Western Digital Corporation

gap financial measures today. Reconciliations between the non-gap and comparable gap 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.

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 $4.55. 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 lay out 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 continued 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 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 underspin 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 a qualification at another cloud titan and are ramping the product more broadly. Within client SSD, We experience revenue growth as demand remains strong for notebooks and Chromebooks. This remains a large, growing, and 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 continue to prefer our expanding lineup of customized solutions. Within Embedded Flash, we also experience growth in smart home devices, VR, automotive, and industrial. As the BIX5 ramp picks up and we achieve bit crossover late this year, we expect to see increased bit growth. Today, BIX5 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 Keoksha. 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, cryptocurrency 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 18-terabyte 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, and 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 cryptocurrencies, such as Chia, which emerged as a new vertical market at the beginning of the quarter. We believe proof of space cryptocurrency 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 15th, Western Digital's unique ability to deliver both H-E-D 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 increased 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 diligent 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.

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 enterprise SSDs contributed to the growth. Our capacity enterprise hard drives grew 49% sequentially, and our enterprise SSDs grew 39% sequentially. Demand for 18 terabyte energy-assisted hard drives was particularly strong, comprising nearly half of our capacity enterprise exabyte 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 HTD 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 percent 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 percent, 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 shift 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 a 101 percent increase from the prior quarter and a 57 percent increase year over year. With our improving profitability, our tax rate in the fiscal fourth quarter was 9.2 percent, and the tax rate was 13.4 percent 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 gross 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 have $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 to $5.1 billion. We expect gross margin to be between 33 and 35 percent. 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 percent in the fiscal first quarter and the fiscal year. We expect earnings per share to be 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.