WESTERN DIGITAL CORP Q2 FY2025 earnings call

• David Goeckeler mentioned the completion of the separation later in fiscal third quarter, his gratitude to employees, customers, etc., and discussed Q2 results, HDD business performance with Ultra SMR technology, Flash segment headwinds, and progress on separation milestones. • Wissam Jabre discussed Q2 results within guidance, revenue by end markets (Cloud at 55% of total revenue, Client at 27%, Consumer at 18%), gross margin details, operating expenses down sequentially, cash flow, and provided Q3 guidance.

Flash: Revenue was $1.9 billion, flat sequentially and up 13% year-over-year. Bit shipments were up 9% sequentially and down 2% year-over-year. Gross margin was 32.5%, down 6.4 percentage points sequentially. HDD: Revenue was $2.4 billion, up 9% sequentially and 76% year-over-year. Nearline revenue hit an all-time high. Gross margin was 38.6%, up 0.5 percentage points sequentially and 13.8 percentage points year-over-year.

• Fiscal third quarter guidance: Overall revenue expected to be in the range of $3.75 billion to $3.95 billion. Gross margin between 31.5% and 33.5%. Operating expenses expected to be $700 million to $720 million including synergy costs $25 million to $40 million. Interest and other expenses ~$100 million. Tax rate 14% to 16%. EPS $0.90 to $1.20. • Flash: Expected revenue decline mid-teens sequentially, gross margin decrease due to lower blended ASPs, higher cost per bit, and underutilization charges $20 million to $30 million. Bits expected to decline mid-single digits sequentially. • HDD: Expected revenue decline mid-to-high single digits sequentially on lower volume, gross margin expected to improve ~50 basis points as average price per unit trends higher.

• Pricing pressure in Flash due to short-term oversupply and customers working down inventory. • Potential volatility in HDD shipments from quarter to quarter due to managing supply-demand tightness. • Uncertainties related to market cyclicality affecting both Flash and HDD segments.

Q: On the HDD side, curious about the sequential decline in March quarter, is it due to lower client and consumer units or pause in cloud, and about volatility in HDD Q-on-Q?

A: Irving Tan said there will be quarter-on-quarter variations as they support customers with deployment timing and balance supply-demand tightness, driving the slight decline in Q3.

Q: On NAND gross margins, unpacking underutilization charges and comparison to competitors taking bit supply out?

A: David Goeckeler said they don't go into exact amount of capacity taken out, but Q3 will see cost increases, with gross margin impacted by cost increases, underutilization charges, and ASP headwinds moderating from current quarter.

Q: On HDD cycle, where they are and pricing, and NAND cycle and standalone business?

A: Irving Tan said outlook for HDD business remains healthy with quarter-on-quarter variations, and David Goeckeler said NAND cycle is a mid-cycle pause and details on standalone business will be discussed at investor day.

Q: On Enterprise solid state drives, update and targets?

A: David Goeckeler said they're doing fine, still tracking targets, with some choppy quarters, and will discuss roadmap at investor day.

Q: On CapEx, update on Flash side and HDD capacity wall?

A: Wissam Jabre said no change in CapEx approach, and no comment on HDD capacity wall details.

Q: On HDD high capacity drives, order rates and visibility?

A: Irving Tan said nearline outlook is healthy, qualification for new high capacity drives to be completed in CQ1 of calendar year, and customers are excited about them.

Q: On inventory levels, visibility at hyperscalers, and HDD supply chain?

A: Wissam Jabre said they have good visibility on customer inventories and orders, and operating in a tighter supply chain on HDD side with build-to-order model helping visibility.

Q: On HDD aerial density and NAND pricing margin trend?

A: David Goeckeler said they focus on improving aerial density, and sees ASP headwinds moderating next quarter from current quarter, taking supply actions to support pricing and margins.

Q: On Flash role in hyperscale storage?

A: David Goeckeler said use cases for Flash and HDD are both present, AI driving demand for both, and Flash growth doesn't come at expense of HDD.

Q: On NAND competitors' supply reductions?

A: David Goeckeler said they focus on their own business, see a mid-cycle pause, and will manage supply to keep market balanced and slightly undersupplied