The operator welcomes participants to Western Digital's Fourth Quarter and Fiscal 2024 Conference Call and introduces the speakers. The discussion will include forward-looking statements and references to non-GAAP financial measures. The CEO, David Goeckeler, highlights the company's strong results for the fourth quarter and fiscal year, including revenue, gross margin, and earnings per share.

In the fiscal year 2024, the company's revenue was $13 billion due to their strategic focus on aligning their products with growth opportunities in various markets. They predict continued growth in the storage market, particularly in the AI Data Cycle, and have developed Flash and HDD products to meet the increasing demands for performance, power, and capacity. These include high-performance SSDs for AI training and inference, a high-capacity SSD for AI data lakes, and a cost-effective HDD for deep content storage.

The company is committed to innovation and market leadership and expects the AI Data Cycle to drive growth in the storage industry. Progress has been made in preparation for the separation of the company at the end of the year, but there may be some costs incurred. In terms of business updates, revenue growth in Flash was driven by recovery in cloud and a shift in client mix. The company's focus on profitability is reflected in their results and their new QLC-based client SSDs offer better performance. The company also introduced the world's highest capacity BiCS8 2-terabyte QLC memory die to meet growing data center and AI storage needs.

Western Digital and Kioxia have developed a new chip architecture, BiCS8, which integrates wafer bonding to increase efficiency and performance in 3D NAND manufacturing. They are also planning to release a 64 terabyte enterprise SSD and a PCIe Gen 5 SSD, which have received significant interest from customers. In response to softness in consumer and channel markets, Western Digital has been proactively adjusting their product mix to maximize profitability, and they expect mid- to high-teens bit growth in the first quarter. They also plan to focus on managing capital spending and strategically timing the introduction of new, longer-lasting nodes in the future.

The innovation in the tech industry is now focused on improving power efficiency, performance, and capacity within smaller nodes. HDD revenue growth is driven by nearline demand and improved pricing, thanks to the company's SMR leadership and lean cost structure. The company's commitment to improving profitability has led to a transformation in the HDD business, with a focus on introducing innovative, high-capacity products to the market. The company is also shipping samples of their 32-terabyte UltraSMR/ePMR nearline hard drives, which feature advanced technology for seamless integration and deployment in data centers. The company expects further growth in the HDD business in the upcoming fiscal quarter, driven by increased demand and favorable pricing, as more cloud customers transition to SMR technology.

Western Digital's HDD business has been profitable due to their leading products and cost structure. They are focused on driving higher margins and their strategic approach to commercializing new technologies has been successful. In the fiscal fourth quarter, they exceeded their revenue and earnings per share guidance. Cloud, client, and consumer markets all saw growth, with nearline bit shipments reaching a record high. However, consumer revenue decreased slightly due to lower bit shipments, offset by higher ASPs.

In the fiscal year 2024, revenue for the company increased by 6% due to higher demand for capacity enterprise HDDs and improved pricing. Cloud revenue increased by 2%, while client and consumer revenue grew by 7% and 9%, respectively. Flash revenue increased by 3% sequentially and 28% year-over-year, with improved ASPs and bit shipments. HDD revenue grew by 14% from last quarter and 55% compared to the same quarter in the previous year. Gross margin improved by 7 percentage points sequentially and 32.4 percentage points year-on-year, driven by better pricing, cost reduction, and higher volume. The company's focus on improving profitability has shown progress, with gross margin reaching 36.3% in the fiscal fourth quarter.

In the fourth quarter of fiscal year 2024, the company saw significant improvements in gross margin and profitability, with Flash gross margin increasing by 9.1 percentage points and HDD gross margin exceeding the long-term target range. Operating expenses were higher than expected due to better profitability, resulting in an operating income of $666 million. Cash capital expenditures declined by 69% compared to the previous year. The company also paid down a $300 million loan and expects further improvements in revenue and gross margin in the first quarter of fiscal year 2025.

Western Digital anticipates strong revenue and gross margin for the fiscal year, with operating expenses increasing slightly due to synergy costs. Interest and expenses are expected to be at $110 million and the tax rate is projected to be between 15% and 17%. The company expects earnings per share of $1.55 to $1.85 and remains committed to driving higher profitability while maintaining cost and capital discipline. The emergence of the AI Data Cycle presents exciting growth opportunities for Western Digital, and the company is well positioned to leverage its leadership positions in the industry. The first question in the Q&A session focuses on the impressive outlook and results for HDD gross margins.

David Goeckeler discusses the strong performance of the HDD business and its positive outlook for the rest of the year. They have optimized their manufacturing and have strong demand for their UltraSMR drives. They have also implemented a new business practice of requesting a 52-week lead time from customers to align their investment with demand. This has been well-received by customers and they now have visibility for the entire fiscal year from some of their biggest customers.

The speaker is pleased with the company's margins and expects them to continue to increase due to innovation and delivering better TCO to customers. They have a strong plan in place to maintain supply and demand balance in the future. In terms of NAND, while there has been weaker volume, pricing has remained strong in the negotiated markets, especially for enterprise SSD. However, in the more transactional markets, pricing is more dynamic and demand is weaker. The mix of these factors will determine the quarter-by-quarter numbers.

The speaker discusses strong demand for Enterprise SSD in the second half of the year and expects it to continue into the next calendar year. They also mention paying down a term loan and focusing on strengthening the balance sheet. There will be separate Capital Market Days for each company to discuss their capital structures. The speaker clarifies that dis-synergy costs are all in operating expenses.

The speaker is answering a question about the company's NAND business and their projected growth for the next quarter. They mention a flattish ASP trend and explain that this is due to a mix dynamic, with weakness in the consumer market and a strong quarter for mobile. They also clarify that the dis-synergy costs mentioned earlier are all in operating expenses. The next question asks for a clarification and then asks another question.

David Goeckeler clarifies that the PCIe Gen 5 Enterprise SSD and the 64 terabyte SSD are two separate products targeted at different parts of the AI Data Cycle. The compute product is designed to feed data into GPUs and has received a lot of interest in the AI ecosystem. The 64 terabyte drive is targeted at building high-performance data lakes for AI training and is also seeing interest from customers building AI training infrastructure. Western Digital has qualified 2 or 3 hyperscalers before the downturn and those products are picking back up now. The company is happy with its portfolio and continues to add to it. In the nearline HDD market, Western Digital has made great progress.

The company has seen a significant increase in market share, which they attribute to their high-quality products and close relationships with customers. They believe their products offer the best TCO and have been in development for a long time. The recent introduction of a 32-terabyte drive and UltraSMR technology has been well received by customers, with three hyperscalers adopting it. This portfolio has been in development for decades and decisions were made a long time ago due to the long lead times in this industry.

The company believes that their customers are responding positively to their great products, and they are able to work on pricing due to the increased supply and demand balance. They have reached a 52-week lead time, allowing them to plan for capacity. They see sustained demand for HDDs in the future and will consider adding capacity based on customer commitments. Currently, they are happy with their capacity and are able to ship more exabytes per quarter. The next question is about whether they are close to peak performance in terms of exabyte shipments and gross margins.

David Goeckeler discusses the key to maintaining high HDD gross margins, which is to continue to innovate and deliver a better total cost of ownership for customers. He believes that as long as they keep driving the roadmap forward, margins will continue to improve. The release of HAMR technology by competitors will not significantly impact margins, as long as Seagate can continue to provide better value to customers.

The speaker discusses the current state of the hard drive industry and how it has been oversupplied due to the shift from clients to cloud storage. However, the company has now achieved a balance in supply and demand and is delivering high-quality products that provide value to customers, leading to higher margins. The company's portfolio is strong and well-positioned for the current demand for AI data, which will likely continue to drive margins higher.

The company is looking at the long-term supply-demand balance of their business and believes that the era of NAND with bigger and bigger nodes is in the past. They plan to strategically introduce new nodes to add capacity and focus on innovation within the node. The company expects positive momentum in their portfolio due to low CapEx spending in NAND. They also mention the transformation of their HDD business, with a focus on the client to cloud transition and delivering strong TCO gains through their technology roadmap.

The speaker discusses the demand for HDD in the AI Data Cycle, stating that the business has structurally changed and margins are expected to continue to increase. They also address a question about mixing bits across end markets in a quarter where bit shipment declined and inventory built up. They explain that they proactively mix bits to generate better profitability and that they saw headwinds in the consumer market, so they shifted their focus to other parts of the client business.

The company saw good growth in enterprise SSD, which helped determine the mix of products. They also discussed inventory builds for the second half of the year and expect slight increases in NAND ASPs. The dis-synergies costs for the December quarter are expected to be steady until the separation. The fabs are running at full utilization and there are no underutilization costs for NAND.

During a question and answer session, Wissam Jabre asks about the company's CapEx (capital expenditures) plans for the fiscal year 2025. David Goeckeler responds by stating that for the current quarter, they expect CapEx to be in line with the previous quarter, around 2% of revenue. He also mentions that the company's focus is on profitability and they will continue to monitor customer orders closely to avoid overzealous orders that could lead to disappointment in the future.

The speaker, David Goeckeler, is discussing the changes in industry structure and how it has led to cost declines in their Flash and HDD business. He mentions that they have reset their manufacturing base and are seeing better margins as a result. He also talks about technology-driven cost improvements and their continued focus on driving down costs. He concludes by thanking everyone for their time and looking forward to further discussions throughout the quarter.

The speaker expresses satisfaction with the current state and direction of the business and looks forward to discussing it further in the upcoming quarter. The conference call is now concluded and the attendees are thanked for their time.

This summary was generated with AI and may contain some inaccuracies.