Release Date: October 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Western Digital Corp (WDC, Financial) reported a revenue of $4.1 billion, marking a 9% sequential increase and a 49% year-over-year growth.
- The company achieved a non-GAAP gross margin of 38.5% and non-GAAP earnings per share of $1.78, both above the midpoint of the guidance range.
- Record HDD gross margin and highest revenue levels in 11 quarters were driven by the adoption of Ultra SMR technology.
- Enterprise SSD revenue grew 76% sequentially, reaching the highest levels since fiscal Q4 2022, indicating strong demand in the data center market.
- The separation of flash and HDD businesses is on track, with the soft spin phase completed, setting the stage for future growth and operational efficiency.
Negative Points
- Ongoing weakness in consumer and client markets, particularly with PC OEMs, as they work down inventory and delay refresh cycles.
- Flash gross margin is expected to face a slight sequential decline due to a temporary cost increase.
- The company anticipates potential seasonality headwinds in the March quarter for both flash and HDD segments.
- Despite strong enterprise SSD growth, the overall flash market faces challenges with mixed demand dynamics across different submarkets.
- Operating cash flow was only $34 million, with free cash flow showing an outflow of $14 million, impacted by significant tax and settlement payments.
Q & A Highlights
Q: Can you discuss the significance of the enterprise SSD mix reaching 15% and the impact of the NVIDIA qualification?
A: David Goeckeler, CEO, explained that the enterprise SSD mix reaching 15% is a significant milestone, driven by strong demand and qualifications, including with NVIDIA's GB200 NVL72 rack-system. This qualification positions Western Digital well in the market, particularly with hyperscalers, and is expected to drive growth, with the enterprise SSD mix potentially reaching 15-20% of total bit shipments in fiscal year 2025.
Q: How is the HDD industry evolving in terms of customer visibility and pricing negotiations?
A: David Goeckeler, CEO, noted that the HDD industry is evolving with better supply-demand balance and increased customer visibility, ranging from two to six quarters. This visibility helps in aligning supply with demand and improving pricing dynamics. The introduction of new products like the 26 terabyte CMR and 32 terabyte Ultra SMR drives is expected to enhance pricing and margin dynamics.
Q: What are the steps and timeline for separating the flash and HDD businesses?
A: David Goeckeler, CEO, outlined that Western Digital is in the "soft spin" phase, running the company as one but with separate systems for flash and HDD. The company plans to execute this mode for a full quarter to ensure system reliability before proceeding with the spin. The Form 10 will be made public in the coming months, with the separation expected around the time of the December quarter earnings call.
Q: How is Western Digital managing capacity for HDDs, given the record exabyte shipments?
A: David Goeckeler, CEO, stated that Western Digital has sized its infrastructure to meet market demand and is focused on increasing exabytes through innovation and density improvements rather than expanding manufacturing capacity. The company is working closely with customers to align capacity with demand and reduce volatility.
Q: What are the expectations for flash and HDD revenue growth in the fiscal second quarter?
A: Wissam Jabre, CFO, indicated that both flash and HDD revenues are expected to grow sequentially. Flash growth will be driven by enterprise SSD products and seasonal consumer demand, while HDD growth will be supported by continued momentum in the nearline product portfolio. The company anticipates revenue between $4.2 billion and $4.4 billion, with gross margins between 37% and 39%.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
