Western Digital Corporation Q4 FY2025 earnings call

• AI is driving data growth, with Agentic AI creating need for unstructured data storage. Western Digital's ePMR and UltraSMR technologies are core to data center success, with HAMR drives in testing phase. - Platforms business is building traction with infrastructure providers. - Fiscal fourth quarter results: revenue $2.6 billion, non-GAAP gross margin 41.3%, non-GAAP earnings per share $1.66, free cash flow $675 million. - Strengthened balance sheet with net leverage target range of 1 to 1.5x, initiated quarterly cash dividend and $2 billion share repurchase program.

For the fiscal fourth quarter, Western Digital's revenue was $2.6 billion. Cloud segment contributed $2.3 billion, representing 90% of total revenue. Client segment had $140 million, 5% of total. Consumer segment had $136 million, 5% of total. Non-GAAP gross margin was 41.3%. Shipments of latest generation ePMR drives with capacity up to 26 terabytes CMR and 32 terabyte UltraSMR more than doubled quarter-over-quarter, exceeding 1.7 million units in the June quarter.

• Fiscal first quarter of 2026 expected continued revenue growth driven by data center demand and improved profitability from high-capacity drives. - Anticipates revenue of $2.7 billion plus/minus $100 million. - Gross margin expected to be between 41% and 42%. - Operating expenses expected to range from $370 million to $380 million. - Interest and other expenses anticipated to be approximately $50 million. - EPS expected to be $1.54 plus/minus $0.15 based on non-GAAP diluted share count.

• Broader environment marked with uncertainty related to tariffs. - Potential enterprise slowdown, but no material impact seen yet. - Tariffs are a fluid and dynamic situation, but no double ordering observed based on analysis.

Q: Good afternoon, and thank you for standing by. Welcome to Western Digital's Fourth Quarter Fiscal 2025 Conference Call.

A: [Operator instructions and opening by Ambrish Srivastava] Q: Erik Woodring with Morgan Stanley asked about gross margin guidance for the September quarter and incremental margins.

A: Kris Sennesael responded on gross margin elements like pricing, mix, and cost control, expecting further gross margin progression.

Q: Aaron Rakers with Wells Fargo asked about share repurchase activity and excess cash generation.

A: Kris Sennesael discussed strong free cash flow, balance sheet strength, and plans for share repurchases and dividends.

Q: Aaron Rakers followed up on hard drive ASPs.

A: Irving Tan mentioned ASP per terabyte was down low single digits due to mix.

Q: Wamsi Mohan with Bank of America asked about revenue contribution and seasonality.

A: Irving Tan explained the business is driven by cloud CapEx of hyperscale customers, with traditional seasonality not applying much.

Q: Wamsi Mohan followed up on incremental margin drivers.

A: Kris Sennesael and Irving Tan highlighted mix as the most important driver, with focus on higher capacity drives.

Q: Karl Ackerman with BNP Paribas asked about UltraSMR adoption and balancing visibility with customers.

A: Irving Tan discussed long lead times, customer education, and partnership for visibility.

Q: Asiya Merchant with Citigroup asked about tariffs and demand pull forward.

A: Irving Tan stated no material impact from tariffs and no double ordering observed.

Q: Tom O'Malley with Barclays asked about ASPs and capacity constraints.

A: Irving Tan discussed differentiation through high yields and focus on component production.

Q: Amit Daryanani with Evercore asked about extra week impact on P&L.

A: Irving Tan explained minimal revenue impact and $15-25 million incremental OpEx.

Q: Amit Daryanani followed up on Agentic AI and revenue growth.

A: Irving Tan discussed exabyte growth potential and ASP trends.

Q: Ananda Baruah with Evercore asked about aerial density road map and Platforms business.

A: Irving Tan discussed ePMR and HAMR road maps, and Platforms business with cloud providers and Storage as a Service providers.

Q: Mark Miller with Benchmark Company asked about hard drive ASPs and DSOs.

A: Kris Sennesael discussed ASP trends and DSOs at 52 days, with good working capital management