Western Digital Corporation

Good afternoon, and thank you for standing by. Welcome to the Western Digital's first fiscal first quarter 2021 conference call. Presently, all participants are in listening mode. Later, we will come to the question and answer session. At that time, if you would like to ask a question, you may press star 1 on your phone. As a reminder, this call is being recorded. Now, I will turn the call over to Mr. Peter Andrew. You may begin.

Thank you, Shannon, and good afternoon, everyone. Joining me today are David Geckler, Chief Executive Officer, and Bob Ulau, 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 10Q 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.

Thanks, Peter, and thanks everyone for joining us to discuss our fiscal first quarter results. I hope that you and your families are staying healthy and safe. Before we dive into our results, I'd like to take this opportunity to provide some color on our new business unit structure, which we announced in September. I have strong conviction in the market opportunity from rapid global adoption of the technology architecture built with cloud infrastructure tied to intelligent endpoints and connected by high performance networks. The value and urgency of data storage at every point across this architecture has never been clearer. Customers need solutions that can best address the requirements across a variety of use cases and end markets. The ability to capture this opportunity at every stage highlights the criticality of having a broad portfolio of both flash and hard drive products. We have the best and most comprehensive storage platform in the industry, and I believe over the coming quarters, we will continue to see the compelling benefits of this strategy. In particular, there are significant operational and go-to-market synergies with our integrated Flash and HDD portfolios, which are important competitive differentiators for WD. There is also a great deal of customer overlap between our Flash and HDD businesses, and we believe our longstanding deep and collaborative customer relationships will be a key factor in achieving strong performance over time. A great example is that following the acquisition of SanDisk, we built on our strong HED customer base to drive impressive adoption of SSD solutions on the client side. As a result of our established trusted relationships, our HED customers then turned to us to also provide them with Flash solutions. In fact, we now equip all of our top 20 customers with both Flash and HED products. Our demonstrated ability to support our customers by providing a breadth of options that gives us confidence that we can do the same in the enterprise SSD space in the years ahead. Ultimately, we understand our customers' needs and we can work with them to address their evolving and growing storage ecosystem to provide them with a wide range of solutions. At the same time, there are technical dynamics between Flash and HDD that are very different. While we develop innovative, compelling technologies in both areas, each requires separate, dedicated focus on product development, technical strategy, and execution on our roadmaps and product commitments. To that end, one of my first observations when I arrived at WD was that we could do a better job of capitalizing on these dynamics. So to help us accelerate our strategy, we have created FLASH and HGD business units, each with a dedicated general manager. This new structure is designed to accelerate growth and drive agility, sharper focus, and business accountability throughout the organization. Within each business unit, engineering and product management teams will be responsible for driving product strategy, roadmap, and pricing with overall P&L responsibilities. The GMs of each unit will work with their peers in operations, memory technology, sales, finance, legal, and human resources, to drive their businesses with accountability for results. As part of this reorganization, Rob Soderberry joined WD in September as Executive Vice President and General Manager of the new Flash Business Unit. Rob is a 30-year technology industry veteran with outstanding experience leading enviable product franchises at scale and has deep technology and product management expertise. Earlier this afternoon, we announced that Ashley Gorak Purwala is joining us as Executive Vice President and General Manager of our HGD business unit. Ashley brings 30 years of technology experience to the team and has spent the majority of his career at Dell Technologies in many different engineering and business leadership roles focused on complex data center infrastructure. Most recently, he was President and GM of Servers and Infrastructure Systems, We had full P&L responsibility for a $20 billion business and a global team of 4,500 technologists. We are thrilled to have both of these exceptional leaders on board. Now turning to our financial results. In the first quarter, results were at the upper end of the guidance ranges we provided in August. We reported revenue of $3.9 billion and non-GAAP earnings per share of 65 cents. Results were strengthened by retail, where we are executing a compelling innovation story reinforced by our powerful brand recognition and reputation for exceptional performance. Encouraging economic and market dynamics supported this performance as COVID restrictions eased during the period while consumer flash pricing stabilized. In addition, continued work from home and distance learning trends drove some upside in hard drive demand for desktops and notebooks. In general, some of the uncertainty we saw last quarter is starting to dissipate. For example, we have better clarity today on geopolitical dynamics, Huawei concerns, and stability in consumer flash pricing. We are also seeing positive indications around the progression of the 5G ramp and the growth of potential gaming, the growth potential of gaming, excuse me. However, some near-term headwinds remain. Demand trends continue to be mixed, and there have been recent COVID-related lockdowns and upsurges in several countries. While we are not out of the woods on these macro impacts, we are more optimistic than we were last quarter on some of these issues abating in calendar 2021. Turning to a recap of performance in our flash business. Our broad flash product portfolio, technical leadership, deep customer relationships, extensive distribution channel, and a low-cost architecture continue to differentiate us from our peers. Product highlights in the quarter included. Within retail, we refreshed our entire SSD product line, including introducing the ArmorLock security platform. ArmorLock is a data encryption platform featuring state-of-the-art security technology and ease of use in enabling secure storage. The first product to leverage this technology is the ArmorLock encrypted NVMe SSD. The initial reaction to this product has been terrific, particularly with professionals and content creators in the media and entertainment industry. As we enter a seasonally strong quarter, we are well positioned in the retail space and expect the fiscal second quarter to be another growth quarter in retail. Our WD Black product line has been expanding and continues to add innovative solutions for gamers, including the recently launched WD Black SN850. This is our first SSD to feature next-generation PCIe 4 technology, and early reception has been very positive. In fact, over 850,000 gamers streamed our Twitch launch in early October. Our comprehensive portfolio is enabling us to provide Flash products directly into consoles, as well as provide leading Flash and HDD retail solutions for the broader consumer gaming market. In total, gaming represented about 10% of our Flash revenue this quarter. Gaming continues to be a promising growth area for us, and we are excited about the future of this end market. We continued the enterprise SSD momentum we discussed last quarter. having now completed over 100 qualifications of our second-generation NVMe products. Over the next two quarters, we expect to start qualifications at additional cloud titans in one of our largest OEMs, which will further expand our addressable market. We have large cloud and OEM partners. Having large cloud and OEM partners complete a qualification cycle can be a multi-quarter process with deep commitment and investment from both parties required, but they typically lead to high volume purchases. We are well versed in this process, having undertaken thousands of qualifications over the past several years, which are inevitably successful. The enterprise SSD market has immense untapped potential and remains a key area of focus for us. I'm also confident the recent organization changes we've made will further sharpen our execution in this critical market. More broadly, our successful 20-year partnership with Keoksha continues to be a strength of the business. Our joint memory technology roadmap remains strong with impressive VIX4 and VIX5 yields and associated strong cost improvements underpinning our entire portfolio. We also regularly work with Keoksha on future facilities, facility planning, To that end, this afternoon, Kyokusha announced the construction of the shell for Fab7 in Yokaichi, which is expected to commence in the spring of 2021. We expect to continue our joint venture investments for Fab7 and look forward to our ongoing successful partnership. On the HDD side of the business, we continue to align our product portfolio towards growth markets, particularly in cloud and smart video. These end markets demand high-performance, high-capacity drives, and we are continuing to innovate in head and media design, firmware, and mechanical suspension to take advantage of this opportunity. We achieved important HCD business and product milestones in the quarter, which highlights our commitment to innovation and our focus on sharpening execution. First, I am pleased to announce that we reached our goal of producing over 1 million energy-assisted drives. We are seeing strong engagement with customers as we build on our capacity to aggressively ramp this platform. We have completed nearly 100 qualifications, including with one Cloud Titan, and have an additional 125 qualifications in process, including with two more Cloud Titans. We're excited about the progress we've made and expect the 18 terabyte capacity point to be the sweet spot in the industry. Second, on Monday, We announced qualifications have been completed on the 20 terabyte platform, and we have already started shipping for revenue. You may recall several years ago, we committed to delivering a 20 terabyte product to our customers by 2020. Reaching this critical milestone is a significant achievement and testament to our ability to deliver on our product roadmaps. Finally, in our OEM and retail end markets for HGD, We saw upside in demand driven by the work from home and distance learning trends and expect this to continue through the current quarter. I'm very proud of the team for the focus and commitment to achieving these important milestones, and I'm excited about how we are positioned for success moving forward. I'll now ask Bob to share details on our first quarter results before I talk about what we see going forward.