks the seventh consecutive quarter of meeting or exceeding guidance amid a continuously increasingly challenged supply chain. Before I go over the detailed results and business trends, I want to offer some important key takeaways coming out of calendar year 2021. First, we have made significant progress in strengthening our product portfolio. We delivered on our goals of qualifying our enterprise SSD products at 3 cloud titans and 2 OEMs, commercializing energy-assisted hard drives as well as commencing shipments of 20-terabyte hard drives based on OptiNAND technologies. These products address the large and fast growing opportunities within the cloud for storage. Second, demand for Western Digital storage solutions across cloud, client and consumer end markets remains consistently strong. We are optimistic about our outlook for calendar year 2022 as our customers continue to indicate solid demand across the end markets we serve. I will share more about that demand and other macro factors later. Third, we are continuing to navigate an increasingly complex supply chain, which is impacting both our customers’ ability to ship products as well as our ability to build products. In order to meet our end customers’ demand, we are incurring additional costs that will weigh primarily on our hard drive gross margins through the first half of calendar year 2022. These issues are transitory in nature, affecting both revenue and gross margin and we expect them to subside as the supply chain normalizes. We remain confident that the long-term growth and profitability opportunity in front of us has not changed. Lastly, we received an investment grade corporate rating from Fitch in December, which represents Western Digital’s second investment grade corporate rating. This marks an important milestone as we have worked hard over the last 18 months to strengthen our financial position, providing us with greater financial flexibility in the future. As we approach our targeted debt levels, we look forward to reengaging in a capital return program in fiscal year 2023. Turning to our results, this past quarter, demand remained strong across our end markets and our customers and the Western Digital teams continue to work diligently to mitigate the impact of supply chain disruptions. In particular, cloud revenue for the fiscal second quarter increased by 89% from the same period last year. We continue to anticipate strength in storage demand, which is bolstered by our ability to continue to bring innovative new products to market to meet the needs of the digital economy. The potential of what can be accomplished through the creation of content and the ability to access digital information easily has never been greater. With our technology, we are enabling businesses, creators and innovators to think bigger and push their limits even further. Western Digital has built a great position in the large and growing storage markets. Our proven ability to innovate and develop a balanced portfolio, coupled with our broad routes to market, puts Western Digital in a strong position to capitalize on the many growth opportunities ahead of us. I will now recap our HDD and Flash businesses. In HDD, overall cloud end-market product demand remained high, with revenue increasing 50% year-over-year led by capacity enterprise hard drives. Although we were up strongly year-over-year, capacity enterprise hard drives declined sequentially after two quarters of strong shipments, partly due to some of our customers’ supply chain challenges. As both Western Digital earned customers continue to face supply chain challenges, we will experience some near-term visibility issues. However, our overall demand signals continue to be very good as we move through the calendar year and we will be in a stronger position once these headwinds subside. During the fiscal second quarter, we commenced volume shipments of our 20-terabyte CMR hard drives based on OptiNAND technologies. We are very excited about OptiNAND, a revolutionary technology that utilizes flash in the control plane to further increase areal density. Additionally, we are seeing an increase in customer interest in adopting SMR technology and expect multiple cloud titans to deploy SMR drives in high volume later in this calendar year. In Flash, revenue grew in the second fiscal quarter due to seasonal strength in mobile and consumer. Within mobile, shipments of our BiCS5 products into leading 5G smartphones increased over 60% sequentially and 50% year-over-year, led by strong content growth. BiCS5 shipments represented over 40% of total revenue and BiCS5 production crossover took place during the quarter as expected. The successful ramp of BiCS5 helped accelerate our overall year-over-year bit shipment growth to 37% in the quarter. Our WD_BLACK premium SSD product line optimized for the best gaming experience continues to gain momentum, with revenue increasing about 50% sequentially and doubling in calendar year 2021. Along with flash products for gaming consoles, revenue has grown from 0 to over 10% of our flash portfolio over the last 2 years. As consumers demand more ways to access, generate and store content, whether via gaming or the now emerging Metaverse, our strong and growing flash portfolio will be integral to enable all of these applications. In line with the guidance we provided last quarter, our client SSD business declined sequentially due to supply chain disruptions at some of our PC customers and pricing pressure in the more transactional markets. So far, within the current quarter, we are starting to see pricing in the more transactional markets stabilize. As I mentioned earlier, our enterprise SSD products are qualified at 3 cloud titans and 2 major storage OEMs, marking significant progress compared to 1 cloud titan a year ago. As you know, this has been one of my top priorities. Building upon the early success of ramping BiCS5 into mobile and gaming consoles, we are further strengthening our product portfolio as we move through calendar year 2022. In client SSD, the bedrock of Western Digital’s flash portfolio, we have launched and are ramping BiCS5-based products in the fiscal third quarter, with BiCS5 enterprise SSD products later in the year. For our next-generation 3D flash, we began initial commercial shipment of consumer flash devices based on our 162-layer BiCS6. Furthermore, we qualified and commenced revenue shipment of client SSDs based on QLC and BiCS5 technology in the fiscal second quarter. While still early in its evolution, we are starting to pave the way for the industry’s adoption of QLC in the future and our next-generation BiCS6 node will play an important role in that evolution. Let me now offer a few observations on the demand environment. The accelerated digital transformation in the last 2 years has created a world that is more technology-enabled and technology-dependent than ever before. We anticipate these trends will continue to drive data storage growth across each end market we serve: cloud, client and consumer. Our customers remain optimistic about demand trends in calendar 2022, driven by capital investment for the cloud build-out, continued recovery in enterprise spending, growth in smart video applications, increased adoption in 5G phones, consumer gaming and emerging trends such as VR/AR devices. In cloud, our customers have announced a 36% year-over-year increase in capital investment for the cloud build-out. This coupled with an increase in enterprise spending and continued growth in smart video applications, is expected to drive growth for our flash and HDD products into this growing end market. In client, PC end demand has remained strong. Our customers are driving more consistent demand than the past several quarters and we see continued stabilization in 2022. PC unit shipment forecasts continue to be robust and significantly ahead of pre-pandemic levels. In addition, we anticipate an eventual return to site to drive a mix shift towards commercial PCs, which tend to offer richer client SSD content versus consumer-oriented PCs. In mobile, the latest 5G phones have doubled NAND content from prior generation smartphones. We expect mobile device content to benefit as ongoing 5G adoption and new 5G-enabled applications are expected to drive the storage demand in both endpoints in the cloud. In consumer, the highlight of this end market is our WD_BLACK SSD line of products optimized for gaming enthusiasts. Revenue more than doubled in calendar year 2021. The consumer recognition of the strength and value of WD_BLACK, along with the SanDisk and SanDisk Professional brands, drove a 34% year-over-year growth in average capacity per unit in consumer flash. While end customer demand in calendar 2022 looks promising, supply chain challenges are increasing. This both limits our ability to source components to meet customer demand and increases component costs. These costs are on top of the ongoing elevated logistics and health and safety COVID costs. While we believe these incremental costs are transitory and will subside as the supply chain conditions normalize, they will impact our results through the first half of this calendar year. Let me now turn the call over to Bob who will discuss our fiscal second quarter results and provide a more detailed outlook for calendar year 2022. Bob? Bob Eulau: Thanks, Dave and good afternoon everyone. As Dave mentioned, overall results for the fiscal second quarter were better than our expectations, marking the seventh consecutive quarter that we have met or exceeded guidance. Total revenue for the quarter was $4.8 billion, down 4% sequentially and up 23% year-over-year. Non-GAAP earnings per share, was $2.30, which exceeded the high end of our guidance range. Please note that this figure includes $70 million in total COVID-related costs, which was higher than we anticipated entering the quarter. I will provide more details on these costs in a minute, but we are pleased to have delivered such strong results in the face of ongoing supply chain issues and COVID-related challenges. In addition to this solid financial performance, we hit a major milestone this quarter in receiving an investment grade corporate rating from Fitch. This marks the company’s second investment grade corporate rating. We are pleased to see that our work to build a stronger financial foundation is being recognized and is providing us with greater financial flexibility for the future. Additionally, we closed a public debt offering last December and amended our loan agreement with lenders in January, bringing the maturity of over 85% of our debt balance to 2026 and beyond. For more details, please refer to our earnings presentation. Turning to our end markets, cloud represented 40% of total revenue at $1.9 billion, down 14% sequentially and up 89% from a year ago. Supply chain disruptions impacted cloud hard drive deployments at certain customers, which led to a sequential decline in exabyte shipments in the fiscal second quarter. However, healthy overall demand for capacity enterprise drives, along with Western Digital’s leadership position at the 18-terabyte capacity point, drove a greater than 50% year-over-year increase in exabyte shipments. The client end market represented 38% of total revenue at $1.9 billion flat sequentially and down 1% year-over-year. The continued ramp of 5G phones helped offset decline in both client SSD and client hard drive revenue, enabling total client revenue to stay flat. Client hard drives represent less than 15% of our HDD revenue. Lastly, consumer represented 22% of revenue at $1.1 billion, up 9% sequentially and flat year-over-year. With a strong holiday season, retail flash led the sequential growth in consumer. On a year-over-year basis, growth in consumer flash was offset by a decline in consumer HDD. Turning now to revenue by segment, we reported flash revenue of $2.6 billion, up 5% sequentially and up 29% year-over-year. On a blended basis, flash ASPs were down 6% sequentially due to a seasonal increase in shipments to mobile and retail. On a like-for-like basis, flash ASPs were down 3% sequentially. Flash bit shipments increased by 13% sequentially and 37% year-over-year. Hard drive revenue was $2.2 billion, down 14% sequentially and up 16% year-over-year. On a sequential basis, total hard drive exabyte shipments decreased by 14%, while the average price per hard drive decreased by 5% to $97. On a year-over-year basis, total hard drive exabyte shipments increased by 27%. As we move to costs and expenses, please note that my comments will be related to non-GAAP results unless stated otherwise. Gross margin for the second quarter was 33.6%, down 0.3 percentage points sequentially. As noted earlier, the COVID-related impact was $10 million higher than we anticipated at $70 million. Our flash gross margin was 36.1%, down 0.9 percentage points sequentially. This included COVID-related impact of $10 million or approximately 0.4 percentage points. Our hard drive gross margin was 30.6%, down 0.3 percentage points sequentially. This included COVID-related impact of $60 million or approximately 2.7 percentage points. Operating expenses of $741 million were below our guidance range due to prudent cost control and lower variable compensation expense. Operating income was $882 million, representing a 7% decrease from the prior quarter and 157% increase year-over-year, highlighting our ability to drive profitable growth. Earnings per share, was $2.30, which exceeded the high end of our guidance range. Operating cash flow for the second quarter was $666 million, and free cash flow was $407 million. Despite a slight increase in inventory due to supply chain disruption, we maintained strong cash flow generation in the quarter. Capital expenditures, which include the purchase of property, plant and equipment and activity related to our flash joint ventures on our cash flow statement, with a cash outflow of $259 million. We remain prudent in investing in manufacturing capacity and continue to expect gross CapEx for the current fiscal year to be around $3 billion. We now expect cash CapEx to be around $1.5 billion as we actively manage our overall spending. As we mentioned on our last earnings call, we fully repaid our Term Loan B in the amount of $943 million last October. In addition, last December, we closed a public offering of $1 billion in senior unsecured notes and repaid $1.3 billion on our Term Loan A, bringing our gross debt outstanding to $7.4 billion at the end of the fiscal second quarter. On top of that, earlier this month, we entered into an agreement with our lenders to revise the terms of our loan agreement to reflect our improved credit ratings and to extend the maturity of our term loan and revolving credit facility from 2023 to 2027. Our trailing 12-month adjusted EBITDA at the end of the second quarter as defined in our credit agreement was $4.8 billion, resulting in a gross leverage ratio of 1.5x. This compares to 3.0x in the third fiscal quarter of 2020, when we announced the plan to focus on debt repayment to achieve greater financial flexibility. As a reminder, our credit agreement includes $1 billion in depreciation add-back associated with the flash ventures. This is not reflected in our cash flow statement. Please refer to our earnings presentation on the Investor Relations website for further details. Considering the transitory supply chain challenges we discussed earlier, I would like to provide a bit more color on our view of both hard drive and Flash businesses in calendar 2022. Within our hard drive segment, we expect hard drive revenue to decrease on a sequential basis in the third fiscal quarter. While the supply chain disruptions at some of our customers are expected to remain, the larger issue of late has been our ability to source components to meet customer demand. We expect revenue to return to sequential growth in the fiscal fourth quarter. While overall hard drive pricing is expected to remain relatively stable, we expect gross margins to decline 2 to 3 percentage points from the fiscal second quarter through the fiscal fourth quarter due primarily to component cost inflation. Within our Flash segment, we expect Flash revenue to decrease on a sequential basis in the fiscal third quarter driven by ASP. We expect Flash revenue to return to growth in the second half of calendar year 2022. Furthermore, we anticipate downward pressure on gross margins for the first half of this calendar year as cost reductions revert towards our long-term target of 15%. In regard to our fiscal third quarter, our non-GAAP guidance is as follows. We expect revenue to be in the range of $4.45 billion to $4.65 billion with a sequential revenue decline for both Flash and hard drive businesses. We expect gross margin to be between 30% and 32%. We expect operating expenses to be between $750 million and $770 million. Interest and other expenses are expected to be approximately $70 million. Our tax rate is expected to be approximately 11% in the third quarter and for the fiscal year. We expect earnings per share to be between $1.50 and $1.80 in the third quarter, assuming approximately 318 million fully diluted shares outstanding. I’ll now turn the call back over to Dave. David Goeckeler: Thanks Bob. Looking ahead, we remain optimistic about our business outlook in calendar year 2022 as our customers continue to indicate strong end demand across cloud, client and consumer end markets. Despite the transitory issues we discussed earlier, it is clearer than ever that we have the right foundation for long-term growth and the right technology portfolio in place to ensure that we are successful in scaling our business. Over the last couple of years, we have made significant changes necessary to improve our focus, sharpen execution and set strategic goals to place Western Digital in a position of greater strength. And I’m excited that we are starting to see the fruits of those changes. Before I finish today, I’d like to take a moment to comment on the CFO transition we announced earlier this afternoon. As you may have seen, we announced that Wissam Jabre will be joining Western Digital as Chief Financial Officer effective the week of February 7. Wissam was most recently Chief Financial Officer at Dialog Semiconductor. In addition to his deep financial and semiconductor expertise, Wissam also has technical expertise, and importantly, shares Western Digital’s values of collaboration and innovation. You can read more about his background in the press release issued today. I’d like to extend my sincere thanks on behalf of the entire Board and management team to Bob for his dedication and hard work at the service of Western Digital. During my tenure as CEO, I’ve greatly benefited from his friendship and expertise. He’s been an essential part of our leadership team, guiding key aspects of our strategy. Among many other contributions, Bob drove a capital allocation strategy that has led to significant repayment of our debt, marked this quarter by Western Digital’s second investment-grade corporate rating. Bob’s insight was also instrumental in helping us navigate COVID uncertainty and execute other strategic changes at the company to position us for growth and value creation. Next quarter, you’ll have an opportunity to hear from Wissam. I know he’s looking forward to it. With that, Peter, let’s begin the Q&A. Operator: Thank you. Our first question will come from Aaron Rakers with Wells Fargo. Please go ahead. Aaron Rakers: Yes. Thanks for taking the question. I guess I want to dive into, obviously, the hard disk drive results. I mean, by my math, it looks like your capacity shift in nearline declined by about high teens or even 20% sequential. Can you help dissect the impact of your larger cloud customers having their own supply constraints relative to the comment of your own component availability? And then on top of that, gross margin in this next quarter, I know you alluded to, but how much COVID costs are you factoring into the gross margin expectation with 2 to 3 percentage points decline? Thank you. David Goeckeler: Okay. I’ll take a crack at it. Aaron thanks for the question and thanks for joining us, as always. So I don’t think it was quite down quite as much as you said. I think we’re kind of like mid-teens. A big piece of that is, we talked about it last quarter, we have one very, very large customer that’s going through some challenges of their own. And now we have issues with our own supply chain. So I would say in the last quarter, it was primarily on the customer side. And as we went through the quarter, it started to creep in on our own components. And as we move into the next quarter, it’s much more of a component issue as the rest of the market normalizes out or the customer normalizes out. On the COVID costs, you saw they are going up, and I’ll let Bob comment through this in more detail. But the health and safety and logistics costs continue to go up. We’ve seen that over the last couple of quarters, and now we’re seeing component costs that are almost approaching that same level of spend as far as increases. So I thought I’d give you some idea of sizing it. But Bob, you want to... Bob Eulau: Yes. I can add a little more detail. I think that the COVID costs we’ve been reporting, which are the logistics costs and the costs in the factory associated with keeping our employees safe, probably peaked in the second fiscal quarter at the $70 million. I think it will come down some in the third quarter, and hopefully, continue to come down from there. The logistics costs, as you know, have been elevated for probably at least six quarters now. The thing that’s different as we look at the next quarter or two are the component costs, and we’re seeing a lot of inflationary pressures on the component costs. We think those are transitory, a lot of expedite fees, a lot of expenses associated with trying to get the parts in so we can get the products built and delivered. So I think that’s really what’s different as we look forward the next quarter or two. David Goeckeler: The other thing, Aaron, I’ll just wrap up by saying, I mean, as we look forward into the next quarter, we’re expecting right about on seasonality for our hard drive business. I would say earlier – midway through last quarter, we were hoping to do better than that because we saw the demand there. But there is a significant amount of unmet demand that we just can’t meet given the component constraints. But even with all that included, we believe we’re back on a more seasonal number. Aaron Rakers: Okay, thank you. David Goeckeler: Sure, thanks. Operator: Thank you. Our next question will come from C.J. Muse with Evercore. Please go ahead. C.J. Muse: Yes. Good afternoon. Thanks for taking the question. I guess to follow-up on Aaron’s question, can you speak to when you expect these constraints to no longer be a headwind? And as part of the higher component costs, is there a point in time where you can – where contracts can be renegotiated and you can increase those higher input costs in terms of your pricing? David Goeckeler: Yes. So there is – first of all, thanks for the question and thanks for joining us again. There is a lot to unpack in that question. Let me take a bit of a crack at it. So the component constraints are not necessarily new. We’ve been dealing with them for a long time. I think early in the pandemic, we were able to qualify additional component suppliers, diversify. And then as things went on, we would always remix and do what we could to get the most out of the components we could get. It’s just gotten to the point now where it’s getting even more constrained. And quite frankly, a little bit more surprises that orders that we thought were going to show up get either delayed or canceled. So we continue to work through that. So to your point, there is a number of dynamics about why it gets better. One, we stay very close to our suppliers, and we will obviously work many quarters into the future. And we can see as we get through the first half of the year, things get better. We also – the technology moves forward. And in some cases, we just move on to different nodes in the semiconductor business that have more availability on them. So we know as the portfolio shifts, things are going to free up. And then to your point, the longer it goes, we can negotiate longer contracts and kind of look at the relationship with all of our suppliers to get back to a position where we have more predictability both on the supply side and on the pricing side of it. C.J. Muse: That’s very helpful. And as my follow-up on the NAND side of things, I think you’ve historically talked about the transactional market kind of as a leading indicator. And so curious, as you look into March, how are you thinking about pricing? And I know you don’t guide pricing, but curious, is there a larger headwind like-for-like or on a blended basis as you sit here today and consider the likely mix? David Goeckeler: I would say pricing is – look, I mean, I said it in the script. Pricing has stabilized in the more transactional markets. I think there was a little bit – I think the narrative in the industry given some of the shutdowns that are going on, would it flow through immediately? We haven’t seen that. But we did see a stabilization. Also it’s worth noting that majority of the portfolio is priced before we go into the quarter, and that happened before any of the events of the shutdowns in China. So that’s not going to show up for another quarter or two. But I would say we’re seeing more stabilization. Our view, I think, has been that we will see better pricing in the second half, and that’s pretty much the way it’s playing out. Depending on kind of the impacts of some of the shutdowns, that may move forward a little bit. But I think mainly the impacts of what we’ve seen – impact on NAND pricing is going to be more second half favorable, including some of the stuff we’re seeing now on even the tool vendors, the component issues hitting them. So we’re watching that very closely. I would say right now, we’ve got a more stable environment over the last 2, 3 weeks. C.J. Muse: Thank you. David Goeckeler: Yes. Thank you. Operator: Thank you. Our next question will come from Joe Moore with Morgan Stanley. Please go ahead. Joe Moore: Great. Thank you. Just following up on the NAND question, you guys have been going through this BiCS5 transition, and I know part of that has sort of – as you’re waiting for controllers and qualifications that you end up in those more transactional markets. Where are you from a mix standpoint? Is that still a negative impact in the March quarter? And do you see that at some point reversing as you start to get traction in other markets with BiCS5? David Goeckeler: Yes. Joe, thanks for the question. So definitely, as we go through the year, the mix gets better on BiCS5. It starts out in more transactional markets. Consumer, it’s moved into mobile, it’s into gaming. This quarter, we will start to ramp client and then more of that as we go through the year. And then in the second half of the year, we will ramp BiCS5 into enterprise SSD. And that’s really where the whole enterprise SSD story comes together. We’ve got – this year, we went through all the qualifications. That’s BiCS4 material right now, which is in shorter supply. And then as we ramp that into BiCS5 throughout the year, the mix gets better as we go throughout the year. So it’s a really important point and one of the reasons why when we talk about the setup for 2022, as we go forward, the portfolio gets stronger. Joe Moore: Great. And then in NAND, I don’t know if you mentioned because I’ve been on multiple calls, but have you had constraints from SSD controllers as well as HDD and power management, anything else that’s constraining on the NAND side of the business? David Goeckeler: Yes. I would say the NAND – the business we’re leaving on the table in the NAND business is higher than in the drive business. It’s significant in the drive business, in the order of $100 million to $150 million in the third quarter there. But in the Flash business, it’s basically twice that. So yes, it’s controllers, it’s power ICs, it’s a number of different parts on enterprise SSDs and embedded as well. Joe Moore: Great. Thank you. David Goeckeler: Sure. Thanks. Operator: Thank you. Our next question will come from Karl Ackerman with Cowen. Please go ahead. Karl Ackerman: Yes. Thank you. Two questions, if I may. It’s great to see crossover of BiCS5 this quarter. But may you discuss the timing of ramping BiCS6? I ask given your plans to reduce cash CapEx and expectations for a moderation in NAND cost declines. And I have a follow-up, please. David Goeckeler: So we expect – so first of all, let me talk about how we think about ramping different nodes. I mean the main thing we’re looking at is the cost side of it. So the cost numbers, good again this quarter. We expect that to revert closer to the $15 million that we always talk about modeling. It’s been above it, I think, for nine quarters in a row now. But still, the nodes are producing, and we’re getting the cost we need as we go forward. We – BiCS4 was a great node for us on yields, record yields. We expect BiCS5 to be – that BiCS5 is the most capital-efficient node the team has ever built. And so at this point, we expect BiCS6 to be in FY ‘23 type of ramp. We’ve got lots of runway on BiCS5. Karl Ackerman: I appreciate that. For my follow-up, there have been some investor concerns that channel inventory has been increasing for non-enterprise hard drives and retail areas of the NAND market. I’m curious whether that’s the case for you. It doesn’t appear that way given the constraints you are seeing from a component perspective. But if you could just discuss the level of visibility and the amount of channel inventory you see or the leanness of that, that would be very helpful. Thank you. David Goeckeler: Yes. I don’t think it’s anything noteworthy that’s particularly out of the norm across the portfolio. We talked a little bit about some stuff last quarter that’s normalized. So there is really nothing to call out. I don’t know Bob, is there anything to come to mind from your perspective? Bob Eulau: No. I think we’re within normal ranges in every region. Karl Ackerman: Thank you. David Goeckeler: Thank you, Karl. Operator: Thank you. Our next question will come from Mehdi Hosseini with SIG. Mehdi Hosseini: Yes. Thanks for taking my question. Two follow-ups. I want to go back to the supply chain dynamics for HDD. And now, that – two follow-ups here, now that you’re actually impacted by component shortages, is that – if you were willing to pay a higher premium, would you actually be able to procure the components you needed? Is that just holding going on in the supply chain or just the parts are not available, no matter how much a premium you’re willing to pay? And I have a follow-up. David Goeckeler: Well, I think there is a premium to get them. And so we have good contracts with our suppliers. So – but there are premiums to get the pieces. But like I said, there is just more variability on timing, especially in the fact that orders that have been placed many, many, many quarters in advance, then we get push-outs. I think your question is, are we just not paying for them? Are they available? And I think it’s a mix. I mean we’re definitely – we definitely have to pay more to get what we need, and there are some pieces that are just getting delayed and – especially later in the planning cycle where it’s more difficult to mitigate the impacts. Mehdi Hosseini: Thank you. And a follow-up to that, when I look at your December quarter, you were impacted by one particular customer, and now it’s a supply chain issue. Does that mean that we should expect a step-function in your HDD shipment, especially into the September quarter, or is the recovery in recouping these loss shipment and revenue is going to be more gradual? David Goeckeler: Yes. Well, look, let’s talk about it. I mean I think we are back on seasonality as we go into Q1. We obviously have a margin impact. We expect the revenue – Q3 to be the bottom on the revenue in that business. I think the margin will probably hit the bottom in the next quarter, but we will see some sequential growth. What I can say is when we look at calendar Q2, calendar Q3 through the end of the year, the demand signals from our customers are very strong. So, assuming we get the parts and like I said, especially in the drive business, as the portfolio transitions, we move on to different nodes that are freer as far as getting the controllers. That’s why we have more confidence in the second half of the year. Mehdi Hosseini: Got it. Thank you. And Bob, good – best of luck in your next endeavor. Bob Eulau: Alright. Thanks, Mehdi. David Goeckeler: Thanks, Mehdi. Operator: Thank you. Our next question will come from Toshiya Hari with Goldman Sachs. Please go ahead. Toshiya Hari: Good afternoon. Thanks so much for taking the question. I have got two as well. Dave, I guess you have been focused on, I guess shifting your ACD business from a more kind of transactional business to one that’s more perhaps a little bit more strategic and longer term in terms of how you engage with your customers. Any progress on the LTA front over the past couple of quarters? David Goeckeler: Yes. I think the business is definitely changing. I mean we have talked about this for a couple of years. And let me just frame it up as a kind of where we were when we walked into 2021 and where are we when we walk into 2022. And so as we go into ‘22, we are clearly – we clearly have strong customer demand. I mean in the first quarter, we have more demand than we can meet. We have customers asking us for upsides. And we get good demand signals as we move through the year. The LTA percentage to your point, are multi-quarter agreements. I am starting to say a little more precise. On the drive business, when we walked into ‘21, we had – we knew were maybe a low to mid-single percent of our exabytes were going to go through agreements. And as we walk into ‘22, that’s more like a third of the portfolio. So, you have seen a dramatic – we have seen a dramatic difference in what we understand about how much our customers are going to take, especially the biggest of the big customers, what their demand is going to look like, what are they committing to. That obviously helps us plan, that helps us work on pricing. So, it’s a very, very different situation. From a portfolio point of view, we walked into calendar year ‘21 when we were talking about commercializing energy-assist. We walk into ‘22 not only having commercialized energy-assist and got the areal density gains from it, we have also launched OptiNAND. We got back on our front foot with 18 and ramped that. Now we are ramping 20. Something we talked about in the script, which has evolved over the year is we are seeing much more interest now from the big customers in SMR. That’s something we have been investing in for many years. We have always thought it’s been good technology. OptiNAND helps deliver a better SMR drive and better areal density. And we expect by the end of the year, we are going to have multiple cloud titans deploying SMR at scale. On the flash side of the business, we talked about BiCS5 and kind of where we are there and how that portfolio gets stronger throughout the year. And then I think as we go through ‘22, we are just in a better financial situation than we were before. To the – and as we talked about on the call, getting back to a shareholder return policy, which we are all very much looking forward to as we move into FY ‘23. So, maybe a little broader than your question, sorry, but we – LTAs in the drive business have become a meaningful increase in the percent of our exabytes and where they are going to be placed throughout the year. Toshiya Hari: Got it. That’s super helpful. Thank you. And then as my follow-up, Dave, you mentioned at the very end of your response on the shareholder return aspect of the business, it’s next fiscal year, which is great. What’s sort of the internal debate when you think about dividend versus share repurchases? And just given the evolving macro backdrop and sort of the rate backdrop, any change in how you think about and how you approach capital allocation at a high level? Thank you. David Goeckeler: Yes. I think we will have more to say about that as we get a little bit closer. I mean one of the things we are going to do is talk to our shareholders and get their input on that question, and then we will have more to say about it. So, I don’t know if it’s an internal debate just yet, but we are just really looking forward to getting to that point. We have spent 18 months now paying down well over $2 billion worth of debt. We have the ability – we have made a lot of changes in our execution in the portfolio to generate more cash, and we are looking forward to returning that to our shareholders. Toshiya Hari: Thank you. David Goeckeler: Thank you. Operator: Our next question will come from Timothy Arcuri with UBS. Please go ahead. Unidentified Analyst: Hi. Thanks a lot. This is Jason Park on for Tim Arcuri. So, just I have one question. My question is on HDD. So, we just wanted to ask how your 20 terabyte is ramping throughout this calendar year. As you guys know, your competitor provided some color on this last night, saying there is 20 terabyte will be one of the fastest ramp ever. So, if you guys could provide any details on how your 18 terabyte and 20 terabyte ramp is going this year, that would be helpful. Thank you. David Goeckeler: Yes. 20 is – I guess what I would say is 20 terabyte is ramping. It’s not going to ramp. It is ramping. I mean if I look at units shipped in the last quarter, we are up to a high-single digit percent already of units that are going out at 20 terabyte. And like I said, we see high interest because we have some very, very large customers going to SMR. And so you are going to get more bang for your buck there with the gains you get on SMR. And OptiNAND is a technology that makes that even more efficient. So, we feel really good about where 20 terabyte is. We feel good about where the technology is. And we think it’s going to be a very successful ramp. I will just leave it at that. Operator: Thank you. Our next question will come from Vijay Rakesh with Mizuho. Please go ahead. Vijay Rakesh: Hi Dave and Bob. Just a question here, on your March quarter flash guide, I think you talked about price might be a little bit – pricing will be a little bit softer. Wondering, mix should be more positive for you guys, right, because mobile probably comes in and you have a better mix of, it might be retail and enterprise, etcetera. So, I was wondering why margins wouldn’t be more stable in the flash side in the March quarter. And also, I think you mentioned component cost inflation. I was wondering if this is actual component costs or logistics costs, or what exactly the component cost inflation was? Thanks. David Goeckeler: So, on the second one, it’s actual component cost. Like what the suppliers mix of cost is a different thing. I mean obviously, wafers are going up. But for us, it’s just the cost of the component itself. On your mix question, yes, mix gets better as we go forward because we go more into BiCS5 and more parts of the portfolio. I guess what I will say is the component impact on the portfolio – I mean one of the places the component impact on flash is hitting the portfolio is on enterprise HDD, which is… Peter Andrew: Enterprise SSD. David Goeckeler: Enterprise SSD. Thank you, Peter. Enterprise SSD. So anyway, the component impact on the portfolio is a – component shortage impact on the portfolio is part of the equation there as well. Vijay Rakesh: Got it. Thanks. David Goeckeler: Thank you. Operator: Thank you. Our next question will come from Tom O’Malley with Barclays. Please go ahead. Tom O’Malley: Hi. Good afternoon guys and thanks for taking my question. I just had two on the HDD business. One, I think, David, you have talked about seasonality or a more seasonal march. You have obviously seen some marches over the past 2 years that I would classify as less seasonal. Could you remind us what seasonality traditionally looks like in that business? And then the second one is you talked about gross margins over the next two quarters, going down 200 basis points to 300 basis points in the HDD business. Could you give us any color on the cadence there? Do you see a sharp fall off in March and a flattening in June, or is it a step-function for both quarters? Thank you. David Goeckeler: First question… Bob Eulau: Was on seasonality. David Goeckeler: Right, seasonality, about 4%, right? Bob Eulau: For the company overall, yes, usually down about 4% in the March quarter. David Goeckeler: And then, Bob, do you want to comment on gross margin, what it looks like in… Peter Andrew: HDD. David Goeckeler: In HDD fiscal Q3, fiscal Q4? Bob Eulau: Yes. Well, as I mentioned, we have two big headwinds right now. The one we have had for a while, which are the COVID costs, and we hope they peaked in the December quarter. We think they peaked in the December quarter at about $70 million, and it will come down some from there. The logistics costs have been persistent for quite a while. So, I think it really comes down to when we see more passenger traffic coming out of Asia, which will be able to get the cargo rates down. So, that’s one headwind we continue to have. And then on the component costs, I mean it’s – we are really expecting those to persist through the fourth quarter. And we expect them to get better as we go through the year, as Dave mentioned, as some of the controllers get on different nodes and we are able to see more supply available. But I think through the fourth quarter, we will continue to have a challenge. Tom O’Malley: Thanks for the color. Bob Eulau: Sure. Operator: Thank you. Our next question will come from Jim Suva with Citigroup. Please go ahead. Jim Suva: Thank you. Probably a question for Bob, but when you talk about those COVID costs kind of peaking, I think you said December quarter peaking. Can they come off pretty quickly if the COVID pandemic ends up for spring and summer kind of going away and critical mass of people overcome it? Just kind of curious about how quick they can go away, or is that too optimistic to think that they could go away, hopefully as fast as warmer temperatures come around? Bob Eulau: Yes. I mean I think that – as I mentioned, the real driver is there is very little passenger traffic coming out of Asia right now. And so there is a lot of cargo on those flights in normal times. So, obviously, we are seeing good indications. A lot of the countries are starting to open up and say they are going to open up in the spring. Then you have to see the passenger travel come back and then obviously, you have to negotiate with the carriers and see the rates come down. So, I don’t know it’s going to be super quick, but I think that it will come down over the course of the year. Jim Suva: Great. Thanks so much. Bob Eulau: Sure. David Goeckeler: Thanks Jim. Operator: Thank you. Our next question will come from Steven Fox with Fox Advisors. Please go ahead. Steven Fox: Hi. Just a basic one from me. I understand how different nodes on the controller side can help, and some things are out of your control in terms of freight costs, as you just mentioned. But I am just struggling to – with the idea that in a couple of quarters, you feel that some of these supply chain issues will be more manageable. Is there anything else you guys are doing to control your own destiny that makes it sort of a little bit different in terms of your outlook, say, out into September, December? And Bob, congratulations, and I always appreciate working with you. Thanks. David Goeckeler: Yes. So, I think we are doing everything we can. I mean we are – I mean we always look to diversify our supply chain, especially in this kind of environment. We are staying very close to our suppliers to understand exactly they understand what we need, and we understand what they can provide. Like I said, there has been more variability in that lately. We are redoubling our efforts there to get close to it. And I think when we look – we plan many, many quarters in the future. And so when we look at where we are at, if we can get the surprises out of there, which we think will get better as more of the nodes in the fab start to free up, we will be able to be in a better position. And like I said, there are some big issues. When you roll the portfolio forward, you change the bomb of the product, and that gives you a different set of components that you are using. So, when you look at that planning is what gives us confidence on the second half. Steven Fox: That’s really helpful. Thank you very much. Bob Eulau: And thanks, Steve. Appreciate your comments. Operator: Thank you. Our next question will come from Ananda Baruah with Loop Capital. Please go ahead. Ananda Baruah: Hey, good afternoon guys and appreciate you guys taking the question. And Bob, yes, really enjoyed working with you as well. Bob Eulau: Thank you. Ananda Baruah: Yes. I guess my question is sticking with 20 terabytes. Guys, do the component constraints, do those impede the velocity of the ramp through the year? And I believe in the past, you had talked about maybe reaching kind of 20 TB crossover sometime midyear and is that still the case? Thanks a lot. David Goeckeler: Yes. The component situation is better on 20, I mean is maybe a better way of saying what I said earlier. But – so I mean, at this point, there is no impeding of that roadmap, right, and that ramp. Where we are running into problems is controllers on 18s because that’s where 75% to 80% of the portfolio is right now, and that’s the sweet spot of what customers are deploying. So, I think as we move through the year and we move into 20, I mean we will get things to free up. We will get closer to our suppliers and get more capacity on the current products as well. But as we move forward, we also have some other dynamics that help us. Ananda Baruah: That’s super helpful. Okay. Great. Thank you. Operator: Thank you. Our next question will come from Srini Pajjuri with SMBC Nikko Securities. Please go ahead. Srini Pajjuri: Thank you. Just a follow-up to one of the previous questions on, I guess the cost side of things. Obviously, some of the costs are transitory when it comes to supply chain. But it’s no secret that the semiconductor pricing, IC pricing, has gone up, perhaps on a permanent basis. So, I am just curious, Dave, as you kind of talk to your customers, what sort of conversations are you having with your customers? And I am trying to understand your ability to pass through some of these permanent cost increases as we go through the next few quarters. David Goeckeler: Yes. So, we work – I mean I think this goes back to the conversation we had earlier on multi-quarter agreements. I mean we have been working with our customers quite a bit on what their future looks like and what they are planning. That gives us more certainty in the process. And quite frankly, that’s helped to stabilize pricing in this environment. I mean – the first order of business is to be as close to our customers and mitigate these costs through staying aligned with them. If it gets to the point where there is – we think they are going to be long-term, then of course, well, the economics of the industry will have to reset to drive the continued investment to drive the exabyte growth. So, it’s a little bit of how we are thinking about it right now. It’s – we see them subsiding as the supply chain loosens up and we drive the technology forward. If our calculation is off on that, then we will look at all the other levers we have in the business. Srini Pajjuri: Got it. And Bob, thank you for all your help, and good luck. Bob Eulau: Thank you. Appreciate it, Srini. Operator: And our final question will come from Nik Todorov with Longbow Research. Please go ahead. Nik Todorov: Yes. Thanks for squeezing me and thanks for taking the question. We talked about the LTAs on the HDD side. I wonder what is the appetite from customers for doing LTAs on the NAND side, particularly on the enterprise SSD business and maybe on the client SSD side, as supply is obviously impacting? David Goeckeler: I would say – I mean, definitely LTAs are the routine way the NAND market works with OEMs and anybody that’s buying on a consistent basis. So, that’s been a part of the market for a long time. I think it’s – we are borrowing some of those ideas and moving over to the drive business. Again, I talked about earlier why I am more confident in ‘22 as we walk into the year and as we go forward. On the NAND side, the percentage of the portfolio under LTAs has gone up as well. I mean when we walked into last year, it was over – it was already over half of the portfolio. We walk into this year, it’s more like two-thirds. And realize we have a big percentage of our portfolio in consumer markets in the channel. So, those are not things where you think about multi-quarter agreements with your customers. But in the NAND market, it’s just the way business is done is to negotiate share for different products with customers and then of course, on a quarterly basis, negotiate price within that share envelope. And then there is always the opportunity for upsides beyond that share amount. And we are seeing a fair amount of that right now in the NAND business. There is a lot of customers coming to us PC customers, enterprise SSD customers looking for upside in NAND. So, that – again, that makes us optimistic. When we talk about strong demand signals that’s one of them that gives us confidence in the year. We will manage through the component issues. And we feel super good about where the roadmap is, where the technology that’s underpinning this is. We feel good about the customer relationships and demand signals. And again, to wrap it all up, we spent 1.5 years getting the company in a much stronger financial position. And we look forward to getting back to a shareholder return policy. So – but again, to summarize your question, LTAs, much, much more prevalent in the NAND business. Nik Todorov: Got it. Thanks. David Goeckeler: Thank you. Alright. Is that it, Peter? Peter Andrew: Yes. David Goeckeler: Alright. Thanks. Look, everyone, we really appreciate you joining us today. We will be talking throughout the quarter, and we will look forward to engaging then. Thank you very much. Bob Eulau: Thanks, everybody. Operator: This concludes today’s conference call. Thank you for joining. You may now disconnect.

Operator: Thank you for standing by, and welcome to the Western Digital's First Quarter Fiscal Year 2022 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your first speaker, Mr. Peter Andrew. Thank you. Please go ahead. T. Peter Andrew: Thank you, and good afternoon, everyone. Joining me today are David Goeckeler, Chief Executive Officer; and Bob Eulau, Chief Financial Officer. Before we begin, let me remind everyone that today's discussion contains forward-looking statements, including product portfolio expectations, business plans and performance, trends and financial outlook based on management's current assumptions and expectations, and as such, does include risks and uncertainties. We assume no obligation to update these statements. Please refer to our most recent financial report on Form 10-K filed with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially. We will also make references to non-GAAP financial measures today. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the Investor Relations section of our website. With that, I will now turn the call over to David for his introductory remarks. David Goeckeler: Thank you, Peter. Good afternoon, everyone, and thanks for joining the call to discuss our first quarter of fiscal year 2022 results. We reported revenue of $5.1 billion, non-GAAP gross margin of 33.9% and non-GAAP earnings per share of $2.49, all within the guidance ranges we provided in August. This marks the sixth quarter in a row of meeting or exceeding guidance, a point that we are particularly proud of as we continue to navigate uncertainty and volatility in the market. Strong demand across diverse end markets, particularly for our cloud products, combined with Western Digital's strong innovation, broad routes to market and sharpened execution enabled us to deliver results within our guidance range despite significant COVID impacts and supply chain disruptions. While these disruptions are transitory, the long-term opportunities for Western Digital remain unchanged as the world's digital transformation continues to accelerate. During the quarter, we shipped a record level of exabytes, while also improving non-GAAP gross margins across both flash and HDD and generating profitable growth. We saw strong demand for our latest generation hard drives and flash products in the cloud end market as well as strong consumer demand for new 5G-based mobile phones incorporating our latest BiCS5 flash solutions. The strong demand for these products were partially offset by pressure in the commercial channel within the client end market and certain portions of the consumer end market, particularly retail. This was attributable to component issues impacting our customers' ability to ship products, greater component sourcing constraints within our own operations and uneven geographic demand due to COVID lockdowns. Our continued focus on innovation and a more agile business unit structure enabled us to quickly adapt to these dynamics. When combined with an industry-leading portfolio and a strong go-to-market operation, I'm confident in Western Digital's ability to continue to generate improved operational performance for all of our stakeholders. Before I get into the business trends, I want to highlight a few changes we made to our end market breakdown, which, we believe, will help you understand why Western Digital is well positioned to capitalize on the opportunity presented by the increasing value and importance of data. We now split our end markets into cloud, client and consumer. The cloud represents an incredibly large and growing end market for Western Digital, and we are uniquely positioned to address customer storage needs as the only provider of both hard drive and flash products. During the first quarter, cloud represented a record 44% of total revenue, led by record capacity enterprise hard drive revenue and nearly 30% sequential growth in enterprise SSD revenue. We believe the accelerated digital transformation will continue to drive growth in this end market and continue to shift our business mix towards the cloud. As we ramp our new innovative products and continue leveraging the benefits of the organization structure we put into place last September, I am confident we will capture opportunities to achieve a more stable and profitable growth profile over the long term. The client end market represented 37% of revenue in the first quarter. Here, we are providing a broad array of high-performance flash and hard drive solutions to our OEM and channel customers across PC, mobile, gaming, automotive, VR headsets, at-home entertainment devices and industrial spaces. Lastly, the consumer end market accounted for 19% of revenue in the first quarter. The highlight of this end market is the strength of our SanDisk brand of retail products and the WD_BLACK brand of storage products for gaming enthusiasts, which is strong and growing. The brand recognition and infinity, combined with our unmatched reach with nearly 400,000 points of presence across the world is a great setup for Western Digital as we enter a seasonally stronger part of the year. With that, I'll now provide a recap of our HDD and flash businesses as it relates to our first quarter results. In HDD, continued strong demand for our latest generation energy-assisted drives among our cloud and enterprise customers drove record revenue and exabyte shipments in our cloud end market. In addition, we experienced strong revenue growth in our smart video product line, and we're unable to meet demand. During the quarter, we announced OptiNAND, a revolutionary technology that utilizes flash in the HDD control plane to further increase aerial density. With this leading architecture, we achieved 20-terabyte capacity using our field-proven 9-disk mechanical platform and ePMR technology. Next month will commence volume shipments of our 20-terabyte CMR hard drives based on OptiNAND technology. In flash, revenue grew in the quarter due to continued strong demand within the cloud and client end markets for our latest generation of our enterprise SSD products and the ramp of new 5G phones incorporating our latest BiCS5 node. Within enterprise SSD, we experienced continued success in the cloud with another successful quarter of qualifications. We are now qualified at 3 cloud titans and have made excellent progress working our way through the qualification process in the enterprise and distribution channels. We expect these qualifications to start to drive accelerated revenue growth in 2022 as our customers begin to deploy these products into their networks. The ramp of next-generation 5G phones incorporating our latest generation of BiCS5 products accelerated in the quarter, with revenue growing over 20% sequentially. We expect this migration to 5G, combined with a continued increase in the amount of storage per phone to drive another strong quarter of revenue growth in the fiscal second quarter. Gaming was strong in the quarter with a solid lineup of products for game consoles along with a growing brand recognition of WD_BLACK based products in the channel and retail. Heading into the second fiscal quarter, we are well positioned to take advantage of seasonal strength and grow in a wide variety of gaming channels. As I noted earlier, the client PC OEMs' distribution channel and retail were impacted by our customers' ability to ship product, greater component sourcing constraints within our own operations and uneven geographic demand due to COVID lockdowns. Demand was solid, but these transitory issues impacted our ability to realize this demand in our results. In total, bit growth accelerated to 30% year-over-year in the first quarter as we ramp BiCS5 to 17% of flash revenue. This quarter, we expect year-over-year bit growth to further accelerate to the mid-30s range with BiCS5 bit crossover to happen later in the quarter. Our long-term goal is to grow bits in line with the market, taking advantage of our product and end market breadth to shift our bits to optimize profitability. As we look into calendar year 2022, we are optimistic as our customers continue to indicate strong end demand across cloud, client and consumer end markets. We have industry-leading technology, the right product portfolio and investments and the organizational agility to fundamentally drive improved profitability regardless of market condition. We have a great position in 2 large and growing markets in flash and HDD, and we have proven our ability to drive innovation throughout our portfolio and deliver industry-leading products to a broad and loyal customer base. We believe that the migration to the cloud and demand for storage solutions throughout the client and consumer markets will drive a huge opportunity for Western Digital and our customers. I'll now turn the call over to Bob to share details on our financial results. Robert Eulau: Thanks, Dave, and good afternoon, everyone. As Dave mentioned, overall results for the fiscal first quarter were within the guidance ranges provided in August, marking the sixth quarter in a row that we've met or exceeded guidance. Total revenue for the quarter was $5.1 billion, up 3% sequentially and up 29% year-over-year. Non-GAAP earnings per share was $2.49. Please note that EPS included $56 million in total COVID-related costs, which was higher than we anticipated entering the quarter. I'll provide more details on these costs in a minute, but we are pleased to deliver such good results in the face of this unanticipated headwind and other supply chain issues. From a disclosure perspective, in addition to the change in our end market breakdown that Dave discussed, this quarter, we moved to segment reporting for our flash and hard drive businesses. For more details, please refer to our earnings deck. Looking at our end markets, cloud represented 44% of revenue at $2.2 billion, up 12% sequentially and up 72% from a year ago. This represented the second quarter in a row of record revenue. What is encouraging about this cloud revenue growth is the strength and breadth of our revenue streams across product areas. There was growth on a sequential basis in both the flash and hard drive business units as well as across every product category within the cloud, including capacity enterprise drives, enterprise SSDs, smart video and platforms. As the cloud continues to grow as a percentage of our revenue, we see an opportunity to reduce volatility in revenue and profitability. Over the last 3 quarters, we have successfully ramped our 18-terabyte energy-assisted drive to our highest volume mainstream product within the cloud end market. Overall, cloud HDD exabyte shipments grew 9% sequentially and over 70% year-over-year and comprised over 80% of total HDD exabyte shipments. Client represented 37% of revenue at $1.9 billion, down 2% sequentially and up 6% year-over-year. A highlight within the client end market was growth within our flash business unit, specifically in mobile, gaming, automotive, IoT and industrial applications. Our strength here was more than offset by pressure in desktop and notebook hard drives due to supply disruptions at our customers and within our own operations. Finally, consumer represented 19% of revenue at $973 million, down 6% sequentially, but up 10% year-over-year. Both our flash and hard drive business units declined on a sequential basis due to similar supply disruptions in addition to uneven geographic demand due to COVID lockdowns. Turning now to revenue by segment. We reported flash revenue of $2.5 billion, up 3% sequentially and up 20% year-over-year. On a blended basis, flash ASPs were down 3% sequentially, primarily due to mix and pricing within our transactional markets. On a like-for-like basis, flash ASPs were flat. Flash bit shipments increased 8% sequentially and 30% year-over-year. Hard drive revenue was $2.6 billion, up 2% sequentially and up 39% year-over-year. On a sequential basis, total hard drive exabyte shipments increased 4%, while the average price per hard drive increased 5% to $102. As we move to costs and expenses, please note that my comments will be related to non-GAAP results unless stated otherwise. Gross margin for the first quarter was 33.9%, up 1 percentage point sequentially. As noted earlier, this included $56 million in COVID-related costs or a 1.1 percentage point impact. These were highest COVID-related costs in over a year. Our broad routes to market and ability to proactively shift bits to the most attractive end markets enabled us to expand our flash gross margin by 1.5 percentage points sequentially to 37%. Our hard drive gross margin was 30.9%, up 60 basis points sequentially. This included COVID-related impact of $51 million or approximately 2 percentage points. Operating expenses were $761 million, within our guidance range. Operating income was $952 million, representing a 15% increase from the prior quarter and tripling year-over-year, highlighting our profitable growth. With our improving profitability, our tax rate in the fiscal first quarter was 11%. Earnings per share was $2.49, toward the top of our guidance range. Operating cash flow for the first quarter was $521 million, and free cash flow was $224 million. Capital expenditures, which include the purchase of property, plant and equipment and activity related to our flash joint ventures on our cash flow statement, was a cash outflow of $297 million. We continue to expect gross CapEx for this fiscal year to be approximately $3 billion and cash CapEx to be around $2 billion. In the fiscal first quarter, we paid off $213 million in debt, including a discretionary debt repayment of $150 million. Our gross debt outstanding was $8.6 billion at the end of the fiscal quarter. In addition, as a result of our strong financial results and free cash flow generation, last week, we repaid the remaining balance of our term Loan B in the amount of $943 million, bringing total gross debt outstanding to $7.7 billion. Our adjusted EBITDA at the end of the first quarter, as defined in our credit agreement, was $4.2 billion, resulting in a gross leverage ratio of 2.0x, down from 2.7 a year ago and was the lowest in 3 years. As a reminder, our credit agreement includes $1 billion in depreciation add-back associated with the flash ventures. This is not reflected in our cash flow statement. Please refer to the earnings presentation on the Investor Relations website for further details. Moving on to our outlook. Our fiscal second quarter non-GAAP guidance is as follows. We expect revenue to be in the range of $4.7 billion to $4.9 billion and we expect flash revenue to increase sequentially and hard drive revenue to decline sequentially. We expect gross margin to be between 32% and 34%. We expect operating expenses to be between $760 million and $780 million. Interest and other expense is expected to be approximately $70 million. Our tax rate is expected to be approximately 11% in the second quarter and for the fiscal year. We expect earnings per share to be between $1.95 and $2.25 in the second quarter, assuming approximately 316 million fully diluted shares outstanding. I'll now turn the call back over to Dave. David Goeckeler: Thanks, Bob. I want to conclude by thanking the Western Digital team for their hard work and commitment to our customers throughout a challenging quarter. Despite the transitory issues we have been able to successfully navigate, it is clearer than ever Western Digital's innovative technology portfolio is foundational to the rapid digital transformation and transition to the cloud that the world is experiencing. With our deep roots in a broad range of end markets and a sharp focus on execution, I'm confident in Western Digital's ability to capture this massive opportunity, and I'm looking forward to the rest of the fiscal year. Let's now begin the Q&A. Operator: [Operator Instructions] Our first question comes from Aaron Rakers with Wells Fargo. David Goeckeler: Hey, Aaron? Aaron Rakers: Yes. Sorry guys. Can you hear me? Robert Eulau: No problem. We hear you. Aaron Rakers: Sorry about that. Yes, so I've got 2 quick questions, if I can. I guess, first of all, it seems like there's a lot of moving parts in the quarter and more importantly, into the guidance outlook for fiscal 2Q. Bob, I'm just wondering if you can help quantify to your best estimate of how much impact you're carrying in revenue expectations relative to some of these "transitory effect"? Robert Eulau: Yes, it's difficult to quantify, right, because there's impact in terms of our own execution, which, I think, we worked our way through pretty well during the quarter. And then we have customers who have supply chain challenges as well where they're trying to get match sets and build out their environments. And then, of course, we have supplier challenges as well, where we're working like everybody else, pretty hard to get components in. So it's difficult to give you a definitive answer in terms of what the impact was in the quarter, we just closed or even obviously, in the next quarter. But it's certainly somewhere in the couple of hundred million dollar range and potentially a little worse in the December quarter. David Goeckeler: Aaron, this is Dave. First of all, thanks for the question. I guess the one thing I would say as well is, whereas maybe a quarter or 2 ago, we were seeing it in maybe certain parts of the business, some of the OEMs, PC OEMs. Now we're seeing it more broadly, even the big data center players are having their demand impact. Our demand from them is being impacted by their ability to get other components. So it's really become a much more broad-based issue across the portfolio. Aaron Rakers: Yes. And then if I can follow up real quickly, one of the things that stands out to me is that I think you reported a blended ASP decline of about 3% sequential in the flash business. So I believe the mix of enterprise actually went up to the positive. So when I look at that ASP erosion relative to actually some of your peers in the NAND market, it seems to be a bit of a disconnect. Can you help me understand the pricing dynamics you're seeing in NAND right now? Robert Eulau: Yes, I can start, and then Dave can fill in. Yes, I mean, the blended ASP, as we started the quarter, we indicated we expected it to be down. And it was based on the mix we were anticipating. The mix came in essentially the way we had expected. And it was -- I don't want to get into every little detail of the mix. But one of the things we said at the beginning of the quarter was we expected more mobile volume in the September quarter, and that is what we saw. We actually think we'll see even more mobile as a percentage of the total in the December quarter. So mix is definitely a bit of a headwind for us. But really, ASPs are not going down that much. And we're really pleased with the cost reductions we've been able to achieve both in the quarter we just finished as well as what we're expecting to do this quarter. David Goeckeler: Yes, I guess, Aaron, Bob right on the money on that. I guess the only thing I would add is a little bit of softness in some of the transactional and consumer markets, but that we're already seeing that level out a little bit. And we're really seeing this bifurcation where the qualified bits in the market are strong and unqualified are a little bit weaker. I guess that's not surprising given all the nodal transitions the industry is going through. But the primary issue, I would say that's the issue in mix, as Bob pointed out. And we expected that walking into the quarter. Operator: Our next question will come from C.J. Muse with Evercore. Christopher Muse: I guess if I look at your revenue guide and kind of the commentary on NAND bits, it sounds like the implied HDD revenue guide is roughly down 15% sequentially. So I guess, A, is the math right there? And B, I guess, what's causing the severity of decline? Can you kind of help us understand what's digestion versus some of the transitory supply chain issues that you spoke to? David Goeckeler: Yes. I think that's probably a little -- we don't guide each individual business, but I think your number is probably a little heavy. You hit on some of the issues. Some of it is mix. We've actually got one of our very, very big customers that has their own supply chain issues that's pushing out some orders. So that's a bit of an idiosyncratic thing that's happening there. There's some supply chain issues with, especially in kind of mid-cap and the ability to build all of that supply we want. We talked about that even in this past quarter in the smart video market, which is strong and there's some unmet demand there. And then we've got -- we're seeing a little bit of an inventory issue, quite frankly, in China, where there's a lot of high-cap inventory there, and that's kind of pulling the number down a little bit for the next quarter. But we -- so we expect all those things are transitory issues. We're really happy about the portfolio. I think the fact that AT&T was now -- the majority of the portfolio, we talked about shipping 20-t on a 9-disk platform and OptiNAND is out there and in customers' hands. So we feel really good about the innovation that was delivered in the quarter and about where the road map is going in the drive business and the new technology has been very well received. Christopher Muse: That's great. And I guess as my follow-up, Bob, could you speak to how we should be thinking about gross margins into the first half of '22? Obviously, there's certain unknowns in terms of revenues and NAND pricing. But would love to hear perhaps some of the other puts and takes that we should be thinking about as well as the timing of when you think some of the COVID-related costs may abate? Robert Eulau: Yes, C.J., you're right. It's difficult to say exactly what's going to happen over the next few quarters. But -- and as you know, we only give guidance 1 quarter at a time. Now having said that, we're pretty optimistic on 2022. Again, we think a lot of the challenges in the quarter we closed, in the quarter we're in now are really supply chain related. We think the underlying demand situation is very positive. We really believe, as I said in our cost reduction plans, and we think we'll be able to deliver solid margins. So I don't want to get into giving guidance for next year, but we're definitely optimistic. Operator: Our next question will come from Joe Moore with Morgan Stanley. Joseph Moore: I wonder if you could update us on where you are with BiCS5 qualification? I assume saying you'll be mobile heavy this quarter. It means you're kind of still getting qualified across the SSD markets? And I had a follow-up. David Goeckeler: Yes, I think that's right. I mean it's early in the node. We are happy with the ramp this quarter. We ended at, I think, 17% BiCS5, and we expect to get crossover before we exit the year. But like any new node, you're in more of the mobile components market as the rest of the products get qualified, but that's all work underway. And our customers are definitely pulling us in that direction. They want BiCS5 on the SSD products and the engineers are hard at work at getting that work done. That will be an evolving story as we work through '22. Joseph Moore: Great. Thank you. And then I think you referenced some of the segments in client SSD maybe being a little weaker. Can you separate out? Is there a Chi effect there where it was good for a while and then it was less good versus just overall client SSD being oversupplied because of other issues in the supply chain. Like how do you sort that out? And what do you see happening in the client SSD market? David Goeckeler: I don't think we see it as a Chi effect. I mean, I was just talking to our sales team this morning, and I think the channel has now kind of normalized and back on seasonality after the Chi disruption. I think we just see this issue with people not able to get all the components they need to put together the full kit for what they want to ship, and that's causing some softness in the channel. So I think it's more related to that than it is anything Chi related, at least in my view. Operator: [Operator Instructions] Our next question will come from Karl Ackerman with Cowen. Karl Ackerman: Bob, earlier in a response to a question, you had indicated some of the impact or challenge in your enterprise, I believe, HDD business and SSD business was a result of a push out by a customer. My question there is if we isolate that customer, how do you see the demand trajectory of cloud in mass capacity markets not just into the December quarter, but also into the second half of your fiscal year? Certainly, as you begin to ramp some of these 20 terabyte drives and other higher capacity drives in HDDs as well as some of these new design wins you have in enterprise SSD. Robert Eulau: Do you want me to take that or you? David Goeckeler: I can start. Robert Eulau: Okay. David Goeckeler: Yes. So I think as a general statement, we're seeing continued very strong demand from our data center customers, especially we've very big data center customers. They're giving us good signals about next year and what they plan to do. It's hard to pin that down to a certain quarter right now, but we continue to see very strong demand there. Like I said, we're starting to see the supply chain impact show up there as well. But I'm sure that will all get worked through as we go through the year. But we look into '22, and we have our customers telling us, it continues to be a strong demand environment. Robert Eulau: Yes. I don't think I have anything to add. I mean we believe in the cloud demand. I think it's strong, and there just is a lot of supply chain dislocation right now. Operator: Our next question will come from Wamsi Mohan with Bank of America. Unknown Executive: This is actually [ John ] on behalf of Wamsi. Just curious, there has been a lot of media focus on Kioxia. And in the past, Western Digital has expressed interest in the asset. Do you think that consolidation still make sense? And do you still have an appetite for it? David Goeckeler: Well, I mean I think I'll speak in general about Kioxia. They're a tremendous JV partner. And we've spoken a lot about the JV and what the benefits of that are. And all the -- I think one of the highlights of the quarter is the continued production of the flash road map and BiCS5 and the cost situation that, that's driving. I mean I think it's always been a very big focus of the Western Digital and Kioxia team to very focus on capital efficiency and cost downs in the portfolio. Those -- the seeds for BiCS5 performance that we're seeing now were shown many years ago. That continues to be a great focus of the joint teams. And I think the fact that we have a joint road map with another supplier as big as Kioxia gives us a lot of investment in our road map. And then, of course, we produce together as well and have a lot of synergies there as well. So it's a great partnership. We -- it's been going for over 20 years now. It's going to go for -- we're signed up for at least another decade. And we always look at that as we continue to invest in fabs, and we're really happy with the partnership, and we're going to continue to get the best out of it. Operator: Our next question will come from Mehdi Hosseini with SIG. Mehdi Hosseini: Two questions. The first one is for the team. Obviously, there is a long lead time associated with the equipment procurement. So at this point, I would think that you have a pretty good feel for a bit, NAND, bit supply growth in calendar year '22. Is there any color you can share with us? And I have a follow-up. Robert Eulau: Yes. I mean we do have good visibility, and you saw our bit growth came back up again this quarter. We expect it to be a bit higher year-over-year next quarter. Our long-term goal continues to be to grow at the rate the market is growing, and we won't get that perfectly every quarter, but that's our objective. And we think that, again, with Kioxia, we've got the right plans in place for next year. Mehdi Hosseini: But what is the target for next year, calendar year? Robert Eulau: Yes. I don't think we put a specific number out there yet. Some of the industry analysts suggesting industry demand growth in the low 30% range. Mehdi Hosseini: Got it. Thank you. And given the fact that your enterprise and cloud customers are expressing a good solid demand in calendar year '22. Have you determined how to allocate, and perhaps I'm trying to better understand how you're thinking about the mix between cloud enterprise and client and consumer. David Goeckeler: Yes. I think we're certainly having those discussions with them. I mean, I think every quarter, we discussed the current quarter and out many quarters -- several quarters in advance at least, I mean, we don't lock in per se on those numbers exactly, but we think about share of their particular businesses and what that's going to look like and what that means to demand for us. So yes, we're having those conversations, and we're factoring them into the mix of bits for next year and how we allocate across the portfolio. Of course, there's a nodal mix equation of that as well as it's kind of referred to in the previous question, when are different products available on different nodes out of the fab. So we're working through all that right now. Operator: Our next question will come from Timothy Arcuri with UBS. Timothy Arcuri: I want to go back to the HDD guidance and just maybe ask around what the normalized base of revenue is. I mean, obviously, your peer guided flat, you're down kind of like low teens. It sounds like something in the range of $2.25 billion in that range. It sounds like part of that is a push out and some of that some company-specific issues on the supply side. So can you help us bridge the gap there? Is it -- is 2.6% kind of flat like the normalized level if you adjust for all that? Or is it something that's slightly down Q-on-Q, but not down low teens? Robert Eulau: Yes. I mean, again, it's hard to quantify exactly what the supply chain impacts were, and we're actually not giving guidance by segment, but we definitely believe the hard drive business is a growth business and it will continue to grow over the next few quarters. We think 2022 will be a strong year. And yes, this is a bit of an aberration in the December quarter, but it's -- the business is really solid. The underlying demand is very good. And you're right. I mean we already commented that there are some supply chain issues that are impacting us right now. Operator: Our next question will come from Toshiya Hari with Goldman Sachs. Toshiya Hari: Dave, I wanted to ask about enterprise SSDs. You talked about now being qualified 3 cloud titans, which is great. You also talked about some of these wins translating into revenue growth and potentially driving an acceleration and growth in '22. Can you help us kind of shape the ramp into '22? Could it be more first half weighted, second half weighted? I know these projects can move around a little bit. But any help there would be really, really helpful. And then related to that, the impact on profitability as you ramp that business, initially, would it be a headwind and then eventually a tailwind? Or should it be fairly margin neutral from the get-go? David Goeckeler: Toshi Hari, so first of all, yes, we are really happy with the progress of the portfolio. I remember sitting here a year ago, and we were just trying to get over the hump on the first one, and now we're over 3 of them, and we continue to work at the OEMs, which the enterprise OEMs, which tend to be longer call cycles, and we're making good progress there as well. And you're right. We'll -- we got the calls done. We'll start to see some -- a little bit of deployment next quarter and then start to ramp it throughout '22. So I think it's an evolving story as we go throughout the year. From what is -- I think it's a very attractive TAM. I think with good margins, and that's why we're investing in the products. And I think as we mix more into that and have more supply into that, it's a tailwind for the overall portfolio. That's definitely a true statement. Operator: Your next question will come from Ananda Baruah with Loop Capital. Ananda Baruah: Yes, I guess my question would be for whatever it is that you guys consider to be the revenue impact to the December quarter guide, could you just sort of anecdotally map out for us, how much is from the flash business relative to HDD? And then inside of HDD, how much would be from the impact of kind of the cloud type. It sounds like there's some component stuff on their side there? And then you had mentioned some channel dynamics and some WD dynamics as well on the PC business. That would be helpful. Robert Eulau: Yes. I mean this is -- I'm trying to think how to answer this question differently. I mean we're actually not giving guidance by segment. However, we did say we expect revenue to be down a bit on the hard drive side. We expect it to be up sequentially on the flash side. There are supply chain challenges in -- with some cloud customers. There are supply chain challenges with some PC OEMs. We also mentioned that there seems to be a fair amount of inventory in China right now. So there's -- there definitely are some short-term challenges with respect to the hard drive business. But again, long term, the underlying growth is really good there. Operator: Your next question will come from Vijay Rakesh with Mizuho. Vijay Rakesh: Just had a couple of quick questions. On the client SSD side, as you look at next year, just wondering how you're thinking, what the outlook was. I know server looks pretty strong for next year. But on the client SSD side and on mobile too, how you are looking at next year's demand? David Goeckeler: Yes. We think the PC TAM is good next year. I mean we're obviously coming off of a blockbuster year with COVID. I mean we see the pre-COVID baseline is around 265 million, 270 million units. That went up to 340 million this year expected around that number, and we see somewhere around 320 million to 335 million next year. So definitely been -- we're going to come off this year a little bit. But we're -- we see basically the baseline has been reset, pre-COVID by a significant amount. So we feel good about that. We're hearing that from our customers. We're talking to those customers now about 2022 plans and what they plan to do and how much supply they're going to need and share conversations with each of them and those conversations are going well. The smartphone market, again, we continue to see this past quarter and the quarter in, we're seeing really good strength in that market. So I think this is -- there's a larger point here about the flash market is that the number of end markets is just more diverse now, especially with enterprise SSD growing and getting to be such a big market that there's a much better mix of demand that we play across in the market. And so we see strength in PC. We see strength in smartphones. We see strength in data center. Like we said, the more transactional markets this past quarter is more nodal transitions going on. There was more bits available in those markets, and we definitely saw that. But again, we're heading into a seasonally strong quarter on retail. So as we go through the quarter, we'll get a very strong idea about how retail is going to play out as well as we go through the holiday season. Operator: Our next question will come from Sidney Ho with Deutsche Bank. Sidney Ho: Relates to hard drive business, earlier, you talked about inventory issues in China. Can you add a little color to that? How much are -- how much excess inventory are there? Do you think that will get back to normalized levels exiting the year? And any other geography you're watching out right now? David Goeckeler: That's the main geography we're watching, and it's mainly high capacity, and we think it will get worked through in the next quarter. But it's definitely in the channel and it's some of the big customers. So it's just something that's going to impact the amount of business that goes -- that flows through that part of the market, which is a pretty big market for all of us, but we don't see it more than a quarter, maybe a little bit more of impact. Operator: Our next question will come from Patrick Ho with Stifel. Patrick Ho: Bob, on the prepared remarks, you talked about the different variables in terms of the supply chain shrink and the suppliers, your own manufacturing efficiencies as well as the customers. Can you for both September and December give kind of a qualitative commentary on which were the biggest impacts in both September and December? Robert Eulau: Yes. I think what I said earlier is we're actually expecting December to be a little more challenging than what we saw in September and the September quarter was not easy. And starting with our own teams, I think we did a really good job given what was going on with COVID in Southeast Asia. We did mention our COVID costs were up to $56 million this quarter. And we've done a really excellent job in terms of working with local governments to try and get as many employees vaccinated as possible and to really do the best we can to assure supply in terms of our own factories. Now as we mentioned, like everyone else, we have challenges in terms of getting components as well, particularly, obviously, the controllers on both the hard drive and the flash side, and that has an impact on the business. I don't know quarter-to-quarter, which quarter is worse, but it's a challenge in both of them. And it's a challenge that's not going to go away soon in terms of the semiconductor availability. I mean we're getting some lead times of 50 weeks right now. So it's definitely a very real issue in terms of getting components in. And then we've already talked a fair amount about the customer challenges. And I would say it feels to me and Dave can comment like there are more customers impacted by the supply chain in the December quarter than there were in the September quarter. It seems a little more broad-based. David Goeckeler: Yes, I don't think there's any doubt about that. I think when we talk to our sales teams and we talk to our customers, I mean it's -- I think just over the last month or so, the number of places where we're hearing, they are not able to meet their own true demand or they can't pull the demand from us if they're building their own infrastructure because the supply chain components has definitely broadened. And it's -- I think it started in some of the PC makers. I think that's where we heard the most about it, if you go back a couple of quarters. And now, like I said, we're hearing more about it in other segments, including the big data center providers. So it's definitely an impact of the business, and we just navigate through it. I mean, I think when you talk to our customers and we talk to our own sales teams and we look at what everybody is telling us, the end demand continues to be very, very strong. And everybody is just trying to figure out how to meet that and how to get enough components and get the right components to build the right kit, whether it's for something they're going to sell or it's building their own infrastructure to build what they need. And as Bob said, we see that ourselves. And our ability to get components and our ability to make sure our factories continue to run. And I will say I'll be a little bit selfish here and complement our own teams. But the Delta variant in Asia was a very big impact. And this quarter was probably one of the most difficult since COVID started. There were points where we had thousands of employees in quarantine and still kept everything going. So when you see what's happening on the ground and what the impact has been, it's not hard to understand how all the discussions around supply chain impacts. I think the good news is that we're working very, very hard, as Bob said, with governments to get vaccines distributed and get things back on track. And as we exit the quarter, and we sit here today, things were in a much, much better shape than they were a couple of months ago. So it makes us optimistic as we go through 2022 that this will get worked out and that will all be able to meet the true demand that's out there. Operator: Our next question will come from Harlan Sur with JPMorgan. Harlan Sur: So on your client business, you guys talked about the PC market being weak in September due to supply disruptions at customers. We all know about the match set challenges on component shortages, that's been pretty well telegraphed. But you also mentioned the WD sort of specific supply chain disruptions on client HDD as well. Is the primary impact the shortage of HDD controllers and preamps or is the primary impact on the COVID-19 related sort of operations disruptions? And given your semiconductor suppliers' lead times, when do you expect to see your client HDD specific chip supply issues start to ease? David Goeckeler: I'll take a crack and then Bob can add some color as well. I mean it depends on how you look at it. I mean, certainly, our COVID costs are up significantly this quarter. I think nearly 50% or more, 60% on what they were last quarter. We had been steady state for probably 3, 4 quarters in a row, and now we've bumped up significantly. So a lot of that is cost going into managing our own infrastructure and work that's going on with our own teams. Of course, a lot of it is logistics as well. That's always a big component of it. So those costs are going up. Our own supply is mainly around controllers. I think it's fair to say. And as Bob said, we're planning a year out on lead times and working with our own suppliers on how we, number one, make sure we get everything we need to meet our demand, which has been challenging and then get it in a time frame that we need. But we're working through it. And like I said, I think that there's no doubt, if you go back a couple of quarters, we've been talking about this about how we were not able to meet all the demand that we saw out there. I think the thing that we see different walking into this quarter is there's -- we're seeing even a greater impact across all of our customer base, and it's spreading to places where we hadn't seen it before. And that's both raising the uncertainty and also just depressing the demand because customers can't get all the pieces they need, so they don't need everything from us. So we're starting to see some hints in some markets, starting to clear up a little bit, super early days. But again, if you look at what's going on in the ground in Asia, things are getting better, at least from our perspective, our narrow perspective, although we have 40,000, 50,000 people there. Things are getting better on the ground and that gives us optimism that the situation will improve from here as we go through '22. Operator: Our next question will come from Tom O'Malley with Barclays. Thomas O'Malley: I had another one on the HDD business. You guys have done a really good job of improving profitability over the last year plus. My question is, as related to supply issues, clearly, there's a revenue headwind here. Could you talk about the impact to gross margins? Do you expect that you see a greater impact there because of the supply issues? Or is this more of a revenue issue with gross margins kind of hanging in? Any help there would be nice. David Goeckeler: Yes. Let me start and then turn it over to Bob. I mean I think there are some headwinds. I mean one of them would be a little bit of mix because at least for a 1 quarter impact because we've got such a big customer pushing out some demand. And then you've got pricing going up on components. So you've got inflation in the supply chain is a bit of a headwind as well. All that said, we appreciate your comments. The team has worked extremely hard. We've rolled out a lot of innovation in the drive business and driven the gross margins. 30.9% this quarter, we thought was a great result. And on top of that, we had couple of points of COVID headwind on top of it. So it all starts with making sure we deliver a great product to our customers. It starts with innovation. You guys have heard me say this many, many times, and I think the innovation engine is alive and well. Another big step forward this quarter with OptiNAND. And I think as the team continues to drive innovation and we drive great products to our customers, we'll have the opportunity to continue to have a better conversation with our customers around profitability. All that said, there are some headwinds, I would say, in the near term. Robert Eulau: Yes, there are definitely headwinds. But like you said, the team has done a great job in terms of the product portfolio, and we think the gross margins will be down a little. We are going to have probably COVID costs in the same ballpark as we have this quarter. So that's a couple of points. But I think we've got a really good chance of having gross margins above 30%, again, on the hard drive business. Operator: Your next question will come from Jim Suva with Citigroup. Jim Suva: I just have one question, and it sounds like the December outlook is truly in aberration. So the people will push back and say, well, why is it truly an aberration and not simply the new norm. So maybe if you can walk us through around why December is so unique because whether it'd be supply chain or shipping costs, they look quite prolonged. So if you could just kind of lay out the reasons about why December is so unique for such aberration? David Goeckeler: Well, I mean, first of all, we're in a very unique time and we're still. I think as we talked about the supply chain disruptions that have been brought by COVID and especially the Delta variant that really pushed through Asia over the last quarter or more have been very, very significant and very severe. And to the people that were managing the situation on the ground there, they did a tremendous job, they had an enormous amount of work just to keep everything running. So I think that just leads to a very unique environment, Jim, that we're navigating through. Like I said, when we look at demand and we look at what our customers are telling us about demand in the market, we hear very good things. We -- they're very positive and very bullish. We just have -- you just have different customers in different states of their own ability to build what they need to build or want to build and that's constantly shifting. And when you add it all up in any particular quarter, you're going to get a result and that's what we got, and that's what we'll manage to. But we think that as the supply chain issues get worked out, the demand trends in the business are very, very strong, and we're on the right side of where the world is going from a technology point of view. Now I thought it was significant this quarter to 44%, record percent of our quarter was in the cloud. And hopefully, you guys react positively to our simpler decomposition of our revenue across cloud, client and consumer, but we expect to see more growth in cloud, 72% year-over-year growth in that part of the business, and we continue to have the portfolio pivoting in that direction and expect it to be -- expect to participate in that growth as it goes forward. Operator: Our next question will come from Steven Fox with Fox Advisors. Steven Fox: So I guess I'm just trying to understand the idea that none of the demand pushouts are perishable because this is the seasonally strongest quarter of the year. How do we have confidence around that maybe not necessarily that it's perishable, but maybe spending that would have occurred in December, it doesn't occur in March, even if there's availability just because of timing around -- usual timing around spending? David Goeckeler: Well, again, I think it goes back to -- if you're talking to a very large cloud provider that's trying to build out their infrastructure, I think they're going to catch up on building it out to what their demand is. If they can't do it this quarter, they'll get the components in the next quarter. So again, we see very good demand environment. And I think that as our customers are able to get all the components they need, they will continue to come back to us and adjust their demand to us. That's what we see. We have very close relationships with them. And so I don't expect that the demand from our customers' point of view is not like kind of a 1-quarter thing. It's like -- it's just -- it's a demand curve that goes on, and I don't see it as being perishable demand. I see it as everybody is trying to figure out how they can get as many components as they can to build complete kits for what they need to do. And as they do that, they come back to us and change their demand signal. And we've seen that. Maybe a good example is on some of the PC manufacturers, where 1 quarter, they'll drop their demand significantly. In the next quarter, they'll come back and raise it significantly when they've got their own supply chain issues worked out. So as I said, we've seen this in other parts of the market, and we've dealt with it, and we know how to deal with it. Now we're just seeing it across -- the broader cross-section of our business. And quite frankly, some really big customers across that are in that mix now. And we'll -- we've been working through this now for the last several quarters, and we'll work through it this quarter. Robert Eulau: Yes. And the most seasonal business is the consumer business, and we are expecting to have a sequential increase in the consumer business. So I think that's probably where it might be perishable demand. But we think that will be pretty solid this quarter. Operator: And today's final question will come from Srini Pajjuri with SMBC Nikko Securities. Srinivas Pajjuri: Dave, I had a question about your pricing strategy going forward, especially given the cost inflation we are seeing in the supply chain. I guess some of the cost increases are temporary and some may be permanent. I'm just curious as to hear your thoughts in your conversations with your customers, what kind of feedback you're getting as you kind of look to pass through some of these costs to your customers? And also I want to hear about your -- what you think your ability is in terms of passing through some of these incremental costs if these costs continue to, I guess, remain permanent? David Goeckeler: I think you hit on the answer in your first part of your question set up, which is these are broad and long relationships with our customers, and they don't go up and down quite so fast. So we certainly have conversations with our customers when our costs increase, but it's not as simple as just passing it along. It's got to persist for a while before we would have that conversation. And quite frankly, we participate in a market. It's -- and so it's more about the market price. I think the overwhelming issue with pricing is around innovation, and making sure we continue to drive innovation across our portfolio. And as I look back on last quarter, the 2 things that -- 2 really big things that stand out to me from last quarter is, one, is just the execution of the team in a really, really difficult environment, especially the -- as I've talked a lot about the factories in Asia; and two is the innovation road map and the fact we're transitioning aggressively to BiCS5. We introduced OptiNAND. Those are the things. We introduced a 20-terabyte drive and are going to be shipping that in volume now here in the next month. That's with our energy assist technology 9-platter, 9 disk drive, 2.2 terabytes per platter. So that's the primary issue where it's going to drive an innovation-led discussion with our customers about pricing. In the cost side of it, of course, as if they're going to be very long term, we're going to have those conversations. But I would say they're long and substantial relationships, and we manage through the quarter-to-quarter stuff with them really in both directions. But really, the focus is on that -- on driving innovation. If you drive innovation, you're going to get a better return for it. And quite frankly, I think we've seen that over the last 3 or 4 quarters as we brought energy assist in our 18-terabyte drive, the 30.9% gross margin this quarter in HDD is a multiyear high. So we feel very good about that. Operator: And speakers, that was our final question. I'll turn it over to you for any closing remarks. David Goeckeler: All right, everyone. Thanks for joining us. We really appreciate it. It's always good to talk to everyone. Thank you for all your questions, and we look forward to talking to all of you throughout the quarter. Take care. Robert Eulau: Thanks, everyone. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator: Good afternoon, and thank you for standing by. Welcome to Western Digital's Fiscal Fourth Quarter 2021 Analyst Call. Personally all participants are in a listen-only mode. We will open the lines up for questions shortly. Now I will turn the call over to Mr. Peter Andrew. You may begin. Peter Andrew: Thank you, and good afternoon, everyone. Joining me today are David Goeckeler, Chief Executive Officer; and Bob Eulau, Chief Financial Officer. Before we begin, let me remind everyone that today's discussion contains forward-looking statements, including product portfolio expectations, business plans, trends and financial outlook based on management's current assumptions and expectations, and as such, does include risks and uncertainties. We assume no obligation to update these statements. Please refer to our most recent report on Form 10-K filed with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially. We will also make references to non-GAAP financial measures today. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the Investor Relations section of our website. With that, I'll now turn the call over to David for his introductory comments. David Goeckeler: Thank you, Peter. Good afternoon, everyone, and thanks for joining the call to discuss our fourth quarter and fiscal year 2021 results. We reported solid fourth quarter results with revenue of $4.9 billion, non-GAAP gross margin of 33% and non-GAAP earnings per share of $2.16, all above the guidance ranges we provided in April. The upside was primarily driven by record demand for our capacity enterprise hard drives. Fiscal year 2021 revenue totaled $16.9 billion and we reported non-GAAP earnings per share of $04.55. Last March I joined Western Digital with a strong conviction in the digital transformation that is reshaping every industry, every company, and every person's day-to-day life. At that time, we were in the early stages of the pandemic. Today the accelerated digital transformation that has occurred during this period has created a world that is more technology enabled and technology dependent than ever before. The increasing value and importance of data is undeniable and Western Digital will continue to capitalize on this opportunity as the only provider of both flash and hard drive solutions. Our ability to provide this diverse range of technologies enables us to drive innovation from endpoints to the edge to the cloud and combined with our commitment to delivering the highest quality products, is ultimately what sets us apart and allows us to deliver strong results. As we reflect on this fiscal year, I'm very proud of what Western Digital has accomplished, particularly in light of the fact that the pandemic impacted various aspects of our company and the supply chain. As a team we made the changes throughout the year necessary to improve our focus, sharpen execution, and layout the right strategic goals to place Western Digital in a position of greater strength. To achieve these goals we created separate business units for our flash and HDD technologies, led by two widely respected technology leaders. As a result of this renewed focus, we accelerated our innovation roadmap, built momentum in our energy-assisted hard drives and continue to successfully ramp our second generation NVMe enterprise SSDs, while working hard to complete additional customer qualifications. We were also able to successfully navigate through the pandemic and capitalize on opportunities and continue providing dependable industry-leading products that are the cornerstones of the data economy. We continue to believe that we have the right foundation for success, the right market-leading products, the right customer base and the unique ability to address two large and growing markets. That foundation continues to underpin the strength of our results and is propelling the business forward today, even as we manage through some of the lingering impacts from COVID. And while we saw incremental demand due to the emergence of Chia, our standout performance this quarter was primarily attributable to increasing demand from our cloud customers and the beginning of a recovery in enterprise demand. The breadth and quality of our product line and our many routes to market, we feel we are well positioned to capitalize on the large and growing opportunities in front of us. With that, I'll now provide a recap of our flash and HDD businesses as it relates to our fourth quarter results. In the fourth quarter demand for our flash products was greater than we could supply in a number of end markets. In the face of both component and NAND shortages, we continue to strategically shift bits to meet customer needs while driving growth in both revenue and gross margin. Within data center devices and solutions demand for our NVMe enterprise SSDs came in above our expectations, achieving strong quarter-over-quarter revenue growth, we are pleased with our progress in enterprise SSDs as we completed the qualification of another cloud Titan and are ramping the product more broadly. Within client SSD we experienced revenue growth as demand remained strong for notebooks and Chromebooks. This remains a large growing an important end market for Western Digital across our OEM channel and retail routes to market. Within gaming, demand from the latest generation of game consoles, and our WD Black product line was robust as gamers continued to prefer our expanding lineup of customized solutions. Within embedded flash, we also experienced growth in smart home devices, VR, automotive and industrial. As the BiCS5 ramp picks up and we achieve bit crossover late this year, we expect to see increased bit growth. To-date BiCS5 is our most capital efficient node in the 3D era and the ramp across our product lines will contribute to profitable growth. We have had incredible success with BiCS4 from across cost and bit growth perspective and look forward to experience those same benefits with BiCS5 highlighting once again the successful and important partnership we have with Kioxia. In HDD we had our highest organic sequential revenue growth in the last decade, driven by the successful ramp of our 18-terabyte energy-assisted hard drive, growing cloud demand, a recovery in enterprise spending, and to a lesser extent crypto currency driven by Chia. This impressive performance is a reflection of our data center customers confidence in our innovation engine for capacity enterprise hard drives. Shipments for our 18teribyte hard drive nearly tripled sequentially, highlighting our leadership in the latest capacity point and the leading edge energy-assist technology underpinning it. These drives are fully commercialized we expect the 18 terabyte hard drive to be the workhorse for the fiscal year. I'm excited to announce a record shipment of over 104 exabytes in capacity enterprise hard drives, a 49% increase sequentially. This is a significant achievement for the business as we have all of our largest customers qualified and are well into ramping our energy-assisted hard drives. In addition, client demand for desktop and smart video has been strong throughout the quarter due to improving OEM demand. While we are actively managing supply constraints, we expect strength in OEM to continue in the fiscal first quarter. Within retail HDD demand was above expectations as we saw consumer interest grow for both at home HDD storage and for smart video applications. There was also increased demand for hard drives due to Proof-of-space crypto currencies such as Chia, which emerged as a new vertical market at the beginning of the quarter. We believe Proof-of-space crypto currency presents a great opportunity for us in the industry, but we are closely monitoring the sustainability of demand. Looking ahead, we strongly believe the fundamental technology shift that I referenced earlier is a sustainable trend. At the center of this innovation are ever-increasing intelligent devices which are fueling exponential industry-wide growth in demand, all powered by the cloud. The ability to harness the data in both the device and in the data center is critical, highlighting the importance of our full range of storage solutions. Moreover, we believe we have the right portfolio to enable us to capture these opportunities. In particular, and as Dr. Siva Sivaram, President of Technology and Strategy discussed in a webcast on July 15, Western Digital's unique ability to deliver both HDD and flash solutions drives meaningful synergies across the business in four key areas; market, manufacturing, technology and customer. And our new operating structure gives us the focus we need to capture our full potential. While we remain optimistic, there are several factors we are closely monitoring. Most importantly, we are actively managing the continued impact of the pandemic. The disruptions to the supply chain have presented a challenge across the industry and we continue to see shortages of certain components. Additionally, logistics remain a challenge as different geographies are in various stages of reopening. This has been a major contributor to increase lead times and may pose challenges in the future. As a result of the supply disruptions, logistics challenges and increased lead times, we continue to face additional cost pressures. Despite these obstacles, we are working diligently to continue delivering to our customers while maintaining a disciplined approach to pricing. I'll now turn the call over to Bob, to share details on our financial results. Robert Eulau: Thank you and good afternoon everyone. As Dave mentioned, overall results for the fiscal fourth quarter were above the upper end of the guidance ranges provided in April. Total revenue for the quarter was $4.9 billion, up 19% sequentially and up 15% year-over-year. Non-GAAP earnings per share was $2.16. For the full fiscal year revenue was $16.9 billion, up 1% from fiscal 2020 and non-GAAP EPS was $4.55, up 50% from last year. Looking at our end markets, Client Devices revenue was $2.2 billion, up 8% sequentially and up 13% year-over-year. On a sequential basis, we experienced revenue growth in both hard drives and flash and across every major product category; client HDDs, client SSDs, automotive, gaming, smart video and industrial. Mobile revenue was essentially flat on a sequential basis. Moving on to Data Center Devices and Solutions, revenue was $1.8 billion, up 44% sequentially and up 6% from a year ago. New product ramps in this end market drove more than double the revenue growth from just two quarters ago. Revenue generated from our latest generation energy-assisted hard drives and enterprises SSDs contributed to the growth. Our capacity enterprise hard drives grew 49% sequentially and our enterprise SSDs grew 39% sequentially. Demand for our 18-terabyte energy-assisted hard drives was particularly strong, comprising nearly half of our capacity enterprise exabytes shipments. Finally, Client Solutions revenue was $977 million, up 10% sequentially and up 42% from a year ago. Once again revenue growth was broad based across both HDD and flash and all major product categories. Turning to revenue by technology, flash revenue was $2.4 billion, up 11% sequentially and up 8% year-over-year. Flash ASPs were up 7% sequentially on a blended basis and up 4% on a like-for-like basis. Flash bit shipments increased 4% sequentially. Hard drive revenue was $2.5 billion, up 28% sequentially and up 22% year-over-year. On a sequential basis, total hard drive exabyte shipments increased 34%, while the average price per hard drive increased 18% to $97. As we move to costs and expenses, please note that my comments will be related to non-GAAP results unless stated otherwise. Gross margin for the fourth quarter was 32.9%, up 5.2 percentage points sequentially. This was above the upper end of the guidance range provided in April. Our broad routes to market and ability to proactively ship bits to the most attractive end markets enabled us to expand our gross margin by 5.5 percentage points sequentially to 35.5%. Our hard drive gross margin was 30.3% up 5.3 percentage points sequentially. This also includes a COVID-related impact of $32 million or approximately $1.3 percentage points. Operating expenses were $790 million within our guidance range. Operating income was $828 million representing 101% increase from the prior quarter and a 57% increase year-over-year. With our improving profitability, our tax rate in the fiscal fourth quarter was 9.2% and the tax rate was 13.4% for fiscal year 2021. Earnings per share was $2.16. Operating cash flow for the fourth quarter was $994 million and free cash flow was $792 million. Capital expenditures, which include the purchase of property, plant and equipment, and activity related to our flash joint ventures on our cash flow statement was an outflow of $202 million. We expect growth CapEx for the next fiscal year to be approximately $3 billion and cash CapEx to be around $2 billion. In the fiscal fourth quarter we paid off $212 million in debt, including a discretionary debt payment of $150 million. For the full fiscal year we paid down a total of $886 million. Our gross debt outstanding was $8.8 billion at the end of the fiscal quarter. Additionally, we have already made a discretionary debt payment of $150 million in the fiscal first quarter. Our adjusted EBITDA as defined in our credit agreement was $3.6 billion, resulting in a gross leverage ratio of 2.4 times compared to 2.8 a year ago. As a reminder, our credit agreement includes $1 billion in depreciation add back associated with the joint ventures. This is not reflected in our cash flow statement. Please refer to the earnings presentation on the investor relations website for further details. Our liquidity position continues to be strong. At the end of the quarter, we had $3.4 billion in cash and cash equivalents. In addition, we have unused revolver capacity of $2.25 billion. Moving on to our outlook, our fiscal first quarter non-GAAP guidance is as follows; we expect revenue to be in the range of $4.9 billion to $5.1 billion. We expect gross margin to be between 33% and 35%. We expect hard drive gross margin to be relatively flat and we expect flash gross margin to improve sequentially. We expect operating expenses to be between $755 million and $785 million. Interest and other expense is expected to be approximately $70 million. The tax rate is expected to be between 11% and 12% in the fiscal first quarter and the fiscal year. We expect earnings per share to between $2.25 and $2.55 in the first quarter assuming approximately $317 million fully diluted shares outstanding. I’ll now turn the call back over to Dave. David Goeckeler: Thanks Bob. As we close out fiscal year 2021, I am very pleased with how the Western Digital team successfully navigated dynamic market conditions brought on by the pandemic. While it has been a challenging time for all, we will continue to focus on driving innovation. When you combine the ramp of new innovation products into two very large and growing markets with our newly adapted organization structure, I am confident that our increased focus on execution will continue to propel us forward as the market leaders. Our diverse technology portfolio is the foundation of the data economy and our unique ability to see the entire storage market enables us to move across the technology landscape to meet customers' needs and be the solution for their evolving storage challenges. With careful consideration of the health and safety of our employees, we are also keeping a close eye on the status of COVID-19. In particular, there are certain parts of Asia seeing a spike in cases and we are working diligently to support our employees through this time. While it is a difficult situation, we will continue to navigate the complexities presented by the pandemic while we drive innovation for customers and value for shareholders. Let’s begin the Q&A session. Operator: We have a question from Joe Moore from Morgan Stanley. Please go ahead. Joseph Moore: Great, thank you. I wonder if you could talk about the tightness in NAND that you referenced, to what degree is that a NAND issue versus controllers and kind of other components trickle into NAND products? David Goeckeler: Hey Joe, good to hear from you. So, it's both. There’s no doubt there is shortage in controllers and I think what we are doing is mixing the portfolio to get the most out of the controllers we have, also a shortage of NAND as well. So I mean, we're mixing to get the best result we can, but there’s more demand than we are able to satisfy on the NAND side. So, it’s really, we are juggling both and balancing them to get the best result we can. Joseph Moore: Okay and as, you guide for the September quarter is the assumption that you’re still kind of supply constrained for the whole quarter? David Goeckeler: Yes, we are still juggling both of those things. Right? We have customers looking for upside, we are juggling that. Mixes is a little different from quarter to quarter as well. So yes, when you roll all that together is how you to get -- get to where we are at in Q1. Joseph Moore: Great, thank you very much. David Goeckeler: Sure thing. Operator: Thank you. We have a question from Aaron Rakers from Wells Fargo. Aaron Rakers: Yes, thanks for taking the question and congratulations from the solid results. I want to ask about the hard disc drives, the 49% sequential growth in your year line capacity shift and I’m curious that, how are you thinking about the sustainability of that demand? I think last quarter you talked a little bit about longer term purchase agreement, and then if you can underneath of that also any thoughts of how significant Chia was as far as a contribution this last quarter? Thank you. David Goeckeler: Yes, thanks, Aaron. So we did see very, very strong demand from the cloud and I think the product has been very well received. As we've talked about energy-assist is fully commercialized now. We saw very strong sequential growth of the AT&T product. We continue to see strong growth in the second half, working with our customers. We expect continued growth in the business. The long-term agreements, I think we're, I think, probably the best way to think about that as we're working through the first cohort of those and we expect to talk about the second cohort in the second half, and they're becoming more and more important, because getting visibility and the demand is very important, especially going forward is where we're thinking about how to invest in additional head capacity to support the growth of the business, just the exabyte growth. Chia was, maybe one way to think about that, it was hitting us kind of right where we were on the call was, I think the first week of it last quarter, probably a couple $100 million of upside there in the quarter due to Chia. Aaron Rakers: Thank you. Operator: Thank you. The next question comes from C.J. Muse from Evercore. C.J. Muse: Yes, good afternoon. Thank you for taking the question. I guess, I'm having a hard time reconciling the strong demand trends outlined here on the call with revenues only guided up 2% sequentially. So can you walk through, I guess, where you're seeing supply constraints both HDD and NAND? And are you seeing one more so than the other? And then perhaps to help us understand your, I presumed improving visibility, did your backlog grow sequentially into the June quarter and do you expect it to grow again exiting September? Thank you. David Goeckeler: Yes, so it was an exceptional quarter on growth and there is tightness across both portfolios, there's no doubt about that. We were pushing the factories very, very hard to get every drive we could out of it, because there was demand for it. So when you look at it sequentially, we had a strong quarter and we were basically able to find sales for everything that we could produce. And, so going, so when you look at sequential growth, I guess it's not surprising that there's not a huge amount of top line growth there. But throughout the markets, we continue to, so hard drives we see strength in the cloud. We're seeing really good strength in kind of mid cap as well. It's not just at the top of the market. But on the flat side, again, we've got more customers looking for upside than we do the opposite. So the demand environment is good and we're doing the best we can to satisfy as much as they can with the components we have and with the NAND available. Operator: Our next question comes from Toshiya Hari from Goldman Sachs. Toshiya Hari: Hi, good afternoon. Thanks so much for taking the question and congrats on the very strong results. I had a question on NAND. I think costs in the quarter were up a little bit on a sequential basis. I realize cost downs on a quarterly basis can be very lumpy, and you're coming off a multi quarter stretch of very strong cost downs, but curious what you saw in the quarter from a cost perspective in NAND. And I think in your prepared remarks, Dave, you talked about, your expectations for BiCS4, BiCS5 I'm sorry, being similar to the BiCS4 the ramp, BiCS5 over the next 12 months. If you can kind of set expectations and how we should think about cost downs as you make that transition that will be super helpful? Thank you. Robert Eulau: Hey, Toshiya, it's Bob. So in terms of the cost takedowns, we actually looked at it mostly year-over-year, and we were a little bit ahead of the 15% goal we have for year-over-year cost declines and continue to feel good about 15% as the long-term goal. We are starting the nodal transition. We did this past quarter to BiCS5 and we'll continue to ramp that hard through the second half. As Dave mentioned, we expect to get the crossover in the fourth calendar quarter. So I think in terms of costs, I think we're in a good place. Toshiya Hari: Thank you. Operator: Thank you. The next question comes from Karl Ackerman from Cowen. Karl Ackerman: Yes, good afternoon, gentlemen. I know forecasting ASPS is difficult, but your implied outlook seems to suggest a decline in hard drive pricing, similar with what you saw last year. And I was wondering, should we assume that your assumption for hard drive gross margins is driven by less favorable mix of retail draws? And as you address that question, could you discuss the mix of long-term agreements you have in place today for nearline drives, and whether those are negotiated both on price and volume or just volume? Thank you. Robert Eulau: Hi, Karl, it's Bob. I'll start and then Dave can add in. But in terms of the guide on hard drives, we aren't actually guiding specifically by segment. We had really good gross margins on hard drives this quarter above 30% and we're expecting our gross margins to be above 30%, again in Q1 so we feel good about that. And, as we've said, we really want to continue to improve from here. We're going to be very judicious in terms of how we add capacity, because we want to continue to improve our margins over time. David Goeckeler: Yes, Karl and the long term agreements, we kind of think about those as setting a baseline for volume and price. It doesn't mean that's going to be everything that goes into a certain customer, but it sets a baseline and gives us some visibility over multiple quarters. Like I said, we're kind of working our way through the first cohort of those, and we'll be looking at the second ones in the second half of the year. As I said, I do think they're becoming more important to give us the visibility we need on demand to make sure we make the right investments to support the exabyte growth. Karl Ackerman: Thank you. Peter Andrew: Hilda, can we get the next question, please? Operator: Thank you. The next question comes from Mehdi Hosseini from SIG. Mehdi Hosseini: Yes, thanks for taking my question, and the first one is for David. Over the past few quarters, you have exceeded your guide by 40%, 50% and I understand there is the supply chain disruption and you want to be prudent. But there's perhaps, there is also some level of conservatism that goes into your guide. And then for Bob, I understand exabyte shipment is improving to September quarter, but I do understand is why is gross margin guidance flattish? Thank you. David Goeckeler: Yes, I mean, there's always some natural conservatism, I think in anything we do. But we also, you know, there's a fair amount of leverage in the model in this quarter we saw when we overachieved on the top line and we get benefit from the tax rate. So and we also had a better pricing environment on drives than we expected, which is, which was great. We took advantage of it. I think we had a market situation that was very, very dynamic. And the team really did a good job of managing through that and getting the most out of that we possibly could. So it was a very dynamic quarter. And also, we're still managing through COVID, which is, there's still a lot of supply chain issues we're working through. I mean, we've been working through these for a long time now and we're very good at managing that. But there is still some risk out there because of that. And so we want to be prudent around the whole business, but we feel good about where we're at. We're very happy with the quarter. Like I said, I think we got the most out of a good situation and really, really driven by strong demand on the cloud and bringing innovation to market. I mean, I think that's the way I think about this. We brought energy-assist to market. We've been talking about it for many quarters now. We've been giving a lot of visibility into the -- to the qualification process, because it is new technology that's been worked on for a very, very long time. And I think our customers are responding very strongly to that and we saw that in the results and the sequential capacity enterprise, exabyte shipments of 49% to really a record level. So we feel really good about where the portfolio is at and customers are really responding to it. Robert Eulau: So Mehdi, on gross margin, I mean, first of all, we're really pleased with the 5.2 percentage point increase we had in gross margin going from Q3 to Q4. And if you look at the guidance for Q1, it's a range of 33% to 35%. So it's at the midpoint, we're still expecting to see improving gross margin. As I mentioned a few minutes ago, we're expecting hard drive gross margin to be above 30% again and in terms of the flash side, it will obviously improve, but the mix is different each quarter. And we're going to improve our gross margins and probably don't have quite as healthy a mix, as we had in Q4. But again, still feel really good about the guidance range and I think it will deliver very good margin and very good profitability. Operator: Thank you. Our next question comes from Wamsi Mohan from Bank of America. Wamsi Mohan: Yes, thank you, and congrats on the really strong results. I was hoping maybe I'm sorry, if I missed this, but can you help handicap the magnitude of impact to top line and margins from the ongoing supply chain issues and the best way that possible? And also for the guide, is there a way to handicap that and Dave, you mentioned the couple of $100 million benefit in the quarter from Chia. I was wondering, do you think that that sustains at some level, as you look into your guide do you have any expectation baked in the guide as well? Thank you. David Goeckeler: That sustains from Chia. I think we're -- Chia had a big impact on the channel and inventory and it's going to take a little while for that all to normalize. So I think you have a lingering impact there. We're certainly watching overall demand, but it's tapered off from where it was, let's say mid quarter. But clearly a space we're watching. We're watching very closely. I'll ask Bob to comment as well. So it is a little hard to handicap what you're -- I think you're asking, which is how much upside is there if we had all the components we could possibly get? I do think what we do is, with what we have, we change the mix in the portfolio to get the best we can and put the product at the best route to market, whether it's in the channel or somewhere or into retail or somewhere else where we can get the best return for that particular component. But I don't know, Bob do you have any way, not to put you on the spot, but feel free to handicap that from a numbers perspective? Robert Eulau: No, it's really hard to say. I mean, as Dave said, I mean, particularly on that channel side, we shift a lot during the quarter. So our inventory levels are low there. If you really forced us to guess on the fourth quarter, maybe we missed out on $50 million to $100 million in revenue. But it's very hard to quantify what we would have been able to do had we had all the controllers that we wanted. And as we look at Q1, I mean, we're expecting to be able to manage through the supply chain challenges like we have for the last few quarters. And I don't really know, it's hard to quantify before we even get into the quarter what the supply issues may be, but we're going to we're going to work and it'll be a very dynamic environment and we feel good about the revenue guidance we gave. Wamsi Mohan: Thanks, guys, if I could just quickly follow up. I was wondering just on the margin impact on the guide. Right? So clearly, there are a lot of moving pieces over here, but if you were to think about what impact COVID, Delta variant and some of the things that are happening in Asia, like how are you handicapping that in your margin impact on the guide? Thank you. Robert Eulau: Well, certainly on the hard drive side, I'm expecting we're going to have the same logistics challenges we've had for the last year or so. So you're going to have something in the neighborhood of 1.2, 1.3 percentage points of headwind on the hard drive side. And we have to continue to work through the COVID situation from a factory perspective and supply chain perspective. And as Dave said, we've been doing it for a lot of quarters now, but the situation is not good in Asia and we need to really, really make sure we're careful in terms of how we work through that. Wamsi Mohan: Thank you. Operator: Thank you. The next question comes from Jim Suva from Citigroup. James Suva: Thank you very much. With NAND pricing going higher spot and contract and such, can you talk to us a little bit about your leverage or flow through the operating margins, because I believe your costs should keep coming lower. Shipping costs, while high it's hard to see them getting worse in the next few months ahead. So may be if you can walk us through the model and normally you have annual price declines with ASPs going higher. Is there more investments needed or more fixit things or talk to us about the flow through or what we consider operating margin leverage. David Goeckeler: We have a lot of operating leverage in our model and I think you saw that come into play this quarter. I mean, I think it was a really impressive improvement in terms of gross margin sequentially and a lot of what we saw on the pricing side did flow through. I mean, as we said, we saw a lot of demand on the channel driven by Chia in most cases, but across the board, we saw a good environment. And I think the team did a good job of reacting dynamically and trying to properly price the products as we went through the quarter. So we're going to continue to do that same kind of thing as we move forward and we are going to see cost takedowns. We had very good cost takedowns in Q4 on both the hard drive side and on the flash side, and as we keep price flat or even increase price, then that's obviously going to only help in terms of operating leverage. James Suva: Thank you. Operator: Thank you. Our next question comes from Patrick Ho from Stifel. Patrick Ho: Thank you very much. Dave, in terms of the activity you're doing with cloud and hyperscale and the pickup you're seeing there, can you talk about any qualitatively new customer wins whether it's cloud, hyperscale or data centers with the new 18-terabyte drives? Can you please qualitatively talk about the adoption rate and whether you're seeing greater adoption from existing customers who are transitioning or even new customers that weren't previously on your mass capacity storage drives? David Goeckeler: Yes, at this point I think it's where they're at in the architectural evolution of their data center of how they're adopting the technology as far as qualification. So first of all, I mean, if you're building a cloud, you're most likely our customer. Hard drives are the lion's share of storage in the cloud. But we're seeing wide adoption, I guess, is the only way I can say it. I mean, it's our customers, different customers, will be at different part, different stages of their architectural evolution, some are going to 18 as fast as they can. Some are working through a 14 transition, let's say in the second half of the year, and then will move to 18. Some are going through 16. So at this point it is just a question of how they're all transitioning their data centers. Again, we saw really strong growth throughout the quarter and as Bob said, it's nearly half of our exabyte ship capacity, enterprise exabyte shipments were on 18. So we feel really good about where the product is and like I said, the innovation of energy-assist has been fully commercialized and has been well received by our customers. Patrick Ho: Great, thank you very much. David Goeckeler: Sure thing. Operator: Thank you. Our next question comes from Harlan Sur from JPMorgan. Harlan Sur: Good afternoon. Thanks for taking my question. In addition to the SSD controller shortages, we've heard of tight HDD controller and preamp chip supply as your ASIC semiconductor partners are pretty constrained and lead times are pretty stretched. And so, if the team had more HDD controller and preamp supply, would you be able to ship more HDDs here in the September quarter or is more of the HDD shipment constraints in September being driven by other component constraints or media and head manufacturing or just potential pandemic related operations disruptions. Robert Eulau: Harlan, it is Bob. We're basically running at full capacity in the September quarter on the hard drive side, so it's not easy to get the parts and that's definitely true. But in the September quarter, I don't see it as a big factor. We'll see how that plays out as we get to the December quarter and beyond. David Goeckeler: Yes, Harlan, I was going to say same thing. I mean, we've got folks in the factories working overtime and to get every drive we can out I mean the team is obviously balancing the supply chain issues to get all the components we need, but we've got that covered in September. And so keeping again we're -- these are in places where COVID is a big deal and we've been really good about managing through that, but something got our eye on, but we're really pushing very hard to get all the components we can all the drives, we can. Harlan Sur: I appreciate the insights. Thank you. David Goeckeler: Sure thing. Robert Eulau: Thank you. Operator: The next question comes from Tom O'Malley from Barclays. Thomas O'Malley: Hey, guys, thanks for taking my question. I just want to circle about a comment you made earlier, you said that Chia had a big impact on the channel. I'm looking at inventory. Inventory days are flat on a dollars basis, down on a days basis. Can you kind of comment on the mix of inventory? I would assume with some of the HDD activity you saw during the quarter the channel has kind of been wound down a bit. Is there any color you can give on the mix of businesses within the inventory that you have this quarter? David Goeckeler: Yes, in terms of our inventory and the turns around quite a bit on the hard drive side and I'd say relatively flat, maybe even slightly worse on the flash side and that see you all going through a nodal transition, it's not a big surprise there. So and the flow-through as you saw was up significantly during the quarter. Thomas O'Malley: Thanks, Guys. David Goeckeler: Sure, thank you. Operator: Thank you. The next question comes from Sidney Ho from Deutsche Bank. Sidney Ho: Great, thanks for taking my question. My question is on capital intensity. Can you talk about gross CapEx for fiscal 22 being $3.1 billion and that would be roughly 15% of fiscal first quarter revenue run rate. Is that the right capital intensity we should be thinking about, maybe you can comment on both HDD and NAND, that would be great? And what kind of assumptions are you expecting in terms of bit growth coming out of the main financial things? Thanks. David Goeckeler: Yes so a few questions in there. So first of all in terms of CapEx we exited FY 2021 around $3 billion in growth CapEx and that's what we're expecting again in FY 2022. We are well on our way in terms of the ramp on BiCS5 and in terms of the capital investment, and we will have to obviously continue to invest in both businesses. We've got two growing businesses and they are going to require capital going forward. On the hard drive side, we're at the point where we can no longer transition the assets from the client side of the business to the capacity enterprise business. And so that means we have to be pretty cautious in terms of investments we make. That's part of why we've done some of these long term agreements and we're going to continue to be very careful in terms of capacity we've put in place. And on the flash side, the goal as we've been saying is to really grow bits at the rate that the market is growing and we think over the long-term we will be able to do that. Sidney Ho: Okay, thanks. David Goeckeler: Sure, thank you. Operator: Thank you. The next question comes from Shannon Cross from Cross Research. Shannon Cross: Thank you very much. I had maybe a bigger picture question. I'm just wondering how you are thinking about the inflationary environment? Are you hearing from many customers that there's some pushback because of less demand given price increases? And then just internally, how are you thinking about managing higher cost and not necessarily next quarter, but just in general as we face more inflation? Thank you. David Goeckeler: Yes, it's a good question Shannon. And we are definitely facing inflationary pressures across the board and we've talked about the semiconductor components already on this call, and we're seeing lead times extend out. We're seeing challenges on the cost side as well. And we're going to -- we think we're going to face that across a number of different commodities. And also the discussion we need to have with our customers as well, and I think most of them are also facing inflationary pressures. So it's not something that you can work out in a single quarter, but I think over time we've got to make sure we're getting obviously an adequate return on investments we're making from a CapEx standpoint and the costs that we have in each of the products. Shannon Cross: Okay, thank you. David Goeckeler: Sure. Operator: Thank you. Our next question comes from Nik Todorov from Longbow Research. Nikolay Todorov: Yes, good afternoon guys and congrats on great results from me as well. David Goeckeler: Thank you. Nikolay Todorov: Dave, I think, can you hear me? David Goeckeler: Oh yes, please go ahead. Nikolay Todorov: Yes, yes, you talked about more customers looking for upside on the NAND side in the September quarter and it sounds like you are pretty constrained. But if I look at your guide it implies at best a modest low single digit NAND ASP increase. I wonder why you are not able to get better pricing leverage on the NAND? I think you talked about mix changing in the September quarter, if that's the big driver can you please give us more detail, how do you see the mix shifting on the NAND? Is there any lumpiness in the enterprise as the mix in the September quarter? Thanks. David Goeckeler: Yes, no, I think you got it. I mean, again we're running a portfolio across the four or five major pillars; enterprises, SSD, mobile, consumer and anchor the portfolio client SSD and then of course positions in gaming, IoT, automotive, but every quarter the mix is going to be different across that. And obviously the pricing is changing as different rates across those markets. We're clearly trying to shift as much as we can into the higher margin markets, but every quarter the mix is going to be a little bit different. And depending on what our commitments are, we have commitments to customers as to how much we're going to supply in any given quarter. So when you put that all together, the mix is a little different in Q1, and I think that's where you've got some of the difference coming from in the way you're thinking about it. Nikolay Todorov: Got it, thanks. Good luck, guys. David Goeckeler: Thank you. Operator: The next question comes from Ananda Baruah from Loop Capital. Ananda Baruah: Hey, thanks for taking the questions guys and congrats on the strong results. I guess it's really -- the question really is around the margins and structural margins on both sides of the business. Do you think over time structurally the margins can move higher from here, and what would be sort of the pushes and pulls or sort of the dynamics, like what would things have to look like, would have to get done on both sides of the business for that to happen and kind of structurally higher, meaningfully, nice, nicely and structurally higher? Thanks a lot. David Goeckeler: So I think the answer to that is, I don’t think the answer to that is yes. Let's go through each business. On the drive side we saw a big step up this quarter driven by a number of things. We've been talking about the 18-terabyte capacity point is much better for us for a number of quarters now and we saw that play out. We obviously got some benefit from Chi as well, but predominantly innovation led story from my perspective, but we believe this business inside our company needs to be more profitable. We've talked about it several times on this call. We're now looking at this transition from client capacity to capacity enterprise, nearliner enterprise drives that is -- that era is coming to an end. It's been a long one. It's been -- it's taken a decade to go through that transition, but when we look at the exabyte growth going forward that's going to take investment and we want that investment to be fully justified. So and again it's no surprise to me that now we're talking about these more longer-term agreements and again were early days in those, but those are the conversations with customers. I remember when I came in this business, whatever five quarters ago, everything was transacted on a quarterly or even within the quarter basis and now we're moving to -- in parts of the business multi-quarter basis and I think that will continue because we need more visibility into demand to make sure we can continue to fuel the growth of the cloud. I think the cloud is incredible technology. The seminal technology of our era as I talk -- as I like to say and continuing to fuel the growth there is very important and 35% exabyte growth is going to take investments and I think that's going to take, we're going to want to see the internals of our business be able to support that. And on the flash side we're going to, just one financial comment on that. We're also continuing to innovate in hard drives and drive cost down as well. I think we think about cost down is more in the flash business, but we also continue to drive in the drive business, so we have that dynamic working as well. And on flash, we all know about how dynamic the pricing environment is. We feel very good about our technology roadmap, we've talked about that. We're at the transition point to BiCS5. We feel good about that node as we transition to that over the next couple of quarters. We will see our bit growth accelerate and that that foundational investment with Kioxia I think puts us in a very good position to have the technology roadmap, just structurally support margins in the business. Yes, clearly a better pricing environment as we're seeing helps margins in that business. We expect it to be better next quarter, that's the way we're guiding. And as we looked even beyond the second half and we look into next year, we continue to see a strong demand environment that's getting out there pretty far, but from what our customers are telling us telling us of what they think the demand is going to be for their products. Like I said we are more technology dependent than ever. We continue to hear good things about what they're going be asking for next year. So structurally we think with the technology, with the innovation we're driving in both portfolios, that puts us in a good position to continue to drive profitability in these businesses. Ananda Baruah: That's helpful. Yes, thanks a lot, I appreciate that. Operator: Thank you. Our next question comes from Srini Pajjuri from SMBC Nikko Securities America Srini Pajjuri: Thank you. David, on the enterprise SSD front, I think you said it grew 39% quarter-on-quarter, obviously very strong quarter. Just curious if it's driven primarily by end demand and if there were new customer ramps as well? And also if you could talk about if there was any contribution from Chia on the SSD side as well? I think will be helpful. Thank you. David Goeckeler: Yes, the first one just quickly, very minimal contribution from Chia in the enterprise SSD market. Yes, we are happy with the sequential growth of the products, and we did complete a qualification at another cloud Titan, which is something we've had eyes on for a while and we've talked about. We haven't started ramping there yet, but we'll see that in the second half of the year. We also saw good demand in the channel on enterprise SSD. So we qualified with one of the very big players and we see continued growth there. We're seeing good acceptance in the channel and growth there and now we're layering in additional major customers as we go into the second half of the year. So we feel good about how the product is being accepted again. Lot of innovation in our products. We've being talking about that for many quarters, again giving visibility to the qualification process, and now we're well into the ramp and feel good about where we're at and where it's going and how it's being accepted by our customers. Srini Pajjuri: Thanks David. Operator: Thank you. Our next question comes from Mark Miller from The Benchmark Company. Mark Miller: Just was wondering the SSD space, do you feel you are picking up share? David Goeckeler: I suspect we're picking up share as we grow, so I don’t think the market grew sequentially 39%. Again, we're focused on profitable share gains, but this has been a focus for us to get that product introduced. It's a very attractive market and get it qualified in as many places as we can. But we're going to continue driving for growth quarter over quarter. Mark Miller: Thank you. Operator: Thank you. And the last question comes from Tristan Gerra from Baird. Tristan Gerra: Hi good afternoon. You've given some puts and takes about gross margin criteria for hard disk drive. How should we look at the potential for gross margin longer term? You have mentioned you are already at full capacity. Can you go higher given new customer mix and given the purchasing power that some of your large data center customers have without cover to expenses is a longer term 35% in your outlook possible and if you could just provide a bit more color on what you think are the catalysts going forward? David Goeckeler: Yes, I mean as we -- I think as we've talked about, we're in this period in the hard drive business where it's been transitioning for a long time from a business that was client dominated to a business that is cloud dominated is I guess one way to think about it. And if we look at the utilization of our factories, you can see that very clearly, year-over-year the percentage of drives there were headed for the cloud versus the ones that are headed for clients has been steadily shifting over a decade and now we're at the point where we're looking at investments both in and also when you build a bigger driver it takes longer to test, all those kinds of things, testing, capacity in the factory. So yes, as we go through those conversations, it's really important to understand from our customers what their growth is going to be. We see 30% to 35% exabyte growth in the cloud for the foreseeable future. We want to make sure that they see that same amount. And as we align on that growth and we invest in our business to support it, I think that's where this idea of long-term agreements come in place and to help drive the profitability for the business. We think the innovation is delivering, I mean it starts with delivering a product that is very, solves the customers problem and we're delivering a very strong TCO model with every generation of this product that we build. We're driving a lot of innovation. You know we talked about it here with energy-assist which is something that we've been working on for quite some time. And quite frankly it's a good accomplishment for the team, a great accomplishment. It feels good to take something that was an idea many, many years ago, and now turn it into something where the largest customers in the world are betting their business and their data center on that innovation. And so to continue to fuel that innovation engine we've got we got many, many innovations lined up to continue to drive the portfolio and making sure we can invest in that and meet the growth of our customers. Getting the economics of that right is very important. Tristan Gerra: Great, thanks for the additional color. David Goeckeler: Sure, thanks. Thank you. All right everybody thanks for your time today. We really appreciate it. We will be seeing you throughout the quarter. Thanks very much. Robert Eulau: Yes, thanks everybody. Operator: Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

Operator: Good afternoon, and thank you for standing by. Welcome to Western Digital's Fiscal Third Quarter 2021 Conference Call. [Operator Instructions]. Now I will turn the call over to Mr. Peter Andrew. You may begin. Peter Andrew: Thank you, and good afternoon, everyone. Joining me today are David Goeckeler, Chief Executive Officer; and Bob Eulau, Chief Financial Officer. Before we begin, let me remind everyone that today's discussion contains forward-looking statements, including product portfolio expectations, business plans, trends and financial outlook based on management's current assumptions and expectations and, as such, does include risks and uncertainties. We assume no obligation to update these statements. Please refer to our most recent report on Form 10-K filed with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially. We will also make references to non-GAAP financial measures today. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the Investor Relations section of our website. With that, I will now turn the call over to David. David Goeckeler: Thank you, Peter. Good afternoon, everyone, and thanks for joining the call today. We reported solid third quarter results above the guidance range provided in January, with revenue of $4.1 billion, non-GAAP gross margin of 27.7% and non-GAAP earnings per share of $1.02. Sequential revenue growth was driven by increasing momentum of our high capacity energy-assisted drives and our second-generation NVMe enterprise SSDs, improving NAND flash pricing trends, along with the continued accelerated digital transformation across end markets. As we continue to manage the impact of the pandemic, we know that the world is not only more technology-enabled, but also more technology dependent than ever before. From the intelligent edge to the cloud, data storage is a fundamental component underpinning the global technology architecture. Western Digital's strengths in technology and cost leadership, expansive product portfolio and broad routes to market are providing a foundation upon which we are solidifying our position as an essential building block of the digital economy. These strengths, combined with our increased operational and strategic focus enabled by our new business unit structure, are driving results. As we continue to face a dynamic environment, we are seeing the benefits of the synergistic value in the breadth of Western Digital's portfolio, and our unique ability to deliver both hard drives and flash solutions to our diverse end markets and customer base. Let me now provide a recap of our Flash and HDD businesses. Within Flash, the depth and breadth of our product line, distribution channels, cost leadership and customer base are significant differentiators. Our ability to act swiftly and shift bits to meet customer demand in various end markets, ranging from data centers to retail, enabled us to grow both revenue and gross margin in the third quarter. Within Data Center Devices and Solutions, we experienced significant growth in the quarter with our second-generation NVMe enterprise SSD in a cloud titan. In addition, we are seeing many cloud customers also utilize NAND flash for their consumer product lines. This creates many opportunities for us as a strategic partner as we continue to diversify and balance the end markets we serve. We are already achieving significant progress in VR headsets, game consoles and other at-home entertainment devices where we have experienced over 10x bit growth last calendar year and expect to double again this calendar year. In Client Devices, continued strength in PC demand, along with the new game console ramps drove sequential revenue growth above typical seasonal trends. Retail remained a high-performing end market as our brand recognition, broad product portfolio and extensive distribution channels continue to distinguish Western Digital from our competitors. In particular, it was a solid quarter for gaming with our WD Black product line having maintained strong levels of interest as gamers have gravitated towards more customized solutions. By delivering reliable performance, expansive storage capabilities and a hyperrealistic gaming experience, our industry-leading WD Black portfolio is trusted by gamers to perform their best. We are also excited about the future as Western Digital's technology road map and cost leadership will continue to drive our ability to meet customers' needs. BiCS5 is in the midst of a significant ramp, exceeding customers' expectations and delivering the reliability and performance our customers depend upon. Moreover, the technology advancements we made with BiCS5 have allowed us to achieve the scale, efficiency and bit growth needed while using a lower number of layers resulting in lower costs and lower capital intensity. We continue to expect BiCS5 bit crossover later in 2021. Finally, in February, we revealed BiCS6, our next-generation flash device, based on 162 layer and CuA technology, developed in partnership with Kioxia as part of our long-standing successful joint venture, BiCS6 features numerous architectural advancements, including improved lateral scaling, which allows us to deliver this high-performing product at an optimal cost. This marks another major milestone in our 20-year relationship with Kioxia. And together, we will continue to drive innovation to meet the needs of our respective customers in their diverse applications. In HDD, revenue growth was led by capacity enterprise drives, a trend that tilts the overall HDD market to growth as demand for capacity enterprise drives will more than offset the decline in client drives. Meanwhile, retail HDD demand was better than expected, supported by continued work from home, distance learning and at-home entertainment trends. We continue to see enterprise demand stabilizing and expect to pick up as employees return to work. We have completed qualifications for our energy-assisted drives with nearly all our cloud and enterprise customers, including all the cloud titans and expect an aggressive ramp of our 18-terabyte hard drives. Building on this success, we've entered into long-term agreements with a number of our cloud titans for 18-terabyte drives. These commitments underscore our product leadership and the importance of capacity enterprise drives to our data center customers. As we continue to navigate challenges brought on by COVID-19, we know that the world is not only more technology-enabled, but also more technology dependent. We believe this is a fundamental and sustainable trend, highlighting the importance of Western Digital's broad portfolio of storage solutions, and we're encouraged by what's ahead. In flash, improving pricing trends in the retail and transactional portions of the market are translating to better pricing in a negotiated portions of the market, and we expect this trend to continue in the fiscal fourth quarter. Our unique ability to provide high volumes of flash and hard drive solutions through extensive distribution channels and to diversified end markets provides us with broad demand visibility, enabling our team to optimize product mix and profitability. In the cloud, we remain uniquely positioned to benefit from the strong growth in this sector, where NAND flash and hard drives are complementary solutions. We expect the strength to build as we progress through the calendar year, led by the ramp of our 18-terabyte hard drives as well as broad-based growth in flash. And while we are excited about these drivers, we are also keeping close watch on some headwinds. To date, we have been able to largely mitigate the impact of the industry-wide semiconductor component shortages through proactive supply chain management. We are, however, experiencing tightness in controllers as well as flash, which could limit potential upside in the future. We also recognize that while the pandemic effects are lessening in some regions, others are unfortunately experiencing another wave of cases. We are actively managing through this environment, which continues to have ongoing impacts to our business. I'll now turn the call over to Bob to share details on our financial results. Robert Eulau: Thanks, Dave, and good afternoon, everyone. As Dave mentioned, overall results for the third fiscal quarter were above the upper end of the guidance ranges provided in January. Flash revenue and gross margin improvement were the primary contributors to the upside versus guidance. Total revenue was $4.1 billion, up 5% sequentially and down 1% year-over-year. Looking at our end markets, client Devices revenue was $2 billion, down 6% sequentially and up 10% year-over-year. On a sequential basis, client SSD revenue was flat and notebook and desktop PC hard drive revenue was down, though it decreased less than what we're used to seeing based on typical seasonality. Gaming revenue grew, while mobile revenue was down on a sequential basis. Moving on to Data Center Devices and Solutions. Revenue was $1.2 billion, up 53% sequentially, but down 19% from a year ago. Revenue from both capacity enterprise hard drives and enterprise SSDs grew sequentially. We were encouraged to see the sequential growth driven by our new energy-assisted hard drives at the 16- and 18-terabyte capacity points and our second-generation NVMe enterprise SSD products, both targeted for the cloud and large-scale enterprise OEMs. Lastly, Client Solutions revenue was $888 million, down 12% sequentially and up 8% from a year ago. Turning to revenue by technology. Flash revenue was $2.2 billion, up 7% sequentially and up 6% year-over-year. Flash ASPs were down 2% sequentially on a blended basis and flat on a like-for-like basis. Flash bit shipments increased 8% sequentially. Hard drive revenue was $2 billion, up 3% sequentially and down 7% year-over-year. On a sequential basis, total hard drive exabyte shipments increased by 7%, while the average price per hard drive increased 14% to $82. As we move to costs and expenses, please note that my comments will be related to non-GAAP results, unless stated otherwise. Gross margin for the third quarter was 27.7%, up 1.3 percentage points sequentially. This was above the upper end of the guidance range provided in January. Continued success in driving down costs, coupled with an improving pricing environment and our ability to shift bits to more attractive end markets, drove our flash gross margin up 2.9 percentage points sequentially to 30.0%. Our hard drive gross margin was 25%, down 0.5 percentage points sequentially. As noted last quarter, production ramp costs of our new energy-assisted drives and a planned reduction in overall units shipped pressured gross margin. This also includes COVID-19-related impact of $31 million or approximately 1.6 percentage points. Operating expenses of $732 million were higher than guidance due to a larger-than-expected variable compensation accrual tied to our improved profitability. With our improving profitability, our tax rate in the fiscal third quarter was 8%, which was well below our prior expectations and directly resulted in a $0.17 benefit to our earnings per share. We now expect our tax rate to be 17% for fiscal year 2021. Earnings per share was $1.02. Excluding the tax benefit, earnings per share was still well above guidance. Operating cash flow for the third quarter was $116 million and free cash flow was negative $11 million. Capital expenditures, which include the purchase of property, plant and equipment and activity related to flash joint ventures on our cash flow statement was a cash outflow of $127 million. In the fiscal third quarter, we paid off $212 million in debt, including an optional debt paydown of $150 million. We'll also be making an additional optional debt payment of $150 million this Friday, highlighting the confidence we have in our cash flow generation for the fourth quarter. Our liquidity position continues to be strong. At the end of the quarter, we had $2.7 billion in cash and cash equivalents, and our gross debt outstanding was $9 billion. Our adjusted EBITDA, as defined in our credit agreement, was $3.5 billion, resulting in a gross leverage of 2.6x. As a reminder, our credit agreement includes a $1 billion add-back of depreciation associated with the joint ventures. This is not reflected in our cash flow statement. Please refer to the earnings presentation on the Investor Relations website for further details. Moving on to our outlook. Our fiscal fourth quarter non-GAAP guidance is as follows. We expect revenues to be in the range of $4.4 billion to $4.6 billion, and we expect both hard drive and flash revenue to be up sequentially. We expect gross margin to be between 30% and 32%. We expect both flash and hard drive gross margin to improve sequentially as well. We expect operating expenses to be between $760 million and $790 million. Interest and other expense is expected to be between $68 million and $73 million. The tax rate is expected to be approximately 17% in the fourth quarter and the fiscal year. We expect earnings per share to be between $1.30 and $1.60 in the fourth quarter, assuming approximately 317 million fully diluted shares outstanding. Now I'll turn it back over to Dave. David Goeckeler: Thanks, Bob. As technology continues to advance, our powerful portfolio will remain centered on developing solutions to our customers' evolving storage needs. Western Digital's unique ability to offer complementary flash and hard drive products benefits the industry, our customers and our company as a whole. While market conditions continue improving, I believe the organization and leadership changes made over the last year are now delivering more agility, better execution and a stronger portfolio and collectively are driving results and unlocking the underlying strengths of Western Digital. We are in a unique leadership position and feel confident that we can continue to drive innovation, while delivering value for all of our stakeholders. We will now begin the Q&A session. Operator: [Operator Instructions]. Our first question will come from Aaron Rakers with Wells Fargo. Aaron Rakers: Congratulations on the execution in the quarter. I guess the first question I have is, you mentioned in your prepared remarks about establishing long-term purchase agreements with some of the cloud customers or cloud titans. Can you help us appreciate that a little bit more? Can you give us any context of how those agreements are structured? Are they volume-related? Are they take and pay? Just any kind of clarity on that. And how that would compare to kind of prior engagements with those customers on product cycles? David Goeckeler: Yes. Aaron, thank you. Yes, it's something we've been working on for a while, I guess. I mean when I got here a year ago, it kind of struck me that it was a big business and it was very transactional. And the more certainty we could put around, it would be better for all of us, especially going into a world where we're going to be investing capital in this business. We're trying to judge supply and demand and get that right as the market shifts to capacity enterprise. So there are multi-quarter agreements, as you would imagine. And we talk about the amount of demand they are going to have, and we set a price for that period. So as opposed to just going quarter-by-quarter, we're extending that out to multi-quarter agreements to give us both more visibility around the business. Aaron Rakers: Okay. And I guess, maybe somewhat related to that, just thinking about the hard disk drive business as my follow-up is, I guess, a simple question is, how do we go from a 25% gross margin back to what I think is still probably the target of at least 30%, if not higher gross margin in hard disk drives? How do we think about the variables to bring us back to that 30% plus level? David Goeckeler: Well, I think -- I mean -- so the first part is getting out of COVID. I think we had 1.6% impact on gross margin due to COVID, so that continues to be an issue. And we're all hoping things continue to get better there. Obviously, mix is a question -- an issue as we get more client in the work from home. That's not necessarily a bad thing, but it's definitely a different margin profile. And then getting to scale on the capacity points where we can continue to drive the costs down. And -- we can't control the pricing in the market, but continuing to deliver a strong TCO proposition for our customers. And that's what we're continuing to do. We believe we have a long road map of continued density and aerial density improvements on HDDs. They're the foundational storage element in the cloud, which I think is a very good place to be. And so we're working on it from all of those angles. Operator: Our next question will come from C.J. Muse with Evercore. Christopher Muse: Yes. I guess first question I was hoping to discuss just overall gross margins. So very nice uplift there. And in particular, your cost sales on the NAND side in the March quarter were fairly spectacular and clearly better than what we saw across most other NAND players. So can that 20% improvement year-on-year continue as we go through the year? And what other kind of drivers should we be thinking about impacting gross margins into June? David Goeckeler: Yes. So we're happy where the technology is. I mean, I think we're going to -- we're still at our -- we target 15%. In some quarters, we do better, some quarters maybe we do a little worse than that. We're in a good spot. A lot of the portfolio is on BiCS4, which is a very high-performing node for us. So we're very happy with the cost downs. Hopefully, you tuned into Dr. Sivaram's discussion of NAND technology and kind of what's driving, all of this. We do believe very strongly in our technology road map with Kioxia. Between us, we're the biggest investor in NAND. And so we have a lot of confidence in our road map and to be able to sustain that. As we look into the next quarter, we talked about it. We continue to see a good pricing environment. So we expect to continue to get good cost downs in the portfolio and in a rising price environment that puts us in a good spot to drive gross margin. Christopher Muse: Okay. Very helpful. Robert Eulau: And we're beginning to ramp our BiCS5 112-layer technology as well, which will continue to help bring the cost down. Christopher Muse: Great. And then, I guess, can you speak a bit to the rebound you saw in the enterprise HDD side, pretty strong, up 16% sequential units? Can you share with us how to think about 16-, 18-terabyte ramp and the prospect for faster growth as we go through the year? David Goeckeler: Yes. We expect sequential growth in that market. I think this quarter, we had a good -- we had basically a balanced shipment of our capacity enterprise across 14, 16 and 18, and we see that shifting strongly to 18 sequentially, and we expect that to drive -- we see sequential exabyte growth and also sequential gross margin improvement in the portfolio as we move forward as well. Operator: Our next question will come from Joe Moore with Morgan Stanley. Joseph Moore: Also, on the enterprise side, if you could talk about the enterprise NVMe progress that you've had? You're citing a cloud titan customer there. Are there prospects for more? And where would you say -- I know you had a late start with enterprise NVMe. Where would you say your share is? And can you kind of get to where your share in the enterprise is similar to your share and overall NAND? David Goeckeler: So we're working on calls with the big enterprise OEMs, so that's still in process. As I talked about last time, that's a multi-quarter process. It's going along fine. We're seeing good demand in the channel for that product. So that's a good indication. As far as where we're going to land on share, I mean, I think one of the things to -- we're really running a balanced portfolio across a whole bunch of different markets we're in from client SSD to mobility. I think the big thing for us is to get the enterprise SSD qualified and now start to ship at scale. But we're still going to run a balanced portfolio across the big markets we have, which is client SSD, mobility, enterprise SSD and, of course, retail. And then with things like gaming coming up quickly as well. So we feel good about where the product is. We think it was a major milestone for us last quarter when we got the call done at a cloud titan, and we saw the benefits of that this past quarter. Joseph Moore: Great. And then my follow-up on 330 basis points of gross margin improvement is pretty significant. Can you give us a qualitative sense of how much of that is coming from NAND versus drives? Robert Eulau: Well, gross margins were up in both -- I'm sorry, gross margins were up on the flash side. They're actually down sequentially. Joseph Moore: Yes. I mean more in the June quarter, your guidance. Robert Eulau: In the June quarter. Yes. Sequentially, will be up in both businesses, probably driven a little bit more on the flash side. Operator: Our next question will come from Toshiya Hari with Goldman Sachs. Toshiya Hari: Congrats on the strong results and outlook. David, you talked about shortages in your NAND business as it relates to controllers and perhaps raw NAND as well. Can you talk a little bit about the actual impact you saw in the quarter? What's embedded in your June quarter guidance and when you'd expect some of these issues to be resolved? David Goeckeler: Yes. So we're working on -- I mean, obviously, we're working to get as much supply as we can. I mean this past quarter, we did see shortages in controllers, let's say, in places like Chromebooks, where we probably couldn't get as many controllers as we would have liked and could have shipped a little more into that. But in general, what we're able to do is with the supply we have is shift the portfolio around where we get the biggest return for that, whether it's moving those controllers to products in the channel or in retail -- from retail into the channel and vice versa, where we're going to get the highest return. So the agility, I think, that the team is implementing on all of our different go-to-market routes has been very beneficial over the last couple of quarters, and I expect it to be going forward as well. So we're able to mitigate it a little bit. We're not able to completely escape it, but we're going to continue working to get all the supply we can. And we definitely know what the forecast. It's matched to the supply we have. So we don't expect any surprises from that regard. Toshiya Hari: Got it. And then as a quick follow-up. I just wanted to get your thoughts on NAND supply/demand going forward. Clearly, the near term is looking really good, and you spoke to that in your prepared remarks. But as you start to plan for fiscal '22, what are your thoughts on the overall market supply/demand and your intentions from a CapEx perspective? You obviously want to make the transitions and maintain share, but at the same time, you don't want to flood the market with too much supply. So what's sort of the debate internally? David Goeckeler: Yes. So you got it right. I mean we're going to invest to maintain share. We feel good about the demand situation. I mean '22 is pretty far out. As you know, of course, we guide 1 quarter at a time, I have to say that. But yes, we continue to see demand as strong into the second half of this year, certainly. I mean we're -- we -- whether it's in the PC market or in the cloud infrastructure market, we're pretty bullish. So we'll manage it through the end of the year and be disciplined with our CapEx investment and go one quarter a time. Operator: Our next question will come from Wamsi Mohan with Bank of America. Wamsi Mohan: Dave, I want to go back to the long-term agreements on 18 TB. Is there any share basis for those agreements? And if not, how much share are you targeting at these customers? David Goeckeler: Yes. We don't go into that much detail on a customer-by-customer basis. I mean we -- it's fair to say with these customers, we have long-standing and very deep relationships given our position in their data centers and given that 90% of the storage in the cloud is on hard drive. So it's just about getting more visibility of what their plans are and get anything aligned with where we're going and making sure that our business is aligned with where their business is headed. It's kind of as simple as that to give us more visibility and try and move the market, as I said, from this transactional quarter to time to allow us both to plan for what the next several quarters look like. Wamsi Mohan: Okay. And as a follow-up, on the ACD gross margins improving in the June quarter, is that more mix related or lower cost headwinds? Can you just help us think through what you think are more transitory maybe in the cost headwind side versus an improving mix here? David Goeckeler: A big part of it is mix. I think we've been talking for a long time that 18 capacity point is a better point for us. And as I said, this quarter, we shipped pretty balanced number of 14s, 16s and 18s, and we'll see that tilt strongly to 18s next quarter. Robert Eulau: And I think the costs will get better quarter-to-quarter as well. We slowed down production a little bit in the March quarter, and we're back at full production here in the June quarter. Operator: Our next question will come from Mehdi Hosseini with Susquehanna. Mehdi Hosseini: David, it's been about a year or so since you joined the company. And remember, when you first joined, you were doing somewhere around $250 million of annualized earnings. And fast forward 12 months, you're almost at a $6 annualized earning. Great improvement, but still well below 2017, 2018, when the company was doing north of $10 of earnings. And I'm not asking you to give me forecast or guide for 1 or 2 years out. But I think it would be very helpful if you could articulate your views as to how earnings are going to improve here, assuming that you just continue to execute? And I have a follow-up. David Goeckeler: Yes. I mean, I think it's what -- I think you're starting to see the better execution. And on the flash side, build out the portfolio across a number of end markets, which I think that enterprise SSD was a big piece of getting that established with the cloud titans. We clearly have a very strong client SSD portfolio. We have, I think, a very strong retail portfolio. Mobility, we've talked about. We stay qualified with all the top vendors. We very much participate in that market, maybe less than -- definitely less than some others. And then we have a lot of new products coming around gaming and smart home devices, where because of our strong relationships with those big cloud customers that also drive that portfolio gives us kind of a front-row seat as those are developed. So I think it's built out the portfolio and then use our routes to market to deliver the best return we can, given the pricing environment in the market. And I think we're able to do that in flash this quarter and balance the portfolio across all the markets and put the agility in the system to make sure that we're doing that. And I would say from a year ago to where we are now and the way we executed the last quarter, there's just much more agility in the system and to be able to react and get the best outcome we can. In the hard drive side, it's drive -- continue to drive aerial density and leadership, return to a leadership position as we did with 18 and then continue that forward. It's a good market. I think we've had a long-standing position there. And then I think there's -- we've seen the synergy between the 2 portfolios in the client space. We have a great client SSD portfolio where these technologies were substitutes for each other. We had long-standing relationships with those customers where we can manage that transition. And in the data center, they're more complementary technologies, and I think the ability to execute that synergy is in front of us. Mehdi Hosseini: Okay. And just a quick follow-up on HDD. I believe you're still are restricted with shipment to certain customers, but your primary competitor has continued to ship. How do you see that geography and specific customers there playing to your disadvantage? And I'm assuming that you're still restricted. David Goeckeler: Yes. We're -- we've been -- since the commerce rules came out, I think back in September, we stopped shipping per the rules. We talked to commerce frequently. We have our own attorneys and outside firms. We know that, that's the right position and that's the position we continue to be in. The licenses are pending with commerce, and we'll see how that plays out. I don't think there's been any -- there hasn't been any movement there recently. As far as what our competitors do, and I can't speak to what they're doing. So I only have insight into our position, and we are clearly not shipping to places where we're not supposed to per commerce department regulation. Operator: Our next question will come from Sidney Ho with Deutsche Bank. Sidney Ho: My first question is on the 18-terabyte drives. First of all, congrats on all the qualification. But in terms of the ramp, do you expect your 18-terabyte drives to cross over the 14-terabyte drives exiting this calendar year? And will 18 terabyte be margin accretive right off the bat? Maybe a follow-up to that is, how are you thinking about strategy in terms of ramping 16 versus 18? David Goeckeler: Yes. So we expect 18 to be the primary -- the highest volume we shipped this quarter. So yes, to the first question, and yes, we expect it to be margin accretive. We expect sequential improvement in HDD gross margin. What was the second question again, please? Sidney Ho: The second part, it's 16 versus 18. Are you putting all your eggs into the 18-terabyte basket and 16 is just its whatever the customers are asking for? David Goeckeler: Yes. Well, I mean, I think it's always whatever the customer is asking for. So every customer is at a different point in the evolution of their data center of what they're deploying. Some are still deploying 14 at scale. Some went to 18 as quickly as possible, and others are at different points of deploying 16 or 18. And so we meet the customers where they are in that process. So -- but we expect 18 to be the predominant point going forward. It's just a better TCO equation. So it's -- you would expect the customers to go there when they can, given their own internal architectural evolution. Sidney Ho: Got it. Maybe a follow-up to the nearline side of things. Given the improvement of -- in the enterprise side that you're seeing and, obviously, the cloud has been strong, what is your expectation for the industry-wide exabyte growth for nearline drive this year? And how do you think you'll stack up against that this year? David Goeckeler: Yes. We see a quarter of strong growth coming up. I think we're still in that around 35% exabyte growth for the year. So -- and as the market shifts to 18, I think that we're an incrementally stronger position. So that's how I expect the rest of the year to play out. Operator: Our next question will come from Tom O'Malley with Barclays. Thomas O'Malley: Congrats on the really nice results. My first question was around end markets. You guys gave some helpful color on the HDD and flash side. Could you talk to what you guys see Client Devices, Data Center Devices and Client Solutions kind of doing into the June quarter? Just any general color would be helpful there. David Goeckeler: I mean, I think in data center, we expect improvement. I mean I'm trying to think here around modular seasonality. I mean devices are very strong. I mean we saw a lot of strength in PC and client, and I think we continue to see -- we saw -- this past quarter, we saw decline but the way better than seasonal decline. So we expect that to continue. We think that market is strong. Our customers are telling us that market is strong. The number of units shipped is up. So that continues to be a good market. I think data center with 18 ramping stronger. You're going to see growth there. And I think in the retail space, we'll see sequential growth, but probably a little smaller than the others, but still very good performance. Thomas O'Malley: That's helpful. My follow-up was really around the cadence of gross margins. You guys indicated that you should see some HDD gross margins that are improving sequentially. But can you talk to the cadence for the year? I think that the target longer term is $30 million and even above that. But obviously, with nearline drives becoming a bigger part of the mix and some of this COVID headwinds coming off, can you talk to the progression that you guys are expecting internally? And just kind of the progression from here to the 30s? David Goeckeler: Yes. I mean, I think we're going to forecast at 1 quarter at a time, but we're working -- the teams are working very hard to do that they're going to do in any storage market, which has continued to bring down the costs. And as you scale the products, you'll bring down the cost. So I think the whole industry is driving back to 30% gross margins. I think we're going to get there one step at a time, but we're going to work on both sides of it is make sure we've got good supply/demand matching on kind of what the demand is in the market. And then we talked about multi-quarter supply agreements, I think, which helps give some certainty and then work on the cost side a bit. So we're -- every quarter, we're focused on all those elements, and we'll continue to drive it. Now it starts with delivering a great value proposition for our customers and continuing to drive a better TCO equation as we drive higher and higher aerial densities. And we've got a long road map on aerial density improvement. A big piece of that was us implementing or introducing energy assist. And that was a big thing with our 16, 18. As we're now just starting to ramp the '18, we've got energy assist in the market. That's -- there's well over a decade of research behind that, and we've now commercialized it. And so that gives us many generations on that technology to continue to improve aerial density, which is going to improve the TCO equation for our customers. Operator: Our next question will come from Shannon Cross with Cross Research. Shannon Cross: I'm just curious with regard to your cloud customers. If you believe they're pretty much through the digestion period of the excess capacity? I know we've seen some on a couple of weeks over that they're starting to ramp up CapEx again. But I'm curious what you're hearing from them? And then I have a follow-up. David Goeckeler: Yes. I think the word I used last time was cloud digestion abating when we talked about this. But they're all in a slightly different spot, but we're into an ingestion phase for the most part. Shannon Cross: Okay. And then I was curious in terms of the tightness in components in overall market. What kind of impact is that having on your working capital? We're looking at some of the movements in AP and inventory. Robert Eulau: Yes. No, that's a good question. And we definitely are carrying a little more inventory than we normally would, particularly on the hard drive side because of the tightness on controllers. And also, frankly, because of the logistics costs associated with COVID-19, we're putting more products on the ocean and not in the air. So it's definitely having an impact in terms of working capital in that respect. Our accounts payable did go down this quarter. I mean that really was a result of a slowing down on the production in the March quarter, and I think it will come back up again this quarter. Operator: Our next question will come from Tristan Gerra with Baird. Tristan Gerra: Just following up on the earlier question about supply/demand. We've had some peers talk about their concern around seen some excess capacity coming in NAND. I know it's too early to pull out an outlook for the next fiscal year, but is capacity in that industry-wide a concern in your view? Or do you see a path that ultimately could get you back to the type of peak gross margin that you reported in earlier back in the 2018 time frame? David Goeckeler: Yes. It's not something we're overly worried about at this point. I think the industry has been pretty disciplined for the last several years. And I think there's now pretty strong demand in the market. So I mean, we feel pretty good about the balance of supply/demand in the market going forward. I mean, again, there's -- even the -- well, let me just leave it at that. We're pretty happy with where supply/demand balance is. I mean, I think everybody is trying to figure out what's the long-term demand for technology coming out of pandemic. It's kind of a unique situation, so -- but we're staying very close to it. And our view is that industry has been pretty balanced on the whole topic. Operator: Our next question will come from Jim Suva with Citigroup Investments. James Suva: And I'll ask both my questions at the same time, and you can answer in any order you want. But the data center softness, is the visibility there getting better, the digestion phase? And are we a long ways to go or kind of mostly through the worst part? Or is demand coming back for that kind of on the data center? And then you mentioned longer-term relationships and contracts with cloud titans and hyperscalers. Do they allow for flexibility and pricing? The reason why I ask is recent NAND pricing came out and it was quite positive. And we just want to make sure that you're not missing the opportunity for better economics from pricing. And so I was just kind of wondering without any specific some of your relationships of quantity and volumes and pricing, are there some abilities to adjust it? Or do you get locked in and maybe pricing will or won't help you? David Goeckeler: I think your second issue is, without going into all the details, is not a concern for us. On the first issue, I mean, I think we saw, first of all, very strong sequential growth in data center for us this quarter of 53%, although it was down -- I get your point year-over-year. I was very strong compared a year ago on exabyte shipment, but we expect sequential growth there in exabyte shipments on the drive side and I think up on flash as well, maybe not as strong as the expected growth we expect in hard drives as 18 really starts to be the major point in the industry. But we see sequential improvement there, Jim. Operator: Our next question will come from Ananda Baruah with Loop Capital. Ananda Baruah: Congrats on the strong results. I guess just going back to the flash gross margin and the balance that you guys are seeing right now, do you feel like you're sort of to 30% sooner than expected, which is a positive thing? And if so, how would you like us to think about if supply/demand remains balanced on the flash side? How to think about margins going through the second half of the calendar year? And then I have a quick follow-up. David Goeckeler: Yes. I guess one way to think about that is we delivered above what we guided. So I think we're ahead of where we thought the market would be when we walked into it. And a lot of that is we have really strong exposure to a lot of transactional markets in the channel and in retail. And as price tightens, it allows us to move pricing in those big markets, much faster than other markets, OEM markets, which are quarter-by-quarter phenomena -- I mean, not phenomenon, quarter-by-quarter negotiation. So yes. I mean, I think the market was good for us. And as I said, the go-to-market teams and the BU teams were very agile as far as shifting our supply around on where we could get the best return for it in the quarter. As far as going forward, I mean, we're guiding for sequential improvement in flash gross margin. We're seeing that. We saw the pricing strength that we -- or firmness that we saw in the transactional markets translate into the negotiated markets. I think last quarter, we were waiting to see if that was going to happen. We see that going into Q4. And so we're definitely forecasting incrementally stronger flash margins in this current quarter. Ananda Baruah: Okay. And it sounds like just structurally, it feels like maybe that could actually follow through just because it feels like the dynamics are more at the beginning as well. I guess my follow-up is, it seems like on your CapEx, it seems like you've lowered the CapEx expectation just slightly for fiscal year '21, if I'm seeing that accurately. And I was just wondering if there's any direct reason for that and what would be underpinning that if there is. And that's it for me. Robert Eulau: Yes. No, that's a good observation. And we expected CapEx to be around $3 billion this year, pretty much all year. The main delta is we actually sold some real estate this past quarter to the tune of about $100 million. Operator: Our next question will come from Nick Todorov with Longbow Research. Nikolay Todorov: David, if I heard correctly, you talked about seeing cloud titans also starting to use your client SSD products for their consumer base business. I think that's the first time we hear about that. So can you maybe impact that a little bit? How should we think about the opportunity? And are you addressing those -- that opportunity with your existing portfolio? David Goeckeler: No, not necessarily our client products. There is some of that because I think the easiest way to think about it is a lot of these big cloud titans also have big consumer portfolios. Whether it's gaming, tablets, VR headsets, that's what I'm talking about us participating in those builds, in those parts of the market as well. And as part of that go-to-market synergy we've talked about, I think we tend to only think of it as HDDs and enterprise SSDs, but it's much broader than that, given the relationship we have from the HDD business with these customers and the depth of the relationship. And they all -- where most of them also have big consumer portfolio as well, whether it's home automation or the kind of things I talked about. So our ability to participate in those parts of the market for flash is just what we're talking about. Operator: Our next question will come from Srini Pajjuri with SMBC Nikko Securities. Srinivas Pajjuri: On the NAND gross margins as well. I didn't hear you talk about K1 costs. So I'm guessing they came down pretty meaningfully. But I guess my question is, as we look through the next few quarters, you do have additional fabs coming online, either it's K2 or Y7. I'm just wondering how we should think about any potential incremental costs from those new factories. Robert Eulau: Yes. So I don't think we heard quite all the beginning of your comment, but you're correct that the K1 period expenses are immaterial now. We've ramped there to normal volume levels, and so those costs are getting inventory. So it's -- I think we're kind of in a normal state. As New York fabs come on, it's not going to have as big an impact from a start-up cost standpoint as the greenfield that we did with K1. So definitely, you're bringing on some fixed costs, but we'll also be bringing production volumes up and amortizing those costs over a bigger base because we have multiple fabs on a given campus. Operator: Our next question will come from Steven Fox with Fox Advisors. Steven Fox: Two questions real quick. First of all, on the taxes, Bob, is the 17% tax rate kind of here to stay? Do you think it can go a little bit lower? And then secondly, I apologize if I missed this, but have you talked about sort of the recent trends in high capacity video HDDs? And what you're expecting going forward? Robert Eulau: I do taxes, and Dave didn't talk about video. So yes, and we -- this has come up in prior calls. I mean we've been in a situation over the last couple of years where our operating profits have been below what we expected. And we have minimum taxes that we have to pay around the world. And so our rate was higher than what we would consider normal the last couple of years. Now as we're forecasting the rest of this fiscal year with the profitability we're expecting, we're very confident in the rate of 17%. And it will be -- as we look to future years, it will be a function of how profitable we are in those years. But right now, I think a good planning number is 17%. David Goeckeler: Yes, Steven, we haven't talked about high-definition video or in particular, but I mean, one way to think about it is just driving more demand for storage. I think all the devices we carry have more and more capability to store higher definition video, which is just driving the need for more storage per device. So if you have something more specific than that, I'm happy to follow-up on and go... Steven Fox: Yes. Yes, I just was -- if you could just maybe expand on what you're seeing into the June quarter, like, I think there was some seasonality last quarter. How you have availability to ship to that market? David Goeckeler: Smart video, the smart video market, I'm sorry, I misinterpreted. Smart video right in the HDD market. We see -- that market has been pretty stable. I think we see some improvement in it. But I mean, I don't think there's anything that's particularly noteworthy, except that it's a good market for us and continue to move forward. Robert Eulau: Yes, it's a growing market. David Goeckeler: All right, everyone. Look, we really appreciate you spending time with us. We'll follow up with you throughout the quarter. And again, thanks for joining us. Take care. Robert Eulau: Yes. Thanks, everyone. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect, and have a wonderful day.

Operator: Good afternoon, and thank you for standing by. Welcome to Western Digital's Fiscal Second Quarter 2021 Conference Call. Presently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this call is being recorded. Peter Andrew: Thank you, and good afternoon, everyone. Joining me today are David Goeckeler, Chief Executive Officer; and Bob Eulau, Chief Financial Officer. Before we begin, let me remind everyone that today's discussion contains forward-looking statements, including product portfolio expectations, business plans, trends and financial outlook based on management's current assumptions and expectations, and as such, does include risks and uncertainties. We assume no obligation to update these statements. Please refer to our most recent financial report on Form 10-K filed with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially. We will also make references to non-GAAP financial measures today. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the Investor Relations section of our website. With that, I will now turn the call over to David. David Goeckeler: Thanks, Peter, and thanks, everyone, for joining us today. To start, our second quarter results were at or above the upper end of guidance ranges we provided in October. We reported revenue of $3.9 billion and non-GAAP earnings per share of $0.69. These results reflect continued growth in retail in what was a seasonally strong quarter. In addition, stronger demand for our client SSD products as well as our notebook and desktop hard drives contributed to upside in revenue. We continue to work hard delivering for our shareholders, customers, partners, and communities. We adapted to changes in our business and continue to manage the ongoing challenges presented by the pandemic. Our results reflect the benefits of having such a diverse and deep product portfolio, fantastic franchises, a vast customer base, and now an optimized organizational structure. As a result, we have a solid foundation to capitalize on the significant growth opportunities in front of us. I'm excited about the progress we've made over the last few months in the recently established Flash and HDD business units. Both franchises are led by exceptional leaders who are highly focused on executing their respective strategies by establishing their teams, evaluating technology and product development, engaging with customers, and analyzing and effectively capturing target end markets. As we've highlighted in previous earnings calls, we are committed to delivering on our product roadmap, including advancing our product transitions. Notably, we are making great headway with the product transitions of our energy-assisted hard drives and enterprise SSDs. As you all know, these transitions are multi-quarter journeys, but I'm pleased with our progress, which I'll detail shortly. Bob Eulau: Thanks, Dave, and good afternoon, everyone. As Dave mentioned, overall results for the fiscal second quarter were at/or above the upper end of the guidance ranges we provided in October. Revenue was $3.9 billion, up slightly sequentially, and down 7% year-over-year. Growth in Client Devices and Client Solutions was mostly offset by a decline in our Data Center Devices & Solutions end market. Looking at our end markets. Client Devices revenue was $2.1 billion, up 10% sequentially and 19% year-over-year. Work, school and game from home trends continue to drive demand for both our flash and hard drive solutions for notebook and desktop applications. In notebook and desktop, our flash and hard drive revenue each grew over 20% sequentially, highlighting the power and value of our portfolio for our leading OEM customers. Demand for our smart video hard drive was much stronger than expected, growing 30% sequentially as demand continued to recover from the bottom set in fiscal fourth quarter of 2020 during the height of the COVID-related lockdowns. And lastly, Mobile revenue was down sequentially, with growth in recently introduced 5G phones offset by dynamics within China. Moving on to Data Center Devices & Solutions, revenue was $807 million, down 29% sequentially and 46% from 1 year ago. Revenue from both capacity enterprise hard drives and enterprise SSDs were down sequentially. As Dave mentioned, we had an unexpected delay in a qualification at a cloud titan. As a result, during the quarter, our capacity enterprise drive shipments were negatively impacted and inventory grew. We have since completed this qualification. And as Dave noted, given that a separate cloud titan qualification was completed ahead of schedule, we now have 3 of the 4 cloud titan qualified on our new energy-assisted drives. In addition, we are beginning to ramp our second-generation enterprise SSD products through calendar year 2021. Next, Client Solutions revenue was above expectations at $1 billion, up 19% sequentially and 6% from a year ago. The work, school and gaming from home trend benefited both hard drive and flash-based products, again, highlighting the powerful go-to-market synergies of this channel. Turning to revenue by technology. Flash revenue was $2 billion, down 2% sequentially and up 11% year-over-year. Flash ASPs were down 9% sequentially on a blended basis and down 6% on a like-for-like basis. Bit shipments were up 7% sequentially. Hard drive revenue was $1.9 billion, up 4% sequentially and down 20% year-over-year. David Goeckeler: Thanks, Bob. As we discussed, Western Digital has worked hard to position ourselves to address this unabated growth in data and therefore, storage technology. And thanks to these efforts, the market has aligned favorably for us. We're running two industry-leading technology franchises in end markets that will only continue to grow as the digital transformation further accelerates. We know that our HDD business is less encumbered by workload mix shifts today and that our flash business is becoming more and more driven by applications. We also have made the right investments and our joint ventures with Kioxia are a strategic differentiating asset. It is an extremely exciting time for our company as we are focused on capitalizing on the tremendous opportunities in front of us. Accordingly, we will continue building momentum behind our business unit strategies, company positioning, strong brand and industry leading fully portfolio. I'll now turn the call over to the operator to begin Q&A. Operator: Thank you. Our first question comes from the line of Aaron Rakers with Wells Fargo. Aaron Rakers: Yes. Thanks for taking the question. Just kind of on the nearline hard disk drive market, I know that you talked about some puts and takes with regard to qualification cycles on the 18-terabytes. But I guess the question first of all is can you help us understand what capacity shipments did in the quarter for nearline? And just help us understand the kind of the shape of the ramp that you expect on nearline as far as capacity shift over the next quarter, a couple of quarters, which – however, you want to kind of discuss your expectations on APTV's ramping going forward? Thank you. David Goeckeler: Yes, I would say -- thanks, Aaron. So, I would say the mix last quarter was still 14, 16 for the most part. Of course, there are some 18s mixed in there. But as we said, one of big calls that we were working on kind of finished right in the first week of the following quarter. So, we expect that now to start ramping. I think, as I said in the remarks, I think cloud digestion is abating. So, there -- I think the different big players come out of it at different rates. And the first ones are already starting to come out and we expect other ones to pick up as we go through the year. So, the big thing for us is we expect 18 to -- as we get into the middle part of the year, that's where the transition will happen at being the leading capacity point for us. And as that happens, that's good for our business. So, that's basically how we see it. Aaron Rakers: And what did capacity shipments during the quarter? David Goeckeler: Bob, do you have the capacity shipment for the quarter? Bob Eulau: Well, I mean, we don't split it out specifically, but you can see that on the Data Center Devices & Solutions, we were down quite a bit and that was driven both by the capacity enterprise as well as enterprise SSD. Aaron Rakers: Okay. Thank you. Bob Eulau: Sure. David Goeckeler: Thanks, Aaron. Operator: Thank you. Our next question comes from the line of Joe Moore with Morgan Stanley. David Goeckeler: Hey, Joe. Joe Moore: Great. Thank you. Thanks for letting me ask the question. In terms of the NAND gross margins, the improvement that you saw in the December quarter sequentially with prices down 6% like-for-like and the improvement that you're seeing in Q1, where is that coming from? And can you remind us where you are with the start-up expenses from the new fab rolling off? David Goeckeler: Yes. So, I'd say, kind of as we started talking about last quarter, in the more transactional markets, we're seeing pricing get better. We -- we'll see how that flows through to the negotiated markets over the next couple of quarters. But basically, as we went through the quarter, we saw retail and parts of the channel improve. And as far as K1 costs? Bob Eulau: Yes, I can update you on K1. So, I think I had originally guided to around $50 million in K1 startup costs this quarter and we actually came in around $40 million. And this quarter, the quarter we're now in, will be at normal production volume. So, we're not going to continue reporting start-up costs because we're really not in start-up mode anymore. Joe Moore: Great. Thank you. And then in terms of your inventory level, I think you said that the inventory increase was mostly on the drive side. Where are you in terms of your internal NAND inventory? Bob Eulau: The flash inventory is pretty consistent with the last couple of quarters. We're not -- we haven't really built inventory on the Flash side. We really, as we mentioned in our remarks, really build some inventory in anticipation of the new drive – the new capacity enterprise drives shipping, and that's going to start higher and higher volumes as we go forward. Joe Moore: Great. Thanks so much. David Goeckeler: Thanks, Joe. Bob Eulau: Thanks. Operator: Thank you. And our next question comes from the line of Wamsi Mohan with Bank of America. David Goeckeler: Hi, there. Wamsi Mohan: Yes. Thank you. Thanks for the color on the data center side. I was wondering, just given your comments around the qualification timing, can this segment grow in fiscal second-half versus fiscal second-half of 2020, especially given that the comps sort of get tougher by the end of the fiscal year? And your comments on HDD gross margins sort of worsening sequentially, is this basically – are we waiting for one more quarter, basically the end of the fiscal year before we see HDD margins pick up as you get material pickup in AT&T? Or will these cloud sort of abatement plus the OEM pickup help by your fiscal fourth quarter? Thank you. David Goeckeler: Okay. Let me see if I can decompose that a little bit. So yes, we expect a pickup in – as we move throughout the year. I think your call on the gross margin – we see the revenue coming back as we move into next quarter and then getting better throughout the year. We kind of guide one quarter at a time. I don't have the year-over-year number on the top of my head. But you're right on margin. We kind of expect one more quarter of maybe flat to slightly down margin on the drive side, and then we'll start to see that accelerate, especially as we move through into higher percentage of AT&Ts. Wamsi Mohan: Okay. Great. Thank you. Operator: Thank you. And our next question comes from the line of Toshiya Hari with Goldman Sachs. David Goeckeler: Hey, Toshiya. Toshiya Hari: Hey, thanks. Thanks so much for taking the question. I wanted to follow-up on gross margins in your ECD business, David. So again, as you mentioned, this quarter is going to be flat to down. As you move forward with mix improving, hopefully, COVID costs abating at some point, maybe some of the costs related to energy assist going away. Do you think getting back to 30% over the next year or so is a reasonable target? Or is the margin profile structurally different today versus a year ago, two years ago? Thank you. David Goeckeler: No. I think you hit on the issues there. I mean, first of all, COVID hit last quarter was about 1.7% of a headwind in that business. In mix, we talked about retail being multi-year high. But we believe as we get – we go into 18, we have a path back to the kind of margin profile you're talking about. We just need to get the mix better. I mean COVID's a bit of a wildcard. How fast the – it's really the freight costs, how fast we can get freight costs to come down. It's been obviously pretty sticky about where it's been for the last couple of quarters. And then as I said, as we move into 18 and we see the cloud digest – fully come out of cloud digestion, I think, you'll see a path back to the more traditional margin structure. Toshiya Hari: Got it. Thank you. Operator: Thank you. Our next question comes from the line of Mehdi Hosseini with SIG. Mehdi Hosseini: Yes. Thanks for taking my question. On the Flash side, can you please provide some color as to what percentage of flash revenue were driven from gaming? And how do you see that trending for the rest of the year? And I have a follow-up. David Goeckeler: Yes. Gaming is still -- I think it's not as significant as it was last quarter, given last quarter, there was a lot of buy in anticipation of the initial builds. So, I would say it's down a little bit sequentially, but it's still a great market for us because we can play the console side of it and the retail with WD Black, which has been very, very well-received in the retail channels. It is part of the reason, the retail business is doing well, and the margins are good as we're investing in brand in addition to just the product. So sequentially down a little bit, but still expected to be a good market as we move throughout the year. Mehdi Hosseini: Gotcha. And then one additional follow-up on the flash side. Last earning conference call, you alluded to the fact that you are a couple of quarters away from finalizing contracts with OEMs and as prices or supply demand at Titans, do you see OEMs stepping up and signing longer term contracts, or is this just going to be a guesswork as to how they plan for, especially like one or two quarters out? David Goeckeler: Yes. I think what I talked about last quarter was actually a qualification at the OEMs and that's a multi-quarter activity. The pricing is negotiated on a quarterly basis, and there's a long-term agreement of, let's say, on a year timeframe of what the target share is, but that can move around a little bit. But that gives you a sense about how the market works. Mehdi Hosseini: But how do you see the dynamics like today compared to like October conference call? David Goeckeler: Of which part, the call, or the share, or the pricing? Mehdi Hosseini: Well, the qualification and how I think as you look into remainder of the year, do you see more of a pricing power coming back to the suppliers, or is it still going to be a hard negotiation? David Goeckeler: Well, I mean -- so the qualification was all about our second-generation NVMe enterprise SSD product, which is quite a mouthful. But that qualification -- I think last quarter, I said we were scheduled to start a qualification this quarter. I said in October, we were scheduled to start qualification in our fiscal second quarter, which did start and is underway. And that is a multi-quarter process. And assuming it's successful, put us in a stronger position to ship that product into the OEM -- into the big OEM. So it's underway. As I said in the prepared remarks, and I think I've been talking about now for a couple of quarters. The qualification in my book is the last phase of the development process. It can move around a little bit. But the fact that it's underway is a good sign for -- we're working to expand the TAM of that product. Mehdi Hosseini: Got it. Thank you. Operator: Thank you. Our next question comes from the line of C.J. Muse with Evercore. C.J. Muse: Good afternoon. Thank you for taking the question. A question on the NAND side. Can you speak to what's driving the better than seasonal demand in Q1? And then beyond March, how are you thinking about changes in your mix? And what impact that will have on your gross margins? Thank you. David Goeckeler: So I'll take -- I'll give you a perspective, and share Bob's perspective as well. So we've been talking about retail for several quarters now. It's been good. The team has been doing a great job launching new products. I talked about WD Black in the gaming segment, ArmorLock, security and enterprise SSD, so lot of really good work there. And so that continue -- we expect that there's momentum there, let me put it that way. PC, notebook demand, we still see as being strong. And we talked about what I think was a significant milestone for us this past quarter was finishing the qualification of our second-generation NVMe enterprise SSD product at one of the cloud titans. And that finished right at the end of the quarter and we started shipping. So that is -- that's accretive as well. Bob Eulau: Yes. I don't have a lot to add. I mean I think it's -- retail continues to be strong in this work from home environment and the enterprise SSD business will just keep picking up. C.J. Muse: And just to follow-up on how you're thinking about mix beyond the current quarter and what the implications are for margins? David Goeckeler: Well, I mean, say a little more. I mean, we're still -- I mean, we still have a – I would say, we're focused on a balanced portfolio. I mean, we're clearly working on improving our position on enterprise SSD. That's been a big goal for the company for -- even before I got here. And our second-generation product is things are going well. I think 150 qualifications now, including one of the big cloud players, which is a good breakthrough. We're still – client SSD is obviously a strength for the company and has been for a while. We talked about gaming last quarter. And then mobile, we still have a healthy mix into mobile. I think we're under-indexed to the market, but we're still in that market because it's very, very important to be in that market. So I expect a balanced mix across that. And then mix in some IoT and automotive and you get most of the portfolio. C.J. Muse: Thank you. Operator: Thank you. Our next question comes from the line of Sidney Ho with Deutsche Bank. Sidney Ho: Thanks for taking my question. The question I have is on NAND. It's good to see NAND margins improving and price decline moderating. How do you see industry supply-demand balance for the rest of the year maybe compared to what you think a quarter ago? And how do you see your own bit shipment growth this calendar year and kind of the shape of that for the rest of this year? Thanks. David Goeckeler: I guess what we would say about investment in the industry is we're pretty much where we've been, which we think the industry has been pretty good about this. I mean, there's a lot of variability on investment on supplier by supplier, capital cycles vary, even no transitions within each supplier vary about how much capital require – how much capital is required. In our case, BiCS5 is a very capital-efficient node. BiCS6 will require a little more capital. We'll talk about that when we get there. So we still see a pretty good balance. We see strong demand drivers. We see I think we see bit growth this year, probably low 30s, low to mid-30s, and we see demand above that. So I think nothing we're seeing in the environment surprises us tremendously. Sidney Ho: Okay. Thanks. Operator: Thank you. And our next question comes from the line of Patrick Ho with Stifel. Patrick Ho: Thank you very much. Dave, maybe qualitatively, now that you've been at the company for almost a year, without, I guess, financial quantification, with the two businesses now separated, where do you see the most improvement in the time that you've been here so far? Is it in the R&D side of things? Are you more efficient there, manufacturing supply chain? Where are you seeing the most gains? And where do you think, as you go into your second year, you see more opportunities to improve? David Goeckeler: So, I guess, what I would say is, first of all, it's been an extraordinary 10 months and especially to join the company at the beginning of a global pandemic that I don't -- that hasn't happened in our lifetimes, at least not mine. And so, I think, it's been -- it's just been extremely impressive to see how the company has responded to that. And the evolution of that in the early days, a lot of issues on the supply side that have just been completely worked out and things are running extremely well. I think we've made a lot of progress on the -- just what you said, really understanding where the synergies of this portfolio are, which are on the go-to-market side, the fact that we bring a broader solution to our customers. And I think we understand our customers' requirements well, given that we can play in both the drive market and the flash market, but that they're very different products. And driving the road maps up, I mean, the technology is extremely important and to separate those in the BU. And I think we -- we're -- it's still pretty early, but the impact of having two very accomplished leaders join an already strong team, it just has an immediate impact on clarifying the road map, understanding where we're investing our R&D dollars, engaging with customers in a way that can drive the portfolio. So I think we've made really good progress there, but I think it will continue to get better as we go when these leaders get -- and the groups get more established. And then the other thing I'll say, which is not really something that I expect to get better. I think it's something that I just always want to reinforce is, the value of the partnership with Kioxia. And I've spent -- given I can't travel, we still spend a lot of time with the leadership there. Obviously, our teams work together on a day-by-day basis. I'm not saying – I’m not pointing this out because it works extraordinarily well, and it's just a tremendous strength of the company, and it's been really great for me to be a part of it over the last 10 months. Patrick Ho: Great. Thank you. Operator: Thank you. Our next question comes from the line of Mitch Steves with RBC Capital Markets. David Goeckeler: Hey, Mitch. Mitch Steves: Hey. How are you doing, sir. I had two questions. I'm actually going to focus a little bit more on the hard disk drive side. So first is just kind of on the margins. If I look at the kind of the run rate of the business right now and I compared it to 2018, it was -- back then, it was kind of a 27% gross margin business on roughly $2 billion of revenue. So, if I assume that COVID-related headwinds and kind of the supply chain issues, or about 100 basis points of headwind to gross margin, am I roughly accurate there? So, I'll start with that one, I have a follow-up after that. Bob Eulau: Yes, I think it's closer to 170 basis points of headwind. Mitch Steves: So, the number would have been kind of 27.2, 27.3, in that rough range? Bob Eulau: Yes. Yes, that's correct. Mitch Steves: Okay. And then secondly, you guys used to disclose a little bit more detail on the non-compute units. I think those were up pretty significantly Q-over-Q, 8.2 going to 10.1. I'm just curious if you can give us any sort of like directionality in was it more consumer electronics or was it more your branded units are doing better for the quarter? Bob Eulau: I don't want to get too much into the specifics. So, one of the things we did mention was smart video was up quite a bit sequentially and that's in the non-compute area. But we're just on the hard drive side, on client and notebook, we did really well. Operator: Thank you. And our next question comes from the line of Tom O'Malley with Barclays. Tom O'Malley: Hey guys. Thanks for taking my question. My question is really centered around the transition of the two CloudTitans with the HD qualifications. You said one slipped a little, one came in a bit earlier. Can you talk about what the mix of those transitions kind of net? You talked about obviously, the gross margin slipping into the next quarter, but then kind of recovering. So, we're seeing a bottom there. Do you think that the out quarter is benefiting from this with the one coming in earlier, or do you think it's a negative transaction in the near-term? I just want to get a little bit more color about how it affects the business into March? David Goeckeler: Yes, I think -- so if you look in last quarter, there was some business we expected to ship on 18 that we didn't because the qualification wasn't done and it actually wrapped up, I think, the first week of January. So, some of that business mixes into other capacity points and some of it goes to other suppliers. But -- and then in the other qualification that we didn't expect to finish until -- it wasn't -- we didn't -- and the schedule was the end of the -- towards the end of this quarter we're in. That actually finished sometime last quarter, very smooth. So, what it says is looking backwards that things could have been a little better if the one would have finished on time, but going -- now they're both behind us. So, going forward, we're in a position to start to ship 18s to both of those customers as they ramp the capacity point. Does that help? Operator: Thank you. And our next question comes from the line of Harlan Sur with JPMorgan. Harlan Sur: Good afternoon. Thanks for taking -- hey, good afternoon. Thanks for taking my question. On the gross margins on the flash side of the business, good to see the inflection in gross margins in December. As you guys mentioned, start-up costs are coming out here in the March quarter. So, that's about 150, 175 basis points gross margin tailwind to NAND. And then on top of that, you're seeing better pricing trends and maybe getting a little bit of benefit from the higher margin trends from your initial shipments of your Gen 2 NVMe products. So, are gross margins approaching 30% here in the March quarter, or maybe if you could just help me understand some of the puts and takes on gross margins for NAND. Bob Eulau: Yes. So, Harlan, I mean, you talked about a number of the moving parts. And we're definitely, as I said earlier, expecting gross margins to improve on the flash side. We saw in the last quarter, I'd say, very -- good pricing trends in the transactional markets. The OEM markets, we negotiate one quarter a time. So it's – and we did that, obviously, in the middle of last quarter. So it's a little hard to say how much we'll see there. And then we're continuing to do a good job on the other part of the equation, which is cost reduction. We still think we're very confident in our 15% year-over-year cost decline. So I think it's just a question of how pricing plays out as we move forward. But I think we're in a very good place. Harlan Sur: Yes. Absolutely. And just a follow-up. So many of the suppliers of your HDD and SSD controller chips are seeing tightness in wafer supply, assembly and test capacity. Are your shipments here in the March quarter potentially being somewhat held back because of lack of controller availability from some of your merchant or ASIC controller chip suppliers? David Goeckeler: Yes, there's no doubt things are tight, and we're not immune from that. I mean, clearly, we have our financial plan covered with components. But when you do go looking for things from the semiconductor supply chain, it is tight right now. So we'll see how it plays out during the quarter. Operator: Thank you. And our next question comes from the line of Nik Todorov with Longbow Research. Nik Todorov: Yes. Thanks, guys. Good afternoon. I understand, David, I think you talked about seeing continued momentum in retail and PCs. But maybe we can extend a little bit. I would like to hear your thoughts about how you see those trends persisting as we look forward. I know visibility is probably not as good. But I just want to hear your thoughts, how you're thinking as we go into the following quarters, the demand from PCs and retail and work-from-home specifically? David Goeckeler: Yes. I mean, it's obviously a very dynamic environment with the pandemic and seeing resurgence in certain parts of the world and more lockdowns in parts of the world. So it's hard to call it more than one quarter a time. We guide one quarter at a time, but I think I understand your question a little bit broader. I guess what I would say is in retail, we've really just dialed in like how to deal with this environment we're in and the dynamic nature of it. And I think that the new products that we've been launching have been well received. Again, I mean the WD Black gaming product, we're doing co-branding with other folks. We introduced a product around security and storage that I think is going to be good for us. So a lot of investment in the brands, which are strong, make sure we keep share of voice high. And it has been an area where we've been able to get some momentum and keep some momentum, I think, going a couple of quarters back. So but it is, to your point, it's very dynamic given the COVID situation and the lockdown. So we'll see above seasonality performance. Q1 is a seasonally weak quarter for retail, but we're planning to do a little bit better than that. Operator: Thank you. And our next question comes from the line of Ananda Baruah with Loop Capital. David Goeckeler: Hi, there. Ananda Baruah: Hey, good afternoon. Thanks for taking the question. Yes, I guess if I could just go back to the gross margins on the flash side. Longer term, intermediate and a longer-term view, you guys see a path to sustainably greater than 30% margins. I think you've talked about it in the past. And if so, what are the kind of signpost or mechanisms that need to manifest to have that be the case? Appreciate it. Bob Eulau: Yes. I guess, I can start with that. And again, as we all know, a lot of this depends on the supply and demand and what's going on with the industry. We've been encouraged, as we said about the pricing in the transactional markets over the last few months. As we move forward, we're pretty confident on the demand side for the year. I mean, there's just obviously a big demand on the mobile side. We think we're going to see very good demand on the enterprise SSDs. We've already had a strong position on client SSDs. So we feel pretty confident on the demand side. And we think the supply side appears to be pretty rational. And I think if that's the case, we should see margins improve from here. But I don't want to put a particular milestone or a particular goal out there, but I think it's going to be a pretty good market in 2021. David Goeckeler: Yes. I think we've been signaling that about 2021 for a couple of quarters now. Again, we don't want to get ahead of ourselves. We do have more exposure to the transactional markets, which helps when things start going in a positive direction, but it's got to flow through to the negotiated market still, and we'll see how that plays out over the next couple of quarters. The other thing I'll highlight on this is really important, and Bob touched on earlier, is just make sure we maintain our cost position. And as I've highlighted a couple of times in the prepared remarks and what I said earlier, with our partner, Kioxia, we're the largest provider of NAND flash memory in the industry. We jointly develop our technology road map. So we're heavily invested in that. We believe we've got tremendous technology that allows us to deliver the power performance bits we need. You see our technology is lower layer count than others. That means it's more efficient process. So we feel good about that; that sets us up to continue to drive the 15% year-over-year cost declines. So we got to make sure we keep our eye on that side of the equation as well. Operator: Thank you. And our next question comes from the line of Jim Suva with Citigroup Investments. Bob Eulau: Hey, Jim. Jim Suva: Thank you. Hello. And you have implemented a more tightly focused on your two different segments, the flash and HDD segment, and kind of have been out for a little bit now. Have they -- those leaders done the work to where we're actually seeing the fruit of all their efforts now, or are they still implementing a lot of those and the fruit still have to be rolled out of their efforts, because it seems like prior to this, Western Digital has been very much known for a company that sometimes executes very well and other times has a few slip-ups. So I'm just trying to figure out, are we at the mid-point of them implementing all their changes in the early innings? Are we actually at the point now where what they found and discovered and wanted to align that we should expect going forward? Thank you. David Goeckeler: Yes, Jim, I think that -- so first of all, I think we see benefits of -- any time you add to leaders to your business that are run multi $10 billion portfolios in the technology space, you're going to get an immediate benefit from that. You just have two more very, very senior business leaders that are looking at the portfolio every day, that are engaging with customers every day, reviewing engineering products every day and providing a level of perspective that is highly developed and their main job is to integrate all the different pieces together into a business. So you're going to see an immediate benefit of that, and we have. But then they're going to start working on, okay, I'm going to start looking at the roadmap of our products and make sure I've got the right fit. I'm investing in the right places. To me, your technology roadmap is kind of like an articulation of the future value of your company. What markets are you going to be in? Where are you going to invest? And the timeline for those payouts are different -- there's different time horizons to that. So if you come into a technology franchise and you own it and you're in the middle of a big engagement with a customer, for example, you now have another person that can get involved in that process and understands immediately how to engage in that in a very senior way, how to communicate information, how to guide their teams and so I think you'll see an immediate benefit. There's other parts of it where we're making decisions on what products are going to come to market in 2 years from now or 3 years from now. And so their job is to really integrate over all of those time horizons and get the best results, given the investment we put in the business. So we've seen benefits already. But there will be more to come. And I think you will see crisper execution, and you'll see that the portfolio is optimized to give us the best return for the investment we're making. Operator: Thank you. And our next question comes from the line of Karl Ackerman with Cowen. Karl Ackerman: Yes, good afternoon. Gentlemen thank you for letting me ask the question. Hi. I had a question just on, I guess, your Hard Drive business. Your peer spoke about a recovery in data center in the first half of the year. And I'm curious if that resonates with you such that you could achieve 35% ex by growth for your nearline business in fiscal 2021 And I was also hoping you could juxtapose what you're seeing across on-prem and cloud within that nearline business? And then I guess, thirdly, if I may, I was hoping if you can achieve that 35% x by growth, can you do that with your existing capacity today or if you could touch on your capacity expansion plans as well? Thank you. David Goeckeler: So I think your first part of the question was about what are we seeing when you say enterprise on-prem market. So... Karl Ackerman: Nearline, specifically. David Goeckeler: Yes, nearline. I would say it's -- I think the term I used in the prepared remarks was stabilization of the enterprise of the OEM market. And I think that's kind of how we're seeing it. It's on or above forecast of what our customers are telling us. So it looks better. I wouldn't -- it's certainly not pre COVID yet. And it's easier to judge going forward, but not back to where it was. And that's not surprising given the environment we're in. As far as the cloud, we talked about different cloud providers come out of digesting at different rates throughout the year. And then as far as exabyte growth, we see that 32%, 35% in that range, exabyte growth. I think that's been the long-term growth of the industry. We see that going forward. Again, I think coming out of the pandemic, we'll see does that line tilt up or not, given the dependence on technology in the cloud that we all see, but we have yet see that. So we see good growth in the capacity enterprise business as we move through the year. Operator: Thank you. And our next question comes from the line of Srini Pajjuri with SMBC Nikko. Srini Pajjuri: Thank you. Hi, guys. First, I have a clarification for Bob. Bob, on the client devices growing 10%. You said the desktop and notebook grew 20% and video grew 30%, and there was an issue in China. Just trying to understand what that was in mobile in China that you are referring to. Bob Eulau: Yes. It was actually Huawei, which we talked about last quarter. And so, we're not shipping to Huawei either, on the flash side or on the hard drive side. Operator: Thank you. And our next question comes from the line of Shannon Cross with Cross Research. Shannon Cross: Thank you very much. I just had a question on CapEx. It seems as if you've shifted a little bit more, I think, from cash CapEx into the flash ventures. And I'm just curious, how we should think about that, if there's anything there? And then also, what are your thoughts on the amount of CapEx that's going to be needed over the next few years as you look at, hopefully, an improving market? Thank you. Bob Eulau: Yes. No, it's a good question. And first of all, what I would say is in terms of gross CapEx, which we define as the -- our portion of the investments that are made in the flash joint ventures, as well as investments we make on our own balance sheet for the back end of the Flash business as well as the Hard Drive business. We expect gross CapEx of around $3 billion this year, and that's been -- what I've said the last couple of quarters. What's a little different this year relative to last year is that we are investing more on the hard drive side. As we look out over the next few years, I mean the first priority is always going to be reinvest in the business. And so, we'll see how the growth goes over the next few years and make sure that we're investing to support the growth in the market. But I think probably where we’re at right now is about what I would think about for the future. Shannon Cross: Great. Thank you. Operator: Thank you. And our last question comes from the line of Steven Fox with Fox Advisors. Steven Fox: Hi. Good afternoon. Thanks for squeezing me in. Can you just maybe broadly talk about your thinking around edge cloud compute for 2021? It seems like based on what the service providers are talking about, that this could be a year where it starts to pick up noticeably. And so, where do you think you're going to play with NVMe drives versus HDDS? And how you think you're positioned competitively? Thank you. David Goeckeler: Yes. I mean, I think, that's potentially a very deep conversation. So how are we positioned? I think we're positioned actually quite well, because we can play in -- if it's a lot of the heavy lifting of big time storage is HDDs and will be for a long time. But obviously, enterprise SSD is going to be a big growing market there as well. And that's why we're so focused on our NVMe enterprise SSD. As far as how the architecture of the cloud plays out, I mean, clearly, as we have more devices that are enabled at the edge, I think you're going to see more points of compute and storage that get closer to that. I agree with you, this could be -- it could be getting closer. It's been talked about for a while. But I think this is something that's so exciting about our business. I mean, the whole world is more technology-enabled. I think the pandemic accelerated that. I think the architectures to support that are going to continue to evolve. And I think we have the portfolio that's well positioned, no matter how that plays out. We can play on the edge, all the way to the device. And clearly, we play at the foundation of the cloud as well. So, it's a fun place to be. Operator: Thank you. I would now like to turn the call back over to CEO, Dave Goeckeler, for any closing remarks. David Goeckeler: All right, everybody. Thanks for joining us today. We appreciate it. We will see you during the quarter. Take care. Bob Eulau: All right. Thank you. Operator: This concludes today's conference call. Thank you for joining and you may now disconnect.