Western Digital Corporation

Good afternoon, and thank you for standing by. Welcome to Western Digital's second quarter fiscal 2025 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. Now I will turn the call over to Mr. Peter Andrew, Vice President, Financial Planning and Analysis and Investor Relations. You may begin, sir.

Thank you, and good afternoon, everyone. Joining me today are David Geckler, Chief Executive Officer, and Wissam Jabri, Chief Financial Officer. Before we begin, let me remind everyone that today's discussion contains forward-looking statements based on management's current assumptions and expectations, and as such, does include risks and uncertainties. These forward-looking statements include expectations for our product portfolio, our business plans and performance, the separation of our flash and HD businesses, ongoing market trends, and our future financial results. We assume no obligation to update these statements. Please refer to our most recent financial report on Form 10-K and our other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations. 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.

Thanks, Peter. Good afternoon, everyone, and thank you for joining the call to discuss our second quarter fiscal year 2025 performance. As many of you know, with the completion of our separation later in the fiscal third quarter, I will become the CEO of SanDisk. As a result, this will be my last earnings call as the CEO of Western Digital. Before we dive into our second quarter results, I want to express my gratitude to our employees, customers, partners, and shareholders for their unwavering support throughout my tenure. It has been an honor and a privilege to serve as the CEO of Western Digital, And I'm immensely proud of what we've accomplished together to position both of our franchises for long-term success as standalone companies. Now on to the results. For the second fiscal quarter, Western Digital delivered revenue of $4.3 billion, non-GAAP gross margin of 35.9%, and non-GAAP earnings per share of $1.77. Our commitment to enduring quality and reliability, driven by our industry-leading innovation and diversified portfolio, has enabled us to navigate the current market's dynamics effectively. While our HGD business is experiencing robust growth, particularly in high-capacity enterprise drives, our flash segment faces temporary headwinds due to pricing pressure. Despite these challenges, we are strategically well positioned to capitalize on growing long-term storage demand from the AI data cycle. Our HDD business continues to perform well, propelled by our cutting-edge ultra-SMR technology. This innovation allows us to push the boundaries of storage capacity while maintaining the gold standard in reliability, quality, and performance. The market has responded to our products enthusiastically, driving our HDD revenues to a 12-quarter high with a record non-GAAP gross margin. We're seeing increasing adoption of our newer and higher density drives, underscoring their ability to meet the evolving demands of the storage market. I'm pleased to report that we're in the final stages of our plan to separate our flash and HDD businesses and expect this to be completed on schedule. During the second fiscal quarter, we achieved two crucial milestones, completing our Form 10 filing and finalizing key financing activities necessary for the separation. Thanks to the meticulous planning and dedication of our teams, we're ready to operate as independent entities. We invite you to join us for our upcoming investor days on February 11th for SanDisk and February 12th for Western Digital. where our respective management teams will share their strategic visions and demonstrate how each business will drive shareholder value as standalone entities. We anticipate that within a few weeks after the investor days, Western Digital and Sandys shares will begin trading as independent companies. Turning to our business units update. In Flash, revenue was stable and in line with expectations. Strength in client and consumer resulted in better-than-expected bit shipments. However, increased pricing pressure due to short-term oversupply from increased utilization rates throughout calendar year 24, coupled with customers working down inventory, offset our bit shipment results. Cloud pricing was a positive given continued AI-driven demand. Taken together, the result was sequential decline in profitability. In fiscal year 2024, consumer experienced growth across revenue, units, and gross margins as the end market benefited from a market recovery. While revenue and units grew sequentially in the fiscal second quarter of 25, gross margin declined due to pricing pressure caused by oversupply in the broader NAN market. Despite this recent softening, our external SSD drive shipments grew 50% sequentially. Our efforts in bolstering consumer preference, expanding partnerships, and launching our new creator series at CES all provide SanDisk with the right foundation to drive organic demand and margin expansion. Now turning to the flash outlook. We believe that we are currently in a mid-cycle pause. In the fiscal third quarter, we expect bit shipments to be down with stronger demand in data center and mobile, more than offset by lower bit shipments in PCOEM and consumer. Given the stronger than anticipated pricing headwinds, we are proactively managing production levels to respond to ongoing inventory adjustments and evolving demand dynamics across our end markets. By optimizing utilization and total capacity, With a key focus on delivering premium nodes, we aim to accelerate stabilizing profitability in this dynamic market. In this new era of NAND, with lower utilization and less intense capex environment relative to historical periods, we are seeing supply growth appropriately responding to the current short-term headwinds affecting demand, and we expect to see a recovery as we move through calendar year 2025. Specifically, we expect client inventory digestion to continue into the first half of calendar year 25, with normalization in the second half paving the way for recovery that will enable the AI-driven PC RAM and the Windows refresh cycle to gain momentum. In data center, we project cloud CapEx to continue to grow in calendar year 25, and we continue to make good progress qualifying our cloud products with customers to capture our fair share of this market. Lastly, our consumer business continues to perform well, and while we expect seasonal weakness in bit shipments, our premium brands are providing ASP support to the overall portfolio. We look forward to discussing our views on the flash business at the SanDisk Investor Day on February 11th. The team and I will discuss why we believe that our markets are strong and growing, how rapid adoption of AI is creating new opportunities, what differentiates SanDisk and how the flash industry is evolving. We are very excited and believe you will be as well. Our HDD business delivered another quarter of strong performance, with data center revenue hitting an all-time high. This achievement underscores the strength of our near-line storage solutions and how well positioned we are to benefit from ongoing market tailwinds. The HDD business also achieved record gross margins as customers continued to increase the adoption of our higher capacity drives, and we shared in the TCO benefit provided by our innovative products. We are operating in an environment where demand for our product exceeds supply. To proactively manage this, we continually work with our customers to get visibility into their future needs. In these tight conditions, we might see volatility in shipments from quarter to quarter, but over the longer term, we continue to progress toward a state of predictable business operations and sustainable, profitable growth. Turning to the HGD outlook, in the fiscal third quarter, we anticipate continued momentum in data center to drive strong demand across our near-line portfolio. As I mentioned, our supply is now very tight which is helping us get better visibility into long-term customer demand and enabling better planning for product deliveries in the coming quarters. Our customers increasingly appreciate the complexity of the H&E supply chain and the need for us to better anticipate future demand. As we continue to broaden adoption of our UltraSMR portfolio at our largest customers and complete the qualification and ramp of our newest drives, We anticipate profitability will continue to improve in the coming quarters. The H&E business's positive structural transformation continues to gain momentum. We remain focused on operational excellence, efficient cost structure, and a strong commitment to maintaining a balanced supply-demand dynamic. We are well positioned to continue delivering the most profitable and innovative product portfolio while establishing long-term industry leadership through our earnings potential. During the upcoming WD Investor Day on February 12th, Irving and his team will provide a detailed overview of HGD's strategic roadmap. I want to take a moment to acknowledge the CFO transition announcement that we made two weeks ago. After nearly three years with us, we saw we'll be moving on to another opportunity. Wisam has been an outstanding partner and leader at Western Digital, helping us successfully navigate the company through the ups and downs of our end markets and build a strong financial profile at both HCD and Flash. On behalf of the board and everyone at Western Digital, I want to thank Wisam for his many contributions, including seeing us through the separation, and wish him the best of luck in his next role. Let me now turn the call over to Wisam who will discuss our fiscal second quarter results.