WESTERN DIGITAL CORP Q1 FY2025 earnings call

• Business separation: On track with the separation of Flash and HDD businesses, completed soft-spin phase at start of fiscal second quarter, working on regulatory filings and financing activities for separation expected in second quarter.
• Flash: Revenue reached highest level in nine quarters, driven by recovery in data center with enterprise SSD applications growing 76% sequentially. Technology progress with hyperscaler and storage OEM qualifications. Expect continued ramp of enterprise SSD offerings in fiscal second quarter.
• HDD: Achieved record revenue in data center, operating in a demand exceeding supply environment. Increasing adoption of UltraSMR technology, launched 32 terabyte UltraSMR and 26 terabyte CMR drives, expecting these products to ramp in coming quarters.

In the fiscal first quarter, Western Digital's Flash segment had revenue of $1.9 billion, which was up 7% sequentially and 21% year-over-year. Flash revenue contributed approximately 46.3% to the total revenue of $4.1 billion. The HDD segment had revenue of $2.2 billion, up 10% sequentially and 85% year-over-year, contributing around 53.7% to total revenue. HDD achieved record gross margin and the highest revenue levels in 11 quarters, driven by the growing adoption of UltraSMR technology.

Fiscal second quarter guidance: Anticipates both Flash and HDD revenue to grow sequentially. Revenue expected to be in the range of $4.2 billion to $4.4 billion. Gross margin expected to be between 37% and 39%. Operating expenses expected to increase slightly to a range of $695 million to $715 million including synergy costs of $25 million to $35 million. Interest and other expenses anticipated to be approximately $110 million. Tax rate expected to be between 15% and 17%. EPS expected to be $1.75 to $2.05 based on approximately 357 million shares outstanding.

No specific detailed risks listed in a bullet-pointed manner, but general mentions of risks associated with forward-looking statements, market trends, and business separation execution that could cause actual results to differ from expectations.

Q: C.J. Muse with Cantor Fitzgerald asked about enterprise SSD qualifications, including NVIDIA's GB200, NVL72 rack system.

A: David Goeckeler responded that they have confidence in the portfolio, more qualifications, and expect enterprise SSD mix to be 15% to 20% by end of fiscal year.

Q: Joe Moore of Morgan Stanley asked about business separation steps and resolve.

A: David Goeckeler explained the soft-spin process, tracking to complete separation around December quarter earnings call, and stated they are very focused on completing the separation with no major impediments.

Q: Karl Ackerman of BNP Paribas asked about HDD capacity and SMR qualification.

A: David Goeckeler said customers want densest drives, expect 32 TB drives to ramp, and discussed manufacturing capacity and visibility into customer demand.

Q: Aaron Rakers with Wells Fargo asked about dissynergies and manufacturing capacity.

A: Wissam Jabre and David Goeckeler explained dissynergies in OpEx guide and that they see no need to expand manufacturing capacity due to good visibility into customer demand.

Q: Timothy Arcuri with UBS asked about gross margin guidance and new HDD drive impact.

A: David Goeckeler said new products will drive margin higher but initial deployment of new HDD drive is a few quarters out, causing slight margin tick down sequentially.

Q: Wamsi Mohan with Bank of America asked about gross margin drivers and new HDD drive margins.

A: David Goeckeler explained margin drivers and that new HDD drive will start qualification soon but not deployment for a few quarters.

Q: Harlan Sur with JPMorgan asked about enterprise SSD mix and high-capacity platform competitiveness.

A: Wissam Jabre and David Goeckeler discussed enterprise SSD mix growth and competitiveness driven by controller technology, BiCS road map, and focus on product delivery.

Q: Krish Sankar with TD Cowen asked about Flash ASPs and March quarter seasonality.

A: David Goeckeler explained ASP dynamics due to mix and expected seasonality headwinds in March quarter.

Q: Amit Daryanani with Evercore asked about HDD exabyte shipments and CapEx.

A: David Goeckeler said no excessive inventory and Wissam Jabre stated CapEx expected to be in line with recent quarters.

Q: Thomas O'Malley with Barclays asked about eSSD benefit.

A: David Goeckeler said eSSD is accretive to the portfolio and provides a tailwind.

Q: Srini Pajjuri with Raymond James asked about Flash ASP dynamics.

A: David Goeckeler explained it's mix related with enterprise SSD mix growing and impacting blended ASP.

Q: Ananda Baruah with Loop Capital asked about conventional technology aerial density road map.

A: David Goeckeler discussed conventional tech road map, 11 platter drive, and HAMR introduction timeline.

Q: Asiya Merchant with Citigroup asked about HDD seasonality.

A: David Goeckeler said seasonality could be expected in March quarter for HDD as well.

Q: Steven Fox with Fox Advisors asked about HDD manufacturing efficiencies.

A: Wissam Jabre said mid to high single-digit percentage cost improvements annually.

Q: Vijay Rakesh with Mizuho asked about UltraSMR 32-terabyte margin and Flash CapEx.

A: David Goeckeler said UltraSMR drive is accretive and Wissam Jabre stated Flash CapEx expected to be higher than last year but no quantitative long-term view.

Q: Matthew Bryson with Wedbush asked about HDD pricing and test constraints.

A: David Goeckeler said manufacturing capacity is set, saw low-single-digit like-for-like pricing increase, and discussed rational fashion in hard drive industry.