Western Digital Corp at Bank of America Global Technology Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Wamsi Mohan - Bank of America - Analyst : Yeah. Thank you, Jasmine. Well, Wissam, I mean you had a 20 year history of working in sort of the finance area across so many different companies. And you are sitting here at Western Digital in front of what feels like a very unique opportunity. When you think about some of the big themes and trends that are going on, particularly in AI, I was wondering if you could comment on what do you see as what the impact of this AI adoption might be for your business, both on the HDD and Flash side?

Question: Wamsi Mohan - Bank of America - Analyst : Okay. Okay. That's helpful. We just had one of your competitors up on stage a little while ago, talking about sort of the favorable pricing environment, at least on the HDD side of the business. Curious if you could comment on what the pricing environment looks like, both on the HDD and on NAND side?

Question: Wamsi Mohan - Bank of America - Analyst : How should we think about the capacity on both the HDD and Flash side? I know over the last few years, it's been a difficult demand environment, a lot of capacity got taken out. So as you think about incrementally investing in capacity, what are you looking at? What are your thoughts around adding incremental capacity, given it sounds like at least on the HDD side, demand starting to potentially be outstripping supply before year-end. And on the NAND side, clearly, we're entering a much tighter market?

Question: Wamsi Mohan - Bank of America - Analyst : Yes. Got it. Okay. No, that's been a very consistent message from you, I think over the last several quarters. Can you just talk about underutilization charges? Are we expecting any to continue here in the near-term? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 04, 2024 / 5:40PM, WDC.OQ - Western Digital Corp at Bank of America Global Technology Conference

Question: Wamsi Mohan - Bank of America - Analyst : Okay. Okay. Can we just talk about sort of what your expectation is on the cost side, both on the HDD and flash side, rate and pace of caustic lines that you can accomplish with, call it, next two years?

Question: Wamsi Mohan - Bank of America - Analyst : Okay. Great. Yes. Obviously, you've announced your intention to split the company up into an HDD and flash-based company. Can you just remind us of the timeline there and sort of some of the work and the progress that's being made on that front?

Question: Wamsi Mohan - Bank of America - Analyst : Yes. Well, that's really exciting. So as you think about these businesses operating as independent entities. How do you think about the margin structure of these two entities? What should we think about the longer-term view on right on the flash side?

Question: Wamsi Mohan - Bank of America - Analyst : And it seems as though the demand backdrop is generally improving, whether it be at hyperscaler or potentially even enterprises starting to pick up. So it feels with that kind of backdrop where the demand is improving, the pricing environment is improving and you are already at sort of within your long-term ranges, previous long-term ranges. Should we really take that -- these numbers, given the mix shift towards even higher capacity drives are potentially several hundreds of basis points higher this cycle than what we saw maybe 35%, 36%, 37% gross margin ranges. How realistic is that? And do you think that we could get there over the course of the next, call it, two years?

Question: Wamsi Mohan - Bank of America - Analyst : Yes. No, we're absolutely looking forward to that. How should we be thinking -- or how are you thinking about capital allocation priorities and use of cash, maybe in the interim period before the split?

Question: Wamsi Mohan - Bank of America - Analyst : Can you comment a little bit on sort of the traction that you've seen on the enterprise SSD side, right? Like, I mean going back many, many years and original -- the SanDisk acquisition that you guys made has been an aspiration to really get higher share on enterprise SSDs. So can you just remind us where you are now? What's your expectation for that business?

Question: Wamsi Mohan - Bank of America - Analyst : How long do you think those qualifications will take on the PCIe Gen 5 and (inaudible)?

Question: Wamsi Mohan - Bank of America - Analyst : Okay. Great. Can you talk a little bit about your progress with BiCS6 and BiCS8 and where you are? And what sort of percentage mix investors should expect next couple of years as we start to see more and more of the productization of BiCS8.

Question: Wamsi Mohan - Bank of America - Analyst : Do you want us to give us a little bit of a sneak peek into what you are announcing next week, I think you have a very dedicated NAND presentation to the investor community. Any little snippets that we should think about? As we tune into the event?

Question: Wamsi Mohan - Bank of America - Analyst : Excellent. We look forward to that. Well, maybe switching gears a little bit to the HDD side. Can you just talk about your expectations for exabyte growth for maybe this calendar year that started?

Question: Wamsi Mohan - Bank of America - Analyst : So last quarter, in the March quarter, you outgrew your nearest competitor by a substantial amount from an exabyte growth standpoint. Can you talk about what some of the drivers were that created that really in the quarter?

Question: Wamsi Mohan - Bank of America - Analyst : Can you just talk about that a little bit? So I mean, clearly this is one of the few times where you and your nearest competitor are diverging in terms of timing of launch of new technology, so to speak, right? I think you both entered the energy assist market kind of at the same time, but now your productization of HAMR seems to be at a later time, which you think is supported by the rest of your portfolio. So it still supports very good profitability and your crossover point, I think, you said is around the 40 exabyte range. Can you just talk about a ¡ like what is the timing that investors should expect for WD from its launch of HAMR? And what do you think is the margin headwind, what would have been the margin headwind of introducing HAMR at an earlier point in time?

Question: Wamsi Mohan - Bank of America - Analyst : And you just mentioned like for economic reasons, that is the timing that works, but were you to have launched HAMR earlier? What would have been the economical impact or the gross margin impact potentially that you are avoiding by not doing this earlier?

Question: Wamsi Mohan - Bank of America - Analyst : Okay. SMR-based shipments were 50% of shipments last quarter. How do you see the trajectory of that? And what are some of the gating factors or challenges associated with shipping SMR drives because there has to be some work at the customers end to sort of qualify these trades and potentially rearchitect a little bit. So would love to get your perspective on how the trajectory of that is tracking? And what kind of traction you have at multiple customers around SMR?

Question: Wamsi Mohan - Bank of America - Analyst : Okay. Great. We will -- just five minutes left. I'd love to see if anyone in the audience has any questions. If there are any, do raise your hand, we can get a mic to you and if not -- then I got a few more. So maybe stepping back a little bit, Wissam like as you think about the last few years have been quite challenging in terms of just the demand environment and the inventory correction that has happened. Are you seeing any areas where there is still incremental inventory that exists that needs to get flushed out anywhere within the business? Or at this point like all of that is behind you?

Question: Wamsi Mohan - Bank of America - Analyst : Yes. And then can you just talk about the capacity rationalization and maybe like some way for investors to think about if you step back and say, we optimized our capacity during the downturn given the headwinds. Any way to quantify that even in loose terms to think about how much capacity came out of the system. Because when we spoke earlier about adding back capacity, you want to hit certain gross margin profitability metrics before that. But how much actually was taken out during that. And it would be helpful to get that both from a capacity standpoint, but also from an OpEx standpoint?

Question: Wamsi Mohan - Bank of America - Analyst : Yes. No, we are excited to see the margin flow through, come through because of all these hard actions that you've had to take over the last couple of years. Maybe to wrap it up, I would love to get your perspective on what do you think the market is missing about the WD story? Or what do you think is most misunderstood about the WD story?

Question: Wamsi Mohan - Bank of America - Analyst : Yes. Great. Very exciting times. Well, thank you so much, Wissam. Really a pleasure to have you back on stage with us and appreciate your time very much.