Western Digital Corporation

Thank you for standing by, and welcome to the Western Digital's first quarter fiscal year 2022 conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your first speaker, Mr. Peter Andrew. Thank you. Please go ahead.

Thank you, 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 and performance, trends in 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 10-K 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 his introductory remarks.

Thank you, Peter. Good afternoon, everyone, and thanks for joining the call to discuss our first quarter of fiscal year 2022 results. We reported revenue of $5.1 billion non-GAAP gross margin of 33.9% and non-GAAP earnings per share of $2.49, all within the guidance ranges we provided in August. This marks the sixth quarter in a row of meeting or exceeding guidance, a point that we are particularly proud of as we continue to navigate uncertainty and volatility in the market. Strong demand across diverse end markets, particularly for our cloud products, combined with Western Digital's strong innovation, broad routes to market, and sharpened execution, enabled us to deliver results within our guidance range despite significant COVID impacts and supply chain disruptions. While these disruptions are transitory, the long-term opportunities for Western Digital remain unchanged as the world's digital transformation continues to accelerate. During the quarter, we shipped a record level of exabytes, while also improving non-GAAP gross margins across both Flash and HDD and generating profitable growth. We saw strong demand for our latest generation hard drives and flash products in the cloud end market, as well as strong consumer demand for new 5G-based mobile phones incorporating our latest Bix 5 flash solutions. The strong demand for these products were partially offset by pressure in the commercial channel within the client end market and certain portions of the consumer end market, particularly retail. This was attributable to component issues impacting our customers' ability to ship product, greater component sourcing constraints within our own operations, and uneven geographic demand due to COVID lockdowns. Our continued focus on innovation and a more agile business unit structure enabled us to quickly adapt to these dynamics. When combined with an industry-leading portfolio and a strong go-to-market operation, I'm confident in Western Digital's ability to continue to generate improved operational performance for all of our stakeholders. Before I get into the business trends, I want to highlight a few changes we made to our end market breakdown, which we believe will help you understand why Western Digital is well positioned to capitalize on the opportunity presented by the increasing value and importance of data. We now split our end markets into cloud, client, and consumer. The cloud represents an incredibly large and growing end market for Western Digital, and we are uniquely positioned to address customer storage needs as the only provider of both hard drive and flash products. During the first quarter, cloud represented a record 44% of total revenue, led by record capacity enterprise hard drive revenue and nearly 30% sequential growth in enterprise SSD revenue. We believe the accelerated digital transformation will continue to drive growth in this end market and continue to shift our business mix towards the cloud. As we ramp our new innovative products and continue leveraging the benefits of the organization structure we put into place last September, I am confident we will capture opportunities to achieve a more stable and profitable growth profile over the long term. The client end market represented 37% of revenue in the first quarter. Here we are providing a broad array of high-performance flash and hard drive solutions to our OEM and channel customers across PC, mobile, gaming, automotive, VR headsets, at-home entertainment devices, and industrial spaces. Lastly, the consumer end market accounted for 19% of revenue in the first quarter. The highlight of this end market is the strength of our SanDisk brand of retail products and the WD Black brand of storage products for gaming enthusiasts, which is strong and growing. The brand recognition and infinity, combined with our unmatched reach with nearly 400,000 points of presence across the world, is a great setup for Western Digital as we enter a seasonally stronger part of the year. With that, I'll now provide a recap of our ACD and Flash businesses as it relates to our first quarter results. In HTD, continued strong demand for our latest generation energy-assisted drives among our cloud and enterprise customers drove record revenue in exabyte shipments in our cloud end market. In addition, we experienced strong revenue growth in our smart video product line and were unable to meet demand. During the quarter, we announced OptiNAND, a revolutionary technology that utilizes flash in the HGD control plane to further increase aerial density. With this leading architecture, we achieved 20 terabyte capacity using our field-proven 9-disc mechanical platform and ePMR technology. Next month, we'll commence volume shipments of our 20 terabyte CMR hard drives based on OptiNAND technology. In Flash, revenue grew in the quarter due to continued strong demand within the cloud and client end markets for our latest generation of our enterprise SSD products and the ramp of new 5G phones incorporating our latest Bix 5 node. Within enterprise SSD, we experienced continued success in the cloud with another successful quarter of qualifications. We are now qualified at three cloud titans and have made excellent progress working our way through the qualification process in the enterprise and distribution channels. We expect these qualifications to start to drive accelerated revenue growth in 2022 as our customers begin to deploy these products into their networks. The ramp of next generation 5G phones incorporating our latest generation of BIX5 products accelerated in the quarter. with revenue growing over 20% sequentially. We expect this migration to 5G, combined with a continued increase in the amount of storage per phone, to drive another strong quarter of revenue growth in the fiscal second quarter. Gaming was strong in the quarter with a solid lineup of products for game consoles, along with a growing brand recognition of WD Black-based products in the channel and retail. Heading into the second fiscal quarter, we are well positioned to take advantage of seasonal strength and grow in a wide variety of gaming channels. As I noted earlier, the client PC OEM's distribution channel in retail were impacted by our customers' ability to ship product, greater component sourcing constraints within our own operations, and uneven geographic demand due to COVID lockdowns. Demand was solid, but these transitory issues impacted our ability to realize this demand in our results. In total, bid growth accelerated to 30% year-over-year in the first quarter, as we ramped BICS 5 to 17% of flash revenue. This quarter, we expect year-over-year bid growth to further accelerate to the mid-30s range, with BICS 5 bid crossover to happen later in the quarter. Our long-term goal is to grow BITS in line with the market, taking advantage of our product and end market breadth to shift our BITS to optimize profitability. As we look into calendar year 2022, we are optimistic as our customers continue to indicate strong end demand across cloud, client, and consumer end markets. We have industry-leading technology, the right product portfolio and investments, and and the organizational agility to fundamentally drive improved profitability regardless of market condition. We have a great position in two large and growing markets in Flash and HGD, and we have proven our ability to drive innovation throughout our portfolio and deliver industry-leading products to a broad and loyal customer base. We believe that the migration to the cloud and demand for storage solutions throughout the client and consumer markets will drive a huge opportunity for Western Digital and our customers. I'll now turn the call over to Bob to share details on our financial results.