Western Digital Corporation

Good day, and thank you for standing by. Welcome to Western Digital's fiscal fourth quarter 2022 conference call. Presently, all participants are in 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. I will now turn the call over to Mr. Peter Andrew, Vice President, FP&A and Investor Relations. You may begin.

Thank you and good morning, 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. Peter Pistorius- 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'm i'll turn the call over to David for introductory remarks.

David Wiltshire- Thank you, Peter good morning everyone and thanks for joining the call to discuss our fourth quarter and fiscal 2022 results. I'm pleased that the Western Digital team executed well and delivered solid results in light of the ongoing macro and geopolitical dynamics. We reported fourth quarter revenue of $4.5 billion, non-GAAP gross margin of 32%, and non-GAAP earnings per share of $1.78, all within the guidance ranges we provided in April. Fiscal year 2022 revenue totaled $18.8 billion and we reported non-GAAP earnings per share of $8.22. This compares to revenue of $16.9 billion and non-GAAP earnings per share of $4.55 in fiscal year 2021. We grew revenue 11% and EPS increased 81%. demonstrating progress in unlocking the earnings potential of our business. In addition to strong financial performance, fiscal year 2022 was a hallmark year for Western Digital from an innovation, product development, and execution perspective. In particular, we regained innovation leadership with the introduction of multiple products and technologies for the cloud. In May, we announced a 26-terabyte drive leveraging our OptiNAN and UltraSMR technologies as well as ePMR. Impressively, this means we've nearly doubled drive capacity relative to when I joined Western Digital just over two years ago. In Flash, we expanded adoption of our NVMe Enterprise SSD from one cloud Titan to three, as well as qualification at several enterprise OEM suppliers. From an organization perspective, we have bolstered the company's executive management team, further strengthening our ability to drive operational excellence, innovation, and disciplined financial management. On top of all of these achievements, we reduced debt by $1.7 billion and attained an investment-grade corporate rating, placing Western Digital on a solid financial foundation. Before I jump into additional detail on the quarter, I wanted to provide an update on our strategic review. As you know, two months ago we announced that we are reviewing potential strategic alternatives aimed at further optimizing long-term value for our shareholders. The Executive Committee of the Board, which I lead, continues to oversee the review, and Elliott Management is participating alongside us under a non-disclosure agreement, along with other interested parties. We're evaluating a range of alternatives, including options for separating our market-leading Flash and HDD franchises. We are moving expeditiously, but this work will take time. We will not be answering any questions about the strategic review today, given the ongoing nature and confidentiality of the process. We will provide updates in the future as appropriate. Now I'll provide updates on our HDD and flash businesses. During the fiscal fourth quarter, strong demand from our cloud customers for our latest generation energy-assisted drives drove near-record, near-line shipments of 111 exabytes. Total HDD revenue declined sequentially due primarily to consumer and client HDD demand. We commenced commercial shipment of a number of products incorporating our OptiNAND technology. In addition to shipments of our 20 and 22 terabyte CMR drives, qualifications of our 26 terabyte SMR drive are underway. As we noted at our product launch event in May, this SMR-enabled drive enables 20% higher capacity than our CMR variants, offering significantly better TCO for our cloud customers and further highlighting the performance-driven benefits of the innovation that Western Digital is packing into a hard drive. Finally, we are ramping a second cloud customer with SMR technology this quarter and remain on track to lead the industry's transition to SMR-based drives for the cloud. We are very confident in our multi-year product roadmap for capacity enterprise drives, which combine ePMR, OptiNAN, UltraSMR, and triple-stage actuators to deliver a cutting-edge portfolio of drives in commercial volumes at a wide variety of capacity points. We also continue to invest in HAMR and the commercialization of this technology alongside our other HCD technologies that are leading the industry. The breadth and depth of this portfolio strongly positions us to be the provider of choice for the largest and most complex data centers in the world. Building on the expertise cultivated over decades of bringing to market industry-leading technologies, we are committed to leveraging our innovations to continue driving business results in capacity enterprise into the future. Turning to Flash, Revenue grew sequentially on an improving product mix and increased flash supply. Growth in flash during the quarter came primarily from enterprise SSD, with revenue more than doubling sequentially. Gaming is another key growth market for us, where we continue to demonstrate the strength of our client SSD franchise, with exabyte shipment growing nearly 70% year over year. We have a leading position in gaming with our WD Black brand being recognized globally for innovation, performance, and quality. The latest example of this is our WD Black SN850 NVMe SSD product certified for Sony PS5 game consoles, which enables players to expand the high-speed storage capacity of their PS5 console and allows them to store and play both PS5 and PS4 games directly from the drive. On the technology front, BIX 5 represented about half of our flash revenue in the June quarter, up from 46% in the previous quarter. We are preparing to ramp BIX 6 late this calendar year and into 2023, Based on circuit under array architecture, BIC6 enables many exciting high performance products for 5G phones, SSDs, and QLC flash. Let me now offer a few observations on the demand environment. In the cloud end market, we experienced strength in the fiscal fourth quarter as supply constraints at Western Digital and our end customers started to ease. Overall demand from our cloud customers has been consistently strong, and we expect this strength in cloud to carry into the second half of calendar year 2022. We believe the accelerated digital transformation will continue to drive cloud growth and believe we are on track to generate about half of our revenue from this market by fiscal year 2025. Outside of cloud, our expectations for calendar year 2022 demand growth have moderated since our last earnings call. As the fiscal fourth quarter progressed, we saw consumer spending soften, impacting both retail flash and HDD demand. This weakness has migrated to the consumer PCN market as we enter the second half of the calendar year. In client, the market generally expect PC shipments to decline approximately 10% in calendar year 2022. We are seeing our PC OEM customers aggressively right-size their inventory to reflect current demand conditions, which will impact our business in this market in the second half of the calendar year. After going through that correction, we expect a more normal flow of business going forward as we believe PCs will continue to fulfill broader use cases as the foundation of the increasingly common hybrid enterprise, driving unit demand above pre-pandemic levels in richer SSD content. All of these PC market dynamics are accelerating the final phase of the shift of client devices from HDD to flash technology. Consequently, the client HDD market is now declining at an accelerated rate relative to the period before the onset of the pandemic. To reflect this reality, we are now taking aggressive action to restructure our HDD manufacturing footprint to reflect this market dynamic. In mobile, expectations for smartphone units have come down in recent months, led primarily by reduced demand in China. Industry analysts expect the smartphone industry unit volume to decrease by a mid single digit percentage year over year in calendar 2022. While we are well positioned in supplying flash memory for 5G smartphones, we are also seeing our largest customers aggressively resetting their inventories for these products. We expect the inventory correction to be primarily impact our fiscal first quarter and return to market demand for the remainder of the fiscal year. In consumer, we have a premium brand and a great franchise in the marketplace. In particular, we have developed an enviable position and excellent relationships with major brick and mortar retailers and online retailers across the globe, including Best Buy and Target in the US, MSH Group in Europe, JD.com in China, and Officeworks in Australia. As a result of these strong relationships, our impressive scale, product breadth, and trusted brand, we lead most consumer storage product categories. While macroeconomic factors and COVID measures have impacted consumer demand in the near term, Our customers loyalty and preference for the performance and quality of our solutions are key differentiators, which will position Western digital well for the upcoming back to school and holiday seasons. Before turning the call over to Issam, I want to leave you with few takeaways. First, at the Investor Day, we laid out the case where the world of ever-increasing intelligent devices powered by the cloud is creating an astonishing amount of data, of which only a small percentage is stored. Our conviction remains strong, and our view on near double-digit revenue growth remains intact. Over the past several years, the storage market has entered an era of accelerated growth, led by the strength of the cloud market, which drove HDD revenue growth for Western Digital and the industry. In Flash, capital investments for incremental NAND bit growth are becoming more expensive, resulting in a more disciplined investment across the industry. At Western Digital, our longstanding and growing relationships with hyperscale and OEM customers across the world coupled with our leadership in commercializing innovations for capacity enterprise hard drives and momentum with NVMe Enterprise SSD for data center has made us a trusted partner. This combination of rapid demand growth and storage, technology leadership, and product momentum offer Western Digital opportunities for financial outperformance. With that, Let me now turn the call over to Issam, who will discuss our fiscal fourth quarter results and provide an outlook for the fiscal first quarter.