Western Digital Corporation

Good afternoon, and thank you for standing by. Welcome to Western Digital's Fiscal Third Quarter 2022 Conference Call. Presently, all participants are in a listen-only mode. Later, we will conduct a 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, Vice President, Financial Planning and Analysis and Investor Relations. You may begin.

Thank you, and good afternoon, everyone. Joining me today are David Geckler, Chief Executive Officer, and Wissam Jabre, 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, demand and market 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 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 introductory remarks.

Thank you, Peter. Good afternoon, everyone, and thanks for joining the call to discuss our fiscal 2022 third quarter results. We delivered excellent performance in the quarter, with revenue of $4.4 billion and non-GAAP gross margin of 31.7 percent, both of which are at the higher end of our updated guidance ranges we provided in early March. Additionally, we reported non-GAAP earnings per share of $1.65, which exceeded our revised guidance. I am proud of the team's execution as we navigated dynamic geopolitical and macroeconomic environment, as well as ongoing supply challenges. On top of that, we successfully managed through a fab contamination event that is now fully resolved. Overall, the Western Digital team did an amazing job of meeting our customers' growing and evolving storage needs. This has all been made possible by the operational and technological improvements we have made over the last couple of years that enable us to unlock the true earnings power of the Western Digital model. Looking ahead, we are optimistic about the business outlook for calendar year 2022. We believe the secular demand for storage in our new product ramps in HGD and Flash, combined with the seasonally stronger second half of the calendar year, will drive growth across our end markets. With 40% of the world's data stored on Western Digital products, Our innovation powers the global technology ecosystem from consumer devices to the edge to the heart of the cloud. Our vision is to create breakthrough innovation inspired by the convergence of human potential and digital transformation that enables the world to actualize its aspirations. At Western Digital, we have established an admirable position in the large and growing storage markets. Our proven ability to develop a diversified portfolio of industry-leading products, coupled with our broad routes to market, puts Western Digital in a unique position to capitalize on the promising growth opportunities ahead of us. I'll now turn to an update on our HGD and Flash businesses. Our HGD revenue was as forecast and in line with typical March quarter seasonality, led by growth in capacity enterprise drives. Robust demand in the cloud end market for 18 and 20 terabyte drives generated a nearly 40% increase in near-line revenue from the same period last year. Of note, our 20 terabyte drive exabyte shipments approached high single-digit percentage of total capacity enterprise shipments. During the quarter, qualification of OptiNAND-based hard drives progressed as planned across multiple cloud and OEM customers. Combining OptiNAN with our SMR leadership uniquely positions Western Digital in the marketplace. Putting it all together, we have positioned our innovations in OptiNAN and SMR to drive business results in our capacity enterprise business for the rest of this calendar year and into the future. Our largest cloud customers are aligned with this strategy and our accelerating adoption of SMR products within data centers later this year. We are laser-focused on bringing new, cutting-edge features and functions to our products for cloud storage. We will provide more details around these exciting innovations at our Investor Day on May 10th. Turning to Flash, our overall business was impacted by our ability to ship product due to the fab excursion. In light of this event, Coupled with the supply chain challenges facing all companies across the industry, I would like to thank our customers and the Western Digital teams for working together diligently to mitigate the impact of supply chain disruptions. From a product perspective, client SSD demand improved in the quarter as our PC OEM customers successfully worked through their own supply chain issues. Gaming is another growth market for us where we continue to have success with exabyte shipment nearly doubling year over year. We have a leading position in the marketplace with our brands, including WD Black, SanDisk, and SanDisk Professional, recognized globally for cutting-edge innovation, performance, and quality. An example of this is our WD Black SN770 SSD product, which leverages our cutting-edge BIX5 technology and in-house DRAM-less controller architecture. This SSD product is one of the fastest and best drives available in the market. We have received excellent reviews from tech journalists, which is a great testament to the company's strength in both our Bix technology leadership and our ability to develop innovative solutions, enabling our customers to unlock the potential of their PCs. Qualifications of Bix 5-based products for client and consumer end markets were largely completed. And we are making great progress in qualifying our next generation BIX 5 enterprise SSD products. We expect these products to drive revenue growth and mix improvements into the future. Lastly, BIX 5 represented nearly half of the flash revenue, up from 41% in the previous quarter. Let me now offer a few observations on the demand environment. In cloud, we see continued strength in calendar year 2022. The increase in cloud capital investment for data center build-outs is expected to propel growth for our HDD and flash products in this growing end market. In client, PC end demand growth has been solid for the last two years, and we are starting to see some normalization in the PC market. We expect PC unit demand to remain significantly above pre-pandemic levels, with the return to site trend driving a mixed shift towards commercial and enterprise PCs with richer client SSD content versus consumer-oriented PCs. In mobile, we have a strong position in 5G phones, and we see demand for the latest 5G flagship phones remaining solid, with NAND content doubling from prior generation smartphones. In other emerging applications, Demand from gaming and VRAR devices remains robust. Industry analysts expect VR headset sales to grow at a 47% CAGR over the next couple of years. In consumer, we are experiencing short-term demand weakness outside the U.S. tied to the geopolitical events in Europe, as well as COVID-related lockdowns in China. However, we are confident in the strength of the business as we are entering a seasonally stronger second half of the calendar year with a number of new innovative products. We feel good about the overall demand in calendar year 2022. We are continuing to navigate the macroeconomic and geopolitical factors I mentioned earlier. While these transitory issues are affecting both revenue and gross margin in the near term, we expect them to subside over time. We are confident that the growth and profitability opportunities in front of us have not changed. In closing, I want to acknowledge the hard work and unrelenting spirit of our employees that goes into creating our game-changing products. In particular, I want to thank our employees in China for their efforts to work through all the supply chain and logistics challenges during the lockdowns. Before turning the call over to Wisam, I wanted to make a quick announcement that Western Digital and the IRS have reached a tentative agreement to resolve a long-running tax matter covering the fiscal years 2008 through 2015. With offsetting tax benefits, we expect the ultimate net amount will be in the range of $500 to $600 million. While this settlement will result in a previously unforecasted cash payment in fiscal year 2023, it does highlight the work that I and the rest of the Western Digital team have undertaken in the last two years to instill strong financial discipline and provide greater financial flexibility upon which we are building a foundation for future growth for the company. We saw and we'll go into more detail in a minute. Let me now turn the call over to Wissam, who will discuss our fiscal third quarter results and provide a more detailed outlook for the fiscal fourth quarter. Wissam?