Western Digital Corporation

Good afternoon, and thank you for standing by. Welcome to Western Digital's fiscal third quarter 2023 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 one on your phone. As a reminder, this call is being recorded. I would now like to turn the call over to Mr. Peter Andrew, Vice President, Financial Planning and Analysis of Investor Relations. You may begin.

Thank you, and good afternoon, everyone. Joining me today are David Geckler, Chief Executive Officer, and Wasam Jabre, Chief Financial Officer. Before we begin, let me remind everyone that today's discussion contains forward-looking statements, including expectations for our product portfolio, cost reductions, business plans and performance, demand and market trends, and financial results 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 and other filings 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, and thank you for joining the call to discuss our 2023 third quarter results. Western Digital's third quarter performance exceeded expectations, with core metrics at the high end of our guidance range, demonstrating the company's resilience in a challenging market environment. We reported third quarter revenue of $2.8 billion, non-GAAP gross margin of 11%, and a non-GAAP loss per share of $1.37. Over the last several years, our team has focused on enhancing business agility and delivering a range of innovative, industry-leading products that address the increasing data storage demands of our customers. The groundwork we laid, combined with the actions we have taken since the beginning of this fiscal year to right-size and refocus our business, have enabled us to navigate a dynamic environment. I am pleased that we delivered non-GAAP gross margin at the higher end of our guidance range due to strong execution across both our HDD and flash businesses. In HDD, our early actions to streamline our manufacturing footprint and focus our product offerings on delivering the best value for our data center customers have resulted in gross margin upside and profitable market share gains in HDD. In Flash, our broad go-to-market strategy, anchored on our enviable retail franchise in a strong client SSD portfolio, enabled us to optimize bit placement and bolster gross margins. During the fiscal third quarter, we saw signs of demand stabilizing across various end markets. In consumer, our Flash and HD results were consistent with the expectations we shared in January. In client, demand for each major product area came in better than we expected across PCoEM, channel, mobile, and gaming. In cloud, demand for capacity enterprise hard drives improved whereas the demand for flash drives was consistent with our expectations set in January. Before I jump into updates on our HDD and flash businesses, I would like to reiterate that the strategic review process is ongoing, and we will provide updates as we have them. I'll now turn to the business updates, starting with HDD. During the fiscal third quarter, our HED revenue improved sequentially with growth in capacity enterprise offsetting seasonal declines in retail and client. During the quarter, our 22 terabyte CMR drive became the highest volume product among all of our 20 terabyte and above capacity points, demonstrating our leadership position at this capacity point. In addition, we expect a complete qualification of our 26 terabyte ultra-SMR technology in the fiscal fourth quarter. These innovative products provide multi-generation benefits to our customers. Turning to flash, total exabyte shipment came in higher than expected in consumer, mobile, PC OEM, and channel products. Despite the industry experiencing the worst downturn in over a decade, Western Digital delivered positive product gross margin, excluding underutilization charges, driven by our unique combination of premium retail brands, broad go-to-market channels, and low-cost flash supply from our joint venture fab with Kyoksha. Furthermore, we continue to see encouraging signs of price elasticity-driven content growth in retail flash led by WD Black SSD optimized for gaming, as well as mobile PC OEMs and channel within client. On the technology front, Bix 6 achieved its anticipated cost crossover during the quarter. Moreover, on March 30th, Western Digital in Keoksha announced our next-generation Bix 8 node, a groundbreaking technology that builds upon the success of Bix 5 and Bix 6. This new technology is based on circuit-bonded-to-array architecture, which provides several benefits, including reduced cycle time, faster yield ramp, better lateral scaling, and industry-leading IO performance when compared to products based on circuit under-array architecture. We continue to aggressively productize BIX 8 for a broad range of applications, which will position Western Digital for success as business conditions improve. As we look to the fiscal fourth quarter, in hard drives, overall demand will be impacted by ongoing inventory digestion at cloud customers, and a sustained decline in client. However, we are beginning to experience improved demand at certain customers in China. In Flash, we are seeing signs of stabilization and content increase per unit. PC OEMs have emerged from inventory digestion and are now shipping closer to end demand. Gaming will remain strong, while enterprise SSD for cloud applications will remain soft. We anticipate modest growth in bit shipments into the fiscal fourth quarter. Before I hand the call over to Usam, I would like to thank the Western Digital team for the response efforts they made in addressing the network security incident we disclosed on April 2nd. Our team took proactive and precautionary measures to secure our operations and successfully executed on our business continuity plans. With that, I'll turn it over to Usam.